Australia- More Than A Handbag: When Being An Accessory Has Serious Consequences.

19 August, 2015

 

When can individuals be penalised for a breach of the Fair Work Act?

 

WHAT YOU NEED TO KNOW

 

• Recent decisions indicate a potential trend in adverse action proceedings against employers where the applicant also joins individuals such as a manager or a HR representative as a respondent to the claim.
• Section 550 of the Fair Work Act 2009 imposes liability on a person who is "involved" in a contravention of a civil remedy provision.
• An "involved" individual can still be liable even if he or she does not specifically appreciate that the conduct is unlawful.
• An individual who is named as a respondent to such a proceeding is also personally exposed to orders imposing a penalty and the payment of compensation.

 

WHAT YOU NEED TO DO

 

• Ensure that employees with personnel management responsibilities are aware that they may be personally joined to claims for breaches of the Act and may be found personally liable.
• Where a proposed course of conduct may potentially breach the FW Act, take advice before proceeding. A manager who condones such conduct may be personally liable as an accessory.
• Consider the scope of coverage under your corporate insurance policies. Will managers (as opposed to directors) be covered for breaches of the adverse action provisions of the FW Act?
• If a claim is made against both an employer and individuals such as managers, consider what arrangements should be made for joint representation, or whether the individuals should have separate legal representation. 

 

Personal liability of individuals for breaches of the Fair Work Act

 

Recent decisions indicate a potential trend in joining individuals such as managers and HR representatives as respondents to claims of adverse action against an employer. In two Federal Circuit Court decisions this year, the court imposed penalties on HR managers for their involvement in contraventions of civil penalty provisions of the FW Act.

Section 340 of the Act limits the circumstances in which adverse action is taken against an employee to action taken by "an employer". However, section 550 of the Act imposes liability on a person who is "involved" in a contravention of a civil remedy provision. A person is involved if the person:

 

a)  has aided, abetted, counselled or procured the contravention; or

b)  has induced the contravention, whether by threats, promises or otherwise; or

c)  hasbeeninanyway,byactoromission,directly or indirectly, knowingly concerned in or party to the contravention; or

d)  has conspired with others to effect the contravention.

 

The objective of accessorial liability provisions is to hold employees liable to the extent that they are involved in conduct which is unlawful. Authorities1 have established that to be held personally liable under section 550, the individual employee must:

 

• intentionally participate in, or assent to, the contravention;
• have knowledge of the essential facts constituting the contravention; and
• be linked in purpose with the perpetrators.

 

An "involved" individual can still be liable even if he or she does not specifically appreciate that the conduct is unlawful.

Section 550 of the Act has most commonly been used to join an individual who is the sole director of a company where the individual is the only person through whom the company acts. Applying the provision to join managers of larger businesses is a concerning development for employers and managers.

 

The maximum penalty for an individual for breach of the general protections provisions is currently $10,800. An individual found to have contravened the Act is also exposed to an order for compensation for the loss that the claimant has suffered because of the contravention.

 

Director of the FWBII v Baulderstone Pty Ltd & Ors [2014] FCCA 721

 

In this case, the Director of the Fair Work Building Industry Inspectorate claimed that the employer and three of its employees (employee respondents) contravened the Act when they required an employee to resign from a salaried safety officer role and to agree to be engaged as a construction worker under the company's enterprise agreement.

The Director submitted that by forcing the employee to sign the relevant documents the employer and the employee respondents had taken adverse action against the employee because he was not a member of the CFMEU and had undertaken industrial activity by resigning his membership of the CFMEU.

 

The three employee respondents joined to the claim were the Human Resources Manager, the Employee Relations Manager and the Project Manager.

 

Decision on liability

 

The Court found that the employer was not able to rebut the assertion that the reasons for the decision to change the employee's status included that the employee was no longer a member of the union. Accordingly, the Court found the employer had taken unlawful adverse action against the employee.

 

Regarding liability of the employee respondents, Judge Manousaridis considered that the Director needed to prove, on the balance of probabilities, that each of the employee respondents knew that a substantial and operative factor in the reasons for the employer taking the adverse action against the employee was the proscribed reason, namely the complaints received from the union that the employee had resigned from the CFMEU.

The Court held that the Human Resources Manager and the Employee Relations Manager were involved in the contravention in breach of the Act because they:

 

• effected the adverse action by requiring the employee to sign the relevant documents; and
• had knowledge of the proscribed purpose, being the complaint by the union regarding the employee's membership.

 

The Court did not find the Project Manager liable as it was not shown that he knew the action was taken because of the complaint by the union.

Relevant to the Judge's decision on liability of the employee respondents were findings that their evidence was inconsistent with file notes of discussions and with each other's evidence. The failure to call the ultimate decision-maker made it difficult for the respondents to rebut the reverse onus of proof.

 

Decision on penalty

 

In the decision on penalty2, the Court noted that the HR managers were senior managers and by virtue of their role, were expected to know of the employer's obligations under the Act. Whilst they acted under the direction of a senior manager, the Court considered that the penalty should incorporate an element of general deterrence to deter persons in subordinate positions from complying with directions from superiors to engage in conduct that may involve contraventions of the Act. The Court ordered each of the HR and ER Managers responsible for carrying out the decision to pay a penalty of $3,500 each.

 

Maslen v Core Drilling Services Pty Ltd [2013] FCCA 460

 

In another decision of the Federal Circuit Court this year, the Court imposed a penalty3 on an OHS Manager for her involvement in the employer's unlawful deductions from an employee's wages. 

The employee was employed in a fly in/fly out position at a remote mine site. His employment was terminated at the end of the probationary period due to unsatisfactory performance. The employee claimed that the termination was due to exercising his workplace rights in relation to complaints and to him making enquiries about pay and leave. He joined the OHS Manager to the claim under section 550 of the FW Act.

 

Whilst the employee failed in his claim of unlawful adverse action, he succeeded in a related claim that unlawful deductions had been made from his wages in relation to the cost of his uniform and the cost of a flight.

 

The Court found that the OHS Manager was a senior managerial employee who authorised both the deductions and their subsequent reimbursement. In this regard she was directly knowingly concerned in the contravention. For her involvement in the breach of the Act, the Court ordered the manager to pay a penalty of $990.

 

Issues to consider

 

It remains to be seen whether cases such as Baulderstone and Maslen are relatively isolated examples or are indicative of a broader development in employee claims.

 

If such claims become more prevalent, employers will need to consider how best to protect individuals such as HR and other managers from personal liability as an accessory.

 

Joint or separate representation

 

An issue to consider if confronted with such a claim is whether the employer and any individuals should be jointly represented. If so, the employer will need to make suitable arrangements for joint representation.

 

Separate legal representation is not a decision to be taken lightly. It will add complexity and cost to defending a claim. A key consideration is whether there is any conflict between the employer's position and that of the individual. Conflict of interest needs to be continually monitored during the course of the proceedings in case something changes which makes joint representation problematic or no longer possible.

 

In Baulderstone, the Judge identified the risk that subordinate employees put themselves in by disagreeing with a superior or refusing to carry out instructions. His Honour noted, however, that the employee respondents did not lead any evidence about these matters and that may have been because the employees were not advised that those matters would be relevant to assessment of penalty. The respondents in Baulderstone all had the same legal representation.

 

Indemnities

 

Managers commonly find themselves in the position of advising and implementing decisions concerning an employer's obligations under the Act. If persons in such roles become at increased risk of being subject to accessorial claims, employers may need to consider indemnifying employees in high risk roles from personal liability in relation to FW Act claims.

 

Insurance

 

Before offering an indemnity to an employee, employers should review the scope of coverage under their corporate insurance policies. Will managers (as opposed to directors and officers) be covered under the policies for breaches of the adverse action provisions of the FW Act?

 

Personal liability of union officials

 

It may be cold comfort, but personal liability for breaches of the FW Act is not limited to accessorial involvement by managers. In particular, union officials can be held liable for breach of the general protections provisions if they take unlawful adverse action against a person whether that is on account of their own conduct or as an accessory under section 550.

 

Recently, in the case of Fair Work Ombudsman v Maritime Union of Australia (No 2) [2015] FCA 814 the Assistant Secretary of the WA Branch of the MUA was penalised for distributing posters naming and shaming five employees who had resigned from the union and declined to participate in a strike organised by the union. The Fair Work Ombudsman successfully claimed that the conduct prejudiced the relevant employees in their employment because the posters made each feel the emotional distress of marginalisation in the workplace.

 

The Court ordered the Assistant Secretary to pay a penalty of $15,000 in relation to the five contraventions of the Act. 

 

MAKING THE CASE: Insights from Geoff Giudice

 

Where proceedings are initiated against individuals under the accessorial liability provisions in relation to adverse action some tricky evidentiary issues can arise. It must be shown that the accessory was united in purpose with the respondent. Once the adverse action is proven, the onus is on the employer (or other respondent) to persuade the court that it was not motivated by one of the proscribed reasons. In relation to the accessorial claim, however, there is no reverse onus.

In Baulderstone, the Judge found that the employer had failed to show it was not motivated by a proscribed reason (that the employee was no longer a union member) when it required the employee to change roles. In relation to the accessorial claim, the onus was on the Director to show that the alleged accessories, not being decision makers, knew the motive of the decision-maker. It can be difficult to ascertain what was in a decision-maker's mind, which is the reason for the reverse onus of proof. It might be even more difficult to show that another person knew what was in the decision-maker's mind and/or shared the same motivation.

It is likely that the operation of these provisions will receive more attention in the higher courts before long. 

 

 

For further information, please contact:

 

Vince Rogers, Partner, Ashurst

vince.rogers@ashurst.com