Traditionally, a tenet of operating a corporate entity is the limited liability bubble protecting directors from personal liability arising from third party claims. To preface, corporations are separate legal entities that attracts limited liability by way of a ‘shield’ which protects the directors from company actions and debt.

Both the Courts and legislative instruments, primarily the Corporations Act 2001 (Cth) have developed principles and provisions bolstering the ‘Corporate Veil’. However, there are limited circumstances where the Courts will hold directors and owners responsible for third party claims, specifically in the employment space.

Notoriously, section 550 of the Fair Work Act 2009 (Cth) (Act) imposes liability on a person involved in a contravention of a civil liability provision contained in the Act.

The Act imposes “accessorial liability” on directors and/or upper management where they are “involved” in the contravention of the Act. The Act considers that “involved” persons are taken to have engaged in the contravention of the provision themselves, regardless of whether they had “actual” knowledge or “ought to have known” that their conduct contravened a term of the Act.

Section 550 of the Act effectively pierces the corporate veil by making directors personally liable for contraventions including (but not limited to):

  1. breaching the National Employment Standards;
  2. contravening a Modern Award or Enterprise Agreement;
  3. contravening a workplace determination and/or order;
  4. engaging in coercion and/or undue influence;
  5. pre-employment misrepresentations;
  6. unlawful deductions to wages;
  7. sham contracting arrangements; and
  8. underpayment of wages.

In addition to directors being personally liable for contraventions of the above civil provisions, steep penalties in the amount of up to $51,400 may apply to each individual director and up to $257,000 to the employer company.

In the landmark decision Fair Work Ombudsman v Step Ahead Services Pty Ltd [2016] FCCA 1482, Judge Jarrett determined that the Respondent Company and their director, Mr Owen Jennings, demonstrated “calculated and deliberate conduct” which amounted to a “blatant disregard for Australia’s workplace laws and the rights of employees”.

On the basis that Mr Jennings was the “controlling mind” of Step Ahead Pty Ltd and was well aware of the requirements in the applicable Modern Award, the company and Mr Jennings were jointly required to pay the underpaid $22,889.72 owed to the employees.

In addition, Judge Jarrett ordered a record penalty in the amount of $51,400 to be paid by Mr Jennings personally, and $257,000 on the company for contravening the Act for the purposes of specific deterrence. This decision highlights the increasing willingness of the Courts to pierce the corporate veil and make directors accountable for breaches of the Act and ancillary industrial instruments.

With sweeping changes to Modern Awards, employers should pro-actively update their employment contracts and undertake regular pay reviews to ensure compliance with the Act and relevant industrial instruments to avoid the imputation of liability by piercing the corporate veil.

Contact the Workplace Law Team at Chamberlains Law Firm for a workplace health check today.