Australia: Fair Work Ombudsman sets sights on third party business advisors involved in client breaches

What you need to know

• For the first time, the Fair Work Ombudsman has successfully prosecuted an accounting firm for its role in a client's breach of the Fair Work Act 2009.
• The decision handed down on 28 April demonstrates that any actual or constructive knowledge of a client's contravention of the Fair Work Act may, regardless of instructions received from that client, render the advisor a knowing participant in the breach (depending on the circumstances).
• Those in business advisory positions such as accountants, HR advisors and payroll providers must consider whether the work they do could facilitate a breach of the Fair Work Act, and if in doubt, seek advice.

Blue Impression Pty Ltd (Blue Impression) operates a Japanese fast food outlet Hanaichi in Melbourne. Last year, Blue Impression was taken to court by the Fair Work Ombudsman for underpaying two Taiwanese workers nearly $10,000.

The workers were allegedly paid flat rates as low as $16.50 an hour, which is below the minimum hourly rate and not enough to cover public holiday penalty rates and the weekend, night and casual loadings they were entitled to under the Fast Food Industry Award 2010.

Ezy Accounting 123 Pty Ltd (Ezy) was the accountancy firm that provided bookkeeping and data entry services to Blue Impression and was run by a certified practising accountant, Mr Lau, and his wife.

The Fair Work Ombudsman commenced legal action against Blue Impression, one of its managers and Ezy in the Federal Circuit Court. Blue Impression and the manager admitted the contraventions of the Fair Work Act 2009 (Cth) (Fair Work Act). The Court needed only to consider the allegations that Ezy was involved in Blue Impression's contraventions because they processed wage payments for the two workers, knowing the rates they were being paid were well below the employees' minimum entitlements.

The Court delivered its decision on 28 April 2017.¹The proceedings mark the first time the Fair Work Ombudsman has prosecuted an accounting firm for breaches by a client's business, relying on section 550 of the Fair Work Act.

Section 550

Section 550 of the Fair Work Act provides that a person who is 'involved in' an employer's contravention of the Act can also be held responsible and face significant financial penalties.

A person is 'involved in' a contravention if the person has aided, abetted, counselled or procured the contravention, induced the contravention, been knowingly concerned in the contravention or conspired with others to effect the contravention.

As we have reported before, the Fair Work Ombudsman has demonstrated a willingness to look closely at third parties involved in contraventions of the law, such as franchisors and labour hire providers. Individuals such as directors, senior managers and HR personnel are also being closely scrutinised to determine if they should be held personally liable for contraventions of the Fair Work Act, such as underpayment of wages.

The findings against Ezy

Ezy denied liability for its client's contraventions. In doing so, Ezy claimed:

• it was merely a service provider whose service was lawful and proper
• it had no knowledge of the specific employees' duties, what award applied to them or whether they worked hours subject to penalty rates
• it was not responsible for ensuring compliance with the award and it did not have knowledge of any breaches occurring
• it had no authority to determine the amounts paid, only to process those payments in accordance with Blue Impression's instructions
• it did not have any legal, human resources or industrial relations expertise and was not retained to advise Blue Impression as to its obligations.

The bookkeeper specifically in charge of Blue Impression said her role was limited to "data entry" and she "did not think twice" about the hourly rates provided by the fast-food outlet, saying "it was not my business to know whether or not the rates complied with any award. That was a matter for the employer."²

Despite Ezy's evidence, the Court held that Ezy's sole director, Mr Lau, had the requisite knowledge to make Ezy liable for the Fair Work Act contraventions.

A crucial factor in the decision was the fact that, in 2014, in the course of a separate Fair Work Ombudsman audit, Ezy was put on notice of underpayments to Blue Impression staff and given information of rates and the award that applied. At that time, Ezy assisted Blue Impression to calculate and process the back pay to the employees based on the correct rates of pay. However, knowing the rates in its payroll system were incorrect, Ezy did not alter the rates in its system to the correct rates but continued to administer the payroll system with the incorrect rates.

Judge O'Sullivan confirmed that Ezy was accessorily liable for the underpayments by the restaurant, stating that "I am satisfied the evidence demonstrates [Ezy] (through Mr Lau) deliberately shut its eyes to what was going in a manner that amounted to connivance in the contraventions by [Blue Impression]."³

A penalty hearing is to follow, where penalties are likely to be imposed on all contravening parties including Ezy.

Key takeaways

Third party business advisors such as accountants, HR consultants and payroll providers should take heed of this decision and carefully consider whether their own work might facilitate a breach of the Fair Work Act.

If you are in this position and are uncertain about the operation of an award or other industrial instrument applicable to your client or its workers, legal advice should be sought. By obtaining advice about your client's obligations, you will be better placed to ensure they are meeting those obligations and as a result, reduce the risk of a breach for which you could be held liable as an accessory in any Fair Work Ombudsman prosecution.

Footnotes

¹ Fair Work Ombudsman v Blue Impression Pty Ltd & Ors [2017] FCCA 810.
² At [47].
³ At [102].

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories