Directors often feel protected by the corporate veil, separating personal liability from the company’s liability. However, with increased enforcement actions and wage theft laws coming into place, directors are increasingly being held personally liable for more than just insolvent trading and breaching their duties as directors. The days of personal liability for underpayments being a mystical concept have passed - now it's a very real concern.
Under the Fair Work Act 2009 (Cth) (Act), directors can be held “accessorily liable” if they are involved in the contravention of the Act. This includes the underpayment of wages as well as failure to pay allowances, penalty rates, and other entitlements. To be considered liable, a director must have taken an active role in the breach, had knowledge of, or turned a blind eye to the contravention. This applies regardless of whether they knew the incident in question was a breach of the Act at all. To date, personal penalties have been relatively low, but the tide on this is changing. Wage thefts act already in effect, or on the horizon, are likely to keep directors up at night.
Victoria and Queensland have introduced state wage theft acts, imposing higher personal penalties against directors found guilty of underpayments. Under the Victorian Wage Theft Act penalties for such offences are severe, with directors facing a maximum penalty of 10 years imprisonment or a fine of $221,904. A current case in Victoria highlights the serious consequences that directors can face for non-compliance with these laws (read article on this case HERE). It is anticipated that the Albanese Federal Government will introduce a national wage theft act by the end of the year.
These developments underscore the importance for directors to proactively ensure workforce compliance and prevent underpayments in order to avoid potential legal repercussions. With the impending legislation, directors must be vigilant in their efforts to maintain fair and lawful workforce practices – both now and for future regulations. Failure to take such measures could result in serious consequences for both the company and the individual director.
Yellow Canary can help ensure that companies take a continuous approach to compliance through our Always On Compliance solution. Always On Compliance helps establish that a company and its directors undertook adequate due diligence with respect to paying employees their entitlements.
* Yellow Canary content on this website is intended solely for the purpose of offering commentary and general knowledge. The content is not intended to constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.
