By MDC Legal
In a recent decision of the Federal Circuit Court an external accountant who advised a business on its employee arrangements was held liable under the accessorial provisions of the Fair Work Act. This decision is a red flag to external advisors who are closely involved with HR, payroll and employee entitlements of employer businesses.
A Japanese fast food chain run by Blue Impression Pty Ltd (Blue Impression) employed Mr Zheng, a Taiwanese national on a subclass 417 working holiday visa. His employment was casual and governed by the Fast Food Industry Award 2010 (the Award). In 2015, the Fair Work Ombudsman (FWO) commenced proceedings against Blue Impression alleging contraventions of the Fair Work Act (FW Act), regarding payment of Mr Zheng in breach of the Award.
The alleged 2015 contraventions included a failure to pay a range of entitlements being minimum hourly rate of the award; evening loading; weekend loading; public holiday penalty rates; and special clothing allowance. It was alleged Blue Impression also failed to provide rest and meal breaks.
Blue Impression made full admissions to the contraventions. Unfortunately, this was not the first time they’d been pursued by the FWO.
In 2014 the FWO had identified contraventions of the FW Act for breaches of the Award in relation to other employees. Blue Impression sought assistance from its accountant, Ezy Accounting (Ezy), in relation to the contraventions. Ezy acted as the middle man between employment lawyers and Blue Impressions.
The second time around, in 2015 Ezy came in the firing line when the FWO also initiated proceedings against them, alleging that Ezy was involved in and accessorily liable’ for several of Blue Impression’s contraventions of the FW Act.
Under the FW Act, anyone ‘involved in’ a contravention of the civil remedy provisions will be ‘taken to have contravened that provision’. To be liable under this provision, there must be a ‘practical connection’ between the person and the contravention. This requires the person to have been an ‘intentional participant’ and have knowledge of all the essential elements that would make up the contravention. Importantly, it is not necessary that they understood that those elements would amount to a contravention. That is, as an accessory, they do not need to ‘appreciate that the conduct involved is unlawful’. However, the key issue in the present case was that the knowledge required is actual knowledge. It cannot be constructive knowledge, except in the case of wilful blindness, or in other words, turning a blind eye.
Ezy argued that despite helping Blue Impression with the FWO audit in 2014, it was not their duty to ensure that Blue Impression implemented the required changes as ordered by the FWO to comply with the Award. Further, that they were merely doing ‘data entry’ into the MYOB software. They did concede that this required them to input the employee’s hourly wage, which was below minimum wage, but argued that it was not their responsibility to question the numbers. They also submitted that they were unaware of the wages that were being paid to the employee in question because it was one of the lower level data entry workers who dealt with the client’s work, not the director.
The FWO’s position was that Ezy had knowledge of the Award, as evidenced by their own submissions and their involvement in the 2014 audit, and that they knew that the Award applied to the workers employed by Blue Impression. They argued that Ezy’s director was trying to compartmentalise Ezy’s knowledge of the breaches to avoid accountability and further, that if actual knowledge could not be attributed through the knowledge of the Ezy employee, that Ezy’s director had been willfully blind and therefore Ezy was accessorily liable.
On the evidence, Judge O’Sullivan found that Ezy’s director knew that Blue Impression was underpaying its staff after the audit in 2014, and had conceded in cross-examination that, if they did not update the numbers in the MYOB software, those staff would continue to be underpaid. Further, the Judge found that Ezy’s director had attempted to avoid culpability by downplaying his involvement and attempted to reduce objective evidence that would show otherwise. The director had received a letter from the FWO during the 2014 audit which clearly outlined the provisions of the Award of which Blue Impression was in breach. Therefore, he knew to check the Award and that if the numbers in MYOB were not changed, the breach would continue. The Judge further found that even the simplest question to Blue Impression would have produced the information that would have alerted Ezy to the breaches. Upon all the findings, the Judge was satisfied that ‘Mr Lau (and as a result Ezy) was wilfully blind’ and it was ‘possible to infer actual knowledge on the part of Mr Lau [Ezy’s director] from a combination of suspicious circumstances and a failure to make inquiries’. Therefore Ezy was found to be involved in and accessorily liable for the contraventions.
This case may represent a trend of pursuing, and extending liability to, those accessorily involved in breaches, as might the case of Fair Work Ombudsman v NSH North Pty Ltd T/A New Shanghai Charlestown  FCA 1301 in which the restaurant HR manager was fined $21,760 after the Federal Court rejected her defence that she was just following her bosses orders.
FWO crackdown on small business?
This comes amid an apparent crackdown by the FWO, with actions in relation to wages, conditions and record keeping doubling in the 2016-17 period in comparison to the 2015-16 period.
It appears the Ombudsman and the courts are not going easy on small business. In a Federal Circuit Court case Lucev J commented that although the respondent was a small business there was ‘nothing in the size of the first respondent’s business which mitigates the failure to pay entitlements, keep or maintain records or produce records to the applicant in accordance with the provisions of the FW Act’. His Honour went on to say that the “Court should not be deterred from imposing the appropriate penalty only because the Respondents may have difficulties paying it.” The business was fined $361,200 for failure to ‘meet a broad range of minimum entitlements due to be paid to employees…; keep and maintain adequate or correct records and to issue payslips; and comply with a Notice to Produce’.
Hot Tip: If you are providing legal, HR, payroll or accounting advice to a client business on their employees’ entitlements, don’t get yourself into trouble by turning a blind eye to the client’s possible breaches of the FW Act or an applicable award. As a business, especially a small business, you must get award and NES minimum entitlements right or face hefty fines.
Read the full case: Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810
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