One of the purposes of someone forming a company is to enable an enterprise to trade to the extent of the resources of the company. The intention of this structure is to allow people to start an enterprise — be innovative — and if it doesn’t work, to be able to move onto their next venture. It has been proven time and again the world-over to encourage innovation and new enterprises.
Yet, sometimes the temptation is very strong for courts to want to pierce this ‘corporate veil’ in pursuit of debts, and look to directors of companies personally for the recovery of money.
Further, state governments (thirsty for revenue), have over the years amended workers compensation and payroll tax legislation in many states so that directors can be held liable for the payment of unpaid payroll tax and even workers compensation premiums. Fortunately, state workcover authorities have been generally relatively slow to pursue directors where companies have (often through no fault of their own) got into difficulty and been unable to pay their premiums.
In the last 12 months, the corporate veil has been shredded by the Fair Work Ombudsman (FWO) in pursuit of unpaid entitlements, as it has sought to have penalties imposed upon directors. Supposedly this is to deter profligate directors from being reckless in non-compliance (awards and National Employment Standards). Recently, the Fair Work Commission has gone a step further and bypassed the company, seeking payment of outstanding wages from a director — personally.
This undermines 200 years of company law.
Currently, the Fair Work Act allows employees, the inspector or unions to pursue directors and even management employees for fines under the Civil Remedy Provisions. These fines can be as much as $10,800 for an individual (they are $54,000 for the company) and can be ordered to be paid to the employees themselves or even the union.
In an even more extraordinary move the FWO has declared unashamedly that it is now in pursuit of management staff and, in particular, HR Managers. So it is now common place for directors and HR Managers within businesses to be named as respondents in prosecutions by the FWO or in claims by employees for alleged breaches of the award. This is starting to result in direct penalties being imposed against such individuals.
This can place HR Managers in a fraught position.
All of this highlights the importance of thoroughly understanding the implications of the award on your business — even when you are paying well above award wages. As an example, recently a HR Manager was found liable personally to be penalised where the company only short paid an employee 2 days remuneration. Other areas where HR Managers and employers can be held liable include where workers are improperly classified contractors.
All this would be less of a problem if the entitlements of employees pursuant to awards were clear and easily understood by HR practitioners. However, even determining which award applies can be hugely challenging and the line between employee and contractor is vague.
The company structure was designed to encourage entrepreneurship and economic growth, but unfortunately it is being attacked systematically by very complex legislation which discourages people from ” having a go” and starting a business for fear they may be held personally liable.
Even more troubling, it places HR managers – themselves employees – acting bona fides in the interest of their employers at risk of personal liability.
If you are in such a role:
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it is certainly worth ensuring that your employer has adequate employment practises insurance to cover you when carrying out your duties, including for a fine arising from a civil prosecution; and
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consider when it may be necessary to get a second opinion on the legal advice your company is receiving – if you believe it to be ‘adventurous’ advice.
The Hunger Games have arrived in the workplace.
This article was first published on LinkedIn as a blog. You can read the original here.
