Director Held Responsible for Underpayment of Employee

The Federal Circuit Court has recently found a sole director responsible for the underpayment of a long-term employee in Scotto v Scala Bros Pty Ltd & Anor [2014] FCCA 2374.

The employee worked for the delicatessen/ café for nearly 30 years and his claims included the failure of the employer to pay the minimum wage, allowances and overtime; failure to provide payslips and failure to make superannuation contributions throughout this time period.

The employee also alleged that his former employer did not pay out his accrued entitlements when his employment ended in 2010. The total amount claimed was just over $1.5 million plus civil penalties for non-compliance with the legal requirements. The case was brought against both Scala Bros as the employer and against the sole director personally in her capacity as director and manager of the business.

Wading through a messy tangle of facts and complicated family issues, Judge Cameron accepted the validity of a number of the claims although noted that some of the older claims could no longer be pursued because of limitation periods and that other claims were not substantiated on the evidence. The employee’s version of some events was not accepted but a relatively significant number of claims were upheld. Judge Cameron went on to accept that the current sole director knowingly breached the federal legislation after she took over the running of the business from her father in 2009. A ruling on compensation, costs and penalties will follow at a later date.

The case is interesting for a number of reasons. The claims made by the employee span four different periods of industrial law over the past 30 years. While a number of these claims (particularly the older ones) were not upheld, a significant number of the other claims were accepted with at least one dating back to 2004. The other interesting aspect is the finding that the director is personally responsible, using a concept called accessorial liability, for the contraventions from the time she was involved in the direct day to day running of the business.

Lesson for Employers

Employees are entitled to a number of minimum entitlements under federal and/or state legislation. It is important that you conduct regular audits to ensure that all employees are receiving the correct entitlements. For example the minimum wage is reviewed annually and payroll records should be reviewed and updated where required at this time. Importantly, if family members are also employees, their employee entitlements must be treated in the same way as those of other employees.

Some entitlements can be complex and at times confusing. If in doubt, we recommend seeking professional advice on the particular situation because each situation depends on its details (eg role or position, applicable Award and/or legislation, age of the employee and so forth).

Importantly the responsibilities of a business towards its employees may extend to its directors. This extension of liability depends on the facts and the specific involvement and knowledge of each particular director. Directors should consider turning their mind to employee entitlements and check that systems are in place within the business to monitor compliance with workplace obligations.

Sarah Waterhouse – Solicitor – BlandsLaw

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