Director Duties and Workplace Law: The need to stay informed

The recent decision handed down in Fair Work Ombudsman v Chatime Australia Pty Ltd (No 2) [2023] is a timely reminder that Directors must stay informed about employment laws, regulations and compliance. The Chatime Managing Director, although unaware that his company was breaching its Award obligations, was found to have a requisite level of knowledge to render him personally liable.‍

Background

‍In 2013, the Chief Financial Officer presented two payment models to the Managing Director and Co-Founder in the wake of being advised that the majority of their employees were covered by the Fast Food Industry Award (Award). Model A was compliant with the Award requirements but added over $850,000 to Chatime's payroll expenses. Conversely, Model B applied minimum wage rates and purported to pay trainees in cash, adding $250,000 to Chatime's payroll expenses. Chatime selected Model B which led to the underpayment of 150 workers to the value of over $160,000. A claim was brought against Chatime and the Managing Director for breach of section 45 of the Fair Work Act.

‍Judgment & Rationale

‍Presiding Judge Nicholas Manousaridis had to determine whether the Managing Director was a "person involved" in implementing the underpayment scheme pursuant to s550(2) of the Fair Work Act. It was accepted that the Managing Director had little recollection of the 2013 meeting, however; he did recall favouring Costing Model B over Model A. Judge Manousaridis indicated that it was "unnecessary" to prove that the Managing Director knew or believed that their conduct was unlawful.

The key question was if the Managing Director had sufficient information in the meeting to be deemed a "person involved." In the meeting, the CFO did not specifically mention that Model B paid employees less than the lawful requirements or indicate that there was a "right way" to proceed. Nonetheless, the Managing Director ultimately deciding to proceed with Model B "implies that he acquired sufficient knowledge of the contents each of Costing Model A and Costing Model B to enable him to understand the differences between the costing models, assess their relative merits, and ultimately decide, or join in the decision, that Chatime proceed with Costing Model B." Specifically, the Managing Director knew that he had opted against the option which paid 'casual rate' and 'weekend penalty rates' which were requirements under the Award. Judge Manousaridis determined that the Managing Director had sufficient knowledge that Chatime was breaching its Award obligations. The matter has been listed for penalty adjudication on 31 August 2023.

‍Implications & Takeaways

‍Implications for Employers:

• This case indicates that a lack-of, or surface-level understanding of Award obligations is not enough to preclude Directors from liability for underpayments.
• Employers, Directors and Officers (including HR Managers) need to be aware of the organisation's obligations under workplace laws and conduct audits to ensure ongoing compliance. A 'set and forget' approach is not enough.
• Employers should be proactive in ensuring compliance. The longer an issue remains unresolved the greater the potential cost to the business. Ignorance of workplace laws is not a defence to prosecution.

If you require assistance in relation to any of the information provided above, Pragma's Employment lawyers can provide advice to you and your business to minimise your future risk. We can conduct audits to ensure compliance and peace of mind for business owners. Contact us today at hello@pragma.law or you can call us on (08) 6188 3340.