Making sense of the compensation remedy in cases of accessorial liability under the Fair Work Act.

• Jurisdiction: Australia
• Author: Anderson, Helen
• Date: 01 August 2012

[The Fair Work Act 2009 (Cth) substantially reorganised and altered the law relating to civil penalty provisions as it existed in the Workplace Relations Act 1996 (Cth). However, there is uncertainty as to the availability of the compensation remedy against persons involved as accessories in a civil remedy breach by a corporate employer. Clarification of the availability of this remedy is important for employees seeking recovery of unpaid wages, reducing reliance on the taxpayer-funded safety net scheme. It should also act as an effective deterrent against directors 'phoenixing' companies deliberately to escape payment of accrued entitlements. Existing penalties, even if paid to the employees, are generally smaller than the amount of unpaid entitlements and therefore less effective either as deterrents or as compensation.]

CONTENTS I Introduction II Justifications for an Award of Compensation III The Development of Remedy Provisions under Federal Labour Legislation IV Specific Actions under the Workplace Relations Act A Breaches of Awards and Agreements B Unlawful Termination C Freedom of Association V Compensation and Accessorial Liability under the Fair Work Act VI Commentary VII Conclusion I INTRODUCTION

This article seeks to make sense of the rights of applicants to seek compensation from corporate employers (1) and other parties, usually company directors, named in actions for breaches of the Fair Work Act 2009 (Cth) ('FW Act'). The FW Act provides that courts with jurisdiction have the power to 'make any order the court considers appropriate' in relation to the breach of a civil remedy provision under the Act, (2) including orders 'awarding compensation for loss that a person has suffered' because of that breach. (3) We argue that where there is a sufficient degree of involvement, directors can be considered accessories to their company's breach of the Act and ought therefore to be liable to pay compensation to the company's employees.

Given that many contraventions of working conditions are breaches of civil remedy provisions, including breaches of awards, enterprise agreements and a national minimum wage order, the FW Act provisions significantly broaden the availability of compensation when compared to previous federal labour legislation. For example, the legislation that the FW Act replaced, the Workplace Relations Act 1996 (Cth) ('WR Act'), contained no provision that allowed recovery of damages or compensation for breach of an award or collective enterprise agreement, although in practice it was possible to seek recovery of wage underpayments. While the WR Act did allow for compensation to be sought in relation to other types of contravention, such as breaches of provisions protecting freedom of association and prohibiting unlawful termination, these remedy provisions were scattered throughout the legislation in an ad hoc manner. The FW Act has maintained the availability of compensation as a remedy in relation to these breaches, and extended it to a range of other contraventions where loss has been suffered as a result of the breach in question. This extension is the basis of our argument that directors, as accessories, are now within the reach of a compensation order.

The FW Act provides that the parties against whom compensation may be sought include, in the case of corporate employers, the employer company's directors or officers where they are found to be 'a person who is involved' in civil remedy breaches of the Act by the company, (4) as well as others who may be required by particular provisions to remedy the breach. The right to pursue a party other than the employer company under this provision for accessorial liability is particularly important in the insolvency context because proceedings against a company in liquidation are stayed, (5) and in the absence of another party to sue, no penalty or remedy will be forthcoming. However, liability is not based solely on the fact of being a director. Rather, it is the person's degree of involvement in the company's own breach that invokes accessory liability. (6) This reflects the origins of accessory liability in the criminal law.

The liability of parties other than corporate employers as accessories to breaches of federal labour legislation has been a particularly live issue in recent years. This is largely due to the fact that since 2006, the federal agency responsible for enforcement of federal labour relations legislation--now called the Fair Work Ombudsman ('FWO')--has been highly active and highly successful in bringing legal proceedings against employers, both corporate and otherwise, who have breached the law. (7) In particular, the FWO has not been afraid to seek penalties against directors of corporate employers to actions for breach of the WR Act, particularly in cases involving insolvent corporate employers. (8)

However, the FWO considers that it is not open to it to apply for compensation orders against parties other than the corporate employer itself. In relation to breaches of the WR Act, as amended by the 2006 Work Choices legislation ('Work Choices'), (9) compensation orders were not sought, or when sought, were not awarded against persons other than the corporate employer on the basis that the WR Act did not allow for it. (10) As the discussion below will show, this interpretation is debatable, but regardless of whether or not it was correct, it is our contention that under the FW Act, any obstacle to a compensation order under the WR Act has been removed. As a result, compensation may be sought against persons involved as accessories in any contravention of civil remedy provisions. Yet to date, such applications have been rare, and in the FWO's case the reasons for this are largely founded on a statement in the Explanatory Memorandum ('EM') to the Fair Work Bill 2008 (Cth) denying the existence of the compensation remedy against parties other than the employer. (11) However, the EM statement is contradicted by the express and unambiguous terms of the FW Act itself. In addition, the Full Court of the Federal Court has recently confirmed, in a different context, that the conferral of powers on a court to make orders for compensation should be read widely. (12)

Recognition of the FW Act's expanded range of orders is important for three reasons. First, it should allow for recovery of compensation for breach of a variety of employee entitlements from directors of insolvent companies, relieving pressure on the taxpayer-funded General Employee Entitlements and Redundancy Scheme ('GEERS'). Second, more applications to seek compensation in this context may have the secondary effect of discouraging the 'phoenixing' of companies to avoid liability for breaches of workplace laws. The federal government has stepped up its campaign against phoenix activity with a major report in 2009 (13) and new legislation proposed for 2012, (14) which claims to 'stop directors from exploiting the limited liability protections in the corporations law'. (15) Third, confirming the availability of the compensation remedy against directors as soon as possible is vital given the extent of litigation in this area. (16)

This article will therefore explore the availability of compensation in relation to breaches of awards and agreements, freedom of association and unlawful termination under the FW Act with particular regard to the liability of persons involved in contraventions of the Act in circumstances where a corporate employer is insolvent. These types of contravention have been chosen as they show contrasting means by which compensation may be sought, and because there have been recent decisions dealing with such claims.

Part II sets the scene by considering why compensation may be a legitimate remedy to seek from directors in circumstances where corporate employers have contravened the employment rights and entitlements of their workers. Part III charts some of the developments in the remedies provisions over the past two decades and explains the legislative framework, as a mechanism to understand present entitlements to seek compensation under the FW Act. The right to seek a penalty, and to apply for that penalty to be paid to the employee or their representative--arguably a de facto form of

compensation--will also be noted. Part IV examines the three types of action noted above. Part V aims to make sense of the compensation remedy provisions of the FW Act. Part VI comments on the earlier discussion, and argues for recognition of the availability of the compensation remedy under the FW Act. Part VII concludes the discussion.

II JUSTIFICATIONS FOR AN AWARD OF COMPENSATION

Criminal and civil remedies, including the modern hybrid, the civil penalty, generally serve the twin objectives of deterrence and compensation. However, these objectives are not mutually exclusive. Penalties imposed by courts to deter criminal or civil penalty breaches of the law may in some circumstances be payable to the victim of the breach. More commonly, an award of restitution, damages or compensation acts both as a remedy for the loss caused by the particular behaviour, as well as specific and general deterrence of that kind of behaviour in the future.

In the tort context, damages awards are readily acknowledged for their deterrence benefits. (17) In the labour law context, where penalties are specified under applicable legislation, there is a tendency to separate the functions of deterrence and compensation. The court may impose on the employer a fine payable to the Commonwealth to achieve the former, (18) and make an award, for example, of unpaid wages, payable to the employee to achieve the latter. This works effectively where the employer company is solvent and where both types of award may be made. However, where the company goes into liquidation, the employee becomes a creditor of the company and may not recover what the court has ordered. Even if the court...