Director penalty noitces – changes delayed

We have an update to our previous reports that the government is looking to extend the current Director Penalty Notice regime from unpaid PAYG to include unpaid superannuation.

Yesterday, directors were given a temporary reprieve from the potential of personal liability to meet employees’ superannuation obligations but it is only temporary.

Bill Shorten the assistant treasurer said the measure would be re-introduced in early 2012 following more consultation with stakeholders.

So, for the time being, it remains that Director Penalty Notices relate only to unpaid PAYG – but change is likely in 2012.

Sham contracting findings released

The Fair Work Ombudsman  has released the findings of our audit into sham contracting in the cleaning services, hair and beauty and call centre industries.

Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting relationship, thereby avoiding obligatory rates of pay and other entitlements. This gives the employer an unfair competitive advantage.

The operational intervention began in April in response to intelligence from various sources and concerns raised by key stakeholders, including employee and employer groups and members of parliament.

The report states that a number of trading enterprises engaged contractors who should more properly have been classified as employees.

While Fair Work inspectors found that most of these arrangements were not deliberate, they did identify a number of employers whom they believe knowingly or recklessly misrepresented the employment relationship to their workers as one of independent contracting.

Legal action is being considered in some instances.

The Fair Work Ombudsman found misclassification of employees in each of the three industries that were investigated, but does not believe the problem is confined to these industries alone. 

Misclassification can lead to a contravention of the National Employment Standards (NES), minimum wage orders and terms of a Modern Award or Enterprise Agreement.

It can also result in contraventions of employer obligations to provide employee records and pay slips and may expose employers to back-payment of outstanding entitlements.

The report calls for employers to exercise a greater degree of care over their contracted labour arrangements.

A number of employers had received advice from accountants on how to structure their operations. It appeared the legality or appropriateness of the arrangements under relevant workplace laws was often not considered.


In a recent decision by the Federal Magistrates Court, a Human Resources Manager of a company was ordered to pay a penalty for being knowingly involved in breaches of workplace laws by his employer.

In the case of Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors a company was found to have breached various sections of the then Workplace Relations Act 1996 (repealed and eventually replaced by the Fair Work Act 2009).  The breaches included setting up sham arrangements and not paying statutory entitlements to employees.

The court proceedings named the sole director of the company as a defendant along with the Human Resources Manager who was not a director of the company.

The HR Manager submitted to the Court that he:“had merely been following the instructions of [the director] and had not had any input into the decisions which gave rise to the contraventions.”  He submitted that his position as the human resources manager was “a mere title” and that he had no authority beyond what was approved by the director

.”However, in considering all the facts, the Court held that the HR Manager had knowledge of the essential facts of the breaches by the company and was knowingly concerned in and participated in the breaches.”

In the second judgment, the Court noted that the events:

“had a chilling effect on his career in human resources and that he has seen a significant decline in his income which would tend to increase the impact on him of any financial penalties imposed in these proceedings.…..The total penalty is $3,750.  I am satisfied that these are just and appropriate amounts as aggregate figures.”

This decision by the Court is a reminder that Managers not just Directors of companies should ensure that the work they undertake complies with the relevant legislative requirements and they do not merely “follow instructions from the Company Directors”.