• Courts Impose Harsh Penalties Against Companies and Director Found to Have Taken Adverse Action and Underpaid Foreign Workers
  • May 31, 2016 | Author: Adam Salter
  • Law Firm: Jones Day - Sydney, New South Wales Office
  • Factual Background. In Fair Work Ombudsman v Konsulteq Pty Ltd & Ors [2015] FCCA 182, the first and second respondents, Konsulteq Pty Ltd ("Konsulteq") and Konsulteq Upskilling and Training Services Pty Ltd ("KUTS"), were in the business of providing IT services and training. Ms V and Ms L, both Indian nationals, entered into agreements with the respondents on the understanding they would receive training and perform paid work. In the end, Ms V was not paid at all, and Ms L was significantly underpaid for work she performed. When Ms L sought payment of the unpaid wages, her employment was terminated, and Mr Gaur, director and shareholder of both companies, informed her that KUTS was unable to pay the outstanding wages due to financial hardship.

    Court's Finding. Judge Riethmuller of the Federal Circuit Court held that the respondents had contravened various provisions of the FWA. Further, the third respondent (Mr Gaur) was responsible for the day-to-day management and control of the companies and on this basis was also held liable for the contraventions. In relation to the work performed by Ms V, the court found Konsulteq had, among other things, misrepresented to Ms V that she was engaged pursuant to a contract for services and failed to pay for work performed as an employee. In relation to the work performed by Ms L, KUTS was found to have failed to pay Ms L minimum hourly rates of pay and engaged in adverse action for dismissing Ms L after she exercised a workplace right (by seeking payment of outstanding wages).

    In determining the appropriate penalties, Judge Riethmuller concluded that the impugned conduct was deliberate, as notwithstanding the fact that Mr Gaur had mischaracterized Ms V and Ms L as independent contractors, the respondents were on notice as to the obligations they owed under the FWA. Supporting evidence included the fact that: (i) Mr Gaur had tried to de-register the companies (regarded as an attempt to avoid corrective action), (ii) Konsulteq had previously been the subject of a Fair Work Ombudsmen audit and (iii) the signed document provided to Ms L demonstrated an intention to engage her as an employee. Finally, the court stressed that small businesses cannot use cash flow issues as an excuse for failing to pay employees (otherwise employers could use wages to finance unprofitable or nascent businesses).

    Court's Orders. The court ordered that the first and second respondents pay compensation to Ms V and Ms L for the unpaid wages. They were also ordered to pay penalties to the Commonwealth totalling $40,000 as against Konsulteq and $120,000 as against KUTS. Further, as he was found to have used the companies to shield his own conduct, Mr Gaur was ordered to pay a penalty of $35,000. The court said there was a need to deter parties who seek to use the corporate veil to evade responsibility for workplace obligations where they are in fact the "operating mind" of the company in breach (at [30]).

    Lessons for Employers. This decision is a cautionary tale for employers that may find themselves the subject of harsh penalty orders for failing to provide minimum protections under the FWA. It makes clear that substantial penalties will be imposed against employers who take adverse action, especially where the employees in question are foreign nationals with a limited understanding of their employment entitlements. Finally, a party who is found on the facts to be the "operating mind" of an employer company may be liable for breaches of the FWA committed by that company.