Pub­li­ca­tions

The Hunger Games have arrived: HR are now the hunted!

One of the pur­pos­es of some­one form­ing a com­pa­ny is to enable an enter­prise to trade to the extent of the resources of the com­pa­ny. The inten­tion of this struc­ture is to allow peo­ple to start an enter­prise — be inno­v­a­tive — and if it doesn’t work, to be able to move onto their next ven­ture. It has been proven time and again the world-over to encour­age inno­va­tion and new enterprises. 

Yet, some­times the temp­ta­tion is very strong for courts to want to pierce this cor­po­rate veil’ in pur­suit of debts, and look to direc­tors of com­pa­nies per­son­al­ly for the recov­ery of money.

Fur­ther, state gov­ern­ments (thirsty for rev­enue), have over the years amend­ed work­ers com­pen­sa­tion and pay­roll tax leg­is­la­tion in many states so that direc­tors can be held liable for the pay­ment of unpaid pay­roll tax and even work­ers com­pen­sa­tion pre­mi­ums. For­tu­nate­ly, state work­cov­er author­i­ties have been gen­er­al­ly rel­a­tive­ly slow to pur­sue direc­tors where com­pa­nies have (often through no fault of their own) got into dif­fi­cul­ty and been unable to pay their premiums.

In the last 12 months, the cor­po­rate veil has been shred­ded by the Fair Work Ombuds­man (FWO) in pur­suit of unpaid enti­tle­ments, as it has sought to have penal­ties imposed upon direc­tors. Sup­pos­ed­ly this is to deter prof­li­gate direc­tors from being reck­less in non-com­pli­ance (awards and Nation­al Employ­ment Stan­dards). Recent­ly, the Fair Work Com­mis­sion has gone a step fur­ther and bypassed the com­pa­ny, seek­ing pay­ment of out­stand­ing wages from a direc­tor — per­son­al­ly.

This under­mines 200 years of com­pa­ny law.

Cur­rent­ly, the Fair Work Act allows employ­ees, the inspec­tor or unions to pur­sue direc­tors and even man­age­ment employ­ees for fines under the Civ­il Rem­e­dy Pro­vi­sions. These fines can be as much as $10,800 for an indi­vid­ual (they are $54,000 for the com­pa­ny) and can be ordered to be paid to the employ­ees them­selves or even the union. 

In an even more extra­or­di­nary move the FWO has declared unashamed­ly that it is now in pur­suit of man­age­ment staff and, in par­tic­u­lar, HR Man­agers. So it is now com­mon place for direc­tors and HR Man­agers with­in busi­ness­es to be named as respon­dents in pros­e­cu­tions by the FWO or in claims by employ­ees for alleged breach­es of the award. This is start­ing to result in direct penal­ties being imposed against such individuals.

This can place HR Man­agers in a fraught position.

All of this high­lights the impor­tance of thor­ough­ly under­stand­ing the impli­ca­tions of the award on your busi­ness — even when you are pay­ing well above award wages. As an exam­ple, recent­ly a HR Man­ag­er was found liable per­son­al­ly to be penalised where the com­pa­ny only short paid an employ­ee 2 days remu­ner­a­tion. Oth­er areas where HR Man­agers and employ­ers can be held liable include where work­ers are improp­er­ly clas­si­fied contractors.

All this would be less of a prob­lem if the enti­tle­ments of employ­ees pur­suant to awards were clear and eas­i­ly under­stood by HR prac­ti­tion­ers. How­ev­er, even deter­min­ing which award applies can be huge­ly chal­leng­ing and the line between employ­ee and con­trac­tor is vague.

The com­pa­ny struc­ture was designed to encour­age entre­pre­neur­ship and eco­nom­ic growth, but unfor­tu­nate­ly it is being attacked sys­tem­at­i­cal­ly by very com­plex leg­is­la­tion which dis­cour­ages peo­ple from ” hav­ing a go” and start­ing a busi­ness for fear they may be held per­son­al­ly liable. 

Even more trou­bling, it places HR man­agers – them­selves employ­ees – act­ing bona fides in the inter­est of their employ­ers at risk of per­son­al liability. 

If you are in such a role:

  • it is cer­tain­ly worth ensur­ing that your employ­er has ade­quate employ­ment prac­tis­es insur­ance to cov­er you when car­ry­ing out your duties, includ­ing for a fine aris­ing from a civ­il pros­e­cu­tion; and

  • con­sid­er when it may be nec­es­sary to get a sec­ond opin­ion on the legal advice your com­pa­ny is receiv­ing – if you believe it to be adven­tur­ous’ advice.

The Hunger Games have arrived in the workplace.

This arti­cle was first pub­lished on LinkedIn as a blog. You can read the orig­i­nal here.