Estrangement between directors meddles with issue of worker underpayment

As a corporate director, ensuring compliance under the Fair Work Act is essential to protect the company from potential fines, lawsuits, and other legal consequences.

Caselaw has dictated that directors must ensure that employees receive the minimum wage and other entitlements, such as overtime pay and superannuation.

One of the main things that management must oversee is the accuracy of records of employees’ wages and ensuring that the correct contributions are made.

The Federal Circuit and Family Court of Australia (FCFCOA) recently dealt with the case of a company’s director who said he was not involved in the business affairs and had no access to business records when the Fair Work Ombudsman (FWO) investigated the underpayment of its employees.

‘It was my brother, not me’

Subway is a multinational American fast-food restaurant franchise specialising in submarine sandwiches, wraps, salads and drinks. It has many franchised outlets in South Australia.

Jason Hood was a director of each company and the person legally responsible, at relevant times, for the management of each franchise shop, including each company’s employment responsibilities under the provisions of the Fair Work Act 2009.

However, in August 2017, Jason Hood moved to Western Australia “to begin a business venture” there. Jason then left his brother Darryl John Hood to manage both operations. He was also a director of each company and so the person on the ground nominally in charge of staff rosters and wage calculations.

According to records, between 2017 and 2020, Darryl was “significantly unwell” and admitted to psychiatric facilities regarding mental health and substance abuse issues.

The businesses in this case, Hutt Nominees and McNeill Investments, operated separate and distinct Subway franchises. Both underwent financial difficulties.

Consequently, between September and October 2019, staff members at each outlet contacted the FWO’s office, and an inspector was appointed to investigate their complaints.

Three employees were involved – two at the outlet operated by Hutt Nominees; and one at the outlet operated by McNeill Investments. Their complaints related to their underpayment in breach of the applicable modern awards.

Compliance notices were issued to both companies. The FWO then decided that the companies’ compliance with its procedures was “inadequate,” leading to the institution of proceedings.

The Federal Circuit and Family Court of Australia recently ruled that a director is also liable for a company’s non-compliance with notices issued by the Fair Work Ombudsman.

Jason Hood accepted that as a director of each company, “he is legally responsible for their actions.” According to him, he and his brother Darryl “are now estranged, and Darryl’s management of each of the business concerned was deficient, particularly in respect of the keeping of employment records.”

Jason argued that these factors “should mitigate any pecuniary penalty to be imposed upon him.” He has formally admitted liability on behalf of each company.

It was his position that “he had nothing personally to do with the day-to-day affairs of either company, which he left to his brother,” adding that as a consequence, “he has not been able to access records, which should have been compiled and maintained by his brother.” Nonetheless, he said, “that he has done his best to cooperate with the FWO.” He further argued that “his contraventions were both inadvertent and unintentional.”

Meanwhile, the FWO rejected Jason Hood’s submission that he “was not involved in the day-to-day management of the business” since such a claim “reduces his culpability for its transgressions, given he was a director of it at all relevant times.” It submitted that “he was properly provided with the relevant compliance notices, which clearly were directed to him for his rectification of the various award provisions applicable.”

The Federal Circuit and Family Court of Australia (FCFCOA) recently decided over the claim of an employee who said his employer’s restructuring and redundancy were “shams” designed to terminate his employment.

The federal court’s decision

The court went on to say that:

“Given Jason Hood’s role as a director of the employer company … the failings of his brother cannot absolve him of liability for the company’s omissions.

“Jason Hood has been left holding the bag for his brother and fellow director … He perceived that he had nominally, at least, indicated to his brother that he was removing himself from responsibility for Hutt Nominees with his move to Western Australia and the sale of his interest.

“However, the formalities in this regard were not completed, and Jason remained a director of the company, with all the responsibilities which entailed, which included ensuring compliance with statutory notices issued to the company in question,” the court said.

The court further considered that it was Jason Hood’s first offence and that he had “acknowledged culpability in circumstances in which his brother Darryl must be regarded as attracting more censure.”

Thus, the court imposed the penalty at a discounted rate due to these factors. The judgment was laid down on 3 February.