Manager says director 'personally involved' in company's breaches
The Federal Circuit and Family Court of Australia recently dealt with a facilities manager's claim against a company director for unpaid wages and entitlements.
The case emerged after the employing company entered liquidation, leaving the worker to pursue their entitlements directly from the director.
The worker argued that the director should be personally liable for unpaid penalty rates, leave loading, and superannuation on two grounds: first, that the director was involved in breaching the relevant award, and second, that they knowingly allowed the company to trade while insolvent.
Personal liability of employer’s director
The business operated as a multi-disciplinary workshop facility and education provider in Marrickville, NSW, from August 2021 to February 2023.
The organisation ran workshops and educational programs while also subleasing parts of its premises to individuals and businesses. It received funding through a related charitable organisation that held deductible gift recipient status.
The company's management structure included a general manager handling daily operations, while the director focused on strategic matters. In evidence, the director said: "I met with [the company's] staff approximately six times a year to listen to what they had to say, and to provide my views on the long term strategy."
The director also stated that they "had no official duties, responsibilities, or role in the day to day running or operations" and did not receive payment for their role, having donated over $300,000 to the company over ten years.
Manager’s employment terms
The facilities manager worked 30 hours weekly, including afternoon shifts from 1 pm to 9 pm on Mondays and Thursdays.
Their contract specified a rate of $32.13 per hour, aligned with Level 6.1 of the Educational Services (Post-Secondary Education) Award 2020, plus a first aid allowance, annual leave loading, and superannuation.
The Court found the work fell under the Award's coverage for "community and adult education teaching not leading to qualifications recognised by the AQF."
This classification meant the worker was entitled to specific penalty rates and other benefits under the Award.
Manager’s unpaid entitlements and director’s liability
By November 2022, serious issues surfaced about unpaid entitlements. The worker said during a meeting that "the [director] told [the worker and general manager] that they would not be paid; and that if either were to push the issue, [the director] would have no choice but to close the business."
The company's financial difficulties started well before the worker's employment. The liquidator's report revealed potential insolvency dating back to June 2019, shown through net liabilities, ongoing trading losses, lost funding, and mounting tax and superannuation debts.
Documents showed the Australian Taxation Office had imposed superannuation guarantee charges, with a debit balance of $39,384.22 as of July 2021.
Understanding director’s personal liability
The Court explained that for a director to be personally liable, specific conditions had to be met:
"For a person to be involved in another's contravention of a provision of the FW Act, two conditions must be satisfied... the accessory must have committed an act or omission that links the accessory with the conduct that constitutes the contravention."
The judgment added: "Knowledge of the two elements of a contravention of an award does not require knowledge or a belief that the conduct contravened [the Act], or that such conduct was otherwise unlawful."
While evidence showed the director knew about superannuation guarantee charges in mid-2019, the Court found this was "incapable of supporting a finding that [the director] had any involvement in the conduct that constituted [the company's] contraventions."
The Court decided that although the company had breached the Award by failing to pay required entitlements totalling over $11,000, the director was not personally liable. As stated in the judgment:
"Although [the worker] has established that [the company] contravened [the Act], he has not proved that [the director] is a person who was involved in [the company's] contraventions."
This case shows the specific requirements needed to hold directors personally liable for award breaches, emphasising that knowledge of financial difficulties alone may not be enough to establish personal liability.
