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Payroll that just doesn’t pay: Accountants targeted for accessorial liability in underpayment claims

By Adam Foster

Underpayment

In the recent case of FWO -v- Blue Impression Pty Ltd & Ors [2017] FCCA 810, the Federal Circuit Court recently held an accounting firm liable as an accessory to an employer’s underpayment of wages and breach of the Fair Work Act 2009 (Cth) (“Act”).

In 2014, the Fair Work Ombudsman (“FWO“) identified contraventions of the Act by Blue Impression Pty Ltd (“Blue Impression”), a Japanese fast food chain. Blue Impression then enlisted Ezy Accounting 123 Pty Ltd (“Ezy Accounting”) to remedy the issues.

Further contraventions were subsequently discovered by the FWO after their audit.

FWO sued Blue Impression and its Director for breaches of the Act, including breaches of rates of pay provisions within relevant Awards. Blue Impression and the Director admitted to the contravention, but Ezy Accounting denied any liability as an accessory. They denied assisting Blue Impression and its Director in their breaches of the Act.

Under section 550 of the Act, a party “implicate[d] or involve[d]” in a contravention of the civil remedy provision will be treated as having also contravened the Act and be liable to a penalty.

The FWO alleged that Ezy Accounting had actual knowledge and intentionally participated in the admitted contraventions, because it provided “book keeping services” which “included the processing of the Ezy Accounting’s payroll”.

Ezy Accounting claimed that its role as a service provider was limited to bookkeeping work, including data entry work and the uploading of MYOB files to Blue Impression’s bank. In addition, Ezy Accounting denied liability, contending that they owed no legal duties to the respective employee with no knowledge or intentional participation in such a contravention.

The FWO disputed Ezy Accounting’s claim, by pointing to Ezy Accounting’s own evidence, which showed the Director of Ezy Accounting had knowledge and a practical connection to Blue Impression.

The Court was satisfied that Blue Impression had outsourced its payroll, with all of the payment processing, the use of MYOB and the payment of the wages to the banks constituting intentional participation in the underpayment contraventions. Further, Ezy Accounting through its director, knew the results of the first audit and should have acted to ensure rates of pay were adjusted.

The Court held that the Director of Ezy Accounting was willfully blind, and there was a deliberate failure to ask questions and make the relevant enquiries despite “red flag after red flag.” The Court said that the Director of Ezy Accounting “sought to remain ignorant and deliberate[ly] refrain from asking questions or seeking further information”.

This case should raise serious concerns for payroll providers and accountants. It shows that the FWO is willing to take more aggressive action against professionals and service providers that assist employers in breaching their obligations under the Act.

There is no room for ignorance or willful blindness.

Service providers that assist in the provision of payroll services need to ensure that they have alerted their clients to the correct rates of pay.

If you wish to discuss your obligations and the potential risk as an accountant, please contact Adam Foster at Lewis Holdway Lawyers, Head of Workplace Relations, on (03) 9629 9629.