Accountant Found Accessorily Liable for Underpayment of Client's Employees

Fair Work Ombudsman v Blue Impression Pty Ltd & Ors (No.2) [2017] FCCA 2797

Background facts

Blue Impression Pty Ltd operated a Japanese fast food outlet and used Ezy Accounting 123 Pty Ltd ("Ezy") for accounting services which included book keeping, data entry and processing of wage payments. In February 2017, Blue Impression engaged a third party employment specialist to audit the restaurant. The specialist also provided advice to Ezy and as a result, Ezy was made aware it was paying incorrect rates to its employees. Ezy subsequently admitted that due to the setup of the payment system after the audit finding, further underpayments likely resulted for employees. Despite this acknowledgement, no changes were made to the system. As a result, Blue Impression underpaid two of its employees a total of $9,549.47.

Finding of liability under sections 550 of the Fair Work Act ("FW Act")

In this decision, the Federal Circuit Court of Australia ("FCCA") ultimately found Ezy to be an accessory to its client's breach of the FW Act.

Section 550 stipulates that 'involvement in a contravention' consists of knowingly or unknowingly aiding, abetting, counselling or procuring a breach. Given that Ezy knew of the underpayments, the Court held that Ezy had access to "all necessary information that confirmed the failure to meet the Award obligations by [the restaurant] and nonetheless persisted with the maintenance of its (payroll) system with the inevitable result that the Award breaches occurred." The Court found Ezy had "deliberately shut its eyes to what was going on" and in doing so, contributed to Blue Impression's breach of the Award and therefore, FW Act.

Quantifying the pecuniary penalties

The maximum penalty payable by Ezy for seven separate contraventions of the FW Act was calculated to be $357,000 ($51,000 per breach).

The Court held that Ezy was liable to pay $53,880 in pecuniary penalties, having considered the following factors to determine an appropriate discount:

1. It was noted that a failure to keep proper records of payment can impede the regulator's ability to monitor and enforce compliance of workplace entitlements as it prevents employees from being able to challenge underpayments. In this respect, the employees were classified as vulnerable. However, the Judge found that this aggravating factor was more significant to Blue Impression than Ezy.
2. A discount for contrition should only be available to a respondent where "it can be fairly shown that an admission of liability: (a) has indicated an acceptance of wrongdoing and suitable and credible expression of regret; and/or (b) has indicated a willingness to facilitate that course of justice." This being the case, the Judge allowed Blue Impression a discount of 25% for cooperation and early admission of guilt. Ezy was not entitled to a discount for contrition.
3. It was noted that some degree of general deterrence was needed in the final penalty, given the overall lack of compliance with the Award and the FW Act in the fast food industry.
4. Ezy submitted that where there are co-offenders, the court should not impose sentences so drastically different that they would give rise to great grievances. Since Blue Impression and Ezy were in effect co-offenders, Ezy argued that it was unjust that Blue Impression received no penalty. However the Judge reasoned that the contraventions between Blue Impression and Ezy were not comparable as Ezy was not subject to the directions of Blue Impression as an employee but as service provider. Ezy should have given the utmost consideration to compliance with the law instead of its business interests.

Key takeaway

Third party service providers such as accountants, auditors, lawyers and consultants have a responsibility to uphold the law in the course of their work and importantly in the services they provide their clients. A failure to do so will likely result in penalties being awarded against them.