Legal E: Company Directors Personally Liable for Employee Underpayments and More

Generally speaking, operating a business via a company addresses the risk of losing the family home should things turn bad. However, the law has ripped a few holes in the corporate veil to remedy perceived abuses of the privilege of limited liability. One such hole recently got a whole lot bigger:

Most of us would now be familiar with provisions of the Fair Work Act that penalise accessories who are involved in an employer’s breach of the Act; newspapers report from time to time that company directors and managers have been fined for being involved in the corporate employer’s underpayment or sham contracting activity. Well, it has traditionally been understood that this was as bad as it could get, and that directors and managers could not be held directly liable to employees for their losses suffered due to breach of the Act*not anymore.

Two recent Federal Court decisions** confirm that accessories can be held liable, not only to pay a fine, but also to compensate those who bring claims in respect of breaches of the Act. Unlike the unfair dismissal jurisdiction, compensation for breach of the Act is uncapped, and the list of provisions that may be breached is very, very long. Generally such claims involve underpayment of wages or loss associated with adverse action taken against a worker, or sham contracting. Claims for compensation can also include claims associated with breach of the National Employment Standards, awards and enterprise agreements, and orders of the Fair Work Commission including ‘stop bullying’ orders. Other areas of risk include timeliness of payments to staff, lawfulness of deductions, maintenance of employee records, placing undue pressure or making misrepresentations to workers regarding workplace rights or industrial activity, and unlawful discriminatory action***.

Implications for employers

It is now very risky for employers to attempt to hide behind a corporate veil in respect of meeting legal obligations to workers.

Risk management measures for your business include asset protection, but better yet, take proactive advice to ensure compliance with workplace laws. Mellor Olsson’s commercial and employment practices work together to ensure that a client’s risk is appropriately managed. We can review your corporate structure and conduct audits of workplace practices, making practical recommendations which allow you to balance compliance responsibilities with a focus on core business activities.

* Apart from claims for sums due brought in the South Australian Industrial Relations Court

** Scotto v Scala Bros Pty Ltd [2014] FCCA 2374 and Sponza v Coal Face Resources Pty Ltd [2015] FCCA 1140

*** That’s not an exhaustive list

This e-alert was prepared by Thea Birss, Senior Associate at Mellor Olsson.

For more information please contact:


Joanna Andrew, Partner 
Ph: (08) 8414 3454

Tim Mellor, Partner
Ph: (08) 8414 3416




Elizabeth Olsson, Senior Solicitor  
Ph: (08) 8414 3413

Thea Birss, Senior Associate 
Ph: (08) 8414 3415                         



Maria Demosthenous, Senior Associate 
Ph: (08) 8414 3418

The contents of the E-Alert are for general information only. They are not intended as professional advice - for that you should consult a solicitor or barrister, or any other suitably qualified professional such as your accountant.

Practice Area: Employment

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