Is your client’s actions or inaction worth the risk?
As part of our May Breakfast Seminar Series—How you contribute to your clients’ insolvency—a recent Federal Circuit Court decision was highlighted, which penalised an accountancy firm for their client underpaying its staff. As the decision highlights the potential exposure to advisors that have knowledge that their client is culpable and do nothing about it, I thought it worthy of more explanation.
The case is Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810 and while only recently decided upon, it really started in 2014 when the Fair Work Ombudsman (FWO) identified that Blue Impression (that operated a Japanese restaurant) was significantly underpaying employees. The restaurant sought Ezy Accounting 123 Pty Ltd’s assistance regarding the FWO’s audit to ensure it complied with the relevant modern award and Fair Work Act 2009. Ezy Accounting calculated the correct pay rates, but Blue Impression did not update their system to reflect those corrected rates.
In 2015, FWO reviewed Blue Impression again and issued further underpayments, which extended to two Taiwanese backpackers working for Blue Impression being underpaid nearly $10,000 in wages, loading, penalty rates, and allowances. The FWO commenced legal action against Blue Impression, and included Ezy Accounting in the claim on the basis that under the Fair Work Act, any third party involved in a contravention, can be taken to have contravened the Act as well.
Ezy Accounting was quick to defend the claim saying that it was merely a service provider processing payments in accordance with Blue Impression’s instructions, had no knowledge of the employees’ duties and therefore which award and hourly rates should be applied, and was not retained to advise Blue Impression on its obligations.
Ezy Accounting’s assistance with the previous FWO audit ultimately went against them, as the court dismissed Ezy Accounting’s defence. The court determined it was satisfied that the evidence demonstrated that Ezy Accounting deliberately ignored the problem and found the firm an accessory to the breaches of section 550 of the Fair Work Act. Ezy Accounting now faces penalties on all seven breaches, with a maximum penalty per contravention of $54,000—potentially accumulating in a liability of $378,000!
The case is a hefty warning to advisors that turning a blind eye to a client’s unlawful conduct can expose advisors to civil penalties, and doing nothing about those contraventions is not a defence. It seems pertinent to ask yourself whether some clients, given their action or inaction, is worth the risk to act for them!