Being a director of a company – no matter what size – is a huge responsibility.
And in a system becoming more and more focused on corporate compliance, it’s a potentially costly title for those who don’t keep their eye on the ball.
Just ask Kia Silverbrook and Janette Lee.
The couple held the position of director of a number of companies in the science and engineering sector, which allegedly failed to pay workers a range of entitlements.
Widespread complaints from employees about unpaid wages and superannuation began several years ago.
But the Federal Court only considered the question of whether Mr Silverbrook and Ms Lee should be held personally liable as accessories to what effectively amounted to a series of breaches by the management below them.
The Court’s decision sent shockwaves through corporate Australia, with the pair each ordered to pay $1.1 million.
The key question was whether the pair were “involved” in the broken system that led to so many transgressions.
While it was true Mr Silverbrook and Ms Lee engaged others (management) to perform day-to-day duties, including accurate payment of employee wages and entitlements, the Court found they were “involved” in a number of ways, including:
- As directors, they were the controlling force of the companies.
- They resisted the option to end the employment of any workers, while still running the companies and attempting to raise funding.
- They were aware for at least a 10-month period that a number of employees weren’t being paid as they previously were.
- They had by-passed management on numerous occasions to engage in direct contact with employees.
The area of award payments is one of the most fluid and complex in all of Australian law. It’s a challenge for specialist management departments, such as payroll and Human Resources, to follow, let alone non-executive directors sitting above the operational entity.
But as this recent case demonstrates, the personal punishment for failing to keep apace of what’s happening below can be crippling. As far as Mr Silverbrook was concerned, the Court also found he was “willfully blind” to the details of minimum wages and entitlements.
In most cases, directors rely on management and third parties to ensure their company is operating legally. But in the end, the buck stops with them. Particularly when they are hands-on and have prior knowledge of potential breaches.
Our corporate and workplace law experts have a keen eye for these details and risks. Don’t hesitate to contact one of our helpful staff to make sure your company is completely compliant.