Roberts v A1 Scaffold Group Pty Ltd [2015] FCCA 422: Directors Pay Compensation

Friday 22 May 2015 @ 11.57 a.m. | Industrial Law

The decision in the case of Roberts v A1 Scaffold Group Pty Ltd & Ors [2015] FCCA 422 will have ramifications for directors of companies that become insolvent, the Federal Circuit Court (the court) having held that the remedy and compensation provisions in the Fair Work Act 2009 (Cth) (the Act) extend beyond employers. An employee brought a general protections claim against his employer but also sought compensation for three years of underpayments by associated companies that were deregistered or in liquidation.

The employee convinced the court, in the absence of any evidence from the other parties, that this was a case of “phoenixing”, where one company emerges from the ashes of another, and that past directors should be made liable for his underpayment. The directors of the associated companies were therefore ordered to pay compensation to the employee.

Background

The employee (John Thomas Roberts) began work as a scaffolder with A1 Scaffolding Pty Ltd (Company 1) in 2005. In late 2005, Company 1 went into administration and all assets and employees were transferred to A1 Scaffolding (NSW) Pty Ltd (Company 2). In 2008, Company 2 went into administration. In December 2008, three of the directors of Company 1 and Company 2 were disqualified from managing companies as a result of issues arising from the liquidation of these entities. Again, all assets and employees were transferred to A1 Scaffold Pty Ltd (Company 3).

In December 2012, a further transfer of business occurred between Company 3 and A1 Scaffold Group Pty Ltd (Company 4). In April 2013, the current director of Company 4 gave the employee a letter of offer of employment backdated to 1 December 2012. The employee contacted his union for advice and subsequently refused to sign the letter because he had been told by two directors that he would lose his annual leave and long service leave entitlements.

Termination of Employment

The employee communicated this advice to the other employees of Company 4 and distributed union membership application forms. Shortly after, his employment was terminated by the current director.

The employee lodged a general protections claim with the court. He submitted that he had been dismissed because of industrial activity and exercising a workplace right. The employee also submitted that he had been paid less than award rates throughout his employment and was not provided with payslips up until 2012. The three disqualified directors were respondents in the matter (the former directors) along with the only remaining company still trading, Company 4, and its current director.

The applicant submitted that whilst debts of an insolvent company are typically unenforceable, the Act allows for liabilities to be “sheeted home” to “accessories” in particular situations. He argued that the former directors should be considered accessories of the employing companies and be liable for the money that was owed, despite the directors not being parties to any contract of employment with the employee.

Even though they were served with notice of the proceedings, the former directors of Companies 1-3 and the current director of Company 4 did not comply with any court orders to file material. Although two of the directors attended the default judgment hearing in person, no satisfactory explanation was given for why they had not complied with Court orders.

Findings of the Court

The employee applied for default judgment to be entered against the respondents. The Federal Circuit Court Rules 2001 (Cth) provide that an applicant for default judgment only has to show that they have a prima facie case for relief. 

On this basis, the court found that the employee had been dismissed due to his exercise of a workplace right and engagement in industrial activity. In regards to his underpayment, the court found that the underpayment did occur. The court also found that the employee had not been provided with payslips since 2012.

The court agreed with the employee’s submission that the companies had acted through the individual respondents, namely the former directors and current director.

Court Orders

Despite the employee disclosing a precedent which indicated that non-employers could not be ordered to remedy underpayments, the Court ordered that the former directors give compensation to the employee by paying him the underpayments. For the general protections claim, the current director and Company 4 as the immediate past employer were ordered to pay the employee compensation of the amount equivalent to his wages from the time of his dismissal to the date of the judgment plus interest.

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Sources:

Directors Pay Compensation - Article from justitia.com.au

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