HR managers personal assets are on the line - The fears are real and getting worse

Key Points
  • The Fair Work Ombudsman (FWO) is now pursuing companies, even where they had made inadvertent mistakes
  • The FWO is now routinely joining individual managers/HR managers/directors in almost all their prosecutions
  • The fines have increased dramatically over the last 12 months, with individuals liable to pay
  • In a recent case the Court ordered that the individual “accessory” to the breach, rather than the employer, pay the staff underpayment

In today’s Australian workplace relations climate, there is genuine potential for HR professionals to be personally liable to pay money where claims are successful.

In our litigious era where increasingly HR managers find themselves named as respondents in suits by disgruntled employees and ex-employees, it is clear that the personal risk for professional business advisors, including HR advisors and accountants, is increasing.

In today’s Australian workplace relations climate, there is genuine potential for HR professionals to be personally liable to pay money where claims are successful and assumptions cannot always be made that lawyers engaged by the employing company are acting in the best (personal) interest of those when giving advice.  In fact – by definition – the primary obligation of those lawyers is to the company – not the HR manager or business advisor.

Over the years, there have been lots of articles from lawyers telling scary stories about the question of “accessorial liability“ (which is lawyer speak for an HR professional personally - as a manager involved in the decision making – having to pay a huge fine out of their own pocket).

Well, things just got significantly scarier for advisors, managers and HR professionals in the last 12 months. 

There are many reasons for this – and here are 3:

  1. The Fair Work Ombudsman (FWO) is now pursuing companies, even where they had made inadvertent mistakes, and the FWO is now routinely joining managers/HR managers/directors in almost all their prosecutions. That is, the individual, not just the business, is facing prosecution and potential fines.  In fact, the FWO, Natalie James, publicly states this approach is very intentional on their part;
  2. The fines have increased dramatically over the last 12 months both because of changes to the Fair Work Act and in the appetite of the Federal Court judges to order massive fines; and
  3. Finally, in early 2018, the Federal Court ordered an individual decision maker - not the employer – to personally repay the underpayment of the employee (claimant) in addition to the penalty (fine) imposed.  In some cases that fine could be hundreds of thousands (even millions) dollars.
Concerningly, many business advisors incorrectly assume that the company (i.e. their employer) identifies the employee decisions and, also, that the decision making professional is covered by employment practices insurance? Unfortunately, this is not always the case.

An employer does not necessarily have to indemnify the manager/director/HR manager if the claim is not one in negligence.  And claims under the accessorial liability provision of the Fair Work Act (that is, situations where a HR professional or other advisor has participated in a course of action or provided advice - a daily occurrence for most) are not negligence claims.

Also, if the company is not around – for instance, in cases where an SME has been folded in the face of a larger fine - who/what exactly will reimburse the HR advisor? This issue was evident in a Federal Court case a few years ago where sales people were joined as parties in a misleading and deceptive conduct claim. The company folded, and the sales people, as individuals, were left to meet the (considerable) judgement sum.  

In regards to a business’s employment practices insurance, most employment practices policies do not cover companies (or their managers - where they are prosecuted) for underpayments (Otherwise no company would pay their staff – they would leave it up to the insurer).  Further, some policies do not cover the company and/or business advisor for penalties imposed by the court - and often those penalties are $20K+ for an individual.

Increasingly, as an employment partner, I am receiving enquiries from HR managers and managers (retaining me personally) to guide them in their decision making.  They know that the company lawyer's duty is to act in the interests of the company and not them as managers.  In fact, these managers/HR managers know there are often times when the company's lawyers advice to the company maybe to throw the HR manager 'under a bus'.

The essence of the advice these professionals are often seeking is whether they should resign rather than follow their employer's direction in relation to dealing with another employee.  Before events have taken a dire turn and a home is at risk, I often recommend advisors and managers ask for a copy of their employers employment practices policy and seek professional independent advice regarding its coverage. 

HR managers and business advisors should question if it is prudent to treat their employer’s lawyers as the last word on their individual risks. When in doubt, seeking independent advice is recommended – and from an employment lawyer acting in the advisors interests and where any discussions are protected by legal privilege – not some 2nd year law student working part-time at one of the myriad of underwhelming non-lawyer employment advice lines.

These issues are not likely to eventuate for most - but in period where the FWO is aggressively pursuing individual managers – it may be time to think for business advisors to think more broadly about protecting their interests. 

Post by Warwick Ryan

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