Former directors liable for unpaid entitlements

The Federal Circuit Court has recently awarded compensation to a dismissed employee who had worked for four separate but related entities over the course of 8 years. Two of the companies had been deregistered at the time of the employee’s dismissal, while a third was in liquidation.  This arrangement was alleged by the employee to be a typical case of ‘phoenixing’ – where a new related entity takes on the assets and business of a former entity in order to avoid particular obligations of the old entity (including employee entitlements).

The employee’s dismissal came about after an announcement by one director that he would be taking over the employee’s current employing entity. The new entity made offers of employment to the employees, but the employee in question refused to sign the letter and took advice from the CFMEU who advised him not to sign the new offer. The employee’s employment was then terminated.

The employee alleged that his termination constituted adverse action and also made claims for unpaid Award and other entitlements over the course of the 8 year engagement.

The Court entered judgement in favour of the employee against the final employing entity and its director for the adverse action claim. Importantly, the Court also added 3 former directors of the earlier employing entities in relation to the award underpayments claim on the basis that ‘the corporate respondent acted through all the ‘personal’ respondents at various times’.

On that basis, the directors were found liable under the ‘accessory liability’ provisions contained in the Fair Work Act 2009 (Cth).

Implications for Employers

Employers need to be mindful of the increased ability of Courts and Tribunals to recover compensation or underpayments from company officers and directors, including those of deregistered entities. If phoenixing can be established, then the accessory liability provisions may leave former directors exposed to ongoing claims.