Wings clipped as phoenix rises from the ashes

A recent decision confirms the ability of the Court to sheet back liability against phoenix companies and their directors who seek to avoid their obligations to employees under workplace legislation.

Background

The employee commenced work with A1 Scaffolding Pty Ltd in 2005 as a scaffolder. The employee was continuously employed until 2013 by the following entities (in succession):

• A1 Scaffolding Pty Ltd;

• A1 Scaffolding (NSW) Pty Ltd;

• A1 Scaffold Pty Ltd; and

• A1 Scaffold Group Pty Ltd (A1).

On each occasion the employee's employment was transferred to a new entity, it was due to the appointment of an administrator or liquidator to the prior entity. 

At no time during any of the transfers were the accrued entitlements of the employee, such as annual leave or long service leave, paid out to the employee or transferred to the new entity.

In May 2013, the employee made an enquiry with his union regarding his employment. Following his discussion with the union, the employee spoke to other employees regarding the union's advice and distributed union membership forms. Shortly afterwards, the employee was confronted by A1 regarding his union activities and asked to attend a meeting where his employment was terminated.

Proceedings

The employee commenced a general protections claim against A1 and its directors alleging that:

• his employment had been terminated due to him exercising a workplace right;

• he had not been provided with payslips prior to December 2012; and

• he had been underpaid during his employment.

None of the respondents filed evidence in reply to the employee's application and on several occasions, failed to make appearances in accordance with the Court's procedural directions. 

The employee filed and was granted an application for default judgement, as the respondent failed to comply with the procedural directions issued by the Court. This enabled the Court to make its findings and issue orders based on the material filed by the employee.

The employee further submitted that A1's directors should be held liable as accessories under the provisions of the Fair Work Act 2009 (the Act) and the liabilities of A1 should to be 'sheeted' home to them.  If the directors were not also held liable, it is unlikely that the employee would be able to recover his entitlements against A1 as claims against 'collapsed' companies are, in general, unenforceable. 

Finding

The Court found that:

• the general protections claim was made out and orders were made against A1 and one of the directors to pay the employee an amount equivalent to his wages from the date of his termination to the judgment date (approximately 21 months), plus interest;

• payslips had not been issued to the employee contrary to the Act and an order imposing penalties upon three of the directors is appropriate; and

• the employee had been underpaid his allowances, annual leave and annual leave loading, redundancy, RDO's, superannuation and long service leave and that A1 and the directors (through whom A1 had acted at various times) were ordered to pay the employee those amounts together with interest.  

The issue of penalties is yet to be determined. 

Lessons

This decision was handed down shortly before the Australian Government announced its  establishment of an Inter-agency Phoenix Taskforce to assist in the detection and deterrence of fraudulent phoenix company behaviour where a company deliberately avoids tax, superannuation or employee entitlements by liquidating the liable entity and then carrying on the same or a similar business with the same ownership under another entity. [Click here] to access the Department of Employment's press release regarding the taskforce.

The case sends a salient warning to companies and their directors considering engaging in phoenix activities that they may be held personally liable for employee entitlements (with interest) and risk hefty penalties despite the liquidation of the indebted company.

If you would like more information, please contact National Workplace Lawyers on +61 2 9233 3989. 

National Workplace Lawyers

Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.