Earlier this year, the Corporations Amendment (Strengthening Protections for Employee Entitlements) Act (Cth) (the Act) commenced. This article will focus on the key changes made to the employee entitlements provisions.
The objective of the Act is to stop sharp corporate practices which improperly burden the Fair Entitlements Guarantee (FEG) scheme under the Fair Entitlements Guarantee Act 2012 (Cth).
In essence, such sharp corporate practices have allowed some unscrupulous employers to:
There are 3 primary actions now available to deal with parties preventing, avoiding or significantly reducing their liability for employee entitlements in an insolvency context.
What is “reckless”?
This term is not defined. However, the Explanatory Memorandum notes that a person who enters into a relevant agreement/transaction will be “reckless” if they are aware that there is a substantial risk that entering into a relevant agreement/transaction will avoid or prevent the recovery of, or significantly reduce the recoverable amount of, employee entitlements, and doing so is unjustifiable in the circumstances.
Accessorial liability – what is “involved”?
As set out above, the civil penalty and compensation provisions have been widened to capture those who are “involved” in contravention of the civil penalty provisions.
“Involved” is very widely defined in the Corporations Act 2001 (Cth). By way of example, it includes any person who has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention.
For an individual, penalties may include imprisonment for 10 years, or a fine the greater of 4,500 penalty units (which is $210/unit as at the date of publication), or if the Court can determine the total value of the benefit that has been obtained and it is reasonably attributable to the commission of the offence – 3 times that total value. The fine could also include both.
The penalty provisions for body corporates are broadly similar, save that the available penalties also include 10% of the body corporate’s annual turnover during the 12-month period ending at the end of the month in which the body corporate committed, or began committing, the offence.
Additionally, a person who contravenes the civil penalty provisions may be liable to pay compensation. The liquidator may recover the amount of the loss or damage in question as a debt due to the company. Alternatively, subject to certain conditions, an employee who has suffered loss or damage may recover the amount of that loss or damage as a debt due to the employee.
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 Average annual costs under the FEG scheme has more than tripled from $70.7 million in the four year period between 1 July 2005 and 30 June 2009, to $235.3 million in the four year period between 1 July 2014 and 30 June 2018. Under the previous form of the Corporations Act 2001 (Cth), there had been no successful criminal or civil recovery actions under those provisions. See paragraph 1.6 and 2.5 of the Explanatory Memorandum.
Kimberley Arden, Partner
Tahlia O’Connor, Associate