Landmark decision holds accountancy firm liable for client's underpayments

The Fair Work Ombudsman has successfully taken legal action against a professional services firm for being an accessory to a contravention by a client.

A landmark court judgment is a warning to accountants that they could be fined if a client underpays workers.

Updated 16 November 2018: The Full Federal Court of Australia has mostly dismissed Ezy Accounting 123’s appeal.

The penalty against the firm was reduced from $53,880 to $51,330.

The three judges of the Full Court say the Federal Circuit Court judge was correct in ruling that Ezy Accounting 123 Pty Ltd ("Ezy Accounting 123") was involved in exploitation of a worker by one of its clients, Blue Impression, and that Ezy’s owner Eric Lau was “knowingly concerned” in contraventions of the Fair Work Act 2009 (Cth).

The judgment says it is unnecessary to express a view on the issue of “wilful blindness” by the accounting firm. 

The reduction in penalty was proposed by the Fair Work Ombudsman and the Full Federal Court set aside a declaration from the Federal Circuit Court that Ezy Accounting 123 was involved in contraventions around failing to provide rest breaks and meal breaks. (End of update)

A precedent-setting case

4 August 2017

The Federal Circuit Court has fined a Melbourne accountant A$53,880 for being an accessory to exploitation of a worker by one of the firm’s clients. 

The case sets a precedent as the first time the Fair Work Ombudsman (FWO) has successfully taken legal action against a professional services firm for being an accessory to a client’s contravention of workplace laws. 

The FWO took the action against Japanese fast food chain owner Blue Impression and its accountant Ezy Accounting 123 Pty Ltd ("Ezy Accounting 123") over the employment of two young Taiwanese on working holiday visas. Blue Impression was penalised A$115,706 after admitting it underpaid the two people a total A$9549 between 2014 and 2015. 

Ezy Accounting 123 was involved in facilitating A$750 of the underpayments to one of the workers. 

Accountants and advisers put on notice 

Acting Fair Work Ombudsman Kristen Hannah says the FWO will use accessorial liability laws “to hold any party involved in the exploitation of vulnerable workers to account”. 

She says trusted advisers must explain the rules to their clients, make it clear when they are in danger of breaking the law and not become involved in breaches of the law themselves. 

Related article: 'Dodgy bosses' who underpay superannuation to face higher penalties and court action

“External business advisers need to understand that they must put compliance with the law above their own personal interests – or face serious consequences,” says Hannah. 

Accounting firm had been warned 

The FWO had previously put both Blue Impression and Ezy Accounting 123 on notice of their obligations. In 2014, Ezy Accounting 123 had been told of minimum award rates because it helped Blue Impression to calculate and rectify wage underpayments then. 

Accounting firm was “wilfully blind” 

The Court handed down its judgment in April 2017 but reserved its decision on penalties, which were published in November 2017. 

Judge John O’Sullivan accepted the ombudsman’s argument that Ezy Accounting 123’s owner Eric Lau was “wilfully blind” to the underpayments and engaged in “a deliberate shutting of the eyes or calculated ignorance”. 

Ezy Accounting 123 had the information to know the business was not meeting award obligations but persisted with its payroll work “with the inevitable result that the award breaches occurred”. 

Judge O’Sullivan said Ezy Accounting 123 denied it provided payroll services, saying it performed bookkeeping. It said it received payroll instructions from the business and processed data. 

It argued it was not the worker’s employer and had no primary legal responsibility to ensure he received his entitlements. 

Lau said he knew there was a minimum rate of pay under the award but he did not know about evening loadings, clothing allowances and public holiday rates. 

Accounting firm did not ask questions 

Lau did not inquire about whether minimum conditions were being met because that was outside the scope of work the firm was retained to do. 

The decision sends a clear message to practitioners that they need to be aware of their responsibilities to act within their competencies and the importance of scoping and documenting the terms of engagement, says Peter Docherty, general manager of public practice at CPA Australia. 

“The APES 110 Code Of Ethics for Professional Accountants states that a public practitioner may only accept a client engagement when they understand the client’s business, the complexity of its operations, and the purpose, nature and scope of the work to be performed. This includes acquiring knowledge of relevant industries and/or subject matter,” he says. 

HR manager fined 

In November 2017 the FWO used accessorial liability laws to secure a A$21,760 penalty against the human resources manager of New Shanghai restaurant in NSW for her role in facilitating exploitation of overseas workers. 

The Federal Court did not accept Ting “Sarah” Zhu’s argument that she was just following the owner’s directions, saying “there is nothing wrong with sending the message that an employee should indeed resign if that is the only alternative to continuing to participate knowingly in illegal activity”.

What can you do? Stay informed.

The FWO has a wealth of resources in this area. 

Pay and Conditions Tool (PACT)
  • Use Pay, Shift, Leave, Notice and Redundancy Calculators to work out what you need to pay your employees
  • PACT includes the latest increase to minimum rates of pay
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  • Save your results from PACT and Find My Award 
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Click on the “subscribe to email updates” icon on the bottom right side of the page to get email updates about information relevant for you. 

Fair Work InfoLine
13 13 94

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