Accountants face court action if clients break law

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.

Accounting firms doing payroll work face being fined if they ignore signs that workers are being underpaid.

The Federal Circuit Court has found an accounting firm liable as an accessory to contraventions of the Fair Work Act 2009 through its work for a Melbourne business that underpaid a casual worker.

It is the first time the Fair Work Ombudsman (FWO) has successfully taken legal action against a professional services firm for being an accessory to a contravention by a client, and legal experts believe the FWO will continue to cast its net wider, to accountants and other external advisers.

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 Code Of Ethics APES 110 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.

Accounting firm was “wilfully blind”

The FWO took Japanese fast food chain, Blue Impression Pty Ltd, and Ezy Accounting 123 Pty Ltd to court over payments to a Taiwanese worker on a 417 working holiday visa.

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

Ezy 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”.

Blue Impression and its manager admitted the contraventions but a decision on penalties was postponed while the court considered whether Ezy had any liability.

Penalties to be decided

In handing down his decision in April, Judge O’Sullivan said penalties would be decided at a later date.

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

Ezy said it was not aware the employee did not take meal breaks and was not paid penalties, loadings and allowances.

It argued it was not his 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 FWO had found problems with Blue Impression’s payroll in 2014 and the company had hired Ezy to remedy the issues.

The FWO had written to Lau giving him the results of its audit of Blue Impression, detailing the contraventions and stating how the Fast Food Industry Award applied to the business.

Lau told the court he became the contact point for the FWO in 2014 but Blue Impression hired an employment law expert to advise it and when that firm gave him the correct pay rates he entered them into a spreadsheet and calculated underpayments.

Judge O’Sullivan said it was extraordinary for someone with a tertiary qualification and extensive business interests to say they did not question the pay rate, did not ask questions, and just processed what they were given.

The judge said he believed Lau knew the business was underpaying its employees in 2014 and was still doing so in the times that led to the court case.

It was “risible” to suggest that a basic query would not have told Ezy the employee was not receiving the minimum hourly rate, plus the loadings, penalties, meals and rest breaks.

Professional services firms warned on workplace breaches

In a speech in March 2017, Fair Work Ombudsman Natalie James warned professional advisers of the risks they faced if they were involved in breaches of workplace laws.

They could be judged as an accessory to a breach, she said, and also risked being judged in the court of public opinion.

“The simple reality is ‘doing the right thing’ means taking on greater responsibility in certain higher risk labour markets where low skilled, often migrant or young, labour is involved,” she said.

Accessories had been forced to pay penalties and had assets frozen and the FWO had obtained orders to make individual directors liable to pay underpayments.

Accountants’ role as trusted advisers

DibbsBarker partner Fay Calderone says the ombudsman has made it clear that small business relies heavily on trusted advisers, and if those advisers are knowingly involved in award breaches, they will be pursued as accessories.

“The more involved accountants are in their clients’ businesses and in actually administering payroll or taking positive steps in an operational sense with respect to their clients’ businesses, the more likely it will be that they are knowingly concerned in breaches,” she says.

Calderone says a critical factor in the Ezy case was the accounting firm’s involvement in the earlier 2014 FWO investigation.

While this was a very specific case, the judgment made it clear that “wilful blindness” would not be tolerated.

“It does come down to the level of involvement we have in our clients’ businesses and to what extent we are involved in decision-making.”

This presents a challenge for external advisers such as accountants who are becoming more involved with clients’ businesses, in understanding clients’ strategy and guiding them through decision-making, she says.

What can you do? Stay informed.

The FWO has a wealth of resources in this area. 

Pay and Conditions Tool (PACT)
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