Accounting firms are being fined as accessories when their clients break the law and exploit vulnerable workers. What does this mean for your firm’s professional indemnity insurance?
By James Dunn
It is cold comfort for accountants, but they are not alone in being squarely in the sights of the Fair Work Ombudsman (FWO) as accessories when clients breach workplace laws.
As well as accountants, external advisers such as human resources (HR) managers, payroll officers, line managers, directors and even principals of suppliers are on notice if a client is found guilty of underpaying or otherwise exploiting staff.
Two accountants have been found accessorily liable and fined for workplace breaches committed by their clients (one case is being appealed) and the cases have sparked concerns over whether accountants’ professional indemnity (PI) insurance covers them for these penalties.
Fair Work breaches and insurance cover
“The accepted principle is that it’s against the public good to provide insurance for someone who’s breaking the law,” says Drew Fenton, principal at insurance broker Fenton Green.
“But it’s also a principle that if you’re innocently dragged into a situation, the policy will respond, meaning it would be accepted as a claim under your policy, and your insurer then will instruct solicitors on your behalf. Most insurers will automatically say, ‘you’ve been dragged into this Fair Work matter and yes, they’re claiming that you’ve done something wrong, so therefore the policy will respond’.”
From that point, however, the area becomes grey, Fenton says. “There are quite a number of degrees of service that accountants can provide, from a quick phone call asking you, ‘what is the pay-rate for such-and-such?’ right through to actually doing the payroll and distributing the money and issuing group certificates on behalf of your client. If there has been a breach, your liability will depend on what work you did.”
The critical point is that when a policy responds, the cost of defence is covered, but a penalty is not. “If in their adjudication they said you were totally complicit in this breaking of the law, by whatever service you provided, your PI policy will not give you any sort of indemnity,” says Fenton.
Do professional indemnity policies cover Fair Work breaches?
Roy Chen, account manager at PSC Hiscock Insurance Brokers, says there are some PI policies where cover is extended for statutory liability, for fines and penalties from certain acts. “For example, our statutory liability policy carries extensions, but it only extends to occupational health and safety, and environmental protection legislation. It would not cover you for a Fair Work Act breach, however.”
Chen says there are standalone statutory liability policies that would cover an accountant for FWO penalties and also some management liability policies that extend to statutory liability cover. In practice, however, he says only a large accounting firm would have this cover, as part of its armoury of coverage, whereas a small suburban accountant probably would not.
“A smaller accounting firm has to have PI insurance, but PI is not going to be enough in the case of a Fair Work Act breach. The firm and the practitioner would need specific statutory liability cover, on top of their PI cover,” says Chen.
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A new era of accountability for accountants
It is fairly clear from the FWO’s words and actions that "we are in a new era of accountability,” Fenton says.
Nick Ellery, employment partner at law firm Corrs, says the FWO has “made such a big point” about using accessorial liability and accountants must accept that this action will become more common.
“It’s obviously not a defence to say, ‘I didn’t know that I was meant to pay a certain rate’. As an employer, you’re obliged to know, and ignorance will generally not be an excuse for the HR manager or accountant or whoever else might be caught up in it,” says Ellery.
He adds that it is not only accountants who have to accept this – it is any external adviser, and internal executives such as HR managers.
As more claims are made, this “has the potential to cause PI premiums to increase,” says Ellery.
Why the Fair Work Ombudsman is pursuing advisers
Ombudsman Natalie James warned in a speech in July 2016 that the FWO was “adventurously testing the limits of accessorial liability provisions to ensure someone is held responsible for breaches of the Fair Work Act.”
Acting FWO Kristen Hannah followed up in November 2017, saying that where the ombudsman’s office found “blatant exploitative conduct”, it would “do everything within our power to ensure that all accessories to that conduct are held to account”.
Hannah warned this included taking action against not only business owners and directors, but also any HR practitioners, accountants, industrial relations specialists and any other professionals involved in “knowingly facilitating exploitation of employees”.
Accountant fined over client’s exploitation of workers