The Federal Government has passed news laws designed to punish employers (and their directors) who evade their employer obligations by engaging in shady business practices such as ‘phoenixing’ and asset-shifting.
The laws also seek to curb ‘corporate misuse’ of the Fair Entitlements Guarantee scheme (FEG) and thereby reduce the ballooning financial burden on taxpayers arising from it.
The Fair Entitlements Guarantee
The FEG is a legislative safety net designed to provide statutory employment benefits to employees (eg, unpaid wages, payment in lieu of notice, redundancy and leave entitlements) who lose their job as a consequence of the liquidation or bankruptcy of their employer.
Increased reliance on the FEG has resulted in the scheme’s costs more than tripling from $70.7 million in the four year period ending 30 June 2009, to $235.3 million in the four year period ending 30 June 2018.
The New Legislation
The new laws which came into effect on 6 April 2019 amend the Corporations Act to:
- deter and penalise directors and others who engage in or facilitate transactions directed at preventing, avoiding or reducing employer liability for employee entitlements in insolvency
- recover employee entitlements from related entities if those entities benefitted from work performed (even if the entities did not employ the employees directly)
- enable ASIC to impose sanctions on directors and company officers with a track record of corporate contraventions and insolvencies, particularly where the FEG is repeatedly and inappropriately relied upon
In addition, the laws extend the current threshold for a criminal offence by lowering the fault element to include “recklessly” entering into transactions while introducing new civil penalty provisions that include a “reasonable person” test.
Potential Liability for Businesses and Individuals
The laws expand the scope of civil proceedings that can be brought against companies as well as the entities that may commence these proceedings (eg, it includes the ATO, the Department of Jobs and Small Business and the Fair Work Ombudsman).
In the second reading speech regarding the new laws, IR Minister Kelly O’Dwyer made clear that the laws are tightly targeted to deter and punish only those who seek to avoid their employee entitlement obligations and exploit the FEG scheme.
Accordingly, employers and directors need to ensure they comply with their statutory employment and corporate obligations.
Please call the leading employment lawyers in Parramatta, the Matthews Folbigg Workplace Solutions employment law team on 9635 7966 to speak with one of our employment lawyers if you require any assistance or advice.