Directors of insolvent company evade “insolvency exclusion” for claims made under D&O policy

12 March, 2019

In Australia, there has been increased scrutiny by the Fair Work Ombudsman, the regulator, on employer’s underpayment of wages or “wage theft” as it is commonly known. George Calombaris of MasterChef fame, Heston Blumenthal, Subway and supermarket giant, Woolworths are just a few big names which have been associated with significant and systemic underpayment of staff.

How do underpayments most commonly come about?

Misunderstanding or misinterpreting Awards

Underpayments are often caused by a misinterpretation of what employees are legally entitled to be paid. There are currently 122 Modern Awards and each Award has multiple clauses addressing minimum rates of pay and other safety net entitlements which differ from job to job, skill level and industry to industry. Safety net entitlements such as shift rates, overtime and penalty rates can be interdependent. These rates may differ within a single Award depending upon work type and employment status.

Employers can find it challenging to correctly navigate, interpret and implement the correct classifications for their employees.  Some common industry Awards contain over 10 separate rules that affect overtime accrual which can be problematic for an overworked payroll team, who may not have the training or skills needed. Complexity of the Award system is a significant contributor to the underpayments issue. Unfortunately, small errors over a long period can expose employers to the risk of substantial financial penalties.

Annualised salaries

Often underpayments arise from employers paying their employees annualised salaries without checking whether the employees are better off as compared to applying the relevant Award or enterprise agreement.

In an effort to combat the increase in wage underpayments, the Fair Work Commission has introduced model annualised salary clauses to be inserted into a number of Awards, many with widespread coverage including the Clerks – Private Sector Award, the General Retail Industry Award, the Banking, Finance and Insurance Industry Award, and the Manufacturing and Associated Industries and Occupations Award.

The model clauses do vary depending on the Award but overall it is fair to say that they impose significant obligations on employers wanting to pay full-time employees an annualised salary under the Award. Obligations include detailed reports including getting employees to record their start, finish and break times, identifying an outer limit of ordinary hours that can be worked before overtime and penalty rate hours would arise, having employees sign off on their hours every pay period and conducting regular reconciliations to ensure the annual salary is sufficiently high to absorb all award entitlements.

It is anticipated that these new clauses, effective from 1 March 2020, will assist in minimising underpayment risk for employers paying annualised salaries. However, the requirements are hugely onerous on businesses and will no doubt cause employers real challenges. This not just being from the perspective of compliance, but also the risk of a cultural shift (and likely not a good one).  Given more businesses are offering increased flexibility around when, where and how their employees work, there have been much criticism of the annualised salary provisions and the concern that they will take the workplace backwards in terms of flexibility, reverting to a clock in/clock out, “clockwatching”, time based approach.

That being said, it appears that there is the option for employers to decide to not follow the annualised salary arrangements in any applicable Award and implement or continue to rely on set-off clauses in their contracts of employment. The FWC has indicated in its decision regarding annualised salary provisions1 that employers can make arrangements under an employment contract without engaging with the annualised wage arrangement clause in the applicable award:

“… an employer is able to pay an employee to whom an award applies an annualised salary arrangement that compensates for or “buys out” various identified award entitlements without engaging with any annualised wage arrangement clause in that award and without there needing to be an annualised wage arrangement clause in that award…The model clauses do not seek to invalidate or regulate any such contractual arrangements.” [our emphasis]

If this option is something that your organisation would like to consider, we can provide advice on the relevant considerations, the “pros and cons”, and in practice how your business could go about it. Ultimately, however, the question remains as to how an employer would satisfy the regulator or a disgruntled employee that the annualised salary was sufficient to absorb all the other entitlements under an award if the employer does not actually know what hours the employee has worked.


Interestingly, despite many employers voluntarily coming forward to reveal underpayments, and those employers committing to repay any money owed, the Fair Work Ombudsman is increasingly seeking penalties against these employers, with the Fair Work Ombudsman, Sandra Parker, stating in response to Woolworths’ revelation that the FWO:

“will hold them to account for breaching workplace laws… [corporates] must understand that admission is not absolution. Companies should expect that breaking workplace laws will end in a public court enforcement outcome”.

Currently, the Fair Work Ombudsman operates as the independent federal employment watchdog, tasked with investigating and prosecuting workplace complaints, and enforcing compliance, including ensuring employers are paying employees their minimum entitlements. The Fair Work Ombudsman has far reaching powers of investigation, including power to enter employers’ premises, to inspect any records and documents or interview anyone, as well as the power to require a person to produce records or documents. Generally, these records or documents include employee records such as rosters and payslips, which can help the Fair Work Ombudsman establish the underpayments. The Fair Work Ombudsman in some recent cases has required employers to enter enforceable court undertakings, which can include some fairly onerous requirements, such as implementing a new payroll system, apologising to workers, and auditing pay for a number of years into the future.

Breaches of the Fair Work Act can lead to orders for the repayment of the underpayments and attract penalties of up to $63,000 per contravention for companies and up to $12,600 per contravention for individuals. In cases of serious contraventions, being when the person or business knew they were contravening workplace laws and the contravention was part of a systematic pattern of conduct, penalties can be up to 10 times as much, so $126,000 per contravention for individuals, and $630,000 per contravention for companies.

Directors and managers are not beyond reproach, with directors and even HR representatives of companies found to have been underpaying employees being personally held accountable. This means that, in circumstances where the director and/or HR representative were “knowingly involved” in a contravention, the individual can be personally fined.

Criminal sanctions

The Attorney-General is currently drafting federal laws to deal with criminalising worker exploitation.  Australian Prime Minister, Scott Morrison put employers on notice that those who exploit workers may soon face criminal penalties for serious instances of “wage theft”. The current focus on “criminalising wage theft” has been lauded as a huge shift by the Fair Work Ombudsman, Sandra Parker.

Inquiry into wage theft

On 13 November 2019 the Senate voted to refer a wide-ranging inquiry into wage theft to the economics references committee. The committee will consider how Australian workplace laws could be enhanced to better protect workers from wage thieves, including whether supply chain liability should be extended to drive better compliance. It will have broad terms of reference enabling Senators to examine what wage theft is, why it happens in Australia, and what the government can do to address the problem.

It’s not just the dollars

The penalties for contravening the Fair Work Act are significant however, for some companies, the reputational risk of an underpayment scandal is of even more concern. In order to ensure compliance, employers must understand the make up of their workforce and correctly identify who is covered by an award.  It is critical employers are familiar with the various classifications in the relevant awards and their corresponding pay rates, as well the triggers throughout the year for wage increases, for example, junior or apprentice rate changes.

A comprehensive audit should highlight any weaknesses in the payroll system and provide recommendations. Employers should ensure their payroll team is properly resourced and companies should invest in their technology so that their systems and record keeping procedures are up to date.

The office of the Fair Work Ombudsman is staffed and ready to investigate companies who may be in breach of the Fair Work Act.  In this competitive landscape, it is important for companies to remember that their employees are their greatest asset.

If you have any queries or concerns about your business’ compliance with Awards or enterprise agreements, annualised salaries, or the upcoming changes on 1 March 2020, please reach out and get in contact with us.

Nicola Martin, Principal in McCabes Employment group publishes monthly vlogs to help employers navigate all manner of legal issues. Her vlog discussing some recent high-profile wage underpayments cases, and the need to audit compliance with relevant industry and occupational awards can be found here.

1 4 yearly review of modern awards – Annualised Wage Arrangements [2019] FWCFB 4368 at [22].

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023