Understanding Directors’ liability for underpayments: lessons from Chatime case

In this case, the Court found the co-founder of Chatime complicit in underpayments, even though he claimed to be unaware of the exact breaches that had occurred. Justice Nicholas Manousaridis found that the co-founder had absorbed enough information about award obligations and casual and weekend penalty rates to be considered complicit.

The case’s details revolve around a pivotal meeting in 2013 during which Chatime’s co-founder was presented with two costing models by the Chief Financial Officer (CFO). One model adhered to award rates, while the other proposed a modified structure to reduce payroll costs. The co-founder’s preference was for the latter model, which was subsequently adopted, and which led to underpayments over a four-month period, totalling about $160,000.

The two key takeaways from the case for Company Directors are:

1. Lack of actual understanding of obligations to Employees won’t prevent liability.
2. Documentation and a compliance culture are crucial.

The Court emphasised that the co-founder’s preference for a specific costing model indicated an understanding of the differences, making him complicit in the decision. Additionally, the importance of documenting decision-making processes and discussions was highlighted, as clear records can serve as evidence of intent and understanding.

Judge Manousaridis noted, "[The co-founder] saying that he did not understand or 'fully' appreciate 'exactly' what an award was, or what would be the ramifications for non-compliance with an award, implies [he] had some understanding of what an award is, and he had a notion that non-compliance with an award may have some ramifications."

Even though the co-founder claimed not to fully understand what an award was, his stated preference for a particular costing model was held to imply sufficient understanding of award obligations and the potential consequences of non-compliance.

This case is a critical and timely reminder of the need for Company Directors to take their responsibilities very seriously and to ensure that they have the necessary knowledge and understanding to know if others in the business are acting ethically and are compliant with employment obligations.

Developing a transparent compliance culture is a great starting point for business. However, building knowledge and understanding of employment obligations is essential.

Importantly, as Justice Manousaridis stated, “proving unlawful intent to establish liability is unnecessary,” There is little to no protection for Company Directors or other senior decision makers merely because of a lack of awareness.  The best protection arises from knowing what employee entitlements apply and ensuring employees receive those entitlements, in full.

The Chatime case offers valuable insights for businesses, regardless of their industry. Company Directors and decision-makers must take steps to proactively understand employment obligations, document decisions, and foster a culture of compliance.

If there is any doubt about your business meeting its employee obligations, our team at Mazars can assist. Mazars can independently audit payroll and practices and if there are any non compliances can work with businesses on rectification strategies. If you would like more information, please contact your usual Mazars advisor or alternatively our HR consultants via the form below or on:

Source:  Fair Work Ombudsman v Chatime Australia Pty Ltd (No 2) [2023] FedCFamC2G 712 (11 August 2023). (n.d.). http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FedCFamC2G//2023/712.html

Author: Cheryl-Anne Laird

Published date: 13 September 2023

All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.