Government planning new punishments for directors who shirk employee liabilities when companies collapse

Emma Koehn /

The federal government is planning to introduce new legislation that would make it easier to punish company directors who try to shirk their responsibilities to employees, in a bid to stem the billion-dollar Fair Entitlements Guarantee Scheme that sees taxpayers cover unpaid entitlements when a company’s collapses.

The Australian reports the Turnbull government’s proposed changes will include punishments for directors who are found engaging in “transactions” aimed at preventing their liability for employee entitlements.

The legislation would include a new civil charge that would allow company directors to be taken to court for failure to pay out worker entitlements when their businesses fail, making directors personally liable to pay the amounts owed to employees.

The federal government currently provides a safety net, called the Fair Entitlements Guarantee, for employees in the event their redundancy and other entitlements are not paid out when a company collapses.

Workers may be able to claim payment from the scheme for unpaid wages and redundancy pay in the event they lose their positions as a result of, or within six months of, their employer’s liquidation or bankruptcy.

The scheme is overseen by the Department of Employment, and The Australian reports the legislation will attempt to limit the number of claims to the fund, which have reportedly topped $1 billion over the past five years.

Director at Workplace Law Shane Koelmeyer says it makes sense that the government would be taking steps to chase company directors for employee entitlements more aggressively, given the large number of operators who set up businesses without an understanding of what they will ultimately be required to pay their workers.

“We are in an age where so many people are starting up their own businesses, and you don’t want people setting up a business badly and knowing that someone else will bail them out,” Koelmeyer says.

Think about your obligations – right through to the worst-case scenario

The behaviour of company directors has been in the spotlight over the past year as the government looks to limit poor behaviour of company founders through phoenix activity and their engagement in the black economy.

Last month, the Turnbull government also announced plans to introduce Director Identification Numbers to track the behaviour of all Australians running businesses.

Koelmeyer says given the possibility of tougher penalties and liability requirements on the horizon, it’s critical that business founders sit down and work out what they would owe to workers in the event their company collapses tomorrow.

“Know your contingencies. We see a lot of businesses come through and they don’t know their liabilities,” he says.

“We see things a lot like where a company has not been paying superannuation, then they collapse — and owe it.”

Koelmeyer suggests business founders make time to factor in “the worst case scenario” and list what they would owe to employees in the event the business had to stop trading.

“Ask, ‘if this business collapses, what will I owe to my staff?’ And if you’re going to be the director or owner, know that you could have personal liability,” he says.  

SmartCompany contacted the office of Minister for Employment Michaelia Cash for further information about the possible scale of penalties in the bill, but did not receive a response prior to publication.

Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on TwitterFacebookLinkedIn and Instagram.

Emma Koehn

Emma Koehn is a former senior SmartCompany journalist.