The recent court finding that an accountancy firm was liable for contraventions of the Fair Work Act by its client, to which the firm provided payroll services to a client, is indicative of a trend in the law extending and expanding the reach of liability to those who are found to be “involved” in the breach of the law. The decision in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810 involved a restaurant which was underpaying its staff in breach of the Act, with the accountancy firm knowing of the breach but in effect ‘turning a blind eye’.
Although professional advisers assisting a client should not generally be found liable, an earlier instance was that of a lawyer assisting a client director to breach his director’s duties in implementing unlawful ‘phoenixing’. In current and developing areas of law, liability may now be imposed on a bank which finances an enterprise in breach of environmental laws, or, potentially, on a franchisor with oversight of the operations of its franchisees.
But a particular issue that the circumstances of this case raises is whether an accountant providing services to a client can focus only on the particular task allocated or whether, through observing the client’s business operations, the accountant has any obligation to respond to a breach of the law by advising the client accordingly, or if no action is taken, to refer the matter to the authorities, in this case the FWO.
If that obligation of an accountant is presently unclear, it will be made clearer in July 2017 when the International Code of Ethics for professional accountants imposes an obligation on accountants to respond to instances of “non-compliance with laws and regulations” (NOCLAR) detected within their employer or clients.
It is an issue that is before the accounting regulator the APESB and is understood to be listed for final approval this month, with a commencement date of 17 July 2017.
At the same time, the NOCLAR obligation raises a number of other issues, in particular legal issues that are associated with ‘whistleblowing’ and protection of the whistleblower, within limits, from liability or retribution.
Whistleblowing is presently under review by the government’s Treasury department, with an initial focus on the existing provisions in Part 9.4AAA of the Corporations Act. The APESB has made a submission to that inquiry asking for protection for accountants who abide by the NOCLAR obligations; or alternatively it seems, that NOCLAR may not receive much support in the absence of such protection.
One would have thought that in the six years of domestic and international negotiations leading up to July 2017, this would have been addressed by the accounting bodies. They would also have needed to assess other legal obligations and implications, including their existing legal obligations to report serious crime in any event.
The Parliamentary Joint Committee on Corporations and Financial Services is also to report, by 30 June 2017.
Meanwhile, a report on different whistleblower approaches in various sectors has been issued by Griffith University, with the public sector performing well against not for profit and certain private sectors.
However, NOCLAR, which is a post-GFC reaction to the professions turning a blind eye to financial misconduct in the lead up to 2008, seems to offer a worthy response to observed breaches of the law, at least as a guiding principle. But care might need to be taken in its particular application. An accountant working for a client underpaying staff, not remitting taxes, not accounting for cash sales, or even with evident unsafe work practices, and beyond into the more serious issues of fraud, money laundering, illicit drugs and more, will need to keep their eyes open.
The details of the liability
As to the case before the Federal Circuit Court, the liability of the accounting firm arose under section 550 of the Fair Work Act which provides that a person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision. Examples of involvements are listed, relevantly, as having aided, abetted, counselled or procured, or being otherwise knowingly concerned. Section 79 of the Corporations Act is a comparable provision in respect of corporate law breaches.
The Court said that even “the most basic query” would have revealed the staff underpayments but that the firm “deliberately shut its eyes” to the contraventions. A penalty is yet to be imposed.