It can hurt when a key employee criticises your management decisions and then resigns, but if you’re thinking of seeking revenge by withholding your employee’s accrued entitlements, think again.
Last week the Federal Circuit Court fined Signostics Ltd $110,000 and ordered it to pay former Chief Operating Officer Stewart Bartlett’s unpaid entitlements as well as his legal bill on an indemnity basis after the court found the company was ‘motivated by malice’ to withhold the executive’s accrued leave.
Judge Heffernan found that the COO had repeatedly raised with the CIO and CFO the company’s legal obligation to inform its Australian employees of planned redundancies. The job losses were to occur as part of US parent company Echonous Inc’s winding up of Signostics.
Judge Heffernan found that Signostics deliberately short changed the COO with a malign intent as a result of the COO’s forthright behaviour regarding the shutting down of local operations.
Signostics produced a falsified payslip that reduced the COO’s leave balance from 431.5 to 82 hours. The judge wrote that the evidence strongly suggested that Echonous, Signostics and their payroll service provider colluded to confect an adjusted figure for the COO’s annual leave entitlement. Being a US company, Echonous’ involvement resulted in the American date format appearing on the forged payslip, contrary to previous practice. The forgery also got the COO’s postal address wrong.
The case of Signostics is a rare example of how the usual ‘maximum’ penalty can be magnified ten-fold for ‘serious contraventions’. Since the judge found that Signostics knowingly contravened the Fair Work Act, the pecuniary penalty it was ordered to pay could have been up to a maximum of $630,000.
While most employers would not be that stupid, it can be tempting to withhold an employee’s final pay if the working relationship has broken down, if they have actually caused financial loss to the business, or for cash flow reasons.
The Fair Work Act requires swift payment of accrued entitlements on termination of employment. If workers are to finish up straight away and receive a payment in lieu of notice then you actually breach the Act if you terminate their employment prior to making that payment. Each breach of the Act can result in a penalty of up to $63,000.
Occasionally employers choose to sue their employees for negligence or deliberate damage to the business. It can be tempting to set off entitlements owed to those employees against such claims but this is a complex area of law fraught with risk. Take legal advice if you are contemplating this action as you could be risking more in penalties than the value of your claim.
Takeaways
- Have an employee’s termination payments ready to go before they finish up, or as soon as possible afterwards;
- If you’re thinking of withholding an employee’s entitlements (out of malice, as leverage, or otherwise), seek legal advice first. It’s likely that you would be exposing your business to the risk of big fines and reputational harm.