Why being willfully ignorant isn’t a defence

4th May, 2017

Is shutting your eyes to a client’s misdeeds as bad as actively helping a client commit them?

It absolutely is – according to the Federal Circuit Court.

In case you missed it, Victorian accounting firm Ezy Accounting 123 was found to have “deliberately shut its eyes” as its client underpaid its workers.

Since 2009, advisors such as accountants and bookkeepers have been legally liable under the Fair Work Act in cases such as this.

The sticking point, though, was that the Fair Work Ombudsman had to prove in court that the adviser, or third party, had helped the client make the breaches of the Fair Work Act.

But the Ezy Accounting 123 case is a slightly different kettle of fish, because it was found to have done exactly…nothing.

Turning a blind eye

Maurice Blackburn’s national head of employment law, Josh Bornstein, told The Pulse that under the relevant legislation you could still be prosecuted if you “turn a blind eye” to the situation.

“The key question in these situations is the extent of the involvement of the third party with their client,” he said.

“Some advisers make it their business to assist their clients to break the law by underpaying their staff. Others turn a blind eye to the situation.

“Either way, if they are caught out by the Fair Work Ombudsman, they can be prosecuted in court.”

In the case of Ezy Accounting 123, it claimed that the actual payment rate its client meted out to its staff was none of its business as award obligations fell outside their professional expertise and scope of work.

It just did the books, after all.

But the Ombudsman was able to prove that Ezy actually helped its client rectify underpayments during an audit in 2014.

As a result, the Ombudsman said that Ezy should have recognised the warning signs.

A cautionary tale

What constitutes actual knowledge of a client’s misdeeds is up to the judge.

“The question of being knowingly involved in a contravention is a matter of fact to be determined by the judge in each case,” said Bornstein.

“The party must have knowledge of the actual facts that constitute the breach of the Act.

“In each case it is necessary to examine the knowledge and intent of the adviser, accountant, company director or even CEO.”

This case is something of a gamechanger, because it’s fairly unusual for a third party to be prosecuted if they didn’t have a direct and active involvement in the underpayments.

Because the Ombudsman was able to prove Ezy had previously worked on staff payment breaches with the client, it was able to prove that Ezy should have reasonably been able to spot red flags while doing the numbers.

So, what’s the takeaway from all this?

It’s pretty simple, really. Business advisors must take all reasonable steps to make sure wage standards under the Fair Work Act are complied with.

Turning a blind eye to the sins of a client is no legal defence.