29/06/2015

We know that directors can be personally liable for unpaid super but are they also guilty of a crime?

A recent news article stated that the ATO pursues 9,000 unpaid superannuation payments from employers each year.  For example we have recently seen the high profile case of the financial failure of the Newcastle Jets A-League team where the team owner/s are in voluntary administration with $400,000 worth of unpaid superannuation to their employees.

Back in November last year we wrote an article about directors being personally liable for unpaid superannuation.  Now we turn to the question of whether those directors can be charged with fraud.

The elements of fraud are:
 
1.     a person acting deceptively or dishonestly;
2.    that person’s deceptive or dishonest actions allowing them to obtain another person’s property, a financial advantage or causing someone else to suffer a financial disadvantage; and
3.    that person’s actions being either intentional or reckless.

By refusing to pay the employee’s super that is otherwise clearly owed to them the employer is certainly gaining a financial advantage and doing so intentionally so elements 2 and 3 would appear to be met.
The question is whether the ‘act’ of spending the employer’s money elsewhere where there is superannuation owed to the employee is deceptive or dishonest.  
When the employee is employed the employer promises to pay that employee their wages and super. If the employer then intentionally breaks that promise are the employer’s actions deceptive?   Or does the employer have to believe at the time they make the promise that they won’t pay the super in order for the behaviour to be deceptive.

If
•    an employer is confronted by an employee about superannuation owed;
•    the employer states they will pay it;
•    the employer never has the intention to pay it; and
•    the employer is spending that money elsewhere,

isn’t that both deceptive and dishonest?  

Would an ordinary person think in these circumstances that the employer is acting deceptively and/or dishonestly?

It seems that an employer’s actions involving unpaid superannuation are at least capable of constituting fraud.  However, normally it is the police who prosecute under criminal law, not ordinary citizens.  Realistically would the police charge an employer with fraud in these circumstances or would they simply say that it is a ‘civil matter’, meaning that the employee would simply have to sue the employer for the unpaid amount.

If the police refuse to act can the employee prosecute the criminal charge against the employer?

In NSW it is possible for someone other than a police officer to commence criminal proceedings by issuing a court attendance notice signed by a registrar.  The registrar cannot sign the notice if any of the following apply:
•    the notice does not disclose the grounds for the proceedings;
•    the notice is not in the form required;
•    the court rules provide that it should not be issued; or
•    the proceedings are believed to be frivolous, vexatious, without substance or have no reasonable prospects of success.

Commencing a criminal prosecution would be both costly and time consuming.  Are there any other alternatives to commencing these proceedings?

An employee can recover unpaid superannuation through an action under the Federal Fair Work Act or the NSW Industrial Relations Act. Alternatively, an employee could contact the ATO and lodge a complaint triggering an ATO investigation.  The ATO will establish whether or not an employer debt is owed and then take steps to try to collect the debt on behalf of the employee.

These alternative methods may be a more effective means for the employee to recover money that they are legally entitled to, so would there be any benefit in launching a private criminal prosecution?  Tactically, there might be.

A rogue employer or a director of a rogue corporate employer may be quite happy to avoid the super payment by simply allowing the business to be wound up.  If there’s no money left and the directors have no assets (all in the name of the spouse) then the employees miss out on their superannuation.

But if the same rogue individuals were faced with a criminal charge, the publicity and potential for a custodial sentence may act as a persuader for them to suddenly find money from somewhere to pay their employees their superannuation.

Once they’ve earned it, an employee’s superannuation is their property.  It is not the property of the employer to do with as they wish.  The use of their employees’ money is a seriously unlawful act that may result in civil, and even potentially criminal, proceedings.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.