As Australia’s workplace laws grow in complexity, so too do the compliance obligations of corporate boards in Australia. Once viewed as a function of human resources or middle management, employment compliance now sits squarely within the remit of directors. Modern regulators expect active governance, and courts are increasingly willing to impose personal liability on directors who have failed to implement or oversee adequate systems to protect employees. The consequence is that, in the event of an employment compliance failure, directors may face not only reputational and organisational consequences but also personal liability.
Against this backdrop, Boards must ask themselves a critical question: Are we discharging our duties in a manner that sufficiently mitigates employment-related risks, both for the organisation and for individual directors?
Behind the Corporate Veil: When Directors Can Be Personally Liable
Ordinarily directors are not personally liable for actions they take on behalf of the company they serve. This is often referred to as the ‘corporate veil’. However, the corporate veil may be lifted and personal liability can arise in specific circumstances, including breaches of employment law. Under instruments such as the Fair Work Act 2009 (Cth), Sex Discrimination Act 1984 (Cth) (SD Act), state anti-discrimination laws and various WHS regulations, directors may be held personally accountable where they are deemed to have been involved in or failed to prevent contraventions.
This exposure is not theoretical. Regulators are increasingly pursuing individuals where governance failures are apparent—particularly where issues have become systemic or have resulted in harm. The threshold for liability is not limited to intentional misconduct; it can also encompass acts of recklessness, omission, or wilful blindness.
Health, safety and wellbeing risks
Emerging areas such as psychosocial hazards—encompassing stress, harassment, burnout, and toxic workplace culture—are now part of the legal landscape. SafeWork Australia’s national model WHS laws now explicitly incorporate these risks, and boards are expected to demonstrate these risks are being actively identified, assessed, and controlled. Failing to do so can expose both the organisation and its directors to liability. Individual directors can be exposed to significant penalties (fines of up to $600,000 per breach), and up to five years imprisonment for indictable offences.
While some duties can be assigned or delegated, directors should be receiving regular reports and information on psychosocial hazards and steps being taken to eliminate or control them.
Underpayments and the “involvement” principle
Wage and superannuation underpayments remain an area of intense regulatory focus. The reputational and financial damage associated with non-compliance is significant, and the Fair Work Ombudsman has shown a readiness to investigate directors personally under the involvement provisions of the Fair Work Act 2009 (Cth) (FW Act).
Under section 550 of the FW Act, a director may be liable if they are found to have:
- aided, abetted, counselled, or procured a contravention;
- induced or attempted to induce a contravention;
- been knowingly concerned in or a party to a contravention (including through inaction); or
- conspired with others to effect a contravention.
Liability is not confined to deliberate non-compliance. A director who is aware of underpayment risks and fails to take reasonable steps to mitigate the risk and rectify them, and may be deemed to be “knowingly concerned” in the underpayment. In more egregious circumstances, their conduct may qualify as a serious contravention, which attracts even harsher penalties.
Sexual Harassment and the Positive Duty to Prevent Harm
The legal framework governing workplace conduct has shifted decisively with the introduction of the positive duty under the Sex Discrimination Act 1984 (Cth). This duty requires organisations to take proactive and reasonable measures to eliminate, as far as possible, unlawful conduct such as sexual harassment, sex-based discrimination, and hostile work environments.
This is not a matter of form over substance. Regulators expect genuine cultural leadership from the top. It is insufficient for boards to rely on policies or post-incident remediation. Instead, they must ensure that the organisation fosters a culture in which inappropriate conduct is both clearly prohibited and actively deterred.
For boards, this involves oversight of:
- preventative frameworks (policies, training, codes of conduct);
- internal reporting mechanisms and whistleblower protections;
- data on incidents, investigations, and culture audits; and
- management’s accountability for delivering safe, respectful workplaces.
A workplace free from harassment isn’t just a legal requirement; it’s a driver of performance, morale, and reputation. A failure to fulfil this duty not only undermines organisational integrity but may also constitute a legal breach for which directors are ultimately accountable.
Proactive Oversight: From Passive Governance to Informed Inquiry
Directors are not expected to manage day-to-day operational matters. However, they are responsible for ensuring that systems exist to identify, assess, manage, and report on key risks—including those arising from employment law and workplace conduct. Effective governance is not passive; it demands oversight that is both deliberate and informed.
To discharge this duty, Boards must establish and monitor structured frameworks that provide clear, reliable, and timely information on compliance performance and organisational culture. Crucially, they must critically assess this information and consider whether it reflects reality on the ground.
Key areas of focus should include:
1. Workplace Grievances and Whistleblower Activity
The handling of complaints and disclosures is a litmus test for workplace integrity. Directors must ensure that grievance and whistleblower processes are accessible, trusted, and comply with applicable legislative frameworks—including whistleblower protections under the Corporations Act 2001 (Cth).
Key questions:
- Is our whistleblower framework legally compliant and actively promoted?
- Are potential recipients of grievances or protected disclosures familiar with our policies? Do they understand their obligations?
- Do staff have safe and confidential avenues to report concerns — including to senior leadership or the board when appropriate?
- Are any trends or themes emerging in grievances or protected disclosures? Are they being escalated appropriately?
2. Internal Audits and External Investigations
Employment-related audits—whether relating to wage compliance, discrimination, or WHS obligations—must be more than procedural. They are an opportunity for boards to test the robustness of internal controls and identify systemic weaknesses.
Key questions:
- Are independent audits conducted regularly on high-risk areas such as remuneration and workplace safety?
- Are audit findings reported to the board in a timely and comprehensible format?
- Has management acted on recommendations from past audits or investigations?
3. Psychosocial Safety and Employee Engagement
Psychosocial risks, including mental health, workload stress, and toxic workplace behaviour, are increasingly recognised as compliance obligations—not just cultural considerations. Boards need to evaluate how these risks are being addressed both operationally and strategically.
Key questions:
- Does the organisation regularly assess employee wellbeing and engagement?
- Are psychosocial risks identified, documented, and managed through WHS systems?
- Is the board receiving meaningful metrics on culture, morale, and retention? Who conducts exit interviews for the CEO’s direct reports?
4. Remuneration Practices and Payroll Compliance
Given the prevalence of underpayment issues in Australian workplaces, remuneration compliance must be treated as a core legal and reputational risk. Boards cannot rely solely on assurances from management or external advisors.
Key questions:
- Are remuneration systems subject to regular, independent review?
- Have any historical underpayments been identified, and what steps have been taken to address them?
- Are directors briefed on the risk of non-compliance and steps taken to mitigate it?
5. Leadership Accountability and Cultural Expectations
Culture begins at the top—and so does accountability. Boards must lead by example and ensure there are systems in place to set expectations for behaviour, monitor leadership performance, and enforce consequences where necessary.
Key questions:
- Has the board clearly articulated its expectations for respectful conduct, integrity, and ethical leadership? Are these expectations implemented through an appropriate behavioural framework?
- Is the board itself subject to behavioural expectations (e.g. through a code of conduct)?
- Are breaches of conduct by senior leaders investigated independently and transparently?
- Are culture and conduct metrics embedded in executive performance evaluations?
6. Resourcing and Risk Mitigation Capacity
Effective compliance is resource-dependent. Directors must satisfy themselves that the organisation has sufficient capability to meet its legal obligations and to detect and respond to breaches in a timely manner.
Key questions:
- Has the board determined the organisation’s risk appetite and established an appropriate risk management framework to keep risks within agreed tolerances?
- What internal capacity exists to manage employment compliance—including HR, legal, and audit functions?
- Has the board appropriately used external audit functions?
- Are systems and personnel adequately resourced to meet the organisation’s scale and complexity?
- What is the residual risk that non-compliance is occurring undetected?
Directors must not assume that delegating responsibility to management absolves them of liability. Courts and regulators are increasingly prepared to scrutinise not only the existence of systems, but also the extent to which directors have confirmed that they are properly implemented and effective.
This is not micromanagement—it is governance in action.
When does a board need to step in?
There are times when oversight must give way to direct involvement. Greater board oversight or direct engagement by the board may be necessary when:
- a whistleblower disclosure is made to a director or the board;
- the employment compliance matter involves the CEO;
- the CEO has a conflict that means they are unable to handle the matter;
- there appears to be a systemic issue (particularly if the board does not have confidence in the executive team’s response);
- the matter involves significant financial or reputational risk, such as widespread underpayments or employment disputes that are likely to attract media attention; or
- the matter could lead to a legal claim against the organisation.
How we can help
Our specialist Workplace Relations and For Purpose / Not for Profit legal teams are well placed to advise boards on governance strategies and obligations in respect of employment and occupational health and safety obligations. Our teams can provide valuable expertise to guide boards through complex employment matters and disputes.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to your organisation.