Divisional Secretary wasn’t entitled to pay himself unauthorised back-pay

Case Name

Registered Organisations Commissioner v Mijatov [2018] FCA 939 external-icon.png

What were the issues?

The Divisional Secretary of a branch of an organisation was found to have breached the Fair Work (Registered Organisations) Act 2009 (the RO Act) when he personally arranged for and received back-pay from the union’s funds that he was not entitled to. 

The Divisional Secretary also breached his duties of care and diligence as an officer for seven years by failing to prepare a budget as required by the union’s rules.

What happened?

The rules of the Flight Attendants Association of Australia (FAAA) require the Divisional Secretary to prepare and submit budgets to the Divisional Council. The Divisional Secretary, Mr Mijatov, admitted he failed to do this for seven years. He argued that because there was no real financial loss, no penalty should be imposed, but the Court did not accept that. 

The Divisional Secretary also personally made arrangements to receive a salary adjustment from the union’s funds. The Court found that the Divisional Secretary failed to take the necessary care in obtaining the back payment, and that this lack of care resulted in him obtaining a payment he was not entitled to. 

What can organisations learn from this?

It is important for officers to comply with the organisation’s rules relating to proper financial management, and a failure to do so is serious even when it does not result in actual financial loss.
Officers must also ensure that they are in fact lawfully entitled to receive any payment or benefit from the organisation, particularly when they are personally involved in or responsible for making the payment. A genuine belief that the officer is entitled to receive payment is insufficient. 

Organisations should ensure they have robust governance arrangements in place. This may prevent behaviour that is in breach of the Act. 

What did the judge say?

Justice Bromwich found that the Divisional Secretary was not entitled to the back payment but accepted that the seriousness of his conduct was mitigated by his genuine belief “that he was doing no more than obtaining what he was entitled to” (at [50]). 

However in considering the seriousness of conduct that involved the payment by the Divisional Secretary to himself of amounts he was not entitled to, Justice Bromwich clarified at [53] that:

Without the mitigation of a genuine belief as to entitlement …, it would have been open to categorise the contravention as being in the worst category and one that warranted no departure from the maximum penalty. 

In considering the seriousness of the budget contraventions Justice Bromwich accepted [at 45] that there was no evidence of financial mismanagement or loss, but noted that this was beside the point as:

… the gravamen of the contravention is Mr Mijatov’s failure to read, understand and act in accordance with his obligations. It is to be measured against the nature of the obligation already described, and its evident purpose. The purpose is to provide a clear reference point for financial accountability. In the absence of a proper budget, the Divisional Council was deprived of the means to measure its performance against planning benchmarks and targets. Moreover, the failure took place over a lengthy period of time in respect of six full financial years and a short transitional financial year.

What was the outcome and the penalty?

The Court found that the Divisional Secretary breached his statutory duties to act with care and diligence both in relation to the preparation of budgets and the improper payment of back-pay to himself. 

The Court imposed a penalty of $500 in respect of the budget contravention and a penalty of $1,500 in respect of the back-pay contravention (assessed against a maximum penalty at the time for any one contravention of $2,200). The penalties under the RO Act have since increased, and Justice Bromwich noted [at 53] that the same conduct would today result in a higher penalty.