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Obligations of a business owner or director

Obligantions of a business owner or director

Duties of company directors

The duties of company directors are spelt out in the Corporations Act.

Some of them include:

  • to place your company's interests above your own;
  • to act honestly and in the overall best interests of the company;
  • to act with care and attention to detail;
  • to be up to date with the company's activities;
  • to seek professional advice when necessary;
  • to take an active part in director's meetings;
  • not to misuse privileged company information against the company or to your own private interests;
  • to ensure that the company keeps financial records that comply with the Act;
  • to prepare annual returns if this is required (not strictly necessary for a small proprietary company - check with your accountant) and ensure the records are accurate;
  • not to allow the company to continue to trade if it cannot meet its current debts - this is particularly so if you suspect that the company is insolvent when the debt is incurred or would become insolvent if the debt is incurred etc.

There are serious penalties for directors who breach this Act.

Implied conditions and warranties

The Trade Practices Act and State consumer protection laws imply certain conditions and warranties in relation to goods and services. These include:

  • that the goods you sell are "of merchantable quality" ie they are fit for the purpose that you sold them for.
  • that the goods you sell are as you described them.
  • that you have the legal right to sell the goods, ie they are not stolen.
  • that services are provided with due care and skill.
  • that materials used when delivering services are fit for their purpose.

If you breach these conditions or warranties then a consumer may be able to refuse to take the goods and demand a refund. Their specific rights will depend on a number of circumstances, including whether the breach is of a warranty or a condition.

Unfair trading

The Trade Practices Act and State consumer protection laws also prohibit certain types of conduct that are generally considered "unfair".

Examples include:

  • misleading conduct, ie this includes doing or refusing to do something;
  • false representations;
  • unconscionable conduct - issues considered when assessing this include the relative bargaining strengths of you and your customers, any unreasonable conditions, any undue influence etc.
  • bait advertising, ie advertising a product at a low price to entice a consumer to buy a more expensive item etc.

If you breach the Trade Practices Act or the State consumer protection laws, you may be prosecuted by either the relevant State department or the Australian Competition and Consumer Commission.

Negligence

As a business owner you and your staff will owe a duty of care over and above any obligations imposed by legislation. It is a duty which is part of the law of negligence, and belongs to what is called the common law or "judge made law".

What this means is that if you breach the duty of care that is owed to another person, and that person suffers some harm or loss that is reasonably foreseeable, then you and/or your staff may be negligent, and the person who suffered the loss may be able to make a claim for damages.

In each situation the important questions that must be asked are:

  • Does a duty of care exist? Do your actions affect another person?
  • What is the standard of care? This is based on what would be expected by a "reasonable person".
  • Has the duty of care been breached? This will be a question of fact in each situation.
  • Has the person suffered any harm or loss? This can be physical harm, loss of property, or in some cases mental harm (nervous shock). Again this will be a question of fact.
  • Has the action caused the loss? Would the harm have not occurred "but for" the action?
  • Was the type of loss foreseeable? Again the test is what a "reasonable person" would foresee as likely given all the circumstances.

Possible defences include:

  • denying the allegation - this could take the form of: denying that a duty of care existed; arguing that the action taken was reasonable; arguing that no damage was suffered; denying a causal link between the breach of duty and the damage, or arguing that the damage was not reasonably foreseeable.
  • contributory negligence - you argue that the person didn't take the necessary care. This is not a complete defence, it simply apportions the fault.
  • voluntary assumption of risk - you argue that the person has knowingly taken on the risk of certain actions. This is a complete defence, but the courts take a conservative view in applying it. You would also need to prove that the person had a real appreciation of the risk they were taking, and their choice to take the risk was unconstrained. Note, disclaimers are not a separate defence, they are a written voluntary assumption of risk.
  • a new intervening act - where it is alleged that another person has intervened and exacerbated the situation, or caused damage which you could not be responsible for.

Vicarious liability

An employer may be responsible for certain actions of their employees - provided the employee was acting "within the course of their employment" - this is called vicarious liability.

If an employee causes damage of any kind to another person or to property, get legal advice immediately.

Health and safety

You have an obligation to provide a safe and healthy environment for your employees. This obligation is different to workers compensation. Health and safety obligations are based on the law of negligence and if you are found to be negligent, an employee may be able to sue you for damages.

The law also places specific obligations on you in relation to health and safety. This law is contained in both Federal and State legislation. There are also codes of practice that give guidance about compliance with these laws.

Note. This obligation extends to the workplace as a whole, and the needs of individual employees as well as to visitors to your workplace.

Discrimination

There are Federal and State anti-discrimination laws which apply to the workplace. It is important to make decisions about workers according to their performance or eligibility to perform a job, rather than any personal characteristics.

The Federal and State laws apply to all employment situations, including the hiring and advertising of staff, transfers, promotions etc. For example, decisions about job applicants or workers who are eligible for promotion should not be decided on characteristics such as sexual preference, age, disability, marital status, gender etc.

Indirect discrimination is also prohibited. For example, imposing requirements for a job which are not essential, but which in fact discriminate against a person or class of people.

Another area of discrimination is sexual harassment, ie offensive sexual behaviour such as inappropriately touching another person or making offensive comments, suggesting that an employee will be advantaged by meeting sexual demands etc.

If you have any questions about discrimination contact the Anti-Discrimination Commission. If an employee makes allegations about discrimination, see a solicitor immediately.

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