Common management liability claims Australian businesses should understand

Running a business involves more than delivering products or services. It also involves managing employees, complying with regulations, and making decisions that affect the organisation every day.

Most of the time, these responsibilities are handled without major issues. Occasionally, however, something goes wrong. A workplace complaint, a regulatory investigation, or internal fraud can quickly turn into a costly legal matter.

These situations are often covered by a Management Liability policy. They relate to how a business is managed and the decisions made by directors, officers, and managers. The Management Liability insurance covers directors, officers, and managers for claims against their management practices.

Understanding the types of claims that can arise is a helpful starting point when thinking about risk in your business.

Why management liability risks affect many businesses

Many business owners assume that major legal claims only happen to large corporations. In reality, smaller businesses often face the same types of issues.

Employment disputes, regulatory investigations, and internal fraud can occur in businesses of any size. The Fair Work Act gives all employees protected rights at work.1

When these issues arise, the financial impact often comes from legal costs, investigations, and settlement payments.

Below are several examples of situations that can lead to management liability claims.

Employee theft and internal fraud

Internal fraud is a risk many businesses do not expect until it happens.

In one example, an employee responsible for processing invoices also had access to the system used to create suppliers. Over time, the employee created a fake supplier account and processed multiple small payments to it. These payments were less likely to be reviewed closely during the approval process.

The activity continued for months before it was detected, resulting in the company losing thousands of dollars. 

Cases like this highlight how internal controls and approval processes can play an important role in reducing risk.

Directors facing regulatory breaches

Directors and officers have legal responsibilities when it comes to regulatory compliance.

In another example, a company had repeatedly failed to meet fire safety requirements at its premises. Because directors are legally responsible for the workplace environment, local authorities pursued action against them for the breaches.

Even when directors dispute the allegations, the legal process itself can be expensive. Defence costs alone can reach five-figure sums before a resolution is reached. 

Australian businesses operate within a range of regulatory frameworks. Guidance from the Australian Government highlights that businesses should actively manage risks, including legal and regulatory risks, as part of normal operations. Insurance is an important way to reduce your business risks.

Public inquiries and investigations

Sometimes issues attract the attention of regulators or public authorities.

In one scenario, a public inquiry was launched into a business’s activities. The directors became concerned about their personal liability and reputational exposure.

Responding to an inquiry required hiring solicitors, preparing documentation, and participating in interviews and investigations. These steps can create high legal and administrative costs. 

Even when no wrongdoing is ultimately proven, the process of responding to an inquiry can place considerable pressure on a business and its leadership team.

Unfair dismissal claims

Employment disputes are one of the most common sources of legal action for businesses.

In one case, a former employee alleged that he had been dismissed from a construction project because he refused to join a union. The employer argued that the project was nearly finished and the employee’s role was no longer required.

The dispute escalated to the Federal Court and resulted in more than $250,000 in legal costs. 

Australian employment laws provide protections for workers against unfair treatment at work.1 Because of these protections, disputes about termination or workplace decisions can sometimes lead to formal claims.

Workplace harassment and discrimination

Workplace culture can also become a source of legal claims.

In another example, an employee alleged that her manager repeatedly bullied her in front of colleagues and denied her a promotion because she was pregnant.

The employee sued the business for $120,000. The matter eventually went to mediation and was settled for a five-figure payment. 

Situations like this often involve both legal costs and reputational considerations for businesses.

What these examples show

While each business operates differently, these examples illustrate how management liability issues can arise from everyday situations.

Common triggers include:

• Internal fraud or employee misconduct
• Regulatory investigations or compliance failures
• Employment disputes, such as unfair dismissal
• Harassment or discrimination allegations

Each scenario can involve legal advice, court proceedings, or settlement costs.

For many organisations, understanding these risks is an important step toward building stronger governance and risk management practices.

References

[1] Protections at work (fairwork.gov.au), https://www.fairwork.gov.au/employment-conditions/protections-at-work; accessed 5 March, 2026.

[2] Types of business insurance (business.gov.au); https://business.gov.au/risk-management/insurance/types-of-business-insurance, accessed 5 March 2026.

 [4] ACCC, “Employsure notification document”, https://www.accc.gov.au/system/files/public-registers/documents/Notification%20Received%20-%2017.12.20%20-%20PR%20-%20N10000538%20Employsure.pdf, accessed 24 March 2026. 

LCPA 26/2023