Balemian v Mobilia Manufacturing Pty Ltd and Anor (No.2)
[2017] FCCA 2566
•26 October 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BALEMIAN v MOBILIA MANUFACTURING PTY LTD & ANOR (No.2) | [2017] FCCA 2566 |
| Catchwords: INDUSTRIAL LAW – Penalty – failure to provide annual leave and long service leave – failure to pay superannuation benefits – pre-judgment interest – pecuniary penalties imposed. |
| Legislation: Fair Work Act 2009 (Cth), ss.20, 45, 90, 357, 546, 547, 550, 557 Federal Court of Australia Act 1976 (Cth) s.51A |
| Cases cited: Balemian v Mobilia Manufacturing Pty Ltd & Anor [2017] FCCA 743 Construction, Forestry, Mining and Energy Union v Hamberger (2003) 127 FCR 309 |
| Applicant: | GARO BALEMIAN |
| First Respondent: | MOBILIA MANUFACTURING PTY LTD |
| Second Respondent: | BEDROS BAHAR |
| File Number: | MLG 1432 of 2015 |
| Judgment of: | Judge Hartnett |
| Date of Last Submission: | 16 June 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 26 October 2017 |
REPRESENTATION
| Solicitors for the Applicant: | McDonald Murholme |
| Counsel for the Respondents: | Mr Laidlaw |
| Solicitors for the Respondents: | Bramich Legal |
THE COURT ORDERS THAT:
Within seven days of these orders the First Respondent pay to the Applicant annual leave in the sum of $67,830.
Within seven days of these orders the First Respondent pay to the Applicant long service leave in the sum of $17,020.08.
Within seven days of these orders the First Respondent pay to the Applicant pre-judgment interest in the sum of $12,206.53.
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (‘the Act’) the First Respondent pay a pecuniary penalty in the sum of $35,700 within seven days of these orders.
Pursuant to s.546(1) of the Act the Second Respondent pay a pecuniary penalty in the sum of $7,140 within seven days of these orders.
Pursuant to s.546(3)(c) of the Act the pecuniary penalties be paid to the Applicant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1432 of 2015
| GARO BALEMIAN |
Applicant
And
| MOBILIA MANUFACTURING PTY LTD |
First Respondent
| BEDROS BAHAR |
Second Respondent
REASONS FOR JUDGMENT
The Court has before it the written submissions of the Applicant dated 2 June 2017 and the written submissions of the Respondents dated 16 June 2017. Those submissions go to quantum, interest and penalties arising from declarations made by the Court on 13 April 2017. Reasons for judgment were delivered on that day which supported the making of the declarations by the Court (‘the judgment’).
Annual Leave
On 13 April 2017, the Court declared relevantly the following:-
“3. The Applicant’s annual leave accrual with Auscraft Constructions Proprietary Limited transferred to the First Respondent and accordingly the Applicant had accrued 425 days of annual leave with the First Respondent as at 5 May 2015.”
Section 90 of the Fair Work Act 2009 (Cth) (‘the Act’) provides:-
“ (1) If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee's base rate of pay for the employee's ordinary hours of work in the period.
(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.”
The Applicant’s ‘base rate of pay’ for the Applicant’s ‘ordinary hours of work in the period’ was $21 per hour.
The meaning of ‘ordinary hours of work’ is set out in s.20 of the Act which provides:-
“Meaning of ordinary hours of work for award/agreement free employees
Agreed ordinary hours of work
(1) The ordinary hours of work of an award/agreement free employee are the hours agreed by the employee and his or her national system employer as the employee's ordinary hours of work.
If there is no agreement
(2) If there is no agreement about ordinary hours of work for an award/agreement free employee, the ordinary hours of work of the employee in a week are:
(a) for a full-time employee--38 hours; or
(b) for an employee who is not a full-time employee--the lesser of:
(i) 38 hours; and
(ii) the employee's usual weekly hours of work.
If the agreed hours are less than usual weekly hours
(3) If, for an award/agreement free employee who is not a full-time employee, there is an agreement under subsection (1) between the employee and his or her national system employer, but the agreed ordinary hours of work are less than the employee's usual weekly hours of work, the ordinary hours of work of the employee in a week are the lesser of:
(a) 38 hours; and
(b) the employee's usual weekly hours of work.
Regulations may prescribe usual weekly hours
(4) For an award/agreement free employee who is not a full-time employee and who does not have usual weekly hours of work, the regulations may prescribe, or provide for the determination of, hours that are taken to be the employee's usual weekly hours of work for the purposes of subsections (2) and (3).”
There was no evidence before the Court nor finding by the Court as to any agreement existing between the Applicant and his employer as to the hours agreed to be the Applicant’s ordinary hours of work for the purposes of s.20(1) of the Act or cl.36.5 of the Manufacturing and Associated Industries and Occupations Award 2010. Accordingly, the ‘ordinary hours of work’ of the Applicant in a week were 38 hours as defined by s.20(2)(a) of the Act.
The Applicant’s entitlement to annual leave is as submitted by the Respondents calculated as follows:-
4 (weeks) x 38 (ordinary time hours) x 21.25 (period of employment) = 3,230 (hours).
3,230 (hours) x 21 (hourly rate) = $67,830 owing in annual leave.
Long Service Leave
Paragraph 86 of the judgment is as follows:-
“86. The amount of the long service leave owing appears not in dispute and to be 18.42 weeks.”
The Applicant’s entitlement to Long Service Leave arises out of the Long Service Leave Act 1992 (Vic) (‘the LSLA’).
“Section 56 of the LSLA is as follows:-
Basic entitlement to long service leave
An employee is entitled to—
(a) 13 weeks of long service leave on ordinary pay on completing 15 years of continuous employment with one employer; and
(b) 4 1/3 weeks of long service leave on ordinary pay on completing each period of 5 years of continuous employment with that employer after the first 15 years of continuous employment with that employer.”
‘Ordinary Pay’ is defined by s.64 of the LSLA as follows:-
“Meaning of ordinary pay
(1) For the purposes of this Division, “ordinary pay” means the pay an employee is entitled to receive at the time he or she takes long service leave for working his or her normal weekly hours at his or her ordinary time rate of pay.”
Again, there was no evidence before the Court nor finding by the Court that ‘normal weekly hours’ were fixed by any contract of employment.
Section 64(3) of the LSLA is as follows
“(3) If no ordinary time rate of pay is fixed for an employee's work under the relevant employment agreement, the employee's ordinary time rate of pay is to be taken to be the greater of the following—
(a) the average weekly rate earned by the employee in the 12 months immediately before he or she takes long service leave;
(b) the average weekly rate earned by the employee in the 5 years immediately before he or she takes long service leave.”
The Applicant sought to use the 2013/2014 taxation return of the Applicant as the basis for the calculation of his entitlement to long service leave, pursuant to s.64(3)(a) of the LSLA above. That figure of total remuneration referred to the period of 12 months ending 20 June 2014, not 5 May 2015 which was the last date before which long service leave would have been taken and is the date to which the legislation refers. The Respondents submit that the best evidence available is reflected in the finding at paragraph 70 of the judgment wherein the Court observed that the Applicant conceded in cross examination that the average number of hours worked in the later period of his employment was 44 per week. The Court accepts this submission.
On this basis, the relevant calculation is 18.42 (weeks) x 44 (hours) x $21 (hourly rate), being $17,020.08.
Superannuation
The sum of $1,260.84 has been placed into a trust account by the First Respondent for payment out to a complying Superannuation Fund as nominated by the Applicant. That should occur forthwith.
Pre-judgment Interest
Each of the annual leave and the long service leave were to be paid on the cessation of the Applicant’s employment being 5 May 2015. Accordingly, the Applicant’s cause of action accrued on that date.
Section 547 of the Act states:
“1. This section applies to an order (other than a pecuniary penalty order) under this Division in relation to an amount that a person was required to pay to, or on behalf of, another person under this Act or a fair work instrument.
2. In making the order the court must, on application, include an amount of interest in the sum ordered, unless good cause is shown to the contrary.
3. Without limiting subsection (2), in determining the amount of interest, the court must take into account the period between the day the relevant cause of action arose and the day the order is made.”
Section 51A(1) of the Federal Court of Australia Act 1976 (Cth) states:
“In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:
a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or
b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest”.
The Applicant refers to the Federal Court Interest on Judgments Practice Note (GPN-INT) which implements the following interest rates for amounts prior to judgment:-
“(a) in respect of the period from 1 January to 30 June in any year – the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced; and
(b) in respect of the period from 1 July to 31 December in any year – the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced.”
The annual leave and long service leave claimed total is $67,830 + $17,020.08 = $84,850.09. Accordingly, the payment of pre-judgment interest of $12,206.53 is due which is calculated as follows:
Period Time in years Cash rate Interest rate Interest 5 May 2015 to 30 June 2015 0.154 2.5% 6.5% $849.35 1 July 2015 to 31 December 2015 0.5 2.0% 6.0% $2,545.5 1 January 2016 to 30 June 2016 0.5 2.0% 6.0% $2,545.5 1 July 2016 to 31 December 2016 0.5 1.75% 5.75% $2,439.44 1 January 2017 to 26 October 2017 0.82 1.5% 5.5% $3,826.74 Note: interest is calculated as $84,850.09 x time in years x interest rate.
Penalty
The proceedings are a civil penalty proceeding.
The First Respondent and the Second Respondent are each held to have breached:-
a)section 357(1) of the Act;[1]
b)section 90(2) of the Act by failing to pay accrued annual leave at the cessation of employment; and
c)section 45 of the Act by failing to make superannuation contributions between 11 February 2015 and 5 May 2015 in breach of clause 35.2 of the Award.
[1] Balemian v Mobilia Manufacturing Pty Ltd & Anor [2017] FCCA 743, 63.
Each of the First and Second Respondent are liable to penalties by reason of the finding pursuant to s.550(2) of the Act and the declaration of the Court to that effect.
The Applicant seeks the imposition of pecuniary penalties on the First and Second Respondents and seeks that such penalties be paid to the Applicant. That is a matter for the Court in the exercise of its discretion. The Respondents are not opposed to such a course. The Court determines that any payments shall be made to the Applicant.
Application of Principles on the Imposition of Penalties
The factors to consider in determination of penalties are well known and set out in Mason v Harrington Corporation Pty Ltd t/as Pangea Restaurant and Bar [2007] FMCA 7.; Kelly v Fitzpatrick (2007) 166 IR 14 at [14]; Stuart-Mahoney v Construction, Forestry, Mining and Energy Union (2008) 177 IR 61 at [40]; John Holland Pty Ltd v Maritime Union of Australia (No 2) (2010) 192 IR 431 at [27]; McDonald v Australian Building & Construction Commissioner [2011] FCAFC 29 at [15]; Construction, Forestry, Mining and Energy Union v Hamberger (2003) 127 FCR 309 at [51]; and Hadgkiss v Sunland Construction (Qld) Pty Ltd [2006] FCA 1566 at [11].
Course of conduct and grouping
Section 557 of the Act provides that, for specified contraventions of the Act, two or more contraventions of the same civil remedy provision will be treated as a single contravention where that contravention was committed by the same person, and arose from the same course of conduct.
The Court determines that the failure to pay superannuation contravention, forms a separate grouping to the remaining matters which arose from the single decision to treat the Applicant as an independent contractor rather than an employee. Thus the Court determines there should be a grouping of two.
Maximum penalties
The penalty unit used to determine the appropriate penalty is the ‘penalty unit’ as it was at the time of the contraventions.[2] The contraventions occurred from 25 June 2009 to May 2015. As Katzmann J found in Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 55 at [398], when the contraventions occur over a period of time and the value of a penalty unit increases in that period, the higher penalty unit can apply. Katzmann J further said that it should be considered when determining penalty that the lower amount applied for part of the period. Accordingly, a penalty unit is determined to be $170. This was the operative penalty unit in the period from 28 December 2012 to 30 July 2015.
[2] Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 55, 393.
The maximum penalties for a natural person are:
a)contraventions of s.44(1) (accrued annual leave) 60 penalty units;
b)contraventions of s.45 (superannuation) 60 penalty units;
c)contravention of s.357 (sham) 60 penalty units.
The maximum penalty for a corporation is five times the above.
The maximum penalties the Court could impose in monetary terms, for each of the two groups of the Contraventions are:-
a)$51,000 for the First Respondent: and
b)$10,200 for the Second Respondent.
The Applicant submitted that penalties ought to be in the range of 75% to 100%. The Respondents submitted that the penalties ought be in the range of 20% to 40% of the maximum.
The Respondents further submitted that when the Court then considered the totality principle to determine the aggregate penalty which is an appropriate response to the offending conduct,[3] a discount ought be applied for the cumulative effect of the penalties in accordance with that principle. The Applicant submitted that there should be no such discount.
[3] Kelly v Fitzpatrick [2007] FCA 1080, 30 per Tracey J.
Nature, extent and circumstances of the contravening conduct
There is no evidence of any previous similar conduct by the Respondents. The conduct the subject of this litigation took place over a period of 21 years. The First Respondent is liable for a total of $84,850.09 in unpaid entitlements together with interest. This is a significant sum and represents a significant loss to the Applicant.
In the judgment, the Court found that the First Respondent had
“…at the very least recklessly disguised the true legal nature of the relationship…”
The circumstances however also involved the Applicant taking no issue with his classification as an independent contractor until after the cessation of his employment, employment which had been lengthy and for the most part harmonious. The Applicant represented to the Commonwealth that he was a contractor engaged in his own business and claimed various deductions in relation thereto. This factor complicated the characterisation of the relationship, and thus added to the dispute being one not so readily resolved.
Deterrence
It is well established that the need for specific and general deterrence is the primary consideration in the imposition of a civil penalty. In the circumstances of this case there is little need for specific deterrence. The Applicant’s position in the workplace was unique and there is no evidence of any past or ongoing relationship like it. There is no evidence that corrective action is required in relation to any other employee of the First Respondent. There is a need for general deterrence however, to ensure that circumstances such as these do not arise again in any workplace.
Other
Any penalty must not be crushing or oppressive. The First Respondent is a small business in commercial terms. The Second Respondent, who was the senior manager in the business, a matter also of concern, is a bankrupt.
A discount due to the cumulative effect of the penalties is appropriate. The s.45 of the Act breach should result in a penalty of 40% for each of the Respondents and in respect of the other contraventions as contained in the one group a penalty of 30% shall be imposed in respect of each of the Respondents.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Judge Hartnett
Date: 26 October 2017
0
9
5