Director, Fair Work Building Industry Inspectorate v Supernova Contractors Pty Ltd ACN 099 426 552
[2012] FMCA 935
•9 October 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DIRECTOR, FAIR WORK BUILDING INDUSTRY INSPECTORATE v SUPERNOVA CONTRACTORS PTY LTD ACN 099 426 552 & ANOR | [2012] FMCA 935 |
| INDUSTRIAL LAW – ‘Sham’ contract of employment – agreed statement of facts – admission of breach – considerations regarding penalty. |
| Fair Work Act 2009 (Cth), ss.357(1), 539(2), 545(1), 546(1), 547(2), 550, 550(2), 557 |
| A & L Silvestry Pty Limited v Construction, Forestry, Mining and Energy Union [2008] FCA 466 Australian Ophthalmic Supplies and Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 Carr v CEPU [2007] FMCA 1526 CPSU v Telstra Corporation Limited (2001) 108 IR 228 Darlaston v Risetop Construction Pty Ltd and Ors [2011] FMCA 220 Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 Fair Work Ombudsman v Land Choice Pty Ltd [2009] FMCA 1255 Kelly v Fitzpatrick (2007) 166 IR 14 Mason v Harrington Corporation Limited [2007] FMCA 7 Plancor Pty Ltd v LHMU (2008) 171 FCR 357 Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 |
| Applicant: | DIRECTOR, FAIR WORK BUILDING INDUSTRY INSPECTORATE |
| First Respondent: | SUPERNOVA CONTRACTORS PTY LTD ACN 099 426 552 |
| Second Respondent: | STEVEN PAUL LONG |
| File Number: | BRG 327 of 2012 |
| Judgment of: | Jarrett FM |
| Hearing date: | 21 September 2012 |
| Date of Last Submission: | 21 September 2012 |
| Delivered at: | Brisbane |
| Delivered on: | 9 October 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr Pratt |
| Solicitors for the Applicant: | Clayton Utz |
| Solicitor for the Respondent: | Ms Emery |
| Solicitors for the Respondent: | Doyles Construction Lawyers |
ORDERS
THE COURT ORDERS THAT:
The title to the proceeding be amended by substituting the name “Director, Fair Work Building Industry Inspectorate” for the name “Australian Building and Construction Commissioner” as the name of the applicant.
THE COURT DECLARES THAT:
The First Respondent has contravened s.357(1) of the Fair Work Act 2009;
The Second Respondent, by reason of s.550 of the Fair Work Act 2009, has contravened s.357(1) of the Fair Work Act 2009.
THE COURT FURTHER ORDERS
The imposition of a penalty on the First Respondent pursuant to s.546 of the Fair Work Act 2009 for contravention of s.357(1) of the Fair Work Act 2009 in the amount of $9,900.
The imposition of a penalty on the Second Respondent pursuant to s.546 of the Fair Work Act 2009 for contravention of s.357(1) of the Fair Work Act 2009 in the amount of $1,980.
The penalties to be paid within 28 days of this order.
The penalties be paid to the Commonwealth, pursuant to s.546(3) of the Fair Work Act 2009.
Each party bear their own costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 327 of 2012
| DIRECTOR, FAIR WORK BUILDING INDUSTRY INSPECTORATE |
Applicant
And
| SUPERNOVA CONTRACTORS PTY LTD ACN 099 426 552 |
First Respondent
And
| STEVEN PAUL LONG |
Second Respondent
REASONS FOR JUDGMENT
By this application the applicant seeks the imposition of pecuniary penalties upon the first and second respondents for certain breaches of the Fair Work Act 2009 (Cth). It is asserted that the first respondent was principally responsible for the contraventions and the second respondent was involved in those contraventions for the purposes of s.550 of the Act.
The parties have agreed on a statement of facts upon which this matter now proceeds. According to that statement of facts:
a)The first respondent carried on business as a domestic and commercial building maintenance, shop-fitting and low rise building contractor.
b)It engages the services of independent subcontractors for all of its projects;
c)The second respondent was a director of the first respondent and had authority to act on its behalf. At the relevant times he was actively involved in the day to day management of the first respondent’s business;
d)On 20 January, 2011 Mr Jonathon Hahn was engaged by the first respondent to carry out work for it in the form of general unskilled labour work, including demolishing internal non-structural works and clearing rubbish from building sites;
e)The engagement of Mr Hahn came about after Mr Hahn’s father, who was a friend of the second respondent, enquired about the availability of any casual work for Mr Hahn;
f)At the relevant time, Mr Hahn was 18 years of age. Although he had no training, work qualifications or experience in the building and construction industry he was capable of performing the unskilled labour work required of him by the first respondent;
g)Save for three full time employees (the second respondent and two others) the first respondent did not generally engage employees, but had a policy of engaging only independent subcontractors. To that end, the first respondent required any independent contractor with whom it engaged to provide, prior to the engagement commencing, a valid Australian Business Number;
h)Prior to and during Mr Hahn’s engagement, the second respondent on behalf of the first respondent represented to Mr Hahn that his engagement was by way of a contract for services and that Mr Hahn would need to be an independent contractor. Mr Hahn was required to obtain an ABN which was to be included on his invoices to the first respondent in order for him to be paid for the work that he carried out;
i)As matters turned out Mr Hahn already had an ABN and he used that ABN on his invoices which he prepared and gave to the first respondent so that he could be paid for the work that he carried out;
j)Mr Hahn submitted separate invoices on an hourly rate basis, charging $20.00 per hour in relation to each site where he worked. On the submission of the invoices, the first respondent paid Mr Hahn the amount of the invoices;
k)Some time prior to or at the time Mr Hahn submitted his first invoice to the first respondent, the second respondent provided Mr Hahn with a sample invoice to show him what an invoice should look like and what information the first respondent required on the invoices. Mr Hahn was shown where to record his ABN;
l)Mr Hahn had the use of the general site tools that were provided by the first respondent for the performance of his work. Those tools included wheelbarrows, shovels, brooms and on one occasion an angle grinder;
m)Mr Hahn worked solely for the first respondent and he did not operate a company or advertise his services. Mr Hahn did not have his own public liability insurance and did not have insurance for sickness or accidents. Mr Hahn did not make any contributions towards his own superannuation;
n)Mr Hahn worked for the first respondent for a total of 164.50 hours between 20 January, 2011 and 1 April, 2011. Mr Hahn was free to choose what days he wanted to work;
o)The engagement was not a contract for service but was a contract of casual employment. The first respondent admits that the representation that the second respondent made on its behalf in relation to Mr Hahn’s engagement by the first respondent, amounted to a contravention of s.357(1) of the Act;
p)The second respondent admits to having been involved in the first respondent’s contravention within the meaning of the term “involved” as it appears in s.550(2) of the Act and that the matters described above, in the circumstances of Mr Hahn’s engagement by the first respondent, amounted to a contravention of s.357(1) of the Act.
Moreover, not only have the parties agreed on the above facts, they have also reached broad agreement about an appropriate range of penalty to be imposed on the respondents in these proceedings.
As Counsel for the applicant most helpfully submitted, this Court reiterated much the authority on the principles concerning agreed penalty in Carr v CEPU [2007] FMCA 1526, at [6]. Those principles include (footnotes omitted):
a)that the Court bears ultimate responsibility for penalty, is not bound by the parties’ agreement, and must consider for itself what constitutes an appropriate penalty;
b)determining the quantum of an appropriate penalty is not an exact science, and within a permissible range a particular figure is not necessarily more appropriate than another figure;
c)promoting settlement of litigation (particularly lengthy litigation) is in the public interest, and where the parties agree on facts and penalty, they may present a statement of agreed facts, including a view as to the effect of those facts, and submissions on penalty;
d)the view of the regulatory body is relevant, particularly where the view concerns matters within the regulator’s expertise, but not determinative of penalty;
e)in determining appropriate penalty the Court will examine all the circumstances, including an agreed statement of facts, and, if appropriate, may act on that statement; and
f)a jointly proposed penalty will not be rejected simply because the Court might have chosen a different figure: it is sufficient if the jointly proposed penalty is “within the permissible range” or “broadly speaking” within that range.
The principles applicable to the determination of penalties for contravention of the civil remedy provisions were summarised by Mowbray FM in Mason v Harrington Corporation Limited [2007] FMCA 7 and adopted by Tracey J. in Kelly v Fitzpatrick (2007) 166 IR 14. In Kelly Tracey J considered authorities relevant to contraventions of the Trade Practices Act 1974 (Cth) as well as those concerning contraventions of Workplace Relations Act 1996 (Cth). In Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 at [32], Cameron FM set out considerations relevant in consideration of penalties under the sham contracting provisions of the Workplace Relations Act 1996.
The matters relevant to the determination of the appropriate penalty include:
a)The nature and extent of the conduct relevant to the breach;
b)The circumstances of the breach;
c)The damage resulting from the breach;
d)Whether there had been similar prior conduct by the respondent;
e)Whether there was a pattern of conduct or an isolated instance of a breach;
f)The size of the respondents’ business;
g)Whether senior managers were involved in the breach;
h)Whether there had been contrition, restitution and co-operation with the regulatory authority;
i)Whether the respondent had a culture of compliance;
j)The need for specific and general deterrence.
The applicant submits, and I accept that also relevant is:
a)The purpose of the statutory provision that has been breached;
b)The maximum penalty that the legislature has set for the contravention; and
c)Whether there has been defiance of the law by the respondents, or genuine misunderstanding as to its operation.
Clearly, the above listed considerations are not exhaustive. The principles are for guidance and do not fetter the Court’s discretion as to the matters that should be considered in setting a penalty: Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 at [11], A & L Silvestry Pty Limited v Construction, Forestry, Mining and Energy Union [2008] FCA 466 at [6]. Some of the matters referred to may be more important than others and each of them must be weighed in the ‘intuitive synthesis’ that is necessarily part of the process of determining penalty: see, for example Australian Ophthalmic Supplies and Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [60] – [63] and the cases cited there.
The first respondent has admitted the contraventions of s.357(1) Act. At all relevant times and for the purposes relevant to this application, the acts of the second respondent were the acts of the first respondent. Contravention of s.357(1) of the Act occurs when there is a representation by an employer to a worker that the worker is, or would be an independent contractor rather than an employee in circumstances where they are (or, would be) in fact and law an employee.
The applicant submits that the purpose of s.357 is to prevent the practice of ‘sham contracting’ – that is, to prevent employers clothing an employment relationship as though it were an independent contractor relationship. I accept that this is because sham contracting permits an employer to avoid legal obligations such as payment of:
a)payroll tax;
b)workers’ compensation premiums;
c)employee entitlements (such as annual leave, sick leave and redundancy payments and superannuation contributions).
Further, employees are denied protections that would otherwise be available to them as employees, such as:
a)sick leave;
b)maximum weekly hours;
c)requests for flexible working arrangements;
d)parental leave and related entitlements;
e)annual leave;
f)personal/carer’s leave and compassionate leave;
g)community service leave;
h)long service leave;
i)public holidays;
j)notice of termination; and
k)unfair dismissal rights.
I accept the applicant’s submissions that the avoidance of the above legal obligations and protections involves a direct loss (or the risk of direct loss) to employees. Some also involve potential damage to the community more generally and others involve undermining the system of industrial regulation and protection of employee entitlements. For example, the inability to access workers’ compensation premiums means that workers would be uninsured in the event of injury at work (absent their own insurance at their own cost). Sham contracting also potentially undermines award and agreement conditions.
I accept that the fact that the legislature has provided relatively large maximum penalties ($33,000 for a corporation and $6,600 for an individual) indicates that the contraventions are considered serious.
The young age of Mr Hahn and his vulnerability due to a lack of experience and worldliness are matters relevant to a consideration of penalty. At the relevant time Mr Hahn was only 18 years of age and had no training, work qualifications or experience in the building and construction industry.
Mr Hahn worked solely for the first respondent and did not operate a company or advertise his services. He did not have his own public liability insurance and did not have insurance for sickness or accidents, nor did he make any contributions towards superannuation.
The contract rate agreed between Mr Hahn and the first respondent was les than the award rate to which Mr Hahn was entitled. Prior to the commencement of these proceedings and upon demand by the applicant, the first respondent paid to Mr Hahn the amount of $564.54 to rectify the underpayment of wages and non-payment of superannuation.
The first respondent has been operating in the building industry and engaging independent subcontractors for approximately 12 years. Whilst the first respondent only engaged three full time employees, being the second respondent, a project manager and an administrative manager, the first respondent engaged contractors to undertake various work for its business.
The second respondent was the manager and a director of the first respondent. He was the most senior manager in the first respondent’s business. He was involved in and knew of the first respondent’s breaches.
It is not suggested that either respondent has been found to have contravened the Act, or s.357(1) thereof, on any previous occasions.
Both respondents have cooperated with the applicant in its investigation and in these proceedings. They have admitted liability. Underpayments, as assessed by the applicant, have been paid to Mr Hahn by the first respondent. The respondents have also participated in an audit of the first respondent’s business by the applicant, attended recorded interviews and supplied relevant documents in a timely way.
The parties agree that respondents have entered a timely admission of the contraventions, avoiding the need for a trial. I accept that I should see the respondent’s co-operation, restitution and agreement on the statement of facts combined with a timely admission of the contravention as evidence of contrition.
The applicant and respondents agree that the respondents conduct in this case forms part of a course of conduct for the purposes of s.557 of the Act. The parties agree that the effect then is that each respondent is taken to have contravened s.357(1) of the Act once.
I accept that sham contracting contraventions are difficult to detect, investigate and prosecute. I also accept that is especially so in the building and construction industry where employees are often acutely sensitive to a detrimental affect their participation in such investigations may have on prospects of future employment. Accordingly, the role of general deterrence in determining the appropriate penalty is particularly important. The following observations of Lander J in Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 at [93] are relevant:
In regard to general deterrence, it is assumed that an appropriate penalty will act as a deterrent to others who might be likely to offend: Yardley v Betts (1979) 22 SASR 108. The penalty therefore should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like minded persons or organisations. If the penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor in fixing the penalty: R v Thompson (1975) SASR 217.
Similarly in CPSU v Telstra Corporation Limited (2001) 108 IR 228 at 231 Finkelstein J said:
... even if there be no need for specific deterrence, there will be occasions when general deterrence must take priority, and in that case a penalty should be imposed to mark the law’s disapproval of the conduct in question, and act as a warning to others not to engage in similar conduct.
These observations were followed and applied by this Court in Fair Work Ombudsman v Land Choice Pty Ltd [2009] FMCA 1255 at [104] – [108], Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 at [58] and Darlaston v Risetop Construction Pty Ltd and Ors [2011] FMCA 220.
Conclusion
The respondents argue that in this case they simply attempted to assist a friend with some work and proceeded with the engagement without making sure that all was in place to ensure that Mr Hahn was properly viewed as a contractor rather than an employee of the first respondent. I accept the respondent’s submission that that there was no intention on the part of either respondent to engage in conduct that was designed to conceal the true nature of the relationship between the first respondent and Mr Hahn.
However, in my view, there is a strong argument that general deterrence is particularly important in cases such as this. For the reasons set out above, there is a significant risk that an employee who has been misled as to the nature of his or her legal relationship with their employer might be significantly prejudiced. They might not receive the correct remuneration or superannuation. They might not seek to access other entitlements such as workers’ compensation, under the mistaken belief that they were not entitled to such benefits. Moreover, it is important to recognise “the need to sustain public confidence in the statutory regime which imposes obligations”: Plancor Pty Ltd v LHMU (2008) 171 FCR 357 at [60].
In the circumstances the applicant and respondents agree that imposition of a penalty on each respondent in the order of 30% of the maximum penalty is appropriate. The respondents argue that although the penalty is agreed, the agreed amount is the maximum that should be imposed, and it is open to the Court to impose a lesser amount than the agreed maximum.
I accept that a penalty of 30% of the maximum is within the appropriate range in that it does not sit at the low end of the range. Neither is it approaching anywhere near the maximum.
In the circumstances I will declare:
a)The first respondent has contravened s.357(1) of the Fair Work Act 2009;
b)The second respondent, by reason of s.550 of the Fair Work Act 2009, has contravened s.357(1) of the Fair Work Act 2009.
I will order:
a)The imposition of a penalty on the first respondent pursuant to s.546 of the Fair Work Act 2009 for contravention of s.357(1) in the amount of $9,900.
b)The imposition of a penalty on the second respondent pursuant to s.546 of the Fair Work Act 2009 for contravention of s.357(1) in the amount of $1,980.
c)The penalties to be paid within 28 days of this Order.
d)The penalties will be paid to the Commonwealth, pursuant to s.546(3) of the Fair Work Act 2009.
e)Each party will bear its own costs.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Jarrett FM
Date: 8 November 2012
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