Fair Work Ombudsman v Active Services Group Pty Ltd
[2024] FedCFamC2G 35
•23 January 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Active Services Group Pty Ltd [2024] FedCFamC2G 35
File number(s): MLG 1897 of 2022 Judgment of: DEPUTY CHIEF JUDGE MERCURI Date of judgment: 23 January 2024 Catchwords: INDUSTRIAL LAW – parties by consent seek declaration of contraventions of the Fair Work Act 2009 (Cth) – failure to comply with three compliance notices issued under s 716 Fair Work Act 2009 (Cth) – where liquidator has been appointed to first respondent company – where applicant only seeks declarations and orders against second respondent sole director – consideration of whether the common law concept of ‘course of conduct’ should apply to respondents’ failure to comply with compliance notices – further consideration of whether the court should exercise its discretion in setting penalty – where applicant primarily sought no penalty be imposed – consideration of weight to be given to second respondent’s financial difficulties and mental health challenges – declaration of contraventions and penalty orders made. Legislation: Fair Work Act 2009 (Cth), ss 90, 545, 546, 550, 557, 716 Cases cited: Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157
Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450
Construction, Forestry, Mining and Energy Union and Anor v Cahill (2010) 269 ALR 1
Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 115
Fair Work Ombudsman v Dawe [2013] FMCA 94
Fair Work Ombudsman v Extrados Solutions Pty Ltd and Anor [2014] FCCA 815
Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown (2017) 275 IR 148
Fair Work Ombudsman v Route 45 Pty Ltd [2023] FedCFamC2G 83
Kelly v Fitzpatrick (2007) 166 IR 14
Parker & Ors v Australian Building and Construction Commissioner (2019) 270 FCR 39
Ponzio v BP Caelli Constructions Pty Ltd (2007) 158 FCR 543
Division: Division 2 General Federal Law Number of paragraphs: 113 Date of last submission/s: 7 August 2023 Date of hearing: 7 August 2023 Place: Melbourne Solicitor for the Applicant: Mr M Nicolazzo of Maddocks Lawyers Solicitor for the First Respondent: Did not participate Counsel for the Second Respondent: Ms S Kelly Solicitor for the Second Respondent: Spiliotis Legal ORDERS
MLG 1897 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: ACTIVE SERVICES GROUP PTY LTD
First Respondent
JOHN GERANTIDIS
Second Respondent
ORDER MADE BY:
DEPUTY CHIEF JUDGE MERCURI
DATE OF ORDER:
23 JANUARY 2024
THE COURT DECLARES THAT:
1.The second respondent was involved, within the meaning of section 550(2)(c) of the Fair Work Act 2009 (Cth) (‘FW Act’), in the following contraventions by the first respondent:
(a)a contravention of section 716(5) of the FW Act by failing to comply with the Baxas Compliance Notice issued on 4 March 2021;
(b)a contravention of section 716(5) of the FW Act by failing to comply with the Margaritis Compliance Notice issued on 28 June 2021; and
(c)a contravention of section 716(5) of the FW Act by failing to comply with the Dirani Compliance Notice issued on 12 July 2021.
THE COURT ORDERS THAT:
1.Pursuant to section 546(1) of the FW Act, the second respondent pay a pecuniary penalty of:
(a)$2,310 in respect of his involvement within the meaning of section 550(2) of the FW Act in the first respondent’s contravention of section 716(5) of the FW Act in relation to the Baxas Compliance Notice; and
(b)$2,310 in respect of his involvement within the meaning of section 550(2) of the FW Act in the first respondent’s contravention of section 716(5) of the FW Act in relation to the Margaritis and Dirani Compliance Notices.
2.Pursuant to section 546(3)(a) of the FW Act, any pecuniary penalties ordered to be paid by the second respondent be paid to the Commonwealth within 28 days.
3.The applicant has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
DEPUTY CHIEF JUDGE MERCURI:
INTRODUCTION
This application relates to the first respondent’s failure to comply with three compliance notices issued under section 716 of the Fair Work Act 2009 (Cth) (‘FW Act’) in 2021 and the second respondent’s involvement in those contraventions.
BACKGROUND
On 20 February 2023, the parties, including the first respondent, filed a Statement of Agreed Facts (‘SOAF’).
At the commencement of the hearing, the court was advised that applicant had been notified that a liquidator had been appointed to the first respondent consequent upon the passing of a creditor’s winding up resolution.[1] As such, the applicant no longer seeks declarations or orders against the first respondent.
[1] Court transcript at page 3 and following.
However, the applicant seeks a declaration that the second respondent was involved, within the meaning of section 550(2) of the FW Act, in each contravention by the first respondent of section 716(5) of the FW Act pleaded, namely the first respondent’s failure to comply with three compliance notices issued in respect of Mr Baxas on 4 March 2021 (‘Baxis CN’), Mr Margaritis on 28 June 2021 (‘Margaritis CN’) and Mr Dirani on 12 July 2021 (‘Dirani CN’).[2]
[2] Applicant’s Outline of Submissions filed on 12 May 2023 at Annexure A.
Each of the compliance notices related to the first respondent’s alleged failure to comply with its obligations to provide Mr Baxas, Mr Margaritis, and Mr Dirani respectively, with their entitlements to payment of accrued annual leave on termination under section 90(2) of the FW Act.[3] The circumstances in which each employee came to be underpaid differ slightly and will be explored in more detail below.
[3] Statement of Agreed Facts at paragraphs [8], [10] and [14].
Notwithstanding that no declarations or orders were being sought by the applicant against the first respondent, it was submitted that on the basis of the SOAF, the court could, and should, make findings of fact upon which the declarations sought against the second respondent could be based.[4] The respondents agreed with this approach and it is indeed consistent with the reasoning in Fair Work Ombudsman v Dawe [2013] FMCA 94 at paragraphs [10] to [11] and the cases referred to therein.[5]
[4] Court transcript at page 4.
[5] Court transcript at page 22.
The key issue in dispute in this matter is how the court should exercise its discretion, having regard to the facts agreed between the parties, and the relevant principles which apply in the setting of a penalty in a proceeding such as this.
Relevantly, the second respondent submits that, notwithstanding the concessions made in the SOAF as to the first respondent’s conduct and his involvement in that conduct, the particular facts of this case indicate that no penalty should be imposed on the second respondent.[6] In the alternative, if a penalty is to be imposed, it should be at the lower level of the range.[7]
[6] Court transcript at page 20 and following.
[7][7] Respondent’s Outline of Submissions filed on 2 June 2023 at paragraph [7].
AGREED FACTS
As stated, the parties have entered into a SOAF, upon which the following summary is based.
It is agreed between the parties that:
(a)each of the three employees was employed by the first respondent and did not receive their full entitlement to accrued but untaken annual leave on termination;[8]
(b)the first respondent did not comply with any of the compliance notices issued in this matter;[9] and
(c)the first respondent did not have a reasonable excuse for that non-compliance, and consequently, the first respondent contravened section 716(5) of the FW Act with respect to each of the compliance notices.[10]
[8] Statement of Agreed Facts filed on 20 February 2023 at paragraphs [7], [13] and [19].
[9] Statement of Agreed Facts filed on 20 February 2023 at paragraph [25].
[10] Statement of Agreed Facts filed on 20 February 2023 at paragraph [26].
The parties have also agreed that:
(a)the second respondent was responsible for ensuring that the first respondent complied with the compliance notices;[11] and
(b)the second respondent had actual notice that:
(i)the compliance notices were given to the first respondent;
(ii)the first respondent failed to comply with those notices; and
(iii)consequently, the second respondent was knowingly concerned in the first respondent’s failure to comply with the said compliance notices.[12]
[11] Statement of Agreed Facts filed on 20 February 2023 at paragraph [28].
[12] Statement of Agreed Facts filed on 20 February 2023 at paragraph [29].
The parties also agreed that the second respondent was therefore involved, within the meaning of section 550(2)(c) of the FW Act, in the three contraventions and that pursuant to section 550(1) of the FW Act, is taken to have contravened section 716(5) of the FW Act.[13]
[13] Statement of Agreed Facts filed on 20 February 2023 at paragraph [30].
The parties further agreed on the amount of the underpayments as follows:
(a)$5,376.95 with regard to the Baxas CN;
(b)$4,767.00 with regard to the Margaritis CN; and
(c)$2,431.13 with regard to the Dirani CN.[14]
[14] Statement of Agreed Facts filed on 20 February 2023 at paragraph [31].
It is also common ground that no steps had been taken to rectify the underpayments in relation to any of the three employees.[15]
[15] Statement of Agreed Facts filed on 20 February 2023 at paragraph [32].
Pursuant to section 716 of the FW Act, a contravention arises where:
(a)a compliance notice is given to a person;
(b)the notice arises from a reasonable belief that the person has contravened, among other things, an award or the provisions of the National Employment Standards, which includes annual leave entitlements; and
(c)the notice complies with section 716(3) of the FW Act and relevantly contains the details of the contravention and the consequences of failing to comply with the notice.
It is not in dispute that these things occurred in this matter.[16]
[16] Statement of Agreed Facts filed on 20 February 2023 at paragraph [27].
No issue is taken by the second respondent with the applicant’s standing to seek penalties in this case.
In light of the matters agreed in the SOAF, I make findings consistent with the matters agreed between the parties. On the basis of these findings, I am satisfied that the first respondent failed to comply with each of the compliance notices issued in respect of the three employees without reasonable excuse, and in doing so, contravened section 716(5) of the FW Act.
I am also satisfied and find that the second respondent was ‘involved’ in that contravention, insofar as he was ‘knowingly concerned’ in the contravention within the meaning of section 550(2)(c) of the FW Act.
In addition to the SOAF, the second respondent also relies upon two affidavits that he has filed in these proceedings.[17] In those affidavits, he deposes to the following:
·until 2019, the first respondent had 12 employees;[18]
·during the course of trade, the second respondent engaged the services of Employsure, a provider of HR and workplace relations services;[19]
·Mr Baxas, who had been employed as a project manager, was made redundant as COVID-19 started to impact the business;[20]
·Mr Margaritis resigned from his employment but then brought unfair dismissal proceedings against the first respondent which were resolved through the execution of a Deed of Settlement. The second respondent deposes that he was assisted in this matter by Employsure and understood, incorrectly as it turns out, that no further claims could be made by Mr Margaritis after the Deed of Settlement was signed;[21] and
·Mr Dirani’s employment was also terminated and the second respondent states that he again relied upon advice from Employsure in making deductions from his final pay.[22]
[17] Affidavit of Mr John Gerantidis affirmed on 29 September 2022 and filed on 3 October 2022; Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023.
[18] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [3].
[19] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [5].
[20] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [7].
[21] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [8].
[22] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [9].
In addition, the second respondent deposes to the fact that:
·he relied upon advice from Employsure in responding to and dealing with the applicant in relation to the investigations which ultimately resulted in the issuing of the three compliance notices;[23]
·he accepts that the first respondent is indebted to each of the three employees in relation to the underpayments claimed and acknowledges that he has not been able to make payments towards meeting these obligations;[24] and
·his inability to rectify the underpayment claims has arisen as a result of the combination of the first respondent’s financial difficulties and his own mental health challenges.[25]
[23] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [10].
[24] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraphs [11] and [12].
[25] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [12].
The second respondent deposes that the first respondent has not been trading since June 2022 and therefore has not been receiving any revenue.[26] Moreover, he deposes that the first respondent has a number of significant creditors, including the ATO and its landlord, in amounts totalling over $730,000.[27]
[26] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [13].
[27] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [14].
The second respondent states that the first respondent’s landlord is likely to pursue both himself (as guarantor) and the first respondent in respect of the unpaid rent.[28]
[28] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [15].
The second respondent gives evidence about his own personal financial position and states that he may well need to consider bankruptcy.[29] Annexed to his affidavit is a statement of his financial position in which he says that he has an overall net shortfall of over $437,000.[30]
[29] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [17].
[30] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at Annexure JG-1.
In relation to his health, the second respondent deposes that:
·he has suffered poor mental health since 2015;[31]
·his mental health significantly deteriorated in 2018, resulting in his admission to a private psychiatric facility for a number of weeks;[32]
·his mental health continues to remain unresolved and was extremely poor at times, including during the Fair Work Ombudsman (‘FWO’) investigation;[33] and
·he remains under the care of a psychiatrist and relies upon various reports prepared by his treating psychiatrist also annexed to his affidavit.[34]
[31] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [20].
[32] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [20].
[33] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [20].
[34] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [21]; Annexure JG-2.
PENALTY
In the context of these findings, the applicant seeks the imposition of a penalty in relation to each of the contraventions.[35]
[35] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraphs [9] and [10].
It is common ground that under section 545(1) of the FW Act, the court may make any order it considers appropriate if it is satisfied that a person has contravened a civil remedy provision of the FW Act, including the imposition of a pecuniary penalty pursuant to section 546(1).[36]
[36] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [16]; Respondent’s Outline of Submissions filed on 2 June 2023 at paragraphs [5] and [6].
As stated, the second respondent submits that whilst it is open to the court to make a finding that he was involved in the first respondent’s contraventions of section 716(5) of the FW Act, on the facts in this matter, it is open to the court, having regard to the totality of the evidence, to determine that no penalty is warranted.[37]
[37] See, also, Respondent’s Outline of Submissions filed on 2 June 2023 at paragraph [12].
In the alternative, if the court were to determine that a penalty is warranted in the circumstances, then it is submitted for the second respondent that a penalty in the lower end of the applicable range is appropriate in this instance.
Section 546 of the FW Act relevantly provides:
(1)The … Court … may, on application, order a person to pay a pecuniary penalty that the court considers is appropriate if the court is satisfied that the person has contravened a civil remedy provision.
…
(2) The pecuniary penalty must not be more than:
(a)if the person is an individual – the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2); or
(b)if the person is a body corporate – 5 times the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2).
In addition, section 550(1) of the FW Act provides:
(1)A person who is involved in a contravention of a civil penalty provision is taken to have contravened that provision.
Having determined, on the facts as agreed, that the second respondent was involved in a contravention of a civil remedy provision, itself to be treated as a contravention of a civil remedy provision, the issue which arises is what, if any, penalty ought be imposed in respect of that contravention.
APPLICABLE PRINCIPLES
As stated, the principles which apply to a penalty hearing such as this are not in dispute.
As noted by the applicant, these principles were recently summarised by Justice Bromwich in Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301 at paragraph [36] in which the following five steps were identified:
(1)Identify the separate contraventions, with each breach of each obligation being a separate contravention, and each breach of a term of the Award being a separate contravention.
(2)Consider whether each separate contravention should be dealt with independently or with some degree of aggregation for those contraventions arising out of a course of conduct, noting that s 557 of the FW Act provides that two or more contraventions of a given civil remedy provision are to be taken to be a single contravention if committed by the same person and arising out of a course of conduct by that person.
(3)Consider whether there should be further adjustment to ensure that, to the extent of any overlap between groups of separate aggregated contraventions, there is no double penalty imposed, and that the penalty is an appropriate response to what each respondent did.
(4)Consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation.
(5)Consider the overall penalties arrived at, including by reference to those which may be proposed by the FWO … and what is proposed by the respondents, and apply the totality principle, to ensure that the penalties for each respondent are appropriate and proportionate to the conduct viewed as a whole, making such adjustments as are necessary … (cases referred to omitted)
At paragraph [14] of the decision in Kelly v Fitzpatrick [2007] FCA 1080 (‘Kelly’), Justice Tracey also identified and set out a range of factors to which the court may have regard in determining whether the circumstances call for the imposition of a penalty, and if so, the amount of such a penalty. I have applied these principles in determining this matter.
It is also important to note that, in a case such as this, the court is required to consider the penalty appropriate to the contravention established, namely the failure to comply with a compliance notice. The court does not have before it, and therefore is not setting a penalty by reference to, the underlying conduct which gave rise to the issuing of the compliance notice.[38]
[38] See Fair Work Ombudsman v Extrados Solutions Pty Ltd and Anor [2014] FCCA 815 at [7].
ISSUES FOR CONSIDERATION
As stated, there is no issue taken as to the principles which apply to a case such as this. The key issues which arise for considerations are:
(a)whether the failure to comply with the three compliance notices should be considered to have occurred within the one course of conduct and therefore any penalty imposed determined accordingly; and
(b)the weight to be given to the second respondent’s financial and health issues in determining whether, and if so, what penalty should be imposed.
Course of conduct
It is common ground that the failure to comply with each of the three compliance notices in this case does not fall within the statutory definition of a ‘course of conduct’ contained in section 557 of the FW Act.[39]
[39] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [19]; Court transcript at page 14.
The issue is whether it falls within the common law concept of a ‘course of conduct’ such that it is a factor which ought to be considered in determining whether, and if so, what penalty ought be imposed.
In Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 (‘Cahill’), the court was asked to consider whether the judge at first instance had erred by failing to consider whether three contraventions ought properly be seen as arising out of the one course of conduct, or whether the judge at first instance had misapplied the ‘one course of conduct’ or the ‘one transaction’ principle.
In rejecting these submissions, Justices Middleton and Gordon of the majority said at paragraphs [38] to [39]:
38.… the appellants’ submission should be rejected as it proceeds on a misconception about the single course of conduct principle and the role it plays, or the place it occupies, in the exercise of the sentencing discretion …
39.As the passage in Williams … explain, a “course of conduct” or the “one transaction principle” is not a concept peculiar to the industrial context. It is a concept which arises in the criminal context generally and one which may be relevant to the proper exercise of the sentencing discretion. The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is “the same criminality” and that is necessarily a factually specific enquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions. (emphasis in original)
The majority went on to say at paragraph [41] and following:
41.As noted above … the principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, the Court must ensure that the offender is not punished twice for the same conduct. In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion … It is a tool of analysis … which a Court is not compelled to utilise …
42.A Court is not compelled to utilise the principle because, … “[d]iscretionary judgments require the weighing of elements, not the formulation of adjustable rules or benchmarks”. The exercise of the sentencing discretion does not fall to be exercised in a vacuum. It is a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives … For the same reasons … even if offences are properly characterised as arising from the one transaction or a single course of conduct, a judge is not obliged to apply concurrent terms if the resulting effective term fails to reflect the degree of criminality involved. Or, in the case of fines, a judge is not obliged to start from the premise that if there is a single course of conduct, the maximum fine is [the maximum fine for a single offence].[40] (emphasis in original)
[40] See, also, Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450 at [45].
In Parker & Ors v Australian Building and Construction Commissioner (2019) 365 ALR 402, Justices Besanko and Bromwich relevantly expanded upon the principles in Cahill as follows:
272.… As the Commissioner points out, the passage quoted … above from Cahill requires consideration not just of an interrelationship between the legal and factual elements of two or more contraventions, but also the factually specific inquiry as to whether the different contraventions constitute the “same criminality”, translating that criminal law concept to the civil penalty context.
273.Concepts such as course of conduct (and, for that matter, totality) that are drawn from the criminal law and applied to the imposition of civil penalties are not rigid rules of law, but, rather, general principles to guide the exercise of the penalty imposing discretion: see Royer v Western Australia [2009] WASCA 139 … per Owen JA at [21], being one of a number of paragraphs in that case dealing with the “course or conduct” or “one transaction” principle. Royer was quoted at length and with approval in Construction, Forestry, Mining and Energy Union v Williams [2009] FCAFC 171 …
274.In Royer, Owen JA made it clear, at [21] and in the following paragraphs, that course of conduct is not a straitjacket, denying a judge the capacity to craft a result that properly reflects the conduct in question even if the course of conduct principle does squarely apply. His Honour … described how a judge imposing a criminal sentence must consider the overall result of the sentencing exercise (here the penalty imposition exercise) and the need to sometimes depart from what the literal application of the principle might produce. Owen JA described course of conduct and totality as being closely related. That is undoubtedly correct, but the two principles provide different solutions to the issue of a multiplicity of offences or contraventions and how best to arrive at a just result, which is part of the reason why they often must be considered separately, but in the context of one another.
It was submitted for the second respondent that there is a legal and factual interrelationship in respect of each of the three compliance notices this case, in that:
·the notices were all issued by the FWO under section 716(5) of the FW Act;
·all three notices relate to persons employed, and contraventions engaged in, by the first respondent;
·all three notices relate to alleged underpayments, in the form of a failure to pay accrued but untaken leave entitlements on termination, by the first respondent; and
·although not issued on the same day, the notices were issued within months of each other.[41]
[41] Court transcript at page 14; Second Respondent’s Outline of Submissions filed on 2 June 2023 at paragraph [7].
It is therefore submitted that when regard is had to all of these matters, there is a close relationship between the legal and factual elements of the offending.[42]
[42] Court transcript at page 14 and following.
In addition, the second respondent submits that there is also a ‘decisional overlay’ in respect of the actions taken by the second respondent which support the court accepting that these contraventions arose out of the same course of conduct.[43] Relevantly, the decision regarding whether to comply or not comply with the compliance notices all related to the applicant seeking to comply but having financial difficulties in doing so.[44]
[43] Court transcript at page 14 and following.
[44] See Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023; Affidavit of Mr John Gerantidis affirmed on 29 September 2022 and filed on 3 October 2022.
It is submitted that it is clear from the exchanges between the applicant and the second respondent that the second respondent was treating the three compliance notices as a group, not individually.[45] The decisions made by the second respondent was therefore effectively one decision not to comply, not three separate decisions.
[45] Court transcript at page 15.
Further, the second respondent submits that all these factors bring the second respondent’s conduct within the common law concept of a ‘course of conduct’ which ought to be taken into account in determining what is an appropriate penalty, if any, in this case.[46]
[46] Court transcript at page 15.
The applicant did not agree that the common law concept of ‘course of conduct’ should apply to the respondents’ failure to comply with each of the compliance notices in determining an appropriate penalty.[47] Rather, the applicant submits that the failure to comply with each compliance notice involved distinct conduct, particularly in circumstances where each notice was issued on different days, in respect of different employees, and each notice therefore imposed different obligations on the respondents.
[47] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraphs [19] to [21].
It was submitted for the second respondent that the reasoning of Judge Blake in Fair Work Ombudsman v Route 45 Pty Ltd[48] is apposite. Moreover, it was submitted that, as in that case, the court should treat the failure to comply with the three compliance notices as part of the one course of conduct for the purposes of assessing the appropriate penalty to impose, if any.[49]
[48] [2023] FedCFamC2G 83 (‘Route 45’).
[49] Court transcript at page 15 and following.
The second respondent accepted that the facts of this case are not entirely on all fours with those in Route 45.[50] In Route 45, the compliance notices were all issued on the same day and the time for compliance was the same. It was nevertheless submitted that in the present matter, the compliance notices were all issued within a matter of months and therefore, this discrepancy is not determinative.[51]
[50] Court transcript at page 15.
[51] Court transcript at page 16.
In concluding that the failure to comply with each of the compliance notices in Route 45 were part of the same course of conduct, Judge Blake said at paragraph [32]:
32.… The Notices were served on the same date. The Notices required steps to be taken by the same date. Those steps were not taken. The focus then becomes what decision or actions were taken or not taken by the Respondents in the time frame leading up to 26 February 2021. It is those decisions or actions, taken or not taken, which inform whether there was a course of conduct leading to the failure to comply with all the Notices.
I agree that the court is required to focus on the decisions made, or not made, which resulted in the failure to comply with each of the compliance notices.
For the following reasons, I find that there is a distinction between the failure to comply with the Baxas CN, on the one hand, and the failure to comply with the Margaritis CN and the Dirani CN on the other, such that the latter two form part of a course of conduct, but the former does not.
As stated, the evidence is that the Baxas CN was issued on 4 March 2021. That compliance notice required the first respondent to take certain action, including making a payment to Mr Baxas of any outstanding leave entitlements by 2 April 2021.[52]
[52] Statement of Agreed Facts filed on 20 February 2023 at paragraph [10].
As stated, the respondents did not comply by that date. That contravention had occurred well before the Margaritis CN and the Dirani CN were issued. Moreover, it is apparent from the annexures to the affidavit of Fair Work Inspector (‘FWI’) Smith (‘Smith affidavit’) that the respondents were not advised of the Margaritis CN or the Dirani CN until after the non-compliance with the Baxas CN.
In this sense, therefore, the decision not to comply with the Baxas CN could not be said to arise from a single course of conduct involving the Margaritis CN and the Dirani CN.
Having said that, and accepting that the Margaritis CN and the Dirani CN notices were issued on different dates, the former on 28 June 2021 and the latter on 12 July 2021, the investigation into each of the underpayments to which these compliance notices related commenced around the same day, namely 30 to 31 March 2021.[53]
[53] Statement of Agreed Facts filed on 20 February 2023 at paragraphs [12] and [18].
It is apparent from Annexure PS-22 to the Smith affidavit that on 14 May 2021, the second respondent, in the context of discussing a payment plan regarding the amount outstanding under the Baxas CN, was advised that the applicant had received another two complaints.[54] Relevantly, FWI Smith told the second respondent that the complaints related to Mr Dirani and Mr Margaritis, and that they had both claimed that they had not received all of their leave entitlements.
[54] Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-22.
Although the compliance notices in respect of these two employees were not received together, the respondents’ conduct in dealing with the Margaritis CN and the Dirani CN could therefore properly be seen to form part of a single course of conduct.
Similarly, Annexure PS-30 to the Smith affidavit is a response from the second respondent to FWI Smith regarding the claims made by Mr Margaritis and Mr Dirani dated 22 June 2021.[55] Similarly, at Annexure PS-33 to the Smith affidavit, the second respondent corresponds with FWI Smith on 12 July 2021 about both the Margaritis and Dirani claims.[56]
[55] Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-30.
[56] Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-33.
Whilst it is not entirely clear whether some or all of these communications occurred after both the Margaritis and the Dirani CNs were issued, a file note of a conversation between FWI Smith and the second respondent on 14 July 2021 is annexed to the Smith affidavit.[57] It is clear that in this conversation, the discussion was about dealing with all of the compliance notices.
[57] See Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-47.
By this time, a failure to comply notice had already been issued in relation to the first compliance notice, however, not in relation to either the Margaritis CN or the Dirani CN.[58] In this conversation, the second respondent was exploring the possibility of entering into a payment plan for all three compliance notices.[59]
[58] Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-48.
[59] Affidavit of Mr Peter Smith affirmed on 23 March 2023 and filed on 24 March 2023 at Annexure PS-47.
It is therefore open on the evidence to conclude that the respondents’ response to the Margaritis CN and the Dirani CN were dealt with collectively, and I so find. The non‑compliance with the Margaritis CN and the Dirani CN arose out of a single course of conduct. This is a factor which the court should take into account in determining an appropriate penalty in this matter.
Factors relevant to penalty
It is appropriate to note that the key purpose in imposing a civil penalty is deterrence. In Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450 (‘Pattinson’), the High Court relevantly said:
9.… Under the civil penalty regime provided by the Act, the purpose of a civil penalty is primarily, if not solely, the promotion of the public interest in compliance with the provisions of the Act by the deterrence of further contraventions of the Act.
The High Court in Pattinson further noted at paragraphs [47] to [48] that:
47.The penalty that is appropriate to protect the public interest by deterring future contraventions of the Act may also be moderated by taking into account other factors of the kind adverted to by French J in CSR. …
48.It is not necessary to multiply examples further. It is sufficient to say that a court empowered by s 546 to impose an “appropriate” penalty must act fairly and reasonably for the purpose of protecting the public interest by deterring future contraventions of the Act.
Further, at paragraph [66], the High Court went on to say:
66.The theory of s 546 of the Act is that the financial disincentive involved in the imposition of a pecuniary penalty will encourage compliance with the law by ensuring that contraventions are viewed by the contravenor and others as an economically irrational choice. Whether or not experience vindicates the theory of the Act is a matter for Parliament. The court’s function is to give effect to the intention of the Act. In this regard, the court must do what it can to deter non-compliance with the Act.
I will now turn to other relevant factors in determining what, if any, penalty ought be imposed. In doing so, I note that the various factors identified in Kelly are not a rigid list of matters to be determined, but rather, a non-exhaustive guide of factors that may be relevant.
General deterrence
As noted in Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union,[60], the ‘principal object’ of deterrence requires the penalty to have the necessary ‘sting or burden’ to secure the specific and general deterrent effects that underpin the reason for its imposition.
[60] (2018) 262 CLR 157 at [116].
The penalty must serve as a warning to others that non-compliance will not simply result in a penalty which can be absorbed as another ‘cost of doing business’. As stated by Justice Lander in Ponzio v BP Caelli Constructions Pty Ltd (2007) 158 FCR 543 at paragraph [93]:
93.… 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 the context of a contravention of section 716(5) of the FW Act, the purpose of a penalty, insofar as it might act to deter others, must be set at a level to deter others from simply not refusing and/or failing to comply, in circumstances where such non‑compliance has the potential to undermine the efficacy of such notices.
The second respondent submits that specific deterrence is not a relevant factor in this case, as it is likely that he will not re-offend in circumstances where he now concedes that he owed each of the employees the amounts claimed, his business is now no longer trading and he is in employment.[61] Whilst the court was advised that the second respondent had obtained employment as a TAFE teacher, it was advised that this was only for a period of up to 16 hours per week.[62]
[61] Court transcript at page 20.
[62] Court transcript at page 12.
Moreover, the second respondent continues to operate as an electrician,[63] and may in future employ staff again, either directly or through a company structure. This is a factor relevant to determining the level of a penalty in the present circumstances.
[63] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [19].
The second respondent accepts that general deterrence is a factor in this case, however, submits that it ought to be tempered by the other considerations discussed below.[64]
[64] Court transcript at page 20.
Nature and extent of the conduct and circumstances in which it occurred
The nature of the conduct relevant here is the failure by the first respondent to comply with the compliance notices. As noted by Judge Smith in Fair Work Ombudsman v Blu Hornsby:[65]
29.… it is important to bear in mind that the power to issue a compliance notice was included in the FW Act in order to provide a mechanism for dealing with non-compliance with minimum entitlements under the FW Act as an alternative to bringing Court proceedings for that non-compliance … Thus, while a person who has been given such a notice may apply to the Court for review of it (s 717), an inspector cannot bring proceedings in respect of the underlying contraventions against a person who complies with the notice and compliance is not an admission of those contraventions. It is an important part of the armoury of Fair Work Inspectors in fulfilling their functions under sub-div. D of div.3 in pt.5-2 of ch.5 of the FW Act.
[65] [2016] FCCA 1150 at [29].
The factual background in which the contraventions occurred is set out above.
It is apparent from the evidence before the court that the second respondent was, mistakenly, of the view that each of the employees concerned were not entitled to annual leave as claimed on termination. This mistaken belief influenced the respondents’ decision in dealing with the compliance notices.
Having said that, it is also clear from the communications between FWI Smith and the manager of the first respondent that even in relation to the first compliance notice, there was ultimately an acknowledgement that they were required to pay the annual leave claimed. Indeed, the respondents were afforded numerous opportunities to rectify the underlying contraventions.
I accept that at the relevant time, the first respondent was suffering financial hardship arising from the impact of COVID-19 pandemic on its business. I also accept that at the time, the second respondent was suffering poor mental health and that this may have been a factor in him not complying with the three compliance notices.
I further accept that the second respondent did try and deal with the applicant to address the issues raised in the compliance notices and have had regard to the fact that second respondent continued to engage even whilst he was suffering significant mental health issues.
Nature and extent of the loss or damage
As stated above, a result of the failure to comply with the compliance notices issued, each of the employees concerned did not receive payment of their accrued but untaken annual leave entitlements which the parties agreed amounted to:
·$5,376.95 in relation to the Baxas CN;
·$4,767.00 in relation to the Margaritis CN; and
·$2,431.13 in relation to the Dirani CN.
It is also relevant that as at the date of hearing, more than two years after the time for compliance in the compliance notices, no steps have been taken to comply with the notices.[66]
[66] Statement of Agreed Facts filed on 20 February 2023 at paragraph [32].
It was submitted for the second respondent that the court should not have regard to the underlying loss and damage as the contravention that is the subject of these proceedings is the first respondent’s failure to comply with the compliance notices, not a contravention of the underlying failure to provide annual leave payments as required by section 90(2) of the FW Act.[67] That is correct.
[67] Court transcript at page 18 and following.
However, in this case and as outlined above, the respondents concede that the first respondent owed each of the employees the amounts referred to in the compliance notices. This is not a case in which the underlying breach was contested and in which the respondent can argue that had it complied with the compliance notices which, among other things, required it to calculate the amount, if any, owing to the employees concerned, that a lesser amount would have been payable.
Had the respondents complied with the compliance notices, those amounts would therefore have been paid to the employees. Whilst I agree that the court is not considering the underlying contravention, it can have regard to the facts as agreed between the parties, namely that the amounts claimed are owing and at the date of trial was still not paid in part or in whole. In my view, that is a fact to which the court can have regard in the circumstances of this case.
Size of respondents’ business
As stated, the first respondent employed 12 employees until 2019.[68] It ceased trading in 2022 and has since been placed in liquidation.[69]
[68] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [3].
[69] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [45].
The second respondent has provided evidence as to his current financial position which evidences that he currently has greater liabilities than assets.[70]
[70] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at Annexure JG-1.
It is common ground that the size and financial position of a respondent does not excuse non‑compliance with a compliance notice.[71]
[71] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [46]; Court transcript at page 16 and following.
Deliberateness
The applicant submits that the second respondent’s conduct in failing to comply with the compliance notices demonstrated a deliberate disregard for their obligation under the FW Act, and that this is a relevant factor in determining the appropriate penalty.[72]
[72] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [42].
As stated, the second respondent engaged external advisors to assist with dealing with employee relations issues. It is apparent from the evidence before the court that the second respondent formed the view that the employees concerned were seeking to take advantage of the first respondent in claiming to be entitled to unpaid annual leave. There was a level of resistance to rectifying the underpayments, separate and distinct from the first respondent’s ability to so.
Having said that, I accept that during the applicant’s interactions with the first and second respondents, the respondents did indicate that they wished to resolve these issues. Ultimately, they did not do so, due to financial difficulties which the first respondent found itself in, as well as the added difficulties arising from the second respondent’s mental health issues.
It was submitted for the second respondent that in considering the issue of whether the contraventions were ‘deliberate’, the court should also have regard to the fact that the second respondent was in difficult financial circumstances and that he sought and relied upon advice about his liability.[73] Whilst he now concedes that that advice was not correct, it is submitted that this is not a case of flagrant disregard for the law.
[73] Court transcript at page 17 and following.
Moreover, it is submitted that the communications between the second respondent and the applicant indicate that the second respondent was trying to comply and was making genuine attempts to deal with the situation.[74] Ultimately, he did not comply, but it is submitted that his efforts in this regard are matters to which the court ought to have regard.
[74] Court transcript at page 18.
Contrition, corrective action and cooperation
The second respondent has stated in his affidavit material that he acknowledges that he ought to have complied with the compliance notices and that he is sorry for not doing so.[75] It is submitted for the second respondent that this is a genuine statement of contrition and that it should be taken into account in determining the penalty, if any, which ought be imposed.[76]
[75] Affidavit of Mr John Gerantidis affirmed on 19 April 2023 and filed on 20 April 2023 at paragraph [22].
[76] Court transcript at page 19.
However, as outlined above, it is common ground that some two years after each of the compliance notices were issued, there has still been no rectification or steps taken to comply with the compliance notices.
Having said that, it is also common ground that both the first and second respondents (prior to the appointment of a liquidator) entered into an SOAF which had the effect of significantly reducing the factual issues in dispute.
These are factors to which the court has had regard in determining an appropriate penalty.
Other factors
As noted, it was also submitted for the second respondent that it is relevant for the court to have regard to the impact that this situation has had on the second respondent.
Whilst not wishing to detract from the impact on the employees concerned, it was submitted for the second respondent that the evidence shows that he has suffered terribly.[77] His business has failed and a significant toll has been taken on his mental health with consequential impacts on his finances and his relationships.
Amount of penalties sought
[77] Court transcript at page 20.
Penalties sought by the applicant
The applicant has calculated the penalties it seeks on the basis of a penalty unit amount of $222, being the penalty unit rate at the time of the contraventions, in April and July 2021.[78]At this rate, the maximum penalty for a failure to comply with a compliance notice was $6,660.[79]
[78] Applicant’s Outline of Submissions filed on 12 May 2023 at footnote 18.
[79] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [22].
The applicant seeks the imposition of a penalty of between $2,697 to $3,236 for each contravention, being a total of between $8,091 and $9,708.[80] In seeking these amounts, the applicant has taken into account the second respondent’s offending, his co-operation and had regard to the totality principle.[81]
[80] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraph [65].
[81] Applicant’s Outline of Submissions filed on 12 May 2023 at paragraphs [66] to [68].
Penalties sought by the second respondent
As stated, the second respondent submits that it is open to the court to impose no penalty in this case and the court should adopt that course.
In the alternative, if the court does not accept this primary position, then the second respondent submits that a penalty at the lower end of the range should be imposed. It is submitted that in circumstances where each of the contraventions arise from a single course of conduct, where there is no history of prior offending, and where the contravention did not arise from reckless disregard of the second respondent’s legal obligations, a penalty in the range sought by the applicant is significant.[82]
[82] Court transcript at page 20.
Having regard to all these factors, it is submitted for the second respondent that when one also applies the totality principle, a penalty of not more than 25% would be appropriate.[83]
[83] Court transcript at page 21.
CONSIDERATION AND FINDINGS
Having regard to all the factors discussed earlier, I am not satisfied that no penalty should be imposed. As stated, the primary purpose of a penalty for the failure to comply with a statutory notice, such as a compliance notice, is to deter others from similar behaviour.
Moreover, having regard to the role that compliance notices play in the enforcement of underpayment claims, general and specific deterrence requires that some penalty be imposed in this case.
For the reasons discussed above, I find that failure to comply with the Margaritis CN and with the Dirani CN arose from the same course of conduct. As such, and to avoid ‘punishing’ the second respondent twice for the same conduct, I propose imposing a single penalty for both of these contraventions. However, the same cannot be said for the failure to comply with the Baxas CN in respect of which I find that a separate penalty ought be imposed.
I have also had regard to the acknowledgement of wrongdoing by the second respondent and the fact that in entering into a SOAF, the second respondent has demonstrated a level of co‑operation with the regulator. I have also had regard to the second respondent’s mental health issues, his personal financial situation and the fact that the first respondent has been placed in liquidation.
However, the financial circumstances of the second respondent, and indeed, his capacity to pay any penalty imposed has to be weighed against all other factors, including the need for general deterrence.
Moreover, I have also had regard to the fact that over the two years from the date that the Baxas CN was issued, none of the compliance notices has been complied with at all.
Taking all these factors into account, I find that:
(a)a penalty for the failure to comply with the Baxas CN of 35% of the maximum penalty applicable (namely $2,310) is appropriate in all the circumstances; and
(b)a penalty for the failure to comply with the Margaritis CN and the Dirani CN of 35% of the maximum penalty applicable (namely $2,310) is appropriate in all the circumstances.
Penalties in the sum of a total of $4,620 are not oppressive or crushing in my view and reflect the seriousness of the contraventions in this case.
CONCLUSION
For each of these reasons, I make the declarations and orders as set out at the commencement of these reasons.
I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment of Deputy Chief Judge Mercuri. Associate:
Dated: 23 January 2024
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