Fair Work Ombudsman v C & G Smith Enterprises
[2023] FedCFamC2G 523
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v C & G Smith Enterprises [2023] FedCFamC2G 523
File number: MLG 558 of 2022 Judgment of: JUDGE FORBES Date of judgment: 23 June 2023 Catchwords: INDUSTRIAL LAW - Fair Work – declaration of failure to comply with Compliance Notice – consideration of factors relevant to penalty - failure to cooperate with regulator – where consequences of non-compliance should have been known - need for general and specific deterrence - penalties pursuant to s 546 Fair Work Act 2009 (Cth) Legislation: Crimes Act 2009 (Cth), s 4AA
Fair Work Act 2009 (Cth) s 90, 539, 546, 557, 716
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), r 4.03, 6.01, 13.04, 13.05, 17.05
Cases cited: Agreed Penalties Case (2015) 258 CLR 482
Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3 at [116]
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) FCR 560; [2008] FCAFC 8
Fair Work Ombudsman v C & G Smith Enterprises Pty Ltd [2022] FedCFamC2G 579
Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] 275 IR 148
Kelly v Fitzpatrick (2007) 166 IR 14
Kelly v Fitzpatrick [2007] FCA 1080
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
Division: Division 2 General Federal Law Number of paragraphs: 84 Date of hearing: 6 April 2023 Place: Melbourne Solicitor for the Applicant: Ms Anna Boden Office of the Fair Work Ombudsman The Respondent: No appearance ORDERS
MLG 558 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: C & G SMITH ENTERPRISES
Respondent
order made by:
JUDGE FORBES
DATE OF ORDER:
23 JUNE 2023
THE COURT ORDERS THAT:
1.Pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (the FW Act) the Respondent pay a pecuniary penalty of $19,980.00 for the contravention of section 716(5) of the FW Act, the subject of the declaration made by this Court on 27 July 2022, within 28 days of the date of this order.
2.Pursuant to section 546(3)(a) of the FW Act, any pecuniary penalties ordered to be paid by the Respondent be paid into the Consolidated Revenue Fund of the Commonwealth with 28 days of the date of this order.
3.The Applicant has liberty to apply on seven days’ notice in the event that any of the proceeding 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
JUDGE FORBES
INTRODUCTION:
In this matter, the Fair Work Ombudsman (the Ombudsman) seeks the imposition of pecuniary penalties pursuant to s 546(1) of the Fair Work Act 2009 (Cth) (the FW Act) against the respondent, C & G Smith Enterprises Pty Ltd (ACN 633 469 173) (C & G Smith Enterprises), for its declared contravention of section 716(5) of the FW Act.
On 27 July 2022, default judgment was entered for the Ombudsman against the respondent pursuant to rule 13.05(2)(c) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (the Rules).
On that occasion, the Court made declarations that the respondent had contravened section 716(5) of the FW Act by failing to comply with a compliance notice issued on 7 October 2021 (the Compliance Notice) in the circumstances pleaded in the Ombudsman's Statement of Claim filed on 18 March 2022. The Court also ordered that the respondent undertake steps to comply with the Compliance Notice within 28 days of the service of the orders.
On 6 April 2023, I heard the Ombudsman's application for the imposition of a penalty in respect of the contravention. In support of its application for penalties, the Ombudsman relied upon several documents, including:
(a)Application and Statement of Claim filed with the Court on 18 March 2022;
(b)Affidavit of Anna Louise Boden affirmed on 26 April 2022;
(c)Affidavit of Anna Louise Boden affirmed on 8 July 2022; and
(d)Affidavit of Fair Work Inspector (FWI), Linda Tran, affirmed on 2 March 2023.
The Ombudsman also relied upon a written outline of submissions (Ombudsman's Submission on Penalty), which it developed orally during the course of the hearing. I have read and considered each of these documents in the course of reaching my decision.
There was no appearance by the respondent at this hearing. The evidence and written submissions on which the Ombudsman relies was served on the respondent at its current registered address and I am satisfied that the respondent was on notice of the hearing and the orders sought by the Ombudsman.
BACKGROUND
At the relevant time, C & G Smith Enterprises operated Rapid Tune Keysborough, an automotive service centre located at 216 Cheltenham Road, Keysborough, Victoria.[1].
[1] Affidavit of Anna Louise Boden affirmed on 26 April 2022 [5]
Employees of the respondent were entitled to be paid wages and work to conditions stipulated in the Vehicle Repair, Services and Retail Award 2020 (the Award).
Between 18 February 2020 and 24 February 2021, the respondent employed
Mr Matt Leahy-Garrett as a full-time junior apprentice.
In June 2021, some months after Mr Leahy-Garrett had been terminated, the FWO received a request for assistance from the former employee in respect of various claimed underpayments.
Subsequently, FWI Linda Tran commenced an investigation into C & G Smith Enterprises' compliance with various Commonwealth workplace laws and instruments. As a result of the investigation, FWI Tran formed a reasonable belief pursuant to section 716 of the FW Act that the respondent had contravened:
(a)clauses 16.9 (payment for ordinary hours), 24.3(c)(i) (payment for overtime – first 3 hours) and 24.3(c)(ii) (overtime – after 3 hours) of the Award; and
(b)section 90(2) of the FW Act (in respect of accrued but untaken annual leave).
Having formed the reasonable belief referred to above, on 7 October 2021 FWI Tran issued C & G Smith Enterprises with the Compliance Notice. Amongst other things, the Compliance Notice required the respondent to calculate and rectify any underpayments to Mr Leahy-Garrett by 8 November 2021 and to provide the Ombudsman with evidence of its compliance by 15 November 2021.
C & G Smith Enterprises did not comply with the Compliance Notice by the required date, or at all, thereby necessitating these proceedings.
Litigation Background
The Ombudsman instigated these proceedings on 18 March 2022.
In its application, the Ombudsman sought the making of final orders and declarations pursuant to the respondent's alleged contravention of section 716(5) of the FW Act.
On 21 March 2022, a copy of the Initiating Application and the Statement of Claim were sent to the respondent's Registered Office address[2].
[2] Affidavit of Anna Louise Boden affirmed on 26 April 2022 [6]
The matter first came before me on 14 April 2022. Ms Boden appeared on behalf of the Ombudsman and there was no appearance by or on behalf of the respondent. On that occasion, I made orders adjourning the proceeding for a further directions hearing and directed the applicant to serve a copy of those orders by mail to the respondent's Registered Office address (First April Orders). This service was attended to by the Ombudsman[3].
[3] Affidavit of Anna Louise Boden affirmed on 26 April 2022 [9]
On 27 April 2022, the matter came before me and again there was no appearance on behalf of the respondent. On this occasion, I made orders directing the respondent to file and serve a notice of address for service by 13 May 2022 and any defence by 27 May 2022 (Second April Orders). I also stipulated that in the event the respondent failed to comply with these filing requirements by the specified time, the Ombudsman may file and serve an Application in a Proceeding seeking default judgment pursuant to rule 13.04(2) of the Rules. The Ombudsman attended to service of these orders upon the respondent[4].
[4] Affidavit of Anna Louise Boden affirmed on 8 July 2022 [8]
The respondent did not file and serve a notice of address for service or a defence in these proceedings in accordance with my orders.
Default Judgment and Declaration
On 8 July 2022, the Ombudsman filed an Application in a Proceeding (Default Application) which sought default judgment against the respondent, pursuant to rule 13.05(2)(c) of the Rules.
The Ombudsman's application for Default judgement was heard on 27 July 2022. Once again, there was no appearance by or on behalf of the respondent. Being satisfied as to service, I ordered that default judgment be entered for the Ombudsman against C & G Smith Enterprises pursuant to rule 13.05(2)(c) of the Rules by reason of its failure to:
(a)file and serve an address for service, as required by rule 6.01(1) of the Rules;
(b)file and serve a response with 28 days of service, as required by rule 4.03(3) of the Rules;
(c)file and serve a notice of address for service by 13 May 2022 and a response and defence by 27 May 2022, as required by the Second April Orders; and
(d)defend the proceeding with due diligence.
(The Default Orders).
Upon the admissions which the respondent was taken to have made by reason of its default, I declared that the respondent had contravened s 716(5) of the FW Act by failing to comply with the Compliance Notice. The Court also made orders requiring the respondent to take appropriate steps to comply with the Compliance Notice and for a copy of the Default Orders be served on the respondent within 28 days of the making of the orders.
Following the hearing, my chambers emailed a copy of the Default Orders to the respondent's two known email addresses[5]. The Default Orders included a notation drawing the respondent’s attention to the Court’s power under rule 17.05 of the Rules to vary or set aside a judgment or order which has been made in the absence of that party. Despite the inclusion of this notation, the respondent did not make an application for the Default Orders or any order to be set aside.
[5] Affidavit of Anna Louise Boden affirmed on 24 March 2023, Annexure AB-13
The matter was otherwise adjourned to 6 April 2023 for a penalty hearing and orders were made for the filing of evidence and submissions on the question of penalty.
On 2 March 2023, the Ombudsman filed its Outline of Submission on Penalty and an affidavit affirmed by FWI Tran on 2 March 2023.
The respondent was required to file and serve any affidavit evidence and written submissions in respect to penalty by no later than 16 March 2023. As at the date of the penalty hearing, the respondent had not filed any submission or material, nor has it provided any explanation for its failure to do so.
PENALTY PROCEEDING
The Ombudsman now seeks the imposition of pecuniary penalties against the respondent pursuant to the declared contravention of sub-section 716(5) of the Act.
At the penalty hearing on 6 April 2023, Ms Boden again appeared on behalf of the Ombudsman. Despite being notified of the time and date of the listing, there was no appearance by or on behalf of the respondent, nor any other communication with the Court to explain its non‑attendance. I caused the respondent to be called outside the Court room, however there was no response to the call. The matter proceeded notwithstanding the respondent’s non‑appearance.
Penalty range sought by the applicant
Under sub-section 546(1) of the FW Act, this Court is granted the power to order a person to pay a pecuniary penalty in circumstances where it is satisfied that a person has contravened a civil remedy provision. Pursuant to the table in sub-section 539(2) of the FW Act, s 716(5) is a civil remedy provision.
A contravention of sub-section 716(5) attracts a maximum penalty of 60 penalty units for a corporate respondent. The value of a penalty unit is $222[6]. The maximum penalty for contraventions of sub-section 716(5) is $33,300 for a corporate respondent.
[6] Crimes Act 2009 (Cth) s 4AA
In its written submission, the Ombudsman seeks that a penalty be imposed in the range of $26,640-$29,970. Viewed in context, this represents a penalty range of between 80 to 90% of the maximum.
Applicable legal principles
The approach of the Court in determining penalties is well settled. The Court has a broad discretion to assess the appropriate penalty.
In Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown[7] Bromwich J endorsed the following approach to determining penalty:
(a)identify the separate contraventions involved - each contravention of each separate obligation in the FW Act is a separate contravention;
(b)consider whether any of the contraventions arising from the above constitute a single course of conduct within the meaning of section 557(1) of the FW Act;
(c)consider the extent to which two or more of the contraventions have common elements - the penalties imposed should be an appropriate response to the conduct of the respondent;
(d)consider the appropriate penalty for each contravention and, if relevant, each group of contraventions; and
(e)finally, assess whether the overall penalty is an appropriate and proportionate response to the conduct as a whole which led to the contraventions. This is the application of the "totality principle".
[7] [2017] 275 IR 148 at [36]
It is well established that the primary, if not sole purpose of the civil remedy regime prescribed in the FW Act is the promotion of the public interest in compliance with provisions of the Act by way of deterrence of further contravention[8].
[8] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [71]
This purpose was recently reinforced by the High Court of Australia in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 ('Pattinson'). Reaching for that purpose involves putting a price on a contravention which is fairly and reasonably appropriate. A penalty should carry a sufficient sting to ensure that it is not just seen as a cost of doing business. In Pattinson the Court stated at [66]:
"The theory of s 546 of the Act is that the financial disincentive involved in the imposition of 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."
Fundamental to the Court's task is an assessment of the gravity and seriousness of the offending, having regard to all relevant facts and circumstances. The considerations deemed relevant to this task are well known and frequently cited[9]. They include:
[9] Trade Practices Commission v CSR Ltd (1991) ATPR 41-076; [1990] FCA 521 at [42]; see also Pattinson at [18]; Kelly v Fitzpatrick [2007] FCA 1080 at [14]
·The nature and extent of the conduct which led to the breach;
·The circumstances in which the conduct took place;
·The nature and extent of any loss or damage sustained as a result of the breach;
·Whether there has been similar previous conduct by the respondent;
·Whether the breach was properly distinct or arose out of one course of conduct;
·The size of the business enterprise involved;
·Whether or not the breach was deliberate;
·The involvement of senior management in the breach;
·Whether the party committing the breach has shown contrition;
·Whether the party committing the breach has taken corrective action;
·Whether the party committing the breach has cooperated with enforcement authorities;
·The need to ensure compliance with minimum standard by provision of an effective means for investigation and enforcement of employee entitlements; and
·The need for specific and general deterrence.
While this extensive list is well-settled, it is not to be interpreted by the Court as a "rigid catalogue of matters for attention"[10]. In Pattinson, the High Court reiterated that this list of possible relevant considerations ought not to be treated as a checklist. The Court may take into consideration matters relevant to both the character of the contravening conduct and of the contravenor[11]. The Court's task is and remains the determination of what penalty is most appropriate given all of the relevant circumstances of the case[12].
CONSIDERATION
[10] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) FCR 560; [2008] FCAFC 8 [91]
[11] Pattinson at [19]
[12] Pattinson at [68]
Nature, circumstances and deliberateness of conduct
The matter before the Court involves a single contravention of the FW Act, namely the respondent’s failure to comply with the Compliance Notice within the time specified in that notice.
As to the objective seriousness of the contravention, the Ombudsman’s written submissions contended as follows (footnotes excluded):
29.The nature and extent of the loss suffered by Mr Leahy-Garrett is material and the underpayment has not been rectified. The failure by C & G Smith Enterprises to comply with its legislative obligations denied Mr Leahy-Garrett the benefit of his minimum full-time wage and his annual leave entitlements.
30.C & G Smith Enterprises was given ample time (of more than five months) to participate in the investigation and comply with the Compliance Notice. However, C & G Smith Enterprises has failed to engage with the FWO at all (despite repeated attempts by the FWO to contact Mr Smith by a variety of communication methods, two different physical postal addresses and three email addresses), thereby necessitating the current proceedings and occasioning a more public loss. As described by Judge Emmett in Fair Work Ombudsman v Viper Industries Pty Ltd & Anor [2015] FCCA 492:
'…intentional failure to comply with a mandatory notice issued by the workplace regulator is "conduct … [which] undermines the utility and effectiveness of a fundamental object" the FW Act. The failure to comply undermines and frustrates the powers conferred on Fair Work Inspectors, which are conferred for the purposes of providing an effective means of enforcing compliance with lawful minimum entitlements. There is a significant cost to the public by reason of the need to bring this matter before the court to enforce compliance.''
31.C & G Smith Enterprises' conduct in failing to comply with the Compliance Notice demonstrates a deliberate disregard for its obligations under the FW Act and the FWO's role as a regulator of Commonwealth workplace laws.
The Ombudsman submits that the contravention in this case should be regarded as serious, not the least because the employee in respect of whom it commenced the investigation and issued the compliance notice was an apprentice for whom a loss of wages should be regarded as significant.
Furthermore, the Ombudsman submits that at the time the respondent’s business ceased operating, its owner Mr Smith was aware that it owed entitlements to other employees, as evidenced by the fact that he attempted to compromise at least one other employee’s underpayment claim. Those circumstances are described in my decision in Fair Work Ombudsman v C & G Smith Enterprises Pty Ltd [2022] FedCFamC2G 579. In that case, I found that the respondent had entered a settlement agreement with another employee in respect of underpayments, and then disingenuously led the employee to believe for some months that it would be honoured. As it turned out, that agreement was not honoured, the Ombudsman issued a Compliance Notice and it was ignored.
The Ombudsman invites the Court to find that the company’s conduct in the instant case was deliberate. The Ombudsman submits that at all material times the company was aware that it had not met its obligations to employees and took no positive steps to rectify underpayments notwithstanding the issue of compliance notices requiring it to do so.
The evidence satisfies me that C & G Smith Enterprises was given significant time to participate in the investigation of Mr Leahy-Garrett’s underpayment and to comply with the Compliance Notice. There has been a complete failure on the part of the respondent to engage with the regulator, despite repeated attempts. Efforts made to contact the company’s director via several email addresses and two physical addresses for the company’s registered office have all come to nothing. This is despite the fact that there is clear evidence before the Court that these communications have reached their destination.
The ‘head in the sand’ position adopted by the respondent has continued throughout these proceedings. Based on the evidence contained in the various affidavits on which the Ombudsman relies, I am satisfied that the respondent company and its director were made aware of the alleged breach of employee entitlements, were aware of the Compliance Notice and its requirements, were aware of the Ombudsman’s efforts to secure compliance with the notice, are aware of these legal proceedings including the default judgement entered against the company and are aware that penalties are now sought. From all of this the Court infers that the respondent has adopted a fixed position of deliberate and intransigent rejection of the statutory enforcement regime and the Ombudsman’s important role as a regulator of Commonwealth workplace laws, or that it is arrogantly indifferent to the statutory scheme and its consequences.
Compliance with minimum standards
The Compliance Notice regime was introduced as a means to quickly and inexpensively resolve contraventions of the FW Act. Had the respondent complied with the compliance notice within the timeframe specified, this litigation could almost certainly have been avoided.
As the Ombudsman submitted in its written outline (footnotes excluded):
39.Compliance with minimum standards is an important consideration in the present case for the following reasons:
(a) one of the stated principal objects of the FW Act is the preservation of an effective safety net for employee entitlements and effective enforcement mechanisms;
(b) it is vital to ensure compliance with a safety net of modern awards to create an even playing field for employers and ensure all employees are appropriately remunerated for the work they perform; and
(c) the substantial penalties set by the legislature for contraventions of the FW Act demonstrate the importance Parliament places on employers complying with their minimum obligations.
40.The power of a Fair Work Inspector to issue a compliance notice was introduced into the FW Act to provide a mechanism for dealing with non-compliance with minimum entitlements in the FW Act, as an alternative to commencing litigation for each underlying contravention. The Courts have recognised compliance notices provide a mechanism for the efficient and cost effective rectification of the identified contraventions of the FW Act, including underpayments to employees.
41. If C & G Smith Enterprises had complied with the Compliance Notice:
(a) the FWO would have been prevented from bringing civil remedy proceedings against them in respect of the underlying contraventions pursuant to section 716(4A) of the FW Act; and
(b) they would not be taken to have admitted or contravened the civil remedy provisions in respect of the underlying contraventions pursuant to section 716(4B) of the FW Act.
42.If a person fails to comply with a compliance notice, section 539(2) of the FW Act allows a Fair Work Inspector to bring civil remedy proceedings against that person and seek appropriate orders to remedy the contravention, including pecuniary penalties under section 546 of the FW Act. As such, the penalty against C & G Smith Enterprises should be set at a level that reflects the seriousness of a failure to comply with a statutory notice.
I accept the tenor and force of these submissions. The courts have indeed recognised, on countless occasions, that the statutory compliance notice scheme is directed at ensuring compliance with employment obligations in an efficient and cost-effective manner which avoids unnecessary expense and litigation. The respondent’s conduct has frustrated that objective.
The nature and extent of any loss or damage sustained
The Compliance Notice required a calculation of entitlements and rectification of underpayments to the apprentice. The respondent has not paid any amounts to the affected employee, leaving him out of pocket in respect of overtime worked and annual leave accrued. Any underpayment to an apprentice is material.
That said, the loss or damage arising from the contravention is much more than that suffered by the affected employee. The failure to comply with the Compliance Notice in and of itself defeats the public benefit of the compliance notice system. The offending conduct undermines the statutory scheme and results in the expenditure of public moneys which could have been avoided had the respondent done what was required of it by the notice.
Size of business
As to the size of the business operated by C & G Smith Enterprises, the Ombudsman submitted (footnotes excluded):
34.There is no evidence currently before the Court from C & G Smith Enterprises relating to its size or financial circumstances.
35.It is well established that the size and financial circumstances of an employer do not exculpate contraventions of workplace laws. Regardless of the size of the business or its financial position, the FWO submits that an employer cannot be absolved of its obligations to comply with workplace laws. A penalty should be imposed at a meaningful level regardless of C & G Smith Enterprises' size or financial position.
As the Ombudsman correctly points out, there is no evidence before the Court regarding the size of the respondent’s business or its financial circumstances. The respondent was afforded the opportunity to put such evidence before the Court or to make submissions about its business. It did not avail itself of that opportunity.
I infer from the evidence that the respondent operated a relatively modest franchise business with a small number of employees. I also infer from the evidence that the respondent ceased operating the Rapid Tune franchise in early 2021, during the period of the COVID pandemic, and that its then employees were terminated.
Nonetheless, the size of the business does not confer on the respondent any preferential status or lesser obligation when it comes to complying with workplace laws. In Kelly v Fitzpatrick (2007) 166 IR 14 at [28] Tracey J said:
“No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction “must be imposed at a meaningful level”
It is possible that the respondent company succumbed to adverse trading conditions during the pandemic and was suffering financial difficulties which may have played a part in its inability to meet outstanding employee entitlements on termination. That said, the respondent company remained registered and there is no evidence before the Court as to its actual financial circumstances at the time. The Court should not conclude that a company is in difficult financial circumstances or has an incapacity to pay merely from the fact that it has ceased to operate a business. As stated, the respondent has had an opportunity to put evidence before the Court on this issue but for whatever reason has chosen not to do so.
In any event, the fact that the business ceased operations and employees were terminated does not exculpate the respondent from its failure to meet wages during the period of their employment or from properly providing for accrued entitlements which are payable on termination.
While at one level the Court accepts that business failures occur from time to time and for various reasons, it remains incumbent on employers to properly prioritise employee entitlements and to comply with workplace laws, no matter what other operational or financial difficulties may be visited upon the company or its proprietor. The work/wages bargain between employees and their employer, does not require employees to carry the weight of or to share the losses associated with business misfortune.
Similar previous conduct
The Ombudsman made the following submissions on the respondent’s previous contravening conduct (footnotes excluded):
34.This Court has previously accepted evidence of a respondent being "put on notice" of their legal obligations may be a factor in determining penalty. This is especially the case where a Respondent has engaged in similar previous conduct which was the subject of the imposition of pecuniary penalties and declarations. C & G Smith Enterprises has engaged in similar previous conduct and the failure to comply with the orders of the Court in that matter, despite repeated attempts by the FWO to secure compliance, shows that C & G Smith Enterprises was on notice regarding their legal obligations and has failed to take adequate steps to prevent further contraventions.
As noted earlier, the Compliance Notice in this proceeding was issued on 7 October 2021. At that time, proceedings in this Court were on foot in relation to the respondent’s non-compliance with an earlier contravention notice. Those proceedings were commenced on 27 August 2021 and related to a notice which had been issued to the respondent on 7 April 2021. On 22 July 2022 a pecuniary penalty was imposed upon the respondent in respect of the earlier contravention for the reasons set out in Fair Work Ombudsman v C & G Smith Enterprises Pty Ltd [2022] FedCFamC2G 579.
The Ombudsman accepts that the alleged contravention in this case took place prior to the hearing and judgment and the imposition of penalties in the earlier matter. In that sense, it is properly accepted that at the time of the contravention which is the subject of this proceeding, the respondent did not have a record of prior contraventions.
Nonetheless, the Ombudsman submits that the respondent should at all material times be regarded as having been ‘on notice’ of its legal obligations both in respect of employee entitlements and in respect of the statutory compliance scheme.
It is submitted that in determining penalty in this case, the Court can properly take into account that the respondent has failed to comply with Court orders, including as to the payment of penalty, and has failed to take adequate steps to prevent further contraventions.
It is proper to judge the gravity of the respondent’s conduct at the time of its failure to comply with the notice. At the time of the current contravention, there was no adverse finding against the respondent and no penalty order against him. The fact that a declaration and penalties have been subsequently ordered in relation to another earlier contravention does not mean that the conduct in the instant case should be judged as more serious or that it should attract a greater penalty.
Nonetheless, contextually, I accept it can be inferred that at the time the Compliance Notice in this proceeding was issued (7 October 2021), the respondent was well aware of the consequences of non-compliance, including the likelihood, indeed probability, that the Ombudsman would initiate legal proceedings to secure compliance and penalties. That awareness colours the respondent’s decision to ignore the notice.
I also accept that the Court may take into account the respondent’s conduct during the course of these proceedings. One would have thought that the imposition of a penalty in relation to similar conduct and the reasons published by the Court, might have prompted the respondent to either comply with the outstanding Compliance Notice, to engage with the Ombudsman with a view to compromising the matter (by way, for example, of a payment plan) or to engage in these proceedings by way of defence. Yet the respondent has done none of those things, as a consequence of which the Ombudsman has had to spend very significant public funds and devoted public resources in bringing and prosecuting these proceedings.
Corrective action and cooperation
The Ombudsman submitted the following in relation to the respondent’s degree of cooperation and corrective action taken (footnotes excluded):
35.It is the submission of the FWO that the legislature has set penalties for non-compliance with a compliance notice because a failure to comply will cause (as it has done in these proceedings) the workplace regulator to spend time and public funds, and will cause the Court to spend time and public funds, dealing with civil remedy proceedings which would not have been required had compliance occurred.
36.In matters involving a corporate respondent, typically a change in behaviour and steps taken to correct wrongdoing will be seen as the clearest expression of contrition. A failure to actively engage in proceedings has been recognised as evidence of a lack of contrition.
37.There has been no contrition, corrective action or co-operation in this matter. As set out above at paragraphs 10 and 11 above, C & G Smith Enterprises did not comply with the Compliance Notice at all and did not cooperate with the FWO during both the investigation and these proceedings. There has been no acknowledgement of the Compliance Notice by C & G Smith Enterprises, and C & G Smith Enterprises has not filed any documents in this matter, has repeatedly not responded to contact from the FWO without explanation and has failed to comply with orders of this Court.
38.C & G Smith Enterprises' approach to these proceedings shows that it does not regret or recognise the seriousness of its failure to act on a statutory notice and evidences a failure to acknowledge the loss suffered by Mr Leahy-Garrett.
The conduct of the respondent since the initiation of the investigation into the alleged underpayment of Mr Leahy-Garrett speaks for itself. The respondent has completely gone to ground and has offered no excuse or explanation for the contravening conduct.
I have already found that the respondent’s conduct should be regarded as deliberate. The evidence does not disclose a hint of contrition, corrective action or cooperation. There was no acknowledgement of the Compliance Notice, let alone compliance with it. The respondent did not cooperate with the investigation, nor has it engaged in these proceedings despite being given every opportunity to do so.
There is no acknowledgement by the respondent of the loss suffered by its former employee, of the role of the regulator in seeking to encourage compliance with workplace laws or of the seriousness of its failure to act on a statutory notice. If the respondent harbours any regret about these matters, there is no evidence of it.
Deterrence
The principal purpose of the FW Act’s civil remedy provisions is deterrence[13], both specific deterrence of the contravener for its conduct and general deterrence of potential contraveners. In carrying out this objective, the Court’s task involves determining a penalty that has a necessary ‘sting or burden’ that secures both a specific and general deterrent effects[14]. The Ombudsman's Written Penalty Submission addressed both general and specific deterrence.
[13] Agreed Penalties Case (2015) 258 CLR 482 at 506 [55] (per French, Kiefel, Bell, Nettle and Gordon JJ)
[14] Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3 at [116]
General deterrence
The Ombudsman advanced the following written submission on general deterrence (footnotes excluded):
21.General deterrence must serve a purpose such that the penalty is not seen by others as just 'the cost of doing business'. In order to be useful as a general deterrent, a penalty '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'.
22.The efficacy of statutory notices such as compliance notices will be undermined if recipients perceive that a failure to comply carries no meaningful consequences. In imposing a meaningful penalty, the Court will deter other persons from failing to comply with compliance notices.
23.The penalties to be imposed in this matter should be sufficiently high to impress upon other employers the importance of complying with the legal obligations owed to their employees. As Marshall J observed in Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2):
"It is important to ensure that the protections provided by the [FW] Act to Employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected."
24.Relevant in assessing the need for general deterrence is evidence as to practices or compliance levels in the particular industry. The FWO's Industry Profile for the automotive repair and maintenance industry for July 2019 to December 2022 reported that while the dispute rate for this industry is moderate (at 13 disputes per 1000 businesses):
(a) there are a high number of disputes in the industry occurring in Victoria compared to the other states and territories, with Victoria making up a quarter (25%) of all disputes within this industry; and
(b) Contraventions involving outstanding entitlements owed on termination comprises of almost a quarter of disputes in this industry.
25. The FWO's industry profiles have previously been accepted by the Court as evidence of non- compliance and the need for deterrence in a particular industry.
26. The FWO submits that there is a need to send a message to employers generally and to the automotive repair and maintenance industry in particular that a failure to comply with compliance notices will not be tolerated in Australian workplaces and will be investigated and litigated by the FWO.
I accept the Ombudsman’s submission that the penalty should be a sufficient level to act as a deterrent in preventing similar contraventions. The integrity and efficacy of the statutory compliance notice scheme stands to be undermined if non-compliance is not met with meaningful consequences.
The penalties to be imposed in a case of non-compliance must be sufficiently high to impress upon other employers the importance of complying with the legal obligations owed to their employees. An important message must be conveyed to employers that a failure to comply with legal obligations will result in the issue of compliance notices which, if ignored, will be litigated by the Ombudsman.
I have in previous cases expressed a degree of hesitance at the Ombudsman’s submission that practices and compliance levels in a particular industry or particular geographical area should factor in the message to be sent by way of general deterrence. I accept that there may be occasions where non-compliance is so systemic or ingrained that the volume of the penalty should be raised so as to speak loudly to the industry participants. But the Court must also be cautious not to visit the sins of others upon a contravenor merely because of the industry in which it operates. In this case I am not satisfied that FWO's Industry Profile for the automotive repair and maintenance industry weighs in favour of an increased penalty.
Specific deterrence
However, the case for specific deterrence in this case is persuasive. The Ombudsman submitted (excluding footnotes):
27. There is a particular need to deter C & G Smith Enterprises specifically from engaging in the same contravening conduct in the future, given that:
(a) C & G Smith Enterprises is still registered;
(b) Mr Smith is and remains the sole director of C & G Smith Enterprises;
(c) C & G Smith Enterprises has demonstrated a disregard for their obligations under the FW Act and as an employer under Commonwealth workplace laws by failing to comply with the Compliance Notice;
(d) the absence, to date (noting the advanced stage of this proceeding) of any real contrition or remorse on the part of C & G Smith Enterprises; and
(e) the history of non-compliance with workplace laws, having been the subject of previous legal action by the FWO before this Court; and
(f) C & G Smith Enterprises has shown a disregard for orders and decisions of this Court.
28.A penalty should accordingly be fixed at a level which specifically deters C & G Smith Enterprises from engaging in further contravening conduct.
The Ombudsman acknowledged that although C & G Smith Enterprises is still registered, it no longer operates the Rapid Tune franchise in which Mr Leahy-Garrett was employed as an apprentice mechanic. There is no evidence before the Court that C & G Smith Enterprises currently operates any other business or that it employs any employees. Indeed the evidence suggests that its owner Mr Smith may now be employed elsewhere as a mechanic.
Nonetheless, the Ombudsman submits that it is possible that the company may engage in future business enterprises and may employ others. In circumstances where Mr Smith has a capacity to re-emerge as a business operator and potential employer, it submitted that he should be reminded of the consequences which flow from demonstrating a blatant disregard for employee entitlements and Commonwealth workplace laws.
The Ombudsman points to the fact that the company’s director Mr Smith has blatantly ignored the Compliance Notice, failed to engage with the Ombudsman despite being given the opportunity to do so, failed to engage in legal proceedings and, when Court orders have been made against the company, failed to comply with those. The Ombudsman also relies on the fact that the respondent’s ongoing non-compliance with the Compliance Notice, which is the subject of these proceedings, has continued even after the Court imposed penalties against the company in respect of another earlier instance of non-compliance.
Although it might be thought that there is less need for specific deterrence in circumstances where a respondent has ceased operating, I accept the submission that a significant penalty still has work to do to impress upon the respondent that its conduct cannot be tolerated in future. I accept that the business should be sent a message that its blatant disregard for workplace laws is an unacceptable feature of business conduct.
DISPOSITION
The respondent has not done itself any favours in the way it has approached this matter. The regulator has every reason to be totally exasperated at the respondent’s failure to engage and its belligerent ‘head in the sand’ response to the statutory compliance scheme.
Nonetheless, the task of the Court is to assess the objective seriousness of the contravention in light of all the circumstances and to determine a penalty which meets the objectives discussed above. The notion of proportionality has no place in a civil penalty regime, but the penalty must strike a reasonable balance between deterrence and oppressive severity[15].
[15] Pattinson at [41]
The contravention in the current matter is serious and the penalty must be meaningful. However, I do not accept the Ombudsman’s submission that it should be at a high range of between $26,640 – $29,970, being 80-90% of the maximum. Having regard to all the circumstances, I regard that to be excessive and disproportionate to the quantum and seriousness of the underlying contravention.
In my view, the contravention that was the subject of my finding in the earlier decision, was objectively more serious than the contravention that is the subject of these proceedings. In that earlier matter I considered the respondent’s conduct of entering into a settlement agreement which it then dishonoured was egregious, particularly harmful to the employee concerned and aggravated the seriousness of the contravention.
For the purpose of determining penalty in this case the respondent should be regarded as having a record of no prior convictions. This contravention occurred at a time before orders were made by the Court for the finding of liability or the payment of penalties in the earlier matter.
I have decided that a penalty of 60% of the maximum should be imposed for this contravention, which in dollar terms is $19,980.00. I will make orders accordingly.
I certify that the preceding eighty-four (84) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 23 June 2023
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