Fair Work Ombudsman v C & G Smith Enterprises Pty Ltd
[2022] FedCFamC2G 579
•22 July 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v C & G Smith Enterprises Pty Ltd [2022] FedCFamC2G 579
File number(s): MLG 2189 of 2021 Judgment of: JUDGE FORBES Date of judgment: 22 July 2022 Catchwords: INDUSTRIAL LAW – Fair Work – contravention of compliance notice – failure to remedy underpayments to former employee – employer acknowledged indebtedness – no engagement with regulator or Court proceedings – default judgment – serious contravention – penalties ordered Legislation: Crimes Act 1914 (Cth) s 4AA
Fair Work Act 2009 (Cth) s 33, 539, 546, 716, 717
Cases cited: Agreed Penalties Case (2015) 258 CLR 482
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) FCR 560
Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46
Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128
Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815
Fair Work Ombudsman v Kleen Group Ltd Anor [2016] FCCA 278
Fair Work Ombudsman v Matcraft Pty Ltd & Ors [2021] FCCA 272
Fair Work Ombudsman v New Shanghai North t/a New Shanghai Charlestown [2017] FCA 1301Fair Work Ombudsman v New Shanghai North t/a New Shanghai Charlestown (2017) 275 IR 148
Fair Work Ombudsman v Trucking Services Pty Ltd [2021] FCCA 760
Fair Work Ombudsman v Viper Industries Pty & Anor [2015] FCCA 492
Fair Work Ombudsman v 3 Rundle Mall Pty Ltd [2022] FedCFamC2G 354
Kelly v Fitzpatrick [2007] FCA 1080
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission[2012] FCAFC 20
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission(2012) 287 ALR 249 at 265
Trade Practices Commission v CSR Ltd[1990] FCA 521
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
Division: Division 2 General Federal Law Number of paragraphs: 96 Date of last submissions: 26 April 2022 Date of hearing: 27 May 2022 Solicitor for the First Applicant: Ms Anna Boden Solicitor for the Respondent: No appearance ORDERS
MLG 2189 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: C & G SMITH ENTERPRISES PTY LTD
Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
22 July 2022
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 $22,200 for the contravention of section 716(5) of the FW Act the subject of the declaration made by this Court on 22 December 2021, 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 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
JUDGE FORBES
INTRODUCTION
In this matter, the Fair Work Ombudsman (“Ombudsman”) seeks the imposition of pecuniary penalties against C & G Smith Enterprises Pty Ltd (“the respondent”) in relation to a contravention of section 716(5) of the Fair Work Act 2009 (Cth) (“the FW Act”) arising from the respondent’s failure to comply with a compliance notice dated 7 April 2021.
The Ombudsman seeks penalties consequential to a declaration made by this Court on
22 December 2021 that the respondent had contravened section 716(5) of the FW Act.
I heard this application on 27 May 2022. There was no appearance for the respondent. In support of its application for imposition of penalties, the Ombudsman relied on a number of affidavits and a written outline of submissions[1], which it developed orally at the hearing. I have read and considered those documents in reaching my decision.
[1] Applicant’s Submissions on Penalty page 3 [4]
BACKGROUND
The background to the respondent’s alleged contravention is summarised below. This summary has been derived from the statement of claim and affidavits filed by the Ombudsman in these proceedings. The documents on which the Ombudsman relies have been served on the respondent and the evidence has not been challenged.
The respondent company traded as Rapid Tune Keysborough, an automotive service centre located in Keysborough, Victoria. Mr Corey Smith has been the sole director and secretary of the company from its registration in May 2019.
Employees of the respondent were entitled to be paid wages and work to conditions stipulated in the Vehicle Manufacturing, Repair, Services and Retail Award 2020 (“the Award”). The Award provided, amongst other things, the minimum weekly and hourly wage rates for employees covered by the Award[2].
[2] Vehicle Manufacturing, Repair, Services and Retail Award 2020 cl 16.2
Between the period of 1 October 2019 and 30 October 2020, the respondent employed Mr Sun Been (‘Andy’) Kim to work as a motor mechanic. Mr Kim was covered by the Award and was classified as a Vehicle RS&R industry employee – tradesperson or equivalent Level 1 in Wage Group R6. Under the Award he was entitled to a minimum wage of $862.50 per week or $44,850 per year.
On 30 November 2020, Mr Kim’s employment ceased. Following the termination of his employment, Mr Kim sought payment of outstanding amounts he believed were owed to him by the respondent. These amounts comprised underpaid wages, annual leave and leave loading entitlements and unpaid superannuation contributions.
On 4 December 2020, Mr Kim and Mr Smith (the director of the respondent) entered into a Terms of Agreement deed (“the Terms of Agreement”). By the Terms of Agreement, the respondent agreed to pay Mr Kim his outstanding final payment of $8,167.70 on or before
31 January 2021. Of this total amount, $5,745.88 was the net amount owed, which included annual leave pay, leave loading and backpay entitlements, and $2,421.82 was the amount owed in superannuation contributions[3]. This amount excluded the PAYG withholding of $3,016.00[4].
[3] Cox affidavit affirmed 26 April 2022 page 13; Annexure CC-2 (“Cox affidavit”)
[4] Cox affidavit page 13; Annexure CC-2
Mr Kim and Mr Smith both signed the Terms of Agreement. The Terms of Agreement stipulated that if the respondent failed to pay Mr Kim the total amount of $8,167.70 by
31 January 2021, Mr Kim reserved the right to commence Court action to recover the amount[5].
[5] Cox affidavit page 13; Annexure CC-2
I note at this juncture that the Ombudsman contends that by signing the Terms of Agreement, Mr Smith acknowledged on behalf of the respondent that Mr Kim had not been properly paid, that entitlements were owed to him and that payment would be made to him on or before
31 January 2021. The Ombudsman contends that the Terms of Agreement led Mr Kim to believe that the respondent acknowledged its liability and caused him to refrain from pressing his claims for at least 2 months, including over the Christmas period.
The respondent failed to meet his obligations under the Terms of Agreement and Mr Kim has not received any further payment in respect of his employment.
In February 2021, Mr Kim requested the assistance of the Ombudsman. On 17 February 2021, Mr Kim emailed a FWO Customer Solutions Officer a table that set out his outstanding final payment details, as well as a copy of the Terms of Agreement[6].
[6] Cox affidavit page 3 [8]
Following Mr Kim’s request for assistance, the FWO directed Fair Work Inspector, Ms Christine Cox, to conduct an investigation into the company’s compliance with terms of the Award and other provisions of the National Employment Standards (“the NES”). Ms Cox was assisted by Fair Work Officer, Ms Linda Tran.
Between 17 February to 24 March 2021, Ms Tran made several unsuccessful attempts to contact the respondent’s sole director Mr Smith. Ms Tran attempted to communicate with
Mr Smith through telephone calls and text messages, as well as via email correspondence sent to Mr Smith’s two known email addresses[7].
[7] Cox affidavit page 3 [10]
On 1 April 2021, Ms Tran successfully made contact with the listed business number for Rapid Tune Keysborough. A staff member advised Ms Tran that Mr Smith had left the business ‘about two weeks’ prior, suggesting that Mr Smith was no longer associated with Rapid Tune Keysborough[8].
[8] Cox affidavit page 3 [11]
As a result of the investigation, Ms Cox formed a reasonable belief that the respondent had contravened a term of the Award and a provision of the NES[9]. On 7 April 2021, pursuant to section 716(2) of the FW Act, Ms Cox issued a compliance notice (“the Compliance Notice”) directed at the respondent. The Compliance Notice alleged that between 27 June 2020 and
7 November 2020, C & G Smith Enterprises had contravened[10]:
(1)Clause 16.2 of the Award by failing to remunerate Mr Kim with the applicable minimum wage from 27 June 2020 to 9 August 2020; and
(2)Section 90(2) of the NES by failing to pay Mr Kim the amount owed for unclaimed annual leave payable to him upon the termination of his employment.
[9] Cox affidavit page 28 [6]; Annexure CC-5
[10] Cox affidavit page 28-30; Annexure CC-5
The Compliance Notice compelled the respondent to take certain specified steps on or before 10 May 2021 to remedy the direct effects of the alleged contravention, namely[11]:
(a)
Calculate the amount of underpayment involved in respect of its breach of clause 16.2 of the Award and forward this sum to Mr Kim on or before
10 May 2021;
(b)Remit the outstanding superannuation contributions relevant to the calculated underpayments on or before 10 May 2021; and
(c)Provide written proof to the FWO that compliance with the Compliance Notice had been satisfied by no later than 17 May 2021.
[11] Cox affidavit page 31; Annexure CC-5
The Compliance Notice stated that failure to comply with these actions on or before
10 May 2021 may result in C & G Smith Enterprises contravening section 716(5) of the
FW Act. The Ombudsman also informed the respondent that it may apply to review the Compliance Notice.
The Compliance Notice was sent via express post to the respondent’s registered office and the principal place of business, as well as to the last known address of Mr Smith[12]. On 8 April 2021, Ms Tran sent a copy of the Compliance Notice to Mr Smith’s two known email addresses[13].
[12] Cox affidavit page 30-32; Annexure CC-5
[13] Cox affidavit page 34; Annexure CC-6
The respondent did not comply with the obligations under the Compliance Notice on or before 10 May 2021.
On 11 May 2021, Ms Tran emailed Mr Smith a ‘Failure to comply with Compliance Notice’[14]. This informed the respondent that it had 7 days to provide a reasonable excuse for its failure to comply with the Compliance Notice. The respondent did not offer a reasonable excuse or respond at all.
[14] Cox affidavit page 37; Annexure CC-7
Ms Cox deposes that from the commencement of the Ombudsman’s investigation in early 2021 until the date of the Ombudsman’s affidavit affirmed on 26 April 2022, the FWO did not receive any communication from or on behalf of the respondent and Mr Kim did not receive any payment from the respondent[15].
[15] Applicant’s Submissions on Penalty page 3 [13]
Litigation background
The Ombudsman instigated these proceedings on 27 August 2021.
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. The originating application and the applicant’s Statement of Claim were sent by express post the respondent’s registered office and business address on 31 August 2021[16].
[16] Anna Louise Boden affidavit affirmed 14 October 2021 page 13; Annexure CC-2
This case came before the Court for the first time on 20 October 2021. Ms Boden appeared on behalf of the applicant. There was no appearance entered on or behalf of the respondent. On that occasion, I made orders for the respondent to file and serve a Notice of Address for Service by 3 November 2021, as well as a response and a defence by 10 November 2021. I stipulated that if the respondent failed to comply with those orders that the applicant may file and serve an Application in a Proceeding for default judgment pursuant to rule 13.05(2) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (“the Rules”)[17].
[17] Orders Judge Forbes made on 20 October 2021
On 21 October 2021, a Legal Support Officer of the FWO sent a copy of these orders by registered post to the Registered Office of C & G Smith Enterprises[18].
[18] Anna Louise Boden affidavit affirmed 24 November 2021 page 2 [13]; Annexure AB-13
The respondent did not file and serve a Notice of Address for service or any response or defence.
Default Judgment and Declaration
On 24 November 2021, the applicant filed an Application in a Proceeding seeking default judgment against the respondent pursuant to rule 13.05(2)(c) of the Rules. Judgment was sought against the respondent by reason of its failure to comply with orders made by the Court on 20 October 2021 and its failure to defend the proceedings with due diligence. The application was supported by an affidavit of Ms Boden which deposed to the service of previous Court orders, including to a new registered office of the respondent.
At a Directions Hearing on 1 December 2021, there was again no appearance for or on behalf of the respondent. I adjourned the Ombudsman’s application for hearing to 22 December 2021. I also ordered the Ombudsman to serve a copy of my orders upon the respondent at its last known address – a step I had taken in relation to previous orders for the purpose of giving the respondent every possible opportunity to engage in the proceedings.
At the hearing of the Ombudsman’s application for default judgment on 22 December 2021, Mr Minucci of counsel appeared on behalf of the Ombudsman. There was again no appearance for the respondent. Being satisfied as to service and for reasons given ex tempore that day I granted the Ombudsman the relief sought in the application for default judgment. On that day, I declared that[19]:
“Upon the admissions which the Respondent is taken to have made by reason of its default, the Respondent contravened section 716(5) of the Fair Work Act 2009 (Cth) (FW Act) by failing to comply with a compliance notice given to the Respondent on 7 April 2021 (Notice)”
[19] Orders Judge Forbes made on 22 December 2021 order 2
Additionally, I made orders requiring the respondent to take appropriate steps to adhere with the Compliance Notice and for the applicant to ensure that a copy of my orders were served on the respondent.
Following the default judgment, an agent of the Ombudsman sent a copy of these Default Orders by registered post to the respondent’s office[20]. Australia Post confirmed that the envelope was marked as delivered on 30 December 2021[21]. On 23 December 2021, the Default Orders were also emailed to the Mr Smith’s two known email addresses[22].
[20] Anna Louise Boden affidavit affirmed 22 April 2022 page 2 [8]
[21] Anna Louise Boden affidavit affirmed 22 April 2022 page 2 [10]
[22] Anna Louise Boden affidavit affirmed 22 April 2022 page 2 [9]
In my orders made on 22 December 2021 I included a notation drawing the respondent’s attention to the Court’s power under rule 17.05 to vary or set aside a judgment or order after it has been entered in circumstances where the judgment or order has been made in the absence of that party. Notwithstanding, the respondent has not made any application for the default judgment or any of my orders to be set aside.
PENALTY PROCEEDING
The Ombudsman now seeks the imposition of pecuniary penalties[23] against the respondent for the declared contravention of sub-section 716(5) of the FW Act.
[23] Fair Work Act 2009 (Cth) s 546(2)(b)
Sub-section 546(1) of the FW Act grants this Court power to order a person to pay a pecuniary penalty if it is satisfied that a person has contravened a civil remedy provision. Sub-section 716(5) of the FW Act is a civil remedy provision.
Pursuant to column 4 of the table set out in sub-section 539(2) of the FW Act, a contravention of sub-section 716(5) attracts a maximum penalty of 30 penalty units.[24] The value of a penalty unit for breaches that occurred on or after 1 July 2020 is $222[25]. Accordingly, the applicable maximum penalty for contravention of sub-section 716(5) is $6,660.
[24] Fair Work Act 2009 (Cth) s 33
[25] Crimes Act 1914 (Cth) s 4AA
Subsection 546(2)(b) of the FW Act states that when determining the monetary amount of a pecuniary penalty for a body corporate, as is the case here, the pecuniary penalty must not be more than 5 times the applicable maximum penalty unit established in sub-section 539(2) of the FW Act. The maximum pecuniary penalty amount for a corporation which contravenes sub-section 716(5) FW Act is $33,300.
On 26 April 2022, the Ombudsman filed written submissions in support of its application for penalties. The Court is satisfied that these submissions were emailed and sent by mail to the respondent prior to the hearing.
In its written submission filed on 26 April 2022 and in oral submissions made on 27 May 2022, the applicant submitted that it would be appropriate to impose penalties on the respondent within the ‘high range’ of 80% to 90% of the maximum pecuniary penalty amount, being between $26,640.00 and $29,970.00[26].
[26] Applicant’s Submissions on Penalty page 2, [3]
Applicable legal principles
The primary purpose of civil penalty provisions are to promote the public interest in compliance.[27] This purpose was recently reinforced by the High Court of Australia in Australian Building and Construction Commissioner v Pattinson (‘Pattinson’)[28], where the majority stated that the purpose of the civil remedy regime in the FW Act is the promotion of the public interest in compliance with provisions of the FW Act by way of deterrence of further contravention[29].
[27] Trade Practices Commission v CSR Ltd[1990] FCA 521; (1991) ATPR 41-076 at 52,152 [42]; Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 at [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ)
[28] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [9]
[29] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [71]
Reaching for that purpose involves putting a price on a contravention which is fairly and reasonably appropriate. 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 determining the gravity and seriousness of the offending which it is called upon to penalise, given all the factual circumstances that arise. The considerations deemed relevant to this task are well known and frequently cited[30]. They include:
[30] 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”[31]. In Pattinson, the High Court reiterated that this list of possible relevant considerations ought not 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. The Court’s task is and remains the determination of what penalty is most appropriate given all of the relevant circumstances of the case[32].
CONSIDERATION
[31] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) FCR 560; [2008] FCAFC 8 [91]
[32] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [68]
Nature and extent of the conduct which led to the breach
I have already described the background facts which resulted in the Ombudsman issuing the Compliance Notice and the respondent’s noncompliance with that notice. The conduct involved a failure to pay Mr Kim the minimum wage during his employment and failure to pay his termination entitlements. The conduct involved alleged breaches of award and statutory obligations and a failure by the respondent to rectify its contraventions. It is conduct that clearly engages the pecuniary penalty regime under the FW Act.
Nature and extent of loss and damage sustained
The Ombudsman submits that the loss incurred by Mr Kim resulting from the respondent’s contravention is material and significant. The applicant submits that by reference to the approximate annual salary of a Level I R6 motor mechanic of $44,850, the underpayment of $8,761.87 was significant, as it equates to approximately one-fifth of Mr Kim’s yearly salary[33]. It should be regarded as a significant loss to the employee.
[33] Transcript 27 May 2022 page 10 line 42-47
Further, the Ombudsman submits that the loss visited upon Mr Kim by these underpayments was compounded in circumstances where the respondent signed the Terms of Agreement, acknowledging its failure to adhere to its legislative obligations, only then to fail to meet the terms of that Agreement.
In oral submission, the applicant also raised that the Terms of Agreement were entered into just prior to the Christmas period, which should be seen as further exacerbating the extent of loss incurred by Mr Kim at the point where the Terms of Agreement were not satisfied. Mr Kim did not pursue his entitlements for at least 2 months, believing they would be paid.
I am satisfied that for this employee the amount of underpayment was significant.
Whether or not the breach was deliberate
The issuing of the Compliance Notice only came about because the respondent company failed to comply with the Terms of Agreement it made with its former employee. The Terms of Agreement gave the former employee Mr Kim every expectation that the underpayment would be rectified in a timely manner. Those dashed expectations led to the complaint to the Ombudsman.
The Ombudsman submits that the respondent was then given over six months to participate in the investigation and comply with the Compliance Notice, however it failed to do so, necessitating these current proceedings[34]. The applicant relied on Judge Emmett’s observation in Fair Work Ombudsman v Viper Industries Pty & 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.’’
[34] Applicant’s Submission on Penalty page 5 [24]
Despite having the opportunity to do so, the respondent has not provided any evidence as to why the employee was not paid and why the requirements of the Compliance Notice were not met. Based on the evidence before the Court I am inclined to the view that the respondent’s non-compliance should be viewed as intentional and deliberate.
Cooperation with enforcement bodies
Under section 716 of the FW Act, if a Fair Work Inspector believes on reasonable grounds that a person has contravened a Modern Award or the NES, the inspector may give that person a ‘Compliance Notice’ compelling them to take specific action to remedy the contravention[35]. In this matter the inspector Ms Cox formed such a belief and I accept that she had reasonable grounds for doing so.
[35] Fair Work Act 2009 (Cth) s 716(1), (2)(a)
The issuing of compliance notices forms part of the legislative scheme of promoting compliance with the FW Act. The notice informs employers of the obligations and entitlements that they owe to their employees and affords them an opportunity to either rectify the alleged non-compliance or challenge the basis of the inspector’s belief. This mechanism is critical for the resolution of contraventions of the FW Act, including non-payment of entitlements to employees, in a manner that is cost-effective, expeditious and intended to obviate the need for legal proceedings[36].
[36] Fair Work Act 2009 (Cth) s 682(1)
In Fair Work Ombudsman v Matcraft Pty Ltd & Ors [2021][37], Judge Kendall explained at
[34]-[35] in the following terms that the purpose of section 716 is to provide an alternative to litigation:“As explained in the Explanatory Memorandum to the Fair Work Bill 2008 (Cth), the purpose of s 716 of the Act is to provide an alternative to litigation. Section 716 is an informal mechanism whereby the applicant can identify potential contraventions of the Act and seek rectification without an employer having to admit liability.
One of the objects of the Act is to provide accessible and effective procedures to resolve grievances and disputes and provide effective compliance mechanisms. Section 716 encapsulates this objective by allowing employees to make a request for assistance which the applicant can then resolve through the use of s 716.”
[37] FCCA 272
Compliance notices must contain particulars of the alleged contravention of the FW Act and stipulate any rights of review of the notice[38]. Section 717 of the FW Act entitles the recipient of a compliance notice to apply to the Court seeking review on the basis that the person has not contravened a fair work instrument or alleges that the notice fails to comply with the terms of the FW Act. In this case, no such review was sought by the respondent.
[38] Fair Work Act 2009 (Cth) s 716(3)
It is clear from the various affidavits filed by Ms Cox and Ms Boden that several attempts were made to encourage the respondent to adhere to the Compliance Notice and to engage in these proceedings. Repeated attempts by the Ombudsman to contact Mr Smith by a variety of methods, including mobile phone, three different physical postal addresses and two email addresses, have been unsuccessful.
The applicant submits that if the respondent had complied with the Compliance Notice[39]:
(a)the Ombudsman would not have been able to bring civil remedy proceedings against the respondent in respect of the underlying contravention pursuant to section 716(4A) of the FW Act; and
(b)pursuant to section 716(4B) the respondent would not be taken to have admitted any contravention or be found to have contravened the civil remedy provision.
[39] Applicant’s Submission on Penalty page 8 [43]
However, the respondent has not engaged with the Notice or these proceedings at all.
The Court is satisfied that the respondent has been served all documents concerning the Compliance Notice, the application, the default judgment and penalty hearings. Regardless, the respondent has elected not to come before the Court. I accept the submission made by the applicant that had the respondent engaged with the Compliance Notice or with the Ombudsman at any phase of these proceedings, it may have obviated the need for these penalty proceedings altogether.
For the sake of completeness, it should be noted that Mr Smith, the director of the respondent, did email my chambers on or around 18 October 2021, in which he provided his contact details for the purpose of the first Directions Hearing on 20 October 2021. However, following that email, Mr Smith did not make any further attempts to engage with the proceedings, even though he was informed, via his email address, of other Court events.
An appropriate penalty in these circumstances must be one that acknowledges the legislative intention of Compliance Notices, which as stated above should primarily be to provide employers the opportunity to resolve their contraventions of industrial instruments in the hope of mitigating the need for litigation.
Contrition
The applicant submits that the respondent has not demonstrated any contrition, corrective action or co-operation[40].
[40] Applicant’s Submission on Penalty page 7 [39]
Firstly, the Ombudsman submits that by making the Terms of Agreement document, the respondent can be taken to have admitted the entitlements owed to Mr Kim and indicated that it would make these outstanding payment amounts. Yet it failed to do so[41]. The respondent failed to provide an excuse for its non-compliance with the Terms of Agreement nor did it attempt to communicate with Mr Kim to arrange a payment plan[42]. Instead, Mr Smith simply stopped replying to all communication from the employee and correspondence from the Ombudsman[43].
[41] Transcript 27 May 2022 page 10 line 16-22
[42] Transcript 27 May 2022 page 11 line 1-2
[43] Transcript 27 May 2022 page 11 line 29
The Ombudsman submits that the respondent’s conduct surrounding the Terms of Agreement are especially egregious. The respondent’s failure to comply with this binding agreement not only aggravated the impact of its existing contravention of the Award, but also demonstrated a blatant lack of remorse. The applicant submits the respondent has not expressed regret for its conduct and that a higher pecuniary penalty amount should be ordered on this basis[44].
[44] Transcript 27 May 2022 page 12 line 15-19
Secondly, as discussed above, the respondent failed to engage with the Compliance Notice by the stipulated date of compliance. The applicant submits that this failure to comply with or acknowledge the Compliance Notice and cooperate with the FWO’s investigation exemplifies its lack of contrition[45].
[45] Applicant’s Submission on Penalty page 7 [39]
Thirdly, the applicant submits by failing to participate in these proceedings, the respondent confirmed its lack of regret, its inability to recognise the seriousness of failing to comply with the Compliance Notice and its failure to acknowledge the significance of the loss incurred by Mr Kim.[46]
[46] Transcript 27 May 2022 page 13 line 24-26
I agree with the Ombudsman’s submissions that there is no evidence which should lead me to apply any discount to the amount of penalties, on account of contrition, corrective action or cooperation. There is no evidence that the respondent has taken any steps to correct its wrongdoing and, as is self-evident from these reasons, there has been a manifest failure on the part of the respondent to engage in the Ombudsman’s compliance effort or these proceedings.
Deterrence
The predominant purpose of civil penalties is deterrence[47]. Deterrence has two aspects – general deterrence directed to the community as a whole and specific deterrence directed at sanctioning individual conduct[48]. The need for both specific and general deterrence is fundamental to the imposition of civil penalties under the FW Act[49]. Both are important.
[47] Agreed Penalties Case (2015) 258 CLR 482 at 506 [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ)
[48] Fair Work Ombudsman v 3 Rundle Mall Pty Ltd [2022] FedCFamC2G 354 at [99]
[49] Fair Work Ombudsman v New Shanghai North t/a New Shanghai Charlestown (2017) 275 IR 148; [2017] FCA 1301 (“New Shanghai”) at [98]
General deterrence
In order to promote general deterrence, it is necessary to consider an amount of penalty that would send a message that contraventions of the sort under consideration are serious and not acceptable.
The Ombudsman submits the respondent’s failure to comply with the Compliance Notice should engage the need for general deterrence in order to maintain the integrity of the statutory enforcement mechanism[50]. The Ombudsman submits that Courts have previously acknowledged that non-compliance effectively undermines the FWO’s power as a regulatory authority, which should reinforce the need for general deterrence[51].
[50] Transcript 27 May 2022 page 13 line 10-16
[51] Fair Work Ombudsman v Kleen Group Ltd Anor [2016] FCCA 278 at [25]
In Fair Work Ombudsman v 3 Rundle Mall Pty Ltd [2022][52], Judge Brown explained that the function of section 716 of the FW Act should be of assistance to an errant employer, therefore, when dealing with persons who have circumvented this provision entirely, it is necessary that the Court consider penalties as a means of deterrence:
“[…] the court should consider a significant penalty as a matter of both general and specific deterrence, given the interest the community has in ensuring that there is compliance with relevant legislation, and protecting the rights of employees to be paid what they are entitled.
[52] FedCFamC2G 354 at [56]
General deterrence is relevant and important to the judicial task. To that end I am mindful that the compliance notice mechanism is an important feature of the scheme of statutory enforcement under the FW Act and that employers should understand that a notice serves as an opportunity for early and cost-effective rectification. If an employer wishes to challenge a compliance notice it should make an application to have it reviewed pursuant to section 717 of the FW Act. If an employer cannot comply with the compliance notice, it should demonstrate a reasonable excuse for its non-compliance. But doing nothing is not an option and inaction should be regarded as serious. All employers who are subject to the FW Act should understand this.
Non-compliance is a serious matter because it not only denies the employee his or her entitlements, it also imposes on the Commonwealth the very significant cost and use of scarce public resources to pursue enforcement in the Court.
The Ombudsman also submitted that in assessing the need for general deterrence the Court ought to consider evidence as to practices or compliance levels within the relevant industry[53] in which the respondent operates its business. To that end, the Ombudsman submitted evidence of the FWO’s Industry Profile for the automotive repair and maintenance industry for July 2018 to December 2021. That industry profile reveals that while the disputes rate was low - approximately 13 disputes for every 1000 businesses – of these disputes, approximately:
(a)one quarter occurred within Victoria; and
(b)one quarter involved outstanding entitlements owed following termination of employment.
[53] New Shanghai at [133]-[134]
The Ombudsman submits that this data suggests the need to send a particular message to employers within the automotive repair and maintenance industry in Victoria that failure to comply with compliance notices is not tolerated[54].
[54] Applicant’s Submission on Penalty page 6 [31]
Although I accept that there is authority to support the use of such data in considering the need for deterrence in a particular industry, in this case I consider it to be of little weight. The evidence submitted in relation to the Victorian automotive industry does not persuade me that I should use this case as a vehicle to send a particular message of condemnation or to make an example of this respondent. This respondent should not be unduly punished by reason of its participation in an industry in a particular state. In my opinion it is desirable that equivalent conduct should be treated equally and that penalty outcomes should not be unduly distorted by reason of where an employer chooses to ply his trade.
Specific Deterrence
Specific deterrence is required to ensure a contravener does not engage in the same contravening conduct in the future[55]. The applicant submits that there is particular need for specific deterrence given that:
(a)the respondent company remains registered; and
(b)the respondent demonstrated a disregard for its obligation under the FW Act by failing to comply with the Compliance Notice, engage in the FWO investigation or with these Court proceedings.
[55] Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128 at [50]
The applicant submitted that the Court should mark its disapproval of the behaviour to ensure the prospect of future contraventions is both commercially and personally undesirable for the respondent.
As stated above, it is clear that the respondent has failed to exhibit any remorse for its contravening conduct. Although it was able to acknowledge its unmet obligation when it made the Terms of Agreement with Mr Kim, its subsequent disregard of those obligations and its failure to engage or cooperate with the Ombudsman makes out a strong case for specific deterrence.
As revealed in the Ombudsman’s investigation, Mr Smith appears to be no longer associated with the business[56]. However, at the time of the penalty hearing, C & G Smith Enterprises remains registered and Mr Smith is still the sole director.
[56] Cox affidavit page 3 [11]
Although the respondent did not make any submissions, it appears that this is its first contravention of the FW Act, and nothing was submitted by the Ombudsman to suggest otherwise.
Size of business
There is no evidence relevant to the size or financial circumstances of the respondent. The respondent has been afforded an opportunity to put evidence before the Court, but it has not done so.
Nonetheless, I infer that the respondent operated a small business and that it is not a large organisation with substantial resources. I am also satisfied that the respondent no longer operates the business in which Mr Kim was employed. I consider these factors to be relevant but not significantly so.
It is well-established that the lack of financial resources should not justify the imposition of a lesser penalty, as an employer should not be absolved of its obligation under fair work instruments based on the size of its business[57].
[57] Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815 at [10]
CONCLUSION
Compliance with minimum standards is an important feature of the FW Act. Employees should enjoy an effective safety net of entitlements under the NES and relevant industrial instruments. The enforcement and penalty regime in the legislation reflects parliament’s intent that employers should comply with their minimum obligations. These matters inform the judicial task of determining the appropriateness of penalties for contraventions of civil remedy provisions.
The imposition of a pecuniary penalty for a contravention of the FW Act should be fixed with the view to ensuring that the penalty is not regarded by the contravener merely as a “cost of doing business”[58].
[58] Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 659 [66]; Singtel Optus Pty Ltd v Australian Competition and Consumer Commission[2012] FCAFC 20; (2012) 287 ALR 249 at 265 [62]–[63]
In this matter, I consider the contravention to be objectively serious and deserving of a substantial penalty which serves the dual objectives of general and specific deterrence.
I have taken into account that the respondent is a small business. I infer that it has limited resources and, while registered, is no longer trading. I accept that is has no previous history of contraventions.
Nonetheless, I find that those matters do not excuse the respondent’s non-compliance and its head-in-the-sand response to the compliance notice and these proceedings. The conduct of the respondent corrodes the compliance scheme under the FW Act and impedes the Ombudsman in discharging its statutory function. The conduct deprives deserving employees of their rightful entitlements. It results in costly and unnecessary proceedings in this Court involving public funds and judicial resources. It should not be seen as an acceptable course for others to follow.
In Fair Work Ombudsman v Trucking Services Pty Ltd [2021] FCCA 760 at [21] Judge Jarrett (as His Honour then was) recently observed:
“The failure to comply with a notice properly issued by the applicant is serious. As other judges of this Court have observed, the efficacy of statutory notices such as compliance notices will be hindered or made redundant if recipients perceive that a failure to comply carries no meaningful consequences. Given the importance of a Fair Work Inspector’s power to issue compliance notices, and that compliance with such notices avoids the need for litigation or the imposition of any penalties,penalties for non-compliance should be set at a level which demonstrates there are serious consequences for failing to comply with a compliance notice. In doing so, the Court will deter other parties from failing to comply with compliance notices.”
There is no evidence of contrition or cooperation and no basis on which I should consider discounting penalty.
I do not however accept the Ombudsman’s submission that a high range penalty in the order of 80% to 90% of the maximum is appropriate. Having regard to the size of the underlying underpayment claim (while recognising its significance to Mr Kim) and there being no prior history of non-compliance, I consider it appropriate that the respondent should pay a penalty set at two thirds of the maximum.
The Court will impose a penalty of $22,000 against the respondent. There is nothing before me that would lead to the conclusion that a penalty in that sum will be crushing or oppressive. It is proportionate to the seriousness of the conduct engaged in by the respondent.
I will also order that the penalty be paid by the respondent into the Consolidated Revenue Fund of the Commonwealth within 28 days.
The Ombudsman shall have liberty to apply to the Court within 7 days notice in the event that these orders are not complied with.
I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 22 July 2022