Fair Work Ombudsman v Care Providers Pty Ltd
[2018] FCCA 3771
•21 December 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v CARE PROVIDERS PTY LTD & ORS | [2018] FCCA 3771 |
| Catchwords: INDUSTRIAL LAW – Imposition of pecuniary penalties – contraventions of Fair Work Act 2009 (Cth) – contravention of Award entitlements – failure to pay personal leave – failure to keep records – failure to provide payslips – accessorial liability – recklessness – penalties imposed. |
| Legislation: Corporations Act 2001 (Cth), s.9 Crimes Act 1912 (Cth), s.4AA Fair Work Act 2009 (Cth), ss.44, 45, 99, 323, 323(1), 324, 324(1), 357, 357(1), 535, 535(1) & (2), 536, 536(1), 546(1) & (3), 550, 550(2)(c), 557, 793 and Division 6 Fair Work Regulations 2009 (Cth), rr.3.32, 3.34, 3.36 and 3.37 |
| Cases cited: Mason v Harrington Corp Pty Ltd t/a Pangaea Restaurant & Bar [2007] FMCA 7 Fair Work Ombudsman v Grouped Property Services Pty Ltd (No.2) [2017] FCA 557 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | CARE PROVIDERS PTY LTD (ACN 143 530 796) |
| Second Respondent: | EASTTRAC PTY LTD (ACN 601 510 981) |
| Third Respondent: | KLEMTRAC PTY LTD (ACN 601 510 650) |
| Fourth Respondent: | LEO WELCH |
| Fifth Respondent: | PETER WALLIS |
| File Number: | ADG 152 of 2016 |
| Judgment of: | Judge Heffernan |
| Hearing date: | 7 August 2017 |
| Date of Last Submission: | 7 August 2017 |
| Delivered at: | Adelaide |
| Delivered on: | 21 December 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr N Healy |
| Solicitors for the Applicant: | Office of the Fair Work Ombudsman |
| Counsel for the First to Fourth Respondents: | Mr T Duggan SC |
| Solicitors for the First to Fourth Respondents: | Fisher Jeffries |
| Counsel for the Fifth Respondent: | Mr R Mansueto |
| Solicitors for the Fifth Respondent: | Mansueto Legal |
DECLARATIONS
The second respondent, Easttrac Pty Ltd during the assessment period contravened the following sections of the Fair Work Act 2009 (Cth) (‘the FW Act’):
(a)Subsection 357(1) of the FW Act by representing to each Ms Augier and Ms Dolphin that the contract of employment under which Ms Augier and Ms Dolphin were, or would be, employed was a contract for services under which each Ms Augier and Ms Dolphin performed, or would perform, work as an independent contractor and being reckless as to whether the contract was a contract of employment rather than a contract for services;
(b)Section 45 of the FW Act by failing to make or record a part time work agreement with the Ms Augier and Ms Dolphin as required by cl.10.3(c) of the Award;
(c)Section 45 of the FW Act by failing to pay Ms Augier and Ms Dolphin laundry allowance as required by cl.20.2(b) of the Award;
(d)Section 45 of the FW Act by failing to pay Ms Augier and Ms Dolphin vehicle allowance in full as required by cl.20.5(a) of the Award;
(e)Section 45 of the FW Act by failing to make superannuation contributions in respect of Ms Augier and Ms Dolphin as required by cl.23.2 of the Award;
(f)Section 45 of the FW Act by failing to pay Ms Augier in full for rostered hours changed or cancelled as required by cl.25.5(f)(i) of the Award;
(g)Section 45 of the FW Act by failing to pay in full Saturday penalty rates to Ms Augier and Ms Dolphin as required by cl.26 of the Award;
(h)Section 45 of the FW Act by failing to pay in full Sunday penalty rates to Ms Augier and Ms Dolphin as required by cl.26 of the Award;
(i)Section 45 of the FW Act by failing to pay in full overtime rates to Ms Dolphin as required by cl.28.1(b)(i) of the Award;
(j)Section 45 of the FW Act by failing to pay in full public holiday rates to Ms Augier and Ms Dolphin as required by cl.34.2 of the Award;
(k)Section 44 of the FW Act by failing to pay personal leave to Ms Augier in accordance with s.99 of the FW Act;
(l)Section 323 of the FW Act by failing to make payment to Ms Augier and Ms Dolphin in full by making deductions not permitted under s.324 of the FW Act;
(m)Section 535 of the FW Act by failing to make and keep records in respect of Ms Augier and Ms Dolphin as required by the FW Regulations; and
(n)Section 536 of the FW Act by failing to give Ms Augier and Ms Dolphin payslips (in the form and with content as prescribed by the FW Regulations) within one day of payment being made.
The third respondent, Klemtrac Pty Ltd, contravened the following sections of the Act:
(a)Subsection 357(1) of the FW Act by representing to each Ms Allen and Ms Hoffman that the contract of employment under which Ms Allen and Ms Hoffman were, or would be, employed was a contract for services under which each Ms Allen and Ms Hoffman performed, or would perform, work as an independent contractor and being reckless as to whether the contract was a contract of employment rather than a contract for services;
(b)Section 45 of the FW Act by failing to make or record a part time work agreement with Ms Allen and Ms Hoffman as required by cl.10.3(c) of the Award;
(c)Section 45 of the FW Act by failing to pay Ms Allen and Ms Hoffman Laundry Allowance as required by cl.20.2(b) of the Award;
(d)Section 45 of the FW Act by failing to pay Ms Allen and Ms Hoffman Vehicle Allowance in full as required by cl.20.5(a) of the Award;
(e)Section 45 of the FW Act by failing to make superannuation contributions in respect of Ms Allen and Ms Hoffman as required by cl.23.2 of the Award;
(f)Section 45 of the FW Act by failing to pay Ms Allen and Ms Hoffman in full for rostered hours changed or cancelled as required by cl.25.5(f)(i) of the Award;
(g)Section 323 of the FW Act by failing to make payment to Ms Allen and Ms Hoffman in full by making deductions not permitted under s.324 of the FW Act;
(h)Section 535 of the FW Act by failing to make and keep records in respect of Ms Allen and Ms Hoffman as required by the FW Regulations; and
(i)Section 536 of the FW Act by failing to give Ms Allen and Ms Hoffman payslips (in the form and with content as prescribed by the FW Regulations) within one day of payment being made.
Pursuant to subsection 550(2) of the Act, Leo Welch was reckless and thereby a person involved in:
(a)Easttrac’s contraventions during the Assessment Period for Ms Augier and Ms Dolphin of sections 357, 45, 323, 535 and 536 of the FW Act (set out in subparagraphs 1(a), 1(e), 1(1) to 1(n) above); and
(b)Klemtrac’s contraventions during the Assessment Period for Ms Allen and Ms Hoffmann of sections 357, 45, 323, 535 and 536 of the FW Act (set out in subparagraphs 2(a), 2(e), 2(g) to 2(i) above);
Pursuant to subsection 550(2) of the Act, Peter Wallis was reckless and thereby a person involved in:
(a)Easttrac’s contraventions during the Assessment Period for Ms Augier and Ms Dolphin of sections 357, 45 and 323 of the FW Act (as set out in subparagraphs 1(a), 1(e), and 1(i) above); and
(b)Klemtrac’s contraventions during the Assessment Period for Ms Allen and Ms Hoffmann of sections 357, 45 and 323 of the FW Act (as set out in subparagraphs 2(a), 2(e) and 2(g) above).
ORDERS
Easttrac Pty Ltd pay a total pecuniary penalty of ONE HUNDRED AND TWENTY FIVE THOUSAND, EIGHT HUNDRED AND SEVENTY FOUR DOLLARS ($125,874) pursuant to s.546(1) of the Fair Work Act 2009 (Cth) for its admitted contraventions identified in paragraph 1 of the reasons accompanying these orders.
Klemtrac Pty Ltd pay a total pecuniary penalty of SEVENTY SEVEN THOUSAND, ONE HUNDRED AND TWELVE DOLLARS ($77,112) pursuant to s.546(1) of the Fair Work Act 2009 (Cth) for its admitted contraventions identified in paragraph 2 of the reasons accompanying these orders.
Peter Wallis pay a total pecuniary penalty of FIVE THOUSAND, SEVEN HUNDRED AND EIGHTY THREE DOLLARS AND FORTY CENTS ($5,783.40) for his involvement in the admitted contraventions of Easttrac Pty Ltd and Klemtrac Pty Ltd identified at paragraph 4 above.
Leo Welch pay a total pecuniary penalty of SEVEN THOUSAND, SEVEN HUNDRED AND ELEVEN DOLLARS AND TWENTY CENTS ($7,711.20) for his involvement in the admitted contraventions of Easttrac Pty Ltd and Klemtrac Pty Ltd identified in paragraph 3 above.
All pecuniary penalties be paid to the Commonwealth pursuant to s.546(3) of the Fair Work Act 2009 (Cth) within 42 days of the date of these orders.
If by 19 February 2019, payments have not been made with respect to:
(a)any penalties ordered against Easttrac and/or Klemtrac; and
(b)rectification by Easttrac and Klemtrac of any underpayments identified by the Rectification Audits,
Leo Welch must provide to the Applicant a subsequent bank guarantee or successive bank guarantees in the amount of $150,000 until such time as payments have been made up to the value of $150,000 (Subsequent Bank Guarantee’s).
If by 26 February 2019 or within 7 days of expiry of any Subsequent Bank Guarantee/s, Leo Welch has not provided Subsequent Bank Guarantee/s to the Applicant as required by order 10 above, the First Respondent must provide to the Applicant Subsequent Bank Guarantee/s. The obligation to continue to provide Subsequent Bank Guarantee/s shall then fall upon the First Respondent.
Within two days of payment being made in respect to the matters in orders 10(a) and 10(b), the Applicant must return any unexpired bank guarantee to Leo Welch or the First Respondent, as the case may be.
The Applicant has liberty to apply on ten (10) business days' notice in the event that any of the preceding orders are not complied with.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 152 of 2016
| FAIR WORK OMBUDSMAN |
Applicant
And
| CARE PROVIDERS PTY LTD ACN 143 530 796 |
First Respondent
| EASTTRAC PTY LTD ACN 601 510 981 |
Second Respondent
| KLEMTRAC PTY LTD ACN 601 510 650 |
Third Respondent
| LEO WELCH |
Fourth Respondent
| PETER WALLIS |
Fifth Respondent
REASONS FOR JUDGMENT
Introduction
In this matter, the second respondent, Easttrac Pty Ltd, (‘Easttrac’) admits that for the relevant Assessment Period, it contravened civil remedy provisions of the Fair Work Act 2009 (Cth) (‘the FW Act’) as follows:
a)Subsection 357(1) by representing to Ms Natalie Augier and Ms Helen Dolphin that the contract of employment under which they each were, or would be, employed was a contract for services under which they each performed, or would perform, work as an independent contractor and being reckless as to whether the contracts were contracts of employment rather than contracts for services;
b)Section 45 by failing to make or record a part-time work agreement with Ms Augier and Ms Dolphin as required by cl.10.3(c) of the Social, Community, Home Care and Disability Services Industry Award 2010 (‘the Award’);
c)Section 45 by failing to pay Ms Augier and Ms Dolphin a laundry allowance as required by cl.20.2(b) of the Award;
d)Section 45 by failing to pay in full Ms Augier and Ms Dolphin a vehicle allowance as required by cl.20.5(a) of the Award;
e)Section 45 by failing to make superannuation contributions in respect of Ms Augier and Ms Dolphin as required by cl.23.2 of the Award;
f)Section 45 by failing to pay in full Ms Augier for rostered hours changed or cancelled as required by cl.25.5(f)(i) of the Award;
g)Section 45 by failing to pay in full Saturday penalty rates to Ms Augier and Ms Dolphin required by cl.26 of the Award;
h)Section 45 by failing to pay in full Sunday penalty rates to Ms Augier and Ms Dolphin as required by cl.26 of the Award;
i)Section 45 by failing to pay in full overtime rates to Ms Dolphin as required by cl.28.1(b)(i) of the Award;
j)Section 45 by failing to pay in full public holiday rates to Ms Augier and Ms Dolphin as required by cl.34.2 of the Award;
k)Section 44 by failing to pay personal leave to Ms Augier in accordance with s.99 of the FW Act;
l)Section 323 by making deductions from amounts payable to Ms Augier and Ms Dolphin for public liability and personal accident insurance policies held by Easttrac other than as permitted by s.324 of the FW Act;
m)Section 535 by failing to make and keep records in respect of Ms Augier and Ms Dolphin as required by rr.3.32, 3.34, 3.36 and 3.37 of the Fair Work Regulations 2009 (Cth) (‘FW Regulations’); and
n)Section 536 by failing to give Ms Augier and Ms Dolphin payslips in the form and with content as prescribed by the FW Regulations within one day of payment being made.
The third respondent, Klemtrac Pty Ltd, (‘Klemtrac’) admits that for the relevant Assessment Period, it contravened civil remedy provisions of the FW Act as follows:
a)Subsection 357(1) by representing to Ms Pauline Allen and Ms Carolyn Hoffman that the contract of employment under which they each were, or would be, employed was a contract for services under which each Ms Allen and Ms Hoffman performed, or would perform, work as an independent contractor and being reckless as to whether the contracts were contracts of employment rather than contracts for services;
b)Section 45 by failing to make or record a part-time work agreement with Ms Allen and Ms Hoffman as required by cl.10.3(c) of the Award;
c)Section 45 by failing to pay Ms Allen and Ms Hoffman a laundry allowance as required by cl.20.2(b) of the Award;
d)Section 45 by failing to pay in full Ms Allen and Ms Hoffman a vehicle allowance as required by cl.20.5(a) of the Award;
e)Section 45 by failing to make superannuation contributions in respect of Ms Allen and Ms Hoffman as required by cl.23.2 of the Award;
f)Section 45 by failing to pay in full Ms Allen and Ms Hoffman for rostered hours changed or cancelled as required by cl.25.5(f)(i) of the Award;
g)Section 323 by making deductions from amounts payable to Ms Allen and Ms Hoffman for public liability and personal accident insurance policies held by Klemtrac other than as permitted by s.324 of the FW Act;
h)Section 535 by failing to make and keep records in respect of Ms Allen and Ms Hoffman as required by the FW Regulations; and
i)Section 536 by failing to give Ms Allen and Ms Hoffman payslips in the form and with content as prescribed by the FW Regulations within one day of payment being made.
The fourth respondent, Leo Welch, has admitted that he was a person involved within the meaning of s.550 of the FW Act by virtue of his recklessness in the contraventions committed by Easttrac and Klemtrac of ss.357(1), 45, 323, 535 and 536 of the FW Act.
The fifth respondent, Peter Wallis, admits that he was a person involved within the meaning of s.550 of the FW Act by reason of recklessness in admitted contraventions of Easttrac and Klemtrac of ss.357(1), 45 and 323 of the FW Act.
During the relevant period, Easttrac and Klemtrac had each entered into a service agreement with Care Providers Pty Ltd (‘Care Providers’). Care Providers was a company that catered for the needs of elderly and disabled persons living independently in their own homes in the Adelaide metropolitan area. The service agreements were, in the case of Easttrac, to provide personal care workers for in-home-personal care to clients of Care Providers. In the case of Klemtrac, it was to provide Domestic Assistants to provide in-home domestic assistance to clients of Care Providers.
At all material times, the fourth respondent, Leo Welch, was the sole director of Klemtrac and from 23 June 2015, the sole director of Easttrac. He was an officer of Easttrac and Klemtrac within the meaning of s.9 of the Corporations Act2001 (Cth) and s.793 of the FW Act during the period of the subject contraventions. In that capacity, he was responsible for ensuring that Easttrac and Klemtrac complied with their legal obligations. He was responsible for the engagement of workers and was the person who approved the terms of the Independent Contractor Agreements to which I will refer later.
The fifth respondent, Peter Wallis, was during the relevant assessment period responsible for the engagement and overall management of the workers hired by Easttrac and Klemtrac. Mid-level managers of Easttrac and Klemtrac reported to him. He was involved in the initial discussions and co-ordinated the transfer of all purported independent contractors to Easttrac and Klemtrac. By way of background, it is accepted that Mr Wallis holds a Masters in Health Planning and had experience in the recruitment and the management of health services with a variety of organisations.
The Fair Work Ombudsman filed the Application and Statement of Claim in this matter on 13 May 2016. At that time, the primary case was directed at the first respondent Care Providers alleging that it was the entity that employed the four workers against whom the contraventions were committed. The allegations against the second to fifth respondents inclusive were presented as an alternative case. The Fair Work Ombudsman no longer seeks declarations or penalties against Care Providers. It has effectively abandoned its case against the first respondent.
In the submission of the second to fifth respondents, the background to these proceedings being filed assumes some importance and I will briefly summarise it.
Background
In May 2015, the Office of the Fair Work Ombudsman (‘FWO’) received a request from a firm of liquidators to investigate the practices of Easttrac, Klemtrac and Care Providers. The FWO promptly served them with Notices to Produce and commenced an investigation into their compliance with workplace laws. Each of Easttrac, Klemtrac and Care Providers co-operated with that investigation and provided materials as requested. In the course of the investigation, the circumstances of 20 workers were audited. On 10 December 2015, the FWO made findings of contraventions by Easttrac with respect to the purported independent contractors, Ms Natalie Augier and Ms Helen Dolphin, to the effect that they were not independent contractors and were properly categorised as employees. It made an identical finding of contravention against Klemtrac in relation to Ms Pauline Allen and Ms Carolyn Hoffman. Both Easttrac and Klemtrac accepted the findings and sent letters to the FWO proposing rectification measures which included, information sessions, calculations of underpayment, and an instalment plan to rectify any monies owed to employees.
On 11 January 2016, letters were sent by the FWO to both Easttrac and Klemtrac acknowledging the co-operation that each of them had provided, and indicating that the findings of the FWO were limited to the selected workers only. In addition however, they advised that Easttrac and Klemtrac should consider the individual circumstances of each employee when determining the appropriate status for each worker. The letters acknowledged the rectification measures proposed by each of Easttrac and Klemtrac and requested that priority be given to rectification of the underpayments to the four workers named. In each letter the FWO specifically reserved its right to commence enforcement action in relation to the identified contraventions. On the submission of the second to fifth respondents inclusive, the time frame for the completion of the rectifications that had been volunteered was agreed to be 2 May 2016. It should be noted that the initial contravention letters sent by the FWO indicated that it was still considering accessorial liability at that time.
On 11 April 2016, Care Providers responded to the contravention findings and denied that it was the true employer of the four employees. Following this letter, Care Providers wrote again to the FWO seeking further time in which to explore an early resolution of the matter prior to any proceedings being commenced. As I have noted, these proceedings were commenced by the FWO on 23 May 2016.
Following Court ordered mediation in September 2016, the basis upon which the contraventions had been committed by the second to fifth respondents inclusive, was settled in principle in late December of 2016. As I have noted, that resolution has resulted in the applicant abandoning its primary case. The parties agreed a methodology for rectification audits and these were completed by an agreed date of 9 May 2017. The audits covered all workers employed by Klemtrac and Easttrac for their entire period of engagement. Further, Easttrac and Klemtrac volunteered an additional audit for the period 28 October 2014 to 1 February 2016. The total agreed underpayments for the four workers effected by the contraventions the subject of these proceedings was $8,554.08 and this amount was paid on 12 April 2017.
A Statement of Agreed Facts was signed by the parties and has been tendered in this matter. What is summarised below has been paraphrased from that document.
The employment arrangements
As I have noted, there are four workers affected by the contraventions admitted in these proceedings. Ms Natalie Augier was employed by Easttrac during the assessment period. Her duties initially included vacuuming; sweeping; mopping; dusting; and cleaning bathrooms at the homes of elderly and disabled persons in the role of a Domestic Assistant. From 2 March 2015, in addition to her other duties, she started performing duties which included assisting elderly and disabled persons in the role of a Personal Care Worker. In that role, she was required to assist elderly and disabled clients in activities such as showering; toileting; the preparation of meals; shopping; and appointments outside their homes.
Ms Helen Dolphin was employed by Easttrac during the assessment period as a Personal Care Worker and, I infer, performed duties similar to those described above.
Ms Carolyn Hoffman and Ms Pauline Allen were employed by Klemtrac during the assessment period both in the capacity of Domestic Assistants.
At all relevant times, the employment of the workers was covered by the Social, Community, Home Care and Disability Services Industry Award 2010. Each of the workers was properly categorised as a part-time employee for the purposes of the Award.
The contraventions
Each of the second to fifth respondents has admitted to orchestrating what is referred to in the heading to Division 6 of the Act as, “sham arrangements” by misrepresenting an employment relationship as an independent contracting arrangement contrary to s.357 of the FW Act.
In about October 2014, Easttrac sent two text messages to Ms Augier and Ms Dolphin. At about the same time, Klemtrac sent two text messages to Ms Allen and Ms Hoffman. The texts informed the workers that the contracts under which they performed work were contracts for services and that accordingly they would be required to sign independent contractor agreements. Those agreements expressly referred to the workers as “contractors”. The workers were given independent contract agreements respectively by Easttrac and Klemtrac and were required to sign them. Those agreements expressly referred to the workers as “contractors”. In late October and early November 2014, Easttrac and Klemtrac provided the workers with further documents which represented to them that they were engaged as independent contractors. That representation was repeated in a further text message to the workers sent respectively by Easttrac and Klemtrac on about 22 June 2015. The representations referred to above were of course, false, because the workers were all employees and covered by the terms of the Award.
It is agreed between the parties that Easttrac and Klemtrac were reckless as to whether the workers were in truth employees rather than independent contractors.
Contravention of a modern award – s.45
Both Klemtrac and Easttrac contravened the relevant award in a variety of ways.
Pattern of work
Pursuant to cl.10.3(c) of the Award, the employer was required to agree in writing with the workers on a regular pattern of work. This included agreeing the number of hours worked per week, the days on which work was to be performed, and the times for starting and finishing. Easttrac did not make such written agreement with Ms Augier or Ms Dolphin. Klemtrac also failed to make such agreement with either Ms Allen or Ms Hoffman.
Laundry and vehicle allowances
The Award provided for allowances to be paid for workers for laundry expenses and vehicle costs. Both Easttrac and Klemtrac failed to pay these allowances to the respective employees and by reason of that, contravened a modern award. The workers were required to wear a uniform and were entitled to be paid either 32 cents per shift where they worked less than 5 shifts in any week, or $1.49 where they worked five or more shifts in a week. Neither employer made alternative arrangements to launder the uniforms on behalf of the workers. The total amount of unpaid allowances for the four workers was $144.37.
Vehicle allowances
With respect to the vehicle allowances, the employers were required to pay the workers 78 cents per kilometre if they required and authorised the workers to use their own vehicles. During the Assessment Period, the employers did require and authorise the workers to use their own vehicles in the course of their duties. Easttrac failed to pay any vehicle allowance to Ms Augier but paid a ‘fuel bonus’ to Ms Dolphin in the amount of $410. That amount was significantly less than she was entitled to under the vehicle allowance. Klemtrac failed to pay any vehicle allowance to either Ms Allen or Ms Hoffman.
The employers have agreed to rectify the unpaid vehicle allowances as follows:
Name Estimate of kilometres travelled Entitlement based on estimate Estimate of kilometres travelled (reduced by 15%) Agreed Vehicle Allowance Payable Ms Augier 971 $757.38 825.35 $643.77 Ms Dolphin 3233.2 $2,521.90 1748.22 $2,143.61 Ms Allen 574.3 $447.95 488.16 $380.76 Ms Hoffman 1000.8 $780.62 850.68 $663.53
Superannuation contributions
Easttrac and Klemtrac were also required, pursuant to cl.23.2 of the Award, to make superannuation contributions to a superannuation fund for the benefit of the workers such as to avoid being required to pay the superannuation guarantee charge under superannuation legislation with respect to the workers. Neither employee made any superannuation contributions for the benefit of the respective workers as required by the Award. In failing to make such payment, the employers contravened a modern award.
Payment for minimum specified hours
The Award also contained a significant protection for the workers in that cl.25.5(f)(i) required the employer to pay them for their minimum specified hours if a change or cancellation of a rostered shift occurred and if they did not provide the workers with notice of the change of cancellation by 5.00pm on the day prior to the relevant shift. During the relevant Assessment Period, Ms Augier, Ms Allen and Ms Hoffman were all rostered to work shifts for which they were not paid and in each instance they were not provided with notice of the cancellation prior to the shifts being cancelled. None of them was paid the minimum amount for the cancelled shifts. As a result, they were underpaid as follows:
Name Hours Entitlement Paid Underpayment Ms Augier 6.5 $125.06 $34.80 $90.26 Ms Allen 18.5 $344.24 $259.40 $84.84 Ms Hoffman 5.5 $106.54 $69.20 $37.34
Both Easttrac and Klemtrac contravened s.45 of the FW Act in each instance identified above by failing to pay the workers the minimum specified hours for the cancelled shifts.
Penalty rates and overtime allowances
The independent contract agreements also had the effect of depriving the workers of a variety of penalty rates and overtime entitlements.
Easttrac failed to pay to Ms Augier and Ms Dolphin the Saturday penalty rates stipulated in the Award for work performed between midnight on Friday and midnight on Saturday. They were entitled to be paid time and a half for each hour worked by them during that period. During the assessment period, Ms Augier relevantly worked 23 hours for which she was underpaid a total of $49.28. Ms Dolphin relevantly worked 118.5 hours for which she was underpaid an amount of $352.44.
The Award also stipulated a penalty rate of double time for each hour worked between midnight Saturday and midnight Sunday. During the assessment period Ms Augier relevantly worked 20 hours for which Easttrac underpaid her $219.54. Ms Dolphin relevantly worked 124 hours for which Easttrac underpaid her $1,616.64.
The relevant overtime rate under the Award was time and a half for overtime between Monday and Saturday, and double time for overtime worked on a Sunday. During the Assessment Period, Ms Dolphin worked half an hour on one Saturday and 5 and a half hours on a Sunday for which she was not paid the appropriate rate. In total, she was underpaid $73.12. Easttrac also failed to pay Ms Augier and Ms Dolphin appropriate public holiday penalty rates. Under the Award, they were entitled to be paid double time and a half for each hour worked on a public holiday. During the assessment period, Ms Augier relevantly worked 4 hours on a public holiday for which Easttrac underpaid her $44.36. Ms Dolphin relevantly worked 31 hours on a public holiday for which Easttrac underpaid her an amount of $449.
Contravention of national employment standards – failure to pay personal leave, ss.44 and 99
Ms Augier was entitled, pursuant to s.99 of the Act, to be paid for any period of personal leave at her best rate of pay for ordinary hours worked during the period. Ms Augier took personal leave between 2 August 2015 and 21 August 2015 due to an illness for which she provided her employer with medical certificates. As an employee, she had accrued 12.07 hours of personal leave and was entitled to be paid an amount of $242.97. Easttrac made no payment to her at all and its actions amount to a contravention of national employment standards.
The total amounts of underpayments for the workers as a result of the contraventions identified above were:
a)Ms Augier - $1,534.47;
b)Ms Dolphin - $5,225.83;
c)Ms Allen - $680.81; and
d)Ms Hoffman - $912.97.
Contraventions relating to payment in full, record keeping, and pay slips
Failure to make payment in full (s.323 of the FW Act)
Pursuant to s.323(1) of the FW Act, the workers were entitled to be paid in full and no deductions from their pay were permissible except as provided for by s.324 of the FW Act. Section 324(1) of the Act provides as follows:
“324 Permitted deductions
(1)An employer may deduct an amount from an amount payable to an employee in accordance with subsection 323(1) if:
(a)the deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
(b)the deduction is authorised by the employee in accordance with an enterprise agreement; or
(c)the deduction is authorised by or under a modern award or an FWC order; or
(d)the deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court.”
Klemtrac and Easttrac made unlawful deductions and in doing so failed to pay the workers in full. They did this by deducting 60 cents per hour from each of the four workers in order to cover the costs of public liability insurance and personal accident insurance held by Care Providers. Easttrac made insurance deductions of $207.45 from Ms Augier and $549.30 from Ms Dolphin. Klemtrac made insurance deductions of $178.50 from Ms Hoffman and $183 from Ms Allen.
Failure to keep records
A further consequence of the purported independent contractor agreements was that both Easttrac and Klemtrac failed to keep employee records with respect to the four workers as required by the FW Act.[1] Such records were required to show whether each worker was employed on a full or part-time basis; whether the employment was permanent, temporary or casual; the balance of accrued leave from time to time; details of overtime hours worked; and the amount of superannuation contributions made for the benefit of each worker.
[1] FW Act ss.535(1) and (2).
The records were required to be kept for a minimum of 7 years. No such records were kept. This was a contravention of s.535 of the FW Act.
Failure to provide pay slips
Finally, both Easttrac and Klemtrac respectively failed to provide the four workers with pay slips as required by s.536(1) of the FW Act and relevant regulations under that Act. The pay slips were required to show the ordinary rate of pay per hour; the number of hours paid at that rate; the amount of payment made at that rate; as well as the amount paid for any allowances, penalty rates, or overtime; and the amount paid by way of superannuation contributions. Instead, Easttrac and Klemtrac provided the four workers with remittance advices which did not contain the information specified above.
Accessorial liability
The fourth and fifth respondents have admitted to being “involved in” the contraventions by virtue of being “knowingly concerned in” certain of the contraventions.[2] Their admission is on the basis that they were reckless as to the contraventions.
[2] FW Act, s.550(2)(c).
Leo Welch
The fourth respondent, Leo Welch, was a person involved in the contraventions of both Easttrac and Klemtrac by virtue of s.550(2) of the FW Act. He has admitted being reckless to the fact that the admitted actions were contraventions. He has admitted his involvement with all of the contraventions by both Easttrac and Klemtrac. In that context it is agreed by the parties, and I accept, that at all material times Mr Welch:
a)Knew of the representations made to the workers to the effect that they were independent contractors;
b)Was reckless as to whether the workers were in fact employees rather than independent contractors;
c)Knew that the Personal Care Workers and Domestic Assistants performed under the Service Agreements, the type of work that they performed, and the skills and qualifications required to perform that work;
d)Knew about the rates paid to the workers as set out in documents entitled ‘Easttrac Contractors Schedule’ and ‘Klemtrac Contractors Schedule’;
e)Knew of the existence of awards generally and the major types of employee benefits they contain, such as, minimum hourly rates; personal carer’s leave; week end and public holiday penalty rates; overtime; and superannuation;
f)Knew that an award applied to the employment of any employees delivering the services;
g)Knew that no superannuation was paid for the benefit of the workers;
h)Was reckless as to the fact that an employer was required to keep and maintain records relating to worker’s employment;
i)Knew about the process under which the amounts of insurance deductions were being made from the worker’s entitlements; and
j)Was reckless to the fact that if the Personal Care Workers and Domestic Assistants were in fact employees, the insurance deductions were not for their benefit.
Pursuant to s.550(2)(c) of the FW Act, Mr Welch has admitted to being knowingly concerned in the contraventions of Easttrac and Klemtrac relating to s.357 of the FW Act; s.45 in so far as it relates to superannuation contraventions; s.535 with respect to record keeping; s.536 with respect to pay slips; and s.323 with respect to the insurance deductions.
Peter Wallis
The fifth respondent, Mr Peter Wallis, has admitted to being knowingly concerned in the contraventions of Easttrac and Klemtrac with respect to s.357 of the FW Act; s.45 in relation to superannuation; and, s.323 in relation to the insurance deductions. He has admitted that at all times relevant to the assessment period, he:
a)Knew of the representations made to the workers to the effect that they were independent contractors;
b)Was reckless as to whether the workers were in fact employees rather than independent contractors;
c)Was a person with access to information about the workers, including their qualifications, training, experience, and the type of duties they performed;
d)Knew of the fact that if they were in fact employees, they would be covered by an award;
e)Knew the rates paid to the workers as set out in the documents entitled ‘Easttrac Contractor Schedule’ and ‘Klemtrac Contractor Schedule’;
f)Knew that the award covering the workers would include entitlements to superannuation, but that no superannuation was paid for the benefit of the workers;
g)Was aware of the insurance deductions and documents provided to the workers entitled ‘Easttrac Contractor Insurances’ and ‘Klemtrac Contractor Insurances’; and
h)Was reckless to the fact that if the Personal Care Workers and Domestic Assistants were in fact employees, the insurance deductions were not for their benefit.
I am satisfied that the admissions made by the fourth and fifth respondents are sufficient to establish accessorial liability for each of the contraventions admitted respectively by them. The admissions establish that the fourth and fifth respondents intentionally participated in the contraventions by virtue of their knowledge of the essential matters that comprised the contravention.
Submissions
Applicant’s submissions
The applicant seeks pecuniary penalties with respect to each of the respondents. The applicant’s submissions as to penalty were informed by the summary of relevant principles set out in Mason v Harrington Corp Pty Ltd t/a Pangaea Restaurant and Bar.[3]
[3] [2007] FMCA 7.
For the applicant, Mr Healy submitted that the contravention of s.357 of the FW Act amounts to a serious example of what is described in the heading Division 6 of the Act as “sham arrangements”. It was submitted that both Easttrac and Klemtrac attempted to disguise an employment relationship as an independent contracting relationship and in doing so, attempted to avoid paying minimum award obligations.[4] In its written reply to the submissions of the second to fourth respondents, the applicant submitted that its own acceptance of the respondents’ admission to being reckless in their commission of the contraventions did not preclude it from inviting the Court to make a finding on the agreed facts that all of the conduct was in fact deliberate. That submission was, quite properly, abandoned by counsel at the hearing of this matter. I am proceeding on the basis agreed between the parties that the conduct was reckless. Had the applicant sought a finding of deliberate conduct, it should have presented its case on that basis.
[4] Applicant’s written penalty submissions at para [4].
It was submitted that both businesses were of a substantial size and that the practice of engaging Personal Care and Domestic Assistance workers as independent contractors is widespread. Whilst the amounts of underpayment and non-payment do not appear at first blush to be large, the contraventions had a significant impact on the employees and occasioned them financial stress and worry. I will summarise what the employees had to say about the impact of the contraventions later in these reasons. Suffice to say, the submission was that the contraventions caused them to have to borrow money or go without basic household items, including food and petrol. As far as the fourth and fifth respondents are concerned, they were in positions of senior management and directly involved in the decisions to engage the workers as independent contractors and the making of the representations to the workers with respect to the independent contract. It was those decisions that led to the underpayment contraventions.
There is a dispute between the applicant and the respondents as to both the penalty units and the grouping of offences. As to the relevant penalty provisions, the applicant notes that the amount of a penalty unit under s.4AA of the Crimes Act 1912 (Cth) (‘Crimes Act’) increased from 31 July 2015 from $170 to $180. The relevant assessment period during which the contraventions are alleged to have occurred covers a period from October 2014 to 6 September 2015, and as a result the contravention relating to Ms Augier’s leave occurred after the increase date and is caught by the increase in penalty unit. Citing Fair Work Ombudsman v Grouped Property Services Pty Ltd (No.2)[5] it submits that where contraventions involve a course of conduct which began before an increase in penalty units and continued after it, it is appropriate to apply the increased penalty unit. On that basis, it submits that the maximum penalties applicable as follows:
[5] [2017] FCA 557.
Contraventions
Penalty Units
Maximum Penalties
s.357 – sham contracting
60 penalty units at $170
$51,000 for a body corporate – (60 x $170) x 5
$10,000 for an individual – (60 x $170)
s.45 and cl.10.3(c) – part time pattern of work agreement
s.45 and c.25.5(f)(i) – cancelled shifts (Easttrac)
s.45 and cl.28.1(b)(i) – overtime
s.45 and cl.34.2(a) – public holiday penalty rates
s.45 and cl.20.2(b) – laundry allowance
60 penalty units at $180
$54,000 for a body corporate – (60 x $180) x5
$10,800 for an individual – (60 x $180)
s.45 and cl.20.5(a) – vehicle allowance
s.45 and cl.23.2 – superannuation
s.45 and cl.25.5(f)(i) – cancelled shifts (Klemtrac)
s.45 and cl.26 – Saturday penalty rates
s.45 and cl.26 – Sunday penalty rates
s.44 and s.99 – unpaid personal leave
s.323 – payment in full (deductions)
s.535 – record keeping
30 penalty units at $180
$27,000 for a body corporate – (30 x $180) x5
$5,400 for an individual – (30 x $180)
s.536 – payslips
The applicant submits that the respondents are entitled to the benefit of s.557 with respect to repeated contraventions of each separate obligation under the Award, and also ss.323, 535 and 536 of the FW Act in respect of the repeated contraventions relating to the four workers. In the applicant’s submissions, s.557 does not apply to the contraventions of s.357 of the FW Act relating to “sham arrangements”. For practical purposes, that submission, if accepted, would amount to the following number of contraventions per respondent:
Easttrac
Ten contraventions of s.357 of the FW Act as a result of five representations to two workers;[6] nine contraventions contrary to s.45 of the FW Act; a single contravention contrary to each of ss.44, 323 and 536; and four contraventions against s.535.
Klemtrac
Ten contraventions of s.357 of the FW Act; five contraventions of s.45; two single contraventions contrary to each of ss.323 and 536; and four contraventions of s.535.
Leo Welch
Twenty contraventions of s.357 of the FW Act; one contravention each as against s.45, 323 and 536; and four contraventions against s.535.
[6] Statement of Agreed Facts at para [28(a)] - [28(d)].
Peter Wallis
Twenty contraventions of s.357 of the FW Act; and one contravention each as against ss.45 and 323.
Grouping
With respect to grouping, the applicant submits that the “sham arrangements” (s.357) contraventions be grouped as against each employer to encompass the numerous representations made to each worker. Similarly, it concedes that the four contraventions with respect to failure to make and keep records[7] should be grouped. It submits no further grouping should be applied.
[7] Section 535 of the FW Act.
It is accepted by the applicant that none of the respondents has ever had previous proceedings against them for contraventions of workplace laws. As to contrition, it was submitted that the apology extended from the bar table by counsel was late and should be regarded as reflecting minimal contrition. It was submitted, in effect, that the recklessness of the fourth and fifth respondents should be regarded as being at the higher end of the scale given their responsibility within the business operations. It was submitted that both the fourth and fifth respondents were members of senior management and that has an obvious impact on assessing the gravamen of the conduct.
It was submitted that the fact that the workers were low skilled and reliant on their minimum award entitlements, was of particular significance in assessing the gravity of the conduct.
The applicant submitted that whilst the admitted contraventions relate to only four employees, the evidence suggests that the engagement of the workers as independent contractors was part of a more widespread business practice. The applicant seeks to have the respondents dealt with on that basis. It submits that as at December 2016, Easttrac and Klemtrac had previously engaged 110 and 50 workers respectively, all of whom were engaged as independent contractors. This was a significant submission because it is not contained within the statement of agreed facts and as I will discuss later, counsel for the second to fourth respondents has submitted that I could not conclude that any other workers who had been engaged as independent contractors were in fact employees during the relevant assessment period.
It was submitted that by attempting to disguise an employment relationship as an independent contacting relationship, the respondents denied the workers fundamental entitlements. This also had the effect of undermining the “even playing field” for all employers with respect to employment costs that is one of the principles underlining the legislation. In doing so, it submits that Easttrac and Klemtrac gave themselves a competitive advantage against other rivals in the market place.
The applicant submitted that the Court should regard Easttrac and Klemtrac as substantial businesses and that this remained the case notwithstanding they have both ceased to operate labour hire business and had both returned losses for the financial year ending 30 June 2016.
Submissions of the second to fourth respondents
For the second to fourth respondents inclusive, Mr Duggan SC submitted that whilst the contraventions were serious, this was not an appropriate matter for the imposition of pecuniary penalties. That contention was based on the following propositions:
a)The admitted contraventions arose from a “single strategic decision” by Easttrac and Klemtrac to engage the four workers as independent contractors. The contraventions all arose from the “operational implementation of that decision”;
b)The figure for the total underpayments to the workers was arrived at by reference to the amounts paid under the Independent Contracting Agreements (‘ICA’) in comparison to what the workers were entitled to under the Award. That process ignored the fact that the hourly rate for ordinary hours worked under the ICA’s exceeded the Award entitlements;
c)It is an agreed fact that the second to fourth respondents were reckless and that there was no knowing disregard of the relevant law;
d)The strategic decision to engage the four workers under the ICA was made on advice of the group’s accountant and tax advisor who set up the new company structure;
e)This is a first offence for all respondents and no need for specific deterrence arises;
f)Three of the four workers accepted employment contracts in replacement of their ICA’s before any findings of contraventions were made;
g)The applicant’s investigation was not commenced as a result of a complaint by any of the workers but rather on referral from an insolvency practitioner;
h)All respondents co-operated fully throughout the comprehensive investigation;
i)Easttrac and Klemtrac admitted all of the findings of contraventions and volunteered rectification as a result of the initial investigation and the applicant accepted the rectification actions volunteered by them as appropriate. There was an agreed timeframe for completion by 2 May 2016;
j)The chronology of this matter has involved a significant shifting of ground on the part of the applicant. It withdrew its first contraventions notice notwithstanding that it had accepted the rectification action offered by Easttrac and Klemtrac and issued the second contravention notice against the first respondent on the basis that it was the true employer of the four workers. The respondents say that these proceedings were commenced after having refused their request to explore an early resolution of the matter notwithstanding the applicant’s invitation to do so;
k)The respondents in effect resolved these proceedings at the mediation ordered by this Court at the time of the first directions hearing. That resolution resulted in the applicant abandoning its primary case. Following the settlement in principle, the respondents facilitated the timely calculation of rectification by the agreed date of 9 May 2017. That order applied to all workers for their entire period of engagement by Easttrac and Klemtrac irrespective of whether or not they were properly classified as independent contractors. Easttrac and Klemtrac volunteered a further audit covering the period from 28 October 2014 to 1 February 2016. The total underpayments for the four workers were paid by 12 April 2017;
l)Easttrac and Klemtrac had undertaken workplace compliance training with its staff;
m)The fourth respondent has given a bank guarantee to the applicant in the amount of $150,000 as security for any penalties ordered against Easttrac and Klemtrac and the rectification of any underpayments identified by the rectification audits;
n)There has been a delay in the resolution of this matter as a direct result of the applicant shifting its ground and filing the second notice of contravention, which has asserted a primary case it has now abandoned;
o)The rectification actions volunteered by Easttrac and Klemtrac significantly exceeded the admitted contraventions in relation to the four workers. The scope of the rectification action has caused significant costs to the respondents out of proportion to the amounts paid to the four workers by way of rectification; and
p)The respondents have been put to significant costs as a result of having to address the applicant’s abandoned primary case.
It was submitted that the cumulative effect of the matters identified above, demonstrates that the respondents have already been sufficiently penalised for the admitted contraventions as a direct result of the manner in which the applicant has chosen to run its case. The imposition of penalties in this matter would not serve the interests of justice or enhance confidence in the applicant’s investigative and enforcement processes.
Mr Duggan’s secondary position was that if the Court took the view that it was appropriate to impose penalty, then these contraventions should be regarded as falling within the lower range of seriousness and that as a result the appropriate penalty range would be within 5-10% of the maximum applicable. He put to the Court that that submission was supported by the applicant’s acceptance that this conduct was reckless and the full and early co-operation of the respondents together with their extensive efforts towards rectifications, much of which was volunteered. Those matters pointed against imposing penalties at the higher end of the scale. It was submitted that there was a significant conceptual flaw in the submission of the applicant in regard to the range of penalties because it failed to take into account considerations of totality and proportionality. The position advanced by the applicant would be more appropriate for conduct with significant aggravating features at the higher end of the scale.
A central feature of Mr Duggan’s submission was that no admissions had been sought of the respondents or made by them as to the misclassification of other workers engaged by Easttrac or Klemtrac during the Assessment Period, or with respect to any consequential contraventions against other workers. The effect of Mr Duggan’s submission is that in inviting the Court to draw an inference that numerous other workers were similarly affected, the applicant is inviting the Court to proceed on the basis of a case it has not pleaded and with respect to which no admissions have been made and no agreement has been reached. With respect to that submission, it should be noted that the applicant sought to tender the document that set out the methodology used to calculate underpayments for the purpose of the rectification process. The respondents say that that document was privileged and prepared solely for the purposes of mediation and that the Court could not draw any conclusion that there were other workers employed on an independent contract who were in fact properly classified as employees. This was not a matter that could be subject to an inference properly drawn and it was not a matter upon which there was any evidence before the Court. In other words, having cast its case in a narrow and focused way, the respondents submit the applicant was now seeking to have its cake and eat it too.
As with the abandoned submission as to deliberations, I decline to proceed on the basis that these contraventions occurred in the context of all relevant workers with Easttrac and Klemtrac having been subject to “sham arrangements”. The FWO has at all stages focussed its case on the four workers to the subject of these proceedings. Had it sought to call the respondents to account for contraventions against a greater number of workers, it could have done so. It did not seek admissions from the respondents and none have been made in these proceedings as to the employment status of other workers. Nor have any findings been made by the FWO with respect to other workers.
The second to fourth respondents dispute the applicant’s submission that the higher penalty unit of $180 should apply for all offending with the exception of s.357 of the FW Act, and submit that the applicable penalty unit for all contraventions is $170, with the exception of the contravention with respect to Ms Augier’s unpaid personal leave[8] for which the correct penalty unit is $180. The respondents accept that they do not have the benefit of s.557 with respect to the contraventions of s.357 of the FW Act. They accepted that the application of s.557 results in the number of contraventions identified by the applicant before grouping. The respondents submit, referring again to the “single strategic decision” with respect to the s.357 contraventions that as a matter of principle, both Easttrac and Klemtrac have each committed a single contravention covering all representations made to the two workers employed by each of them.
[8] Sections 44 and 99 of the FW Act.
The second to fourth respondents do not accept the submission of the applicant as to the grouping of separate contraventions. They propose an approach to grouping that would result in eight contraventions for Easttrac, seven contraventions for Klemtrac, five contraventions for Mr Leo Welch and three contraventions for Mr Peter Wallis.
In making that submission, counsel properly reminded the Court that caution was required not to over penalise or impose a double penalty in circumstances where contraventions overlapped or were part of a single course of conduct. All of the contraventions arose from a single strategic decision to engage the workers as independent contractors. From that single decision flowed multiple breaches of civil penalty provisions. It was submitted that the approach taken by the applicant ignored that in many instances the workers were paid at a rate greater than the entitlement under the Award, in other words, technically payments made in contravention of the Award but favourable to the workers. The proper approach in the circumstances would be to acknowledge that the underpayment and non-payment contraventions could be seen as a single course of conduct arising from the application of the rates in the Contractor Schedule. Alternatively, they should be regarded as overlapping conduct.
If that submission is accepted, the respondents submit that the contraventions for cancelled shifts; overtime; public holiday penalty rates; laundry allowance; vehicle allowance; Saturday penalty rates; and Sunday penalty rates would all be grouped as one single contravention.
That approach, if accepted, would result in the maximum penalties that could be imposed on the respondents being as follows:
a)Easttrac - $360,000
b)Klemtrac - $306,000
c)Mr Leo Welch - $40,800
d)Mr Peter Wallace - $30,600
With respect to factors relevant to determining the penalties, the respondents stress that all of the contraventions are from a single strategic decision taken in October 2014 on taxation and accounting advice to engage the workers as independent contractors. This was done without taking legal advice as to the proper classification of the workers for the purposes of the Act. The independent contracts were prepared by the group’s lawyer. It was submitted that it is a significant matter that each of the four workers was offered and had accepted a contract of employment to work within the group of companies.
In both their written and oral submissions, the second to fourth respondents stressed that the independent contracting arrangements were not the subject of complaint by any worker, rather a referral from an insolvency practitioner. If that observation was made to suggest that it somehow mitigates the respondents’ conduct then I reject it. Nor, in my view, can much weight be attached to that matter. I do not understand the respondents to be suggesting that the workers were entirely happy with the independent contracting arrangements. Their affidavits suggest otherwise. The respondents emphasise that their conduct was not deliberate. This fact has been acknowledged by the applicant. They submit that there was no intention to disguise the relationship with the workers, or to avoid paying minimum award obligations.
One wonders why the conduct was engaged in at all. No explanation has been given by the respondents for the reasons behind the “strategic decision”. The respondents dispute the applicant’s submission that it is an aggravating factor that the arrangements entered into with the relevant four workers was “part of a more widespread practice”. It acknowledged that the strategic decision made resulted in all of the other workers being set up as independent contractors but submits that the respondents have not made any admission with respect to the proper classification of all the other workers and that no findings were made by the Fair Work Ombudsman with respect to those other workers. For that reason, it is submitted that this Court could not properly draw any adverse inference as to the broader context in which the contraventions for the subject four workers occurred. It would not be possible, Mr Duggan submitted, for the Court to draw an inference as to the other workers being in an actual employment relationship at the time they were required to enter into independent contract agreements.
The respondents dispute that their actions gave them a competitive advantage over rivals in the market place and submits that there is no evidence to support such an inference. The respondents point to their co-operation with the investigation, the rectification audits that they undertook, and the rectification payments made, together with the remorse expressed through counsel, and the fact that they resolved a factual basis of this matter in a timely fashion, as being evidence of contrition and remorse.
With respect to the effect of their conduct on the four workers, the respondents submitted in their written outline that there will always be hardship arising from being paid less, rather than more, when individual circumstances are straightened. That is no doubt the case, but it does not in any way lessen the gravity of the conduct of the respondents or the significance of the impact on the individual workers of their actions. It would hardly be of any consolation to the four workers to learn that other people who have also been victims of breaches of work place law have also experienced hardship. That submission suggests a lack of insight into the individual circumstances of the workers. The further submission by the respondents, that considering the impact on the workers of the admitted contraventions concerning underpayment, it is important to put those amounts in the full context of the total payments made under the independent contracts, is also of limited weight. To a large extent, that submission ignores the fact that the impact on the workers was not simply about money. It is also difficult to see how it can have any relevance to contraventions relating to cancelled shifts, laundry allowance, and vehicle allowance, nor could it have any relevance to a failure to pay personal leave or contraventions relating to payment in full, record keeping and pay slips. It was stressed that the contractor’s schedule rates were significantly higher than the award rates for ordinary Monday to Friday hours, but that the contactor’s schedule rates were less than the award for Saturday, Sunday and public holiday rates. This submission was advanced in support of the proposition that the impact on the workers was not as significant as that contended by the applicant. That is made explicit in its written outline of submissions:
“With regard to Monday to Friday ordinary hours worked, this favoured the workers. With regard to overtime and penalty rates, this favoured Easttrac (since Klemtrac workers only worked Monday to Friday ordinary hours). With regard to allowances for uniform and travel, this favoured by Easttrac and Klemtrac where the worker did not qualify for the fuel bonus.”[9]
[9] Written submissions of second to fourth respondents on penalty at para [90].
Mr Duggan submitted that the significant shifting of ground by the Ombudsman had not occasioned merely a lengthy delay in the resolution of these proceedings but very significant costs to be incurred by the respondents. Counsel referred me to the decision of Fair Work Ombudsman v Contracting Solutions Australia Pty Ltd[10] in support of that submission.
[10] [2013] FCA 7.
Submissions of the fifth respondent
The submission of the fifth respondent mirrored those of the second to fourth respondents. The fifth respondent adopted the submissions of the second to fourth respondents inclusive as the circumstances in which the conduct took place. Counsel stressed that the fifth respondent had committed no previous breaches and that whilst he had significant experience in the public health sphere, he had no other experience in dealing with labour hire businesses. It was submitted that the fifth respondent too had been reckless in not seeking legal advice but that he had not acted deliberately in contravention of the Act. As to the extent of his involvement as a member of senior management, counsel submitted that his client was a part-time consultant who was not a directing mind of the business. The fifth respondent also submitted that it was not appropriate to impose any penalty and otherwise adopted the submissions of the second to fourth respondents inclusive with respect to penalty.
Consideration
The impact of the breaches on the four workers was significant. Ms Helen Dolphin would have preferred to be an employee of Easttrac but was not given the option. There was no negotiation with respect to the rates that she would charge as an independent contractor. She was advised by the company as to what that would be. She was required to obtain an ABN and found the requirement to run her own business onerous and stressful. She had a limited education and limited business experience. She struggled to set enough money aside for taxation purposes because of the low rate of pay, and for that reason could often not afford to meet her taxation liabilities as and when they fell due. For example, by 29 July 2015, she had incurred an unpaid tax liability of $5,000 which added to the pressure she found herself under. The fact that she had no superannuation added to the stress. She found that she was unable to manage her affairs so as to afford to make her own contributions to superannuation. She was left significantly out of pocket for fuel expenses. Her limited income meant that she particularly felt the lack of overtime to compensate for some periods in which she worked 7 days a week. The lack of sick leave entitlements caused her to be unable to pay utility bills and to go without basic household items.
Ms Natalie Augier described the impact of the respondents’ breaching behaviour in similar terms. She felt the need to take out her own income protection insurance policy which was particularly expensive for her because she had pre-existing medical conditions which she was required to disclose. She found the taxation requirements complex and difficult and could not afford accountancy fees to assist in managing the taxation and superannuation requirements.[11] The inconsistency in her income caused her to have difficulties in covering basic living expenses, like petrol. This made it especially difficult and stressful because she had four children living at home at the relevant time.[12] There were occasions when she only fed the children and not herself because of lack of money.[13] There were times when she could not afford to pay utility bills and was forced to borrow money from her parents.
[11] Affidavit of Natalie Augier, dated 11/4/2017, at para [24].
[12] Ibid at para [29].
[13] Ibid at para [30].
Ms Pauline Allen signed the independent contract agreement hoping that she would eventually be given a permanent part-time position as an employee with Klemtrac.[14] The requirements of managing her business affairs weighed on her mind and were a source of stress. There were occasions when she did not take time off work when she was unwell and should have taken time off, because she believed that she had no entitlements to sick leave.[15] Ms Allen was disinclined during the relevant period to take holidays because she believed that she had no entitlement to annual leave and this impacted on her enjoyment and quality of life. The non-payment for cancelled shifts affected her ability to budget. She too found herself unable to make adequate provision for superannuation.
[14] Affidavit of Pauline Allen, dated 12/4/2017, at para [14].
[15] Ibid at para [15].
I reject the submission of the respondents that given all of the circumstances, no penalty should be imposed. I am satisfied that it is appropriate and necessary to impose penalties in light of the admitted conduct.
I accept the submission of the respondents that the ultimate resolution of this matter was delayed by the manner in which the FWO conducted its investigation and determination. The matter was in an advanced stage of resolution when the FWO significantly changed course, a course which it ultimately abandoned. I accept the second and third respondents were occasioned significant expense as a result. In a matter in which the FWO changed its position and abandoned its primary case, Lander J had this to say:
“The Ombudsman's investigation that preceded this proceeding took more than three years. No explanation was offered for the time taken to complete the investigation, even though I requested counsel to address that matter. The Ombudsman has prosecuted the proceeding rather languidly. It amended its originating application and statement of claim to include further claims of contraventions, and then abandoned those claims prior to this hearing. The Ombudsman did not proceed with all of its claims against the respondents.
The regulator has an obligation, of course, to ensure that relevant parties comply with their obligations under the relevant workplace legislation. However, the regulator also has an obligation to bring proceedings and to prosecute those proceedings in a manner which causes the least cost to the persons against whom the proceedings are brought.”[16]
[16] Fair Work Ombudsman v Contracting Solutions Australia, Op cit, at para [103]-[104].
It is appropriate when considering penalty in this matter to have regard to these remarks.
I accept the applicant’s submission as to the application of s.557 of the FW Act, and the resulting number of contraventions for each of the second to fifth respondents. With respect to the contraventions of s.357 to which s.557 does not apply, I accept the submission of the respondents that the matters relied on by the applicant amount to a single continuing misrepresentation to each worker which results in two contraventions each for Easttrac and Klemtrac, and four contraventions for each of Mr Leo Welch and Mr Peter Wallis.
I take into account that the breaches by all respondents were committed in circumstances of recklessness. It was extremely reckless to embark on such a course on the advice of an accountant without making further enquiries. As to the submission that all of the contraventions flowed from a single strategic decision of the respondents, based on taxation and accounting advice, the unanswered question remains, why was the strategic decision made? What was the desired outcome from implementing the strategy? I accept the submission of the respondents that there is no evidence on which I can conclude that it was made for the specific purpose of gaining a competitive advantage over other businesses in the same industry. I am prepared to draw the obvious inference, in the absence of any other plausible explanation, that it was nonetheless a strategic decision made substantially for the purpose of saving money. I do not regard that finding as being inconsistent with the conduct being reckless. It was reckless as to the law, but strategic as to the implications for the second and third respondents.
I turn to the question of grouping. As I have noted, the applicant and respondents both submit, and I accept, that the contraventions against s.357 with respect to the representations made to each worker as to their engagement as independent contractors should be grouped. I accept the submissions of the applicant as to grouping for the balance of the contraventions. The four contraventions as to the failure to keep records in accordance with the Regulations can properly be seen as a failure by Easttrac and Klemtrac to keep proper employment records. In my view, it is not appropriate to apply any other grouping of the contraventions. I reject the submission of the respondents that the contraventions against s.45 of the Act should be grouped. Each of the contraventions represents a separate type of obligation under the Award and it is appropriate that the breaches of those separate obligations be reflected in the penalties imposed.[17]
[17] Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62 at para [18]-[20].
As to the relevant penalty unit, I accept the respondents’ submission that the amount of $170 is the appropriate figure, with the exception of the contravention of s.44 for Ms Augier’s unpaid personal leave.[18]
[18] Construction, Forestry, Mining and Energy Union v Hail Creek Coal Pty Ltd (No.2) [2016] FCA 727 at para [70].
For the contraventions against ss.357, 45 and 323, the maximum penalty is 60 penalty units at $170 with a maximum for a body corporate at $51,000 and for an individual of $10,200. For ss.44 and 99, the maximum penalty is 60 penalty units at $180, which amounts to a maximum of $54,000 for a body corporate and $10,008 for an individual. For the contravention of ss.535 and 536, the maximum penalty is 30 penalty units at $170, which results in a maximum of $25,500 for a body corporate and $5,100 for an individual.
Applying the above, the maximum penalties after grouping are:
Easttrac
Section number
Number after grouping
Maximum penalty
357
1
$51,000 x 1
45
9
$51,000 x 9
44
1
$54,000 x 1
323
1
$51,000 x 1
535
1
$25,500 x 1
536
1
$25,500 x 1
TOTAL $666,000
Klemtrac
Section number
Number after grouping
Maximum penalty
357
1
$51,000 x 1
45
5
$51,000 x 5
323
1
$51,000 x 1
535
1
$25,500 x 1
536
1
$25,500 x 1
TOTAL $408,000
Leo Welch
Section number
Number after grouping
Maximum penalty
357
1
$10,200 x 1
45
1
$10,200 x 1
323
1
$10,200 x 1
535
1
$5,100 x 1
536
1
$5,100 x 1
TOTAL $40,800
Peter Wallis
Section number
Number after grouping
Maximum penalty
357
1
$10,200 x 1
45
1
$10,200 x 1
323
1
$10,200 x 1
TOTAL $30,600
I take into account and accord significant weight to the fact that none of the respondents has a prior history of committing contraventions under the FW Act. I give significant weight to the fact that all of the respondents co-operated fully with the investigation and that from the earliest stage, both Easttrac and Klemtrac indicated a willingness to take, and did take, corrective action in a timely manner.
The gravity of the contraventions must necessarily be assessed in light of the accepted position that the conduct was reckless. Having said that, as I have already noted, I regard it has having been extremely reckless on the part of all of the respondents. There is a need for a significant element of general deterrence to be incorporated to the penalties I impose. That remains the case notwithstanding that the contraventions were reckless and not a deliberate attempt to flout either the Act or the Award. The FW Act serves to protect workers from the reckless employer as much as it does the unscrupulous employer. Both the Award and the Act create obligations for the respondents. The four workers were employees and entitled to the benefit of the Award under which they were employed. The actions of the respondents deprived them of that security and benefit. Notwithstanding their recklessness, I regard the contraventions by all the respondents as a serious conduct of its kind.
In all of the circumstances, I am satisfied that it is appropriate to impose penalties of 30% of the maximum penalties available. With respect to each respondent, I allow a 30% discount for the timely admissions, contrition, co-operation and remorse. I accept the submission of the applicant that the purpose of a discount is to recognise an acceptance of wrongdoing, genuine expressions of contrition and remorse, and to acknowledge the willingness of the respondents to facilitate the interests of justice by their timely admissions.[19] That results in the following:
[19] Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at para [74]-[76].
Maximum penalty
30% of maximum penalty
Total after 30% discount
Easttrac
$666,000
$199,800
$139,860
Klemtrac
$408,000
$122,400
$85,680
Peter Wallis
$30,600
$9,180
$6,426
Leo Welch
$40,800
$12,240
$8,568
I turn to the question of totality. In my view, a significant allowance needs to be made for the delay caused in the lead up to these proceedings by the significant change of course taken by the FWO, and its later abandonment of its primary case. The delay occasioned by the conduct of the FWO does not of course mitigate the conduct of the respondents in any way, and in my view the inconvenience and additional cost occasioned by the FWO can best be accommodated by an adjustment by reason of totality. I have allowed a further 10% adjustment to accommodate this factor and general considerations of totality.
This results in the following pecuniary penalties:
§Easttrac $125,874
§Klemtrac $77,112
§Leo Welch $7,711.20
§Peter Wallis $5,783.40
I make the orders and declarations to be found at the beginning of these reasons.
I certify that the preceding ninety-one (91) paragraphs are a true copy of the reasons for judgment of Judge Heffernan
Date: 21 December 2018