Fair Work Ombudsman v Cobra Security Services Pty Ltd

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FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Fair Work Ombudsman v Cobra Security Services Pty Ltd [2024] FedCFamC2G 336

File number: MLG 1068 of 2023
Judgment of: JUDGE FORBES
Date of judgment: 18 April 2024
Catchwords: FAIR WORK – application for imposition of penalties and other relief – failure to comply with compliance notice – where compliance notice and alleged underpayment of employees based on reasonable belief of Fair Work Inspector – consideration of factors relevant to penalty – whether Court should order compensation to employees to rectify alleged underpayment –- where employer liability for substantive breaches of Fair Work Act not pleaded or proved – whether reasonable belief of inspector is proper basis for compensation order – consideration of factors relevant to courts discretion to grant relief – consideration of statutory enforcement scheme - whether losses suffered by employees caused by non-compliance with compliance notice - availability of alternative enforcement options – whether recent decisions of Court clearly wrong - penalties ordered –application for compensation and other relief refused
Legislation:

Fair Work Act 2009 (Cth) s 12, 14, 44, 45, 50, 361, 535, 539, 545, 546, 547, 551, 700, 701, 715, 716, 717, 718A

Federal Circuit and Family Court of Australia Act 2021 (Cth) s 140

Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth) sch 2, pt 11, item 142

Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 r 4.04, 13.04, 13.05
Cases cited:

Australian Building and Construction Commissioner v Pattinson [2022] HCA 13

Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8

Briginshaw v Briginshaw [1938] HCA 34

BVT20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCAFC 222

Dafallah v Fair Work Commission [2014] FCA 328

DVF18 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FedCFamC2G 135

Fair Work Ombudsman v Carers Portland Inc [2023] FedCFamC2G 620

Fair Work Ombudsman v Carers Portland Inc (No 2) [2024] FedCFamC2G 72

Fair Work Ombudsman v C&H Entertainment Pty Ltd [2021] FCCA 1216

Fair Work Ombudsman v Corporation Sun Pty Ltd [2020] FCCA 2849

Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815

Fair Work Ombudsman v Gothic Downs Pty Ltd (No 2) [2023] FedCFamC2G 359

Fair Work Ombudsman v Joys Child Care Limited & Anor [2019] FCCA 3356

Fair Work Ombudsman v L.E.C Builders and Designers Pty Ltd (No 2) [2022] FedCFamC2G 326

Fair Work Ombudsman v Soma Kitchen & Anor (No.2) [2020] FCCA 2583

Fair Work Ombudsman v Taing [2024] FedCFamC2G 270

Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53

George v Rockett (1990) 170 CLR 104

Hindu Society of Victoria (Australia) Inc v Fair Work Ombudsman [2016] FCCA 221

Jordan v Mornington Inn Pty Ltd [2007] FCA 1384

Kelly v Fitzpatrick [2007] FCA 1080

La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201

Markarian v The Queen [2005] HCA 2

Potter v Fair Work Ombudsman [2014] FCA…

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Details
Case
[2024] FedCFamC2G 336
Decision Date

CaseChat Overview and Summary

The Fair Work Ombudsman filed an application against Cobra Security Services Pty Ltd for penalties and other relief in the Federal Circuit and Family Court of Australia, stemming from the company's failure to comply with a compliance notice and alleged underpayment of employees. Cobra Security did not participate in the proceedings and did not provide any evidence or submissions. The dispute was based on the reasonable belief of a Fair Work Inspector, who concluded that the company had breached multiple clauses of the Security Services Industry Award 2020 by underpaying two employees.

The court had to determine whether the Fair Work Inspector's reasonable belief was sufficient to order compensation to the employees for the alleged underpayment, despite the company's non-participation and lack of evidence regarding its financial circumstances. The court also needed to consider the factors relevant to the penalty and the discretion to grant relief under section 545 of the Fair Work Act 2009 (Cth). Additionally, the court had to assess whether the employees' losses were caused by the company's non-compliance with the compliance notice and whether there were alternative enforcement options available.

The court ruled that the Fair Work Inspector's reasonable belief was a proper basis for the compensation order, taking into account the statutory enforcement scheme and the discretion granted to the court. The court also considered factors such as the size of the business, the employer's liability for substantive breaches, and the need for deterrence. The court found that the company's lack of cooperation and intentional non-compliance heightened the need for deterrence and ordered a penalty of two-thirds of the maximum, amounting to $22,200. The court refused the application for compensation and other relief, considering the company's lack of cooperation and the availability of alternative enforcement options.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

My reasons follow. RELEVANT BACKGROUND The respondent, Cobra, has not engaged in this proceeding. It has not responded to the Ombudsman’s application and it has not filed any evidence or submissions. The following background is derived from the Statement of Claim filed on 16 June 2023, the various affidavits filed in the proceeding and the Ombudsman’s submissions on penalty. Matters pertaining to the award coverage of employees, the nature of their employment, their rate of pay and hours worked are based on the reasonable belief of one of the applicant’s Fair Work Inspectors (FWI)[3].[3] Affidavit of Natalie Roberts sworn on 18 December 2023 (Roberts affidavit)The Employment At all relevant times, Cobra Security operated a security business from Docklands in Melbourne, Victoria. The Company’s registered office was located at DA Financial Group, in Albert Road, South Melbourne, Victoria. At all material times the Company’s sole director and secretary was Kemal Yalinsel[4].[4] Roberts affidavit at [10(b)] The Company is a “national system employer” within the meaning of section 14 of the FW Act[5]. The Company is covered by the Security Services Industry Award 2020 (the Award). [5] Statement of Claim filed on 16 June 2023 at [2(c)] On 17 March 2022, Mr Ashley Schulz commenced employment with the Company on a casual basis as a security officer. According to a statement given to the Ombudsman by Mr Schulz, he usually worked night shifts and was paid $29 per hour[6]. [6] Roberts affidavit, annexure NR-2 page 10 On 22 March 2022, Ms Anne Silva commenced employment on a casual basis as a security officer. After approximately 10 days of employment, on 31 March 2022, Ms Silva ceased her employment with the Company. On 6 May 2022, after approximately seven weeks of work, Mr Schulz ceased working with Cobra Security. On 16 May 2022, 10 days after his employment with the Company ceased, Mr Schulz requested the assistance of the Ombudsman. He alleged that Cobra Security had underpaid him in respect of the work he performed as a security guard. The Investigation Between May and June 2022, FWI Natalie Roberts conducted an investigation into Mr Schulz’s employment with the Company[7]. During the investigation, FWI Roberts discovered that Ms Silva had also requested the assistance of the Ombudsman regarding alleged underpayments during her employment[8].[7] Roberts affidavit at [8][8] Roberts affidavit at [8] In an affidavit filed in these proceedings, FWI Roberts deposes that she formed a belief that Mr Schulz and Ms Silva were both covered by the Award and that the Company had breached multiple clauses of the Award by underpaying the employees for hours they had worked[9]. FWI Roberts says that her belief was informed by a consideration of[10]:[9] Roberts affidavit at [11(c)][10] Roberts affidavit at [9], annexure NR-2(1)a current and historical extract of the Company from the Australian Securities and Investments Commission’s (ASIC) database;(2)records of communications with Mr Schulz and Ms Silva;(3)records of communications and attempted communications with the Company;(4)pay slips the Company issued to Mr Schulz;(5)employee details forms for the Company that were filled out by each Mr Schulz and Ms Silva respectively;(6)text messages between the Company and Mr Schulz;(7)emails between the Company and Ms Silva;(8)screenshots of Company timesheets for Mr Schulz and Ms Silva; and(9)Mr Schulz’s spreadsheet calculations of his underpayments.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Conversely, I have not been informed of any history of prior offending by Cobra Security. Evidence reveals that the Company has operated since 2011. Accordingly, I must treat this as a first, albeit serious, contravention in over 10 years of operation.Conclusion on penalty I am required to impose a penalty which is not unreasonably oppressive or crushing. However, despite having been extended the opportunity to do so, the respondent has not filed any affidavit evidence or made any submissions about its financial circumstances or efforts to mitigate. It has not filed any defence to the Ombudsman’s application and is taken to have admitted to the contravention. Taking all matters into account, I believe a penalty of two-thirds of the maximum is appropriate for the established contravention of section 716(5) of the FW Act. In dollar terms, this means that the respondent, Cobra Security, should pay a penalty of $22,200. This is a case in which a single contravention has been proved against the respondent. The respondent has not led any evidence which will enable me to make any finding that any penalty would be crushing or oppressive. I have been given no reason to discount the penalty. The penalty should be paid within 28 days of the date of this judgment to the Consolidated Revenue Fund of the Commonwealth.APPLICATION FOR AN ORDER UNDER S 545 - COMPENSATIONIntroduction It is now necessary to explore the other relief sought by the Ombudsman, that being an order pursuant to s 545(1) requiring the respondent to pay compensation to Mr Schulz and Ms Silva. Relevantly, the precise orders sought are as follows[36]:[36] Ombudsman’s Outline of Submissions, Annexure A1.pursuant to section 545(1) of the Fair Work Act 2009 (Cth) (FW Act), the Respondent take the following steps to remedy the direct effects of its contravention of section 716(5) of the FW Act, within 28 days of this order:(a) paying the amount of $4,586.14 (gross) to Ashley Schulz;(b) paying the amount of $2,373.04 (gross) to Anne Silva;(together, the Underpayment Amounts)(c)calculating and paying any additional superannuation contributions resulting from payment of the Underpayment Amounts, into each of Mr Shulz’s [sic] and Ms Silva’s nominated superannuation funds; and(d)providing proof to the Applicant that the Underpayment Amounts and any additional superannuation contributions have been rectified;2.pursuant to section 547(2) of the FW Act, the Respondent pay interest to each of Mr Schulz and Ms Silva on the Underpayment Amounts, within 28 days of this order to be calculated at the Federal Court of Australia’s pre-judgment interest rate applying at the date of this order;(emphasis added) In proceedings involving a contravention of s 716(5), the Ombudsman often seeks and obtains orders from the Court requiring the payment of compensation to employees in respect of losses alleged to have been suffered by them by reason of the employer’s alleged contravention of industrial instruments. The alleged contraventions and losses allegedly suffered by employees are invariably based on the reasonable belief of the FWI who issued the contravention notice.

Ratio Decidendi

Legal Principle Established

However, for reasons I articulate later, the Court must be careful not to conflate the loss and damage which was occasioned by the employer’s substantive contravention of the FW Act and the loss and damage said to have been caused by the compliance notice contravention itself. Contrition, cooperation with the Ombudsman and corrective action An expression of contrition is most clearly seen by the way a corporation takes steps to correct its wrongdoing and change its behaviour. In this case there is no evidence whatsoever of conduct by the Company which mitigates the seriousness of its contravention. The Company did not cooperate with the Ombudsman either before or after the Compliance Notice was issued and it has not participated in these proceedings. In the circumstances of this case, there is no warrant for the Court to apply a discount on penalty for cooperation, of the kind that is sometimes applied where admissions are made by a respondent or rectification is demonstrated. Moreover, there is merit in the Ombudsman’s submission that the respondent’s lack of cooperation and lack of contrition has been intentional rather than benign. The Ombudsman adduced evidence that the Company had applied for voluntary deregistration after these proceedings had been commenced and had mislead the corporate regulator by stating that there were no current proceedings against the Company. I agree that such conduct heightens the need for deterrence.Deliberateness It is submitted and I accept that the respondent has shown a flagrant and blatant disregard for the Ombudsman’s compliance scheme and Court orders in this proceeding. There is nothing to suggest that the respondent’s failure to comply with the Compliance Notice was a result of inadvertence or misunderstanding. Rather, having regard to all the evidence I accept that the respondent pursued a strategy, without regard to the law, to avoid its obligations under the FW Act compliance regime.Compliance with minimum standards Much has been said in judgments of this Court about the importance of ensuring the efficacy of statutory notices such as compliance notices and ensuring that non-compliance is met with serious and meaningful consequence[35]. The Ombudsman submits that the respondent’s failure to comply with the Compliance Notice undermines the enforcement framework of the FW Act and the safety net of minimum standards and entitlements it is designed to protect. [35] See eg Fair Work Ombudsman v Gothic Downs Pty Ltd (No 2) [2023] FedCFamC2G 359 at [44]-[46] (Gothic Downs) I accept the Ombudsman’s submissions.Size of the business It is well-established that the size and financial circumstances of an employer do not exculpate contraventions of workplace laws. Regardless of the size of the business or its financial position, an employer cannot be absolved of its obligations to comply. As Justice Tracey said in Kelly v Fitzpatrick [2007] FCA 1080 at [28]:“[28][…] No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction must be imposed at a meaningful level”