Fair Work Ombudsman v Cobra Security Services Pty Ltd
[2024] FedCFamC2G 336
•18 April 2024
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 187
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
Wong v The Queen [2001] HCA 64
Division: Division 2 General Federal Law Number of paragraphs: 200 Date of hearing: 30 January 2024 Place: Melbourne Counsel for the Applicant: Ms Campbell Solicitor for the Applicant: Fair Work Ombudsman Respondent: No appearance ORDERS
MLG 1068 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: COBRA SECURITY SERVICES PTY LTD (ACN 151 435 380)
Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
18 APRIL 2024
THE COURT ORDERS THAT:
1.Pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (FW Act) the Respondent pay a pecuniary penalty of $22,200 for its contravention of section 716(5) of the FW Act.
2.Pursuant to section 546(3)(a) of the FW Act, the pecuniary penalty ordered in order 1 above be paid by the Respondent to 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 the above 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
INTRODUCTION
[1]
RELEVANT BACKGROUND
[8]
The Employment
[10]
The Investigation
[17]
The Compliance Notice
[21]
Alleged Contravention of s 716(5) – failure to comply with a compliance notice
[26]
PENALTY HEARING
[36]
Orders sought by the Ombudsman
[41]
PENALTY
[45]
Nature of the contravening conduct
[53]
Loss and damage
[57]
Contrition, cooperation with the Ombudsman and corrective action
[64]
Deliberateness
[67]
Compliance with minimum standards
[69]
Size of the business
[71]
Deterrence – general and specific
[74]
Conclusion on penalty
[78]
APPLICATION FOR AN ORDER UNDER S 545 – COMPENSATION
[82]
Introduction
[82]
Carers Portland (liability decision)
[93]
Carers Portland (No 2) (penalty decision)
[102]
Taking
[105]
Appeals
[108]
Ombudsman’s submissions
[111]
Am I bound to follow Carers Portland?
[122]
THE STATUTORY FRAMEWORK
[126]
Civil remedy provisions
[126]
Pecuniary penalty orders
[131]
Orders that can be made under s 545
[135]
Compliance notice scheme
[138]
CONSIDERATION
[148]
Purpose of the compliance notice scheme
[148]
Reasonable belief vs actual proof of a contravention
[155]
Causation – employee loss as a consequence of the failure to comply with a compliance notice?
[172]
In relation to penalty - s 546
[172]
In relation to compensation – s 545
[178]
Conclusion on compensation
[190]
DISPOSITION
[195]
JUDGE FORBES
INTRODUCTION
This matter concerns an application by the Fair Work Ombudsman (the Ombudsman) for the imposition of pecuniary penalties pursuant to section 546(1) of the Fair Work Act 2009 (the FW Act) against the respondent, Cobra Security Services Pty Ltd (ACN 151 435 380) (the Company or Cobra Security) for its contravention of s 716(5) of the FW Act. The Ombudsman also seeks an order, pursuant to s 545(1) of the FW Act, requiring the Company to pay compensation to two former employees to rectify alleged underpayments.
On 29 August 2023, default judgment was entered for the Ombudsman against the respondent pursuant to rule 13.05(2)(c) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (the Rules).
On that occasion, the Court declared that the Company had contravened section 716(5) of the FW Act by failing to comply with a compliance notice issued by an inspector on 6 July 2022[1] (the Compliance Notice or the Notice) in the circumstances pleaded in the Ombudsman’s Statement of Claim[2].
[1] The orders made on 29 August 2023 will be amended pursuant to the slip rule to reflect the evidence that the compliance notice was dated 4 July 2022, not 6 July 2022. The error seems to have arisen from the terms of a draft order which was provided to the Court by the Ombudsman’s solicitors.
[2] Statement of Claim filed on 16 June 2023
On 30 January 2024 I heard the Ombudsman’s application for the imposition of a penalty on the respondent and other relief.
I have decided that a penalty of $22,200 (two thirds of the maximum) should be imposed on the Company pursuant to section 546 of the FW Act in respect of what I consider to be a serious breach of s 715(6).
However, I am not persuaded that it is appropriate to make the compensatory orders sought by the Ombudsman pursuant to section 545 of the FW Act. Nor am I persuaded that I should make an order requiring the respondent to take further steps to comply with the Compliance Notice because, in the circumstances of this case, I see little utility in doing so.
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.
In the course of the investigation, Mr Schulz provided the Ombudsman with a Microsoft Excel spreadsheet of calculations, setting out what he believed he was owed for the time he had worked, an amount he estimated at $4,406.51[11].
[11] Roberts affidavit at [16]
Ms Silva did not provide her own calculation[12]. However, based on documents, correspondence and various communications between Ms Silva and the Ombudsman’s office, FWI Roberts formed the view that Ms Silva had worked 72 hours for the Company for which she had not been paid. FWI Roberts estimated that Ms Silva had been underpaid the amount of $2,373.04.
[12] Roberts affidavit at [26]
The Compliance Notice
On 4 July 2022, following the formation of her belief, FWI Roberts issued a compliance notice to the Company pursuant to section 716. Relevantly, the Compliance Notice set out the FWI’s reasonable belief that the Company had contravened the Award as follows:
The Employer, between 17 March 2022 and 4 May 2022 (Period), contravened clauses of the Award set out in the table below.
No Clause Details of contraventions (a) Clauses
11.1 (a)
and 15.1Casual Minimum Rate contravention
failing to pay:(a) Anne Silva
the applicable minimum hourly rate and an additional loading of 25% of the minimum hourly rate in respect of ordinary hours worked (Casual Minimum Rate Entitlement)
(b) Clause 20.2(b) Casual Outside of 6am – 6pm Monday to Friday Penalty Rate contravention
failing to pay:(a) Anne Silva
(b) Ashley Schulz
at 146.7% of the minimum hourly rate, inclusive of casual loading, for hours worked between midnight to 6.00 am and / or 6.00 pm to midnight on a Monday to Friday excluding hours on a day that is a public holiday (Casual Outside of 6am – 6pm Monday to Friday Penalty Rate Entitlement)
(c) Clause 20.2(b) Casual Saturday Penalty Rate contravention
failing to pay:(a) Ashley Schulz
at 175% of the minimum hourly rate, inclusive of casual loading, for hours worked on a Saturday (Casual Saturday Penalty Rate Entitlement)
(d) Clause 20.2(b) Casual Sunday Penalty Rate contravention
failing to pay:(a) Asley Schulz
at 225% of the minimum hourly rate, inclusive of casual loading, for hours worked on a Sunday (Casual Sunday Penalty Rate Entitlement)
(e) Clause 20.2(b) Casual Public Holiday Penalty Rate contravention
failing to pay:(a) Ashley Schulz
at 275% of the minimum hourly rate, inclusive of casual loading, for hours worked on a Public Holiday (as prescribed in Division 10 of Part 2-2 (the National Employment Standards) of the FW Act) (Casual Public Holiday Penalty Rate Entitlement)
The Compliance Notice required the Company to take a number of steps pursuant to s 716(2) “to remedy the direct effects of the contraventions” including:
Step 1 – calculate and rectify underpayments
(a) in respect of the contravention referred to in row (a) of the table above:
(i)identify each employee employed by the Employer who was not paid (but was required by the Award to be paid) the Entitlement that is the subject of the contravention – the Entitlement is found in the ‘Details of Contravention’ column of the table above;
(ii) in respect of each such employee identified:
1.identify the number of hours the employee worked during the Period in respect of which the Entitlement was required to be paid by the Award (Hours);
2.identify the amount the Employer paid to the employee during the Period in respect of the Entitlement (having regard to the Hours, where applicable);
3.calculate the amount the Employer should have paid to the employee during the Period in respect of the Entitlement (having regard to the Hours, where applicable) and identify the applicable rates of pay within the Period and the period during which each rate applied;
4.make a payment to the employee of the difference between the amount referred to in (2) and the amount referred to in (3) immediately above; and
5.make a record of the information and amounts referred to in (1) to (3) and the amount of the payment referred to in (4) immediately above (Underpayment Rectification Information); and
(b)repeat the same process described in Step 1(a) for each of the contraventions referred to in rows (b) to (e) of the table above
The Notice also required the respondent to provide the Ombudsman with evidence of its compliance, including a schedule of calculations and proof of payment to the employees by no later than 10 August 2022.
The Company did not comply with the Compliance Notice by the required date, or at all.
There is no evidence that the Company sought a review of the Compliance Notice pursuant to s 717 or that the Company had a reasonable excuse[13] for its failure to comply.
[13] Fair Work Act 2009 (Cth) (FW Act) s 716(6)
Alleged Contravention of s 716(5) – failure to comply with a compliance notice
Pursuant to section 716(5), a failure to comply with a compliance notice is a contravention of the FW Act. Section 716(5) is a civil penalty provision of the FW Act which at the time these proceedings were filed carried a maximum penalty of $33,300 for a body corporate[14].
[14] FW Act s 539(2) Item 33, Column 4
The Ombudsman initiated these proceedings on 16 June 2023, alleging a contravention of s 716(5) of the FW Act.
When the matter came before me for a first return on 2 August 2023, Ms Clippingdale, a solicitor on behalf of the Ombudsman, confirmed service of the application on the respondent. There was no appearance by or on behalf of the respondent. That day I ordered, inter alia, that the respondent file a notice of address for service by no later than 16 August 2023. I also ordered that in the event of non-compliance with this directive, the Ombudsman would be granted leave to make an application for default judgment at the next directions hearing. The respondent was served a copy of these orders[15].
[15] Affidavit of Zoe Jayne Clippingdale affirmed on 17 August 2023 at [4]-[5]
The respondent did not file a notice of address for service by 16 August 2023 or at all.
On 17 August 2023, the Ombudsman filed an application seeking default judgment against Cobra Security pursuant to rule 13.05(2)(c) of the Rules by reason of the Company’s failure to:
(1)file and serve a notice of address for service by 16 August 2023[16];
(2)file and serve a defence within 28 days of service[17]; and
(3)defend the proceedings with due diligence[18].
(the Default Application)
[16] Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (FCFCOA Rules) r 13.04(2)(b)(iii) of the
[17] FCFCOA Rules r 4.04(3) and 13.04.(2)(b)(iv)
[18] FCFCOA Rules r 13.04(2)(b)(vii)
On 29 August 2023, the Ombudsman was granted leave to proceed with its Default Application. Once again, despite the Ombudsman having served a copy of the Default Application[19] and the accompanying affidavit of Ms Clippingdale upon the respondent via express post, there was no appearance by or on behalf of the respondent.
[19] Affidavit of Zoe Jayne Clippingdale affirmed on 28 August 2023 at [4]-[5]
As mentioned in the introduction, I entered default judgment for the Ombudsman pursuant to rule 13.05(2)(c) of the Rules. Based on the materials before the Court and having regard to the pleaded Statement of Claim and relief sought, I made a declaration that the respondent had contravened section 716(5) of the FW Act by failing to comply with the Compliance Notice.
The matter was then adjourned to 30 January 2024 for a further hearing of the Ombudsman’s claim for the imposition of penalties of the respondent. I ordered that the Ombudsman and respondent each file written submission and any evidence on which they intended to rely in relation to the question of penalties.
On 1 September 2023, the Ombudsman received a notification from the Australian Securities and Investments Commission (ASIC) that Cobra Security had initiated an application for voluntary deregistration. In the application for deregistration, the director, Mr Yalinsel, declared that the Company was not party to any legal proceedings. The Ombudsman wrote to ASIC requesting that the deregistration be deferred[20].
[20] Roberts Affidavit at [29], Annexure NR-6
On 10 October 2023, ASIC confirmed with the Ombudsman that it has deferred the Company’s deregistration until 6 April 2024.
PENALTY HEARING
At the penalty hearing, Ms Campbell of counsel appeared on behalf of the Ombudsman. There was no appearance on behalf of the respondent, as had been the case at previous hearings. I asked my associate to call Cobra Security in the vicinity of the Court, but there was no response to the call and the matter proceeded.
In support of its application for the imposition of pecuniary penalties and other orders the Ombudsman relied on the following material:
(1)application and statement of claim filed on 16 June 2023;
(2)affidavit of FWI Natalie Roberts sworn on 18 December 2023;
(3)affidavit of Annabel Clemens affirmed on 31 July 2023;
(4)affidavit of Zoe Clippingdale affirmed on 17 August 2023;
(5)affidavit of Zoe Clippingdale affirmed on 28 August 2023; and
(6)affidavit of Annabel Clemens affirmed on 9 January 2024.
The Ombudsman also relied on a detailed written outline of submission on penalty which Ms Campbell developed orally at the hearing.
In addition to the question of penalties, the Ombudsman’s submission also explored, in some detail, the scope of the Court’s power to make other orders under section 545 and the appropriateness of the Court doing so in “compliance notice cases”. As will be seen later in this judgment, this issue has assumed particular significance for the Ombudsman given recent decisions of this Court[21].
[21] Fair Work Ombudsman v Carers Portland Inc [2023] FedCFamC2G 620 (Carers Portland); Fair Work Ombudsman v Carers Portland Inc (No 2) [2024] FedCFamC2G 72 (Carers Portland (No 2)); Fair Work Ombudsman v Taing [2024] FedCFamC2G 270 (Taing)
As mentioned earlier, the respondent has not filed any material in these proceedings.
Orders sought by the Ombudsman
The Ombudsman in her capacity as a “fair work inspector” may apply to this Court for orders in relation to contraventions of 716(5)[22]. In Annexure A to its written outline of submissions, the Ombudsman proposes a form of orders which it submits are appropriate in the circumstances of this case.
[22] FW Act ss 12 and 539(2)
First, the Ombudsman seeks the imposition of pecuniary penalties pursuant to section 546(1) of the FW Act in respect of the respondent’s contravention of s 716(5)[23]. The Ombudsman submits that the penalty should be assessed at 80 per cent of the maximum[24], which would result in a penalty of $26,640.
[23] Order 3 of the Proposed Orders at Annexure A of the Ombudsman’s Outline of Submissions filed on 19 December 2023 (Ombudsman’s Proposed Orders)
[24] Pursuant to s 546(2) the maximum penalty for a corporation is $33,300 being 5 times the maximum prescribed for an individual in the table in s 539(2)
Further, the Ombudsman also seeks an order pursuant to section 545(1) of the FW Act which would require the respondent to “take the following steps to remedy the direct effects of its contravention of s 716(5) of the FW Act”. The first of those steps require Cobra Security to pay compensation to the respective employees of an amount equal to the alleged underpayments, namely[25]:
(1)$4,586.14 to Ms Schulz;
(2)$2,373.04 to Ms Silva;
(3)superannuation on the above payments; and
(4)interest on the above payments pursuant to s 547(2) of the FW Act.
[25] Orders 1 and 2 of the Ombudsman’s Proposed Orders
The alleged underpayments are based on the calculations made by FWI Roberts in March 2023 (in respect of Ms Silva)[26] and December 2023 (in respect of Mr Schulz)[27].
[26] Roberts affidavit at [27]
[27] Roberts affidavit at [18]-[24]
PENALTY
I turn firstly to the question of penalty, pursuant to s 546 of the FW Act.
It is appropriate that the Court impose a pecuniary penalty upon the respondent for its contravention of s 716(5). I consider the contravention to be serious. The respondent’s complete failure to comply with the Compliance Notice, cooperate with the Ombudsman and its failure to engage in these proceedings reinforces my view that the penalty should be meaningful and of sufficient weight to achieve the object of deterrence, both general and specific.
The principles relevant to the assessment of penalty are well-established and need not be rehearsed in detail.
Suffice to say, the purpose of a civil penalty under FW Act enforcement regime is primarily, if not wholly, the promotion of the public interest in compliance with the provisions of the FW Act by way of deterrence (general and specific) of further contraventions[28].
[28] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [15]-[16] (Pattinson)
A civil penalty must reflect deterrence, not punishment, retribution or rehabilitation. An appropriate penalty should be proportionate in the sense that it recognises the objective seriousness of the contravention, it should deliver a sufficient sting so as not to be regarded as an acceptable cost of doing business and it should strike “a reasonable balance between oppressive severity and the need for deterrence in a particular case”[29].
[29] Pattinson at [41]
Central to the Court’s task is an objective assessment of the gravity and seriousness of the offending which it is called upon to penalise, having regard to all relevant factual circumstances. The considerations deemed relevant to this task are also well known and frequently cited[30]. They include:
[30] Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at [42] (CSR); see also Pattinson at [18]; Kelly v Fitzpatrick [2007] FCA 1080 at [14] (Kelly v Fitzpatrick)
·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.
In Australian Building and Construction Commissioner v Pattinson [2022] HCA 13, [15]-[16] (Pattinson), the High Court reiterated that this list should not be treated as a checklist. While this extensive list forms the basis for many decisions of this Court, it is not to be interpreted by as a “rigid catalogue of matters for attention”[31].
[31] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 at [91]
The Court may take into consideration matters relevant to both the character of the contravening conduct and of the contravenor[32]. Each case is fact-dependent and some considerations will be more relevant or carry greater weight in some cases than in others. The task of assessing what amount to impose involves the selection of a figure taking into account all factors relevant to the particular case[33].
[32] Pattinson at [19]
[33] Pattinson at [68]; see also Wong v The Queen [2001] HCA 64 at [75] (Gaudron, Gummow and Hayne JJ); Markarian v The Queen [2005] HCA 25 at [37] (Gleeson CJ, Gummow, Hayne and Callinan JJ); Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53 at [55] (Allsop CJ, Davies and Wigney JJ)
Nature of the contravening conduct
I regard the respondent’s conduct as objectively serious.
Since Pattinson, a penalty for contravention of a civil remedy provision must be assessed through the lens of deterrence. In Pattinson, the High Court made clear that in assessing penalty, the Court may have regard to both the character of the contravention and also of the contravenor itself. Accordingly, while the objective seriousness of the contravention is a factor to be taken into account, so too are the characteristics and behaviour of the contravener in its conduct leading to and subsequent to the contravention.
Here, there has been a complete failure on the part of the respondent to take any of the specified actions the Compliance Notice required it to take. To all intents and purposes, the Company has taken a path of avoiding any engagement with the claims made by its former employees, efforts by the Ombudsman to recover alleged underpayments prior to the issue of the Compliance Notice, the obligations imposed by the notice itself and these proceedings. The reasonable belief of the FWI, the issuing of the statutory notice and the risk of penalties have not moved the respondent to do anything.
The respondent simply ignored the Compliance Notice. The Company did not seek to have the notice reviewed, nor has the Company offered any “reasonable excuse” for non-compliance. The Company has not engaged in these proceedings and has offered no defence.
Loss and damage
The Ombudsman submits that a failure to comply with a Compliance Notice has caused loss to the public because the Ombudsman and the Court have spent time and public funds dealing with enforcement, liability and civil remedy proceedings which would not have otherwise been required. As the Court explained in Fair Work Ombudsman v Soma Kitchen & Anor (No.2)[34]:
“[…] the purpose of s 716 is to provide an alternative to litigation. That is, it is designed to prevent litigation. Litigation is timely and expensive. It is also not controversial that Court resources are limited and this Court actively promotes alternative resolution methods in order to reduce unnecessary expenditure. Here, that purpose has been systematically undermined.”
[34] [2020] FCCA 2583 at [39]
I accept the correctness of that submission. The compliance notice regime provides a mechanism whereby employers are afforded an opportunity to respond to and rectify alleged contraventions of the FW Act and industrial instruments on a no-admissions basis and with immunity from further enforcement action. If that opportunity is rejected by the employer without seeking review or reasonable excuse, it is probable that the resources which have been directed to issuing the notice and seeking rectification through the alternative path will have been wasted. A failure to comply with a compliance notice defeats the public benefit of the compliance regime, including the avoidance of litigation involving the regulator. The wasted time and public resources used to enforce compliance with the Notice is deserving of a penalty.
The Ombudsman also submits that the outstanding underpayments owed to Mr Schulz and Ms Silva are losses that are a direct result of the Company’s contravention of s 716(5). Accordingly, the Ombudsman submits that those losses should be considered when assessing penalty for the contravention under s 546 FW Act and also in determining whether other relief should be ordered under s 545.
The alleged underpayments are estimated to total approximately $7,000. FWI Roberts arrived at an estimate of the loss suffered by Ms Silva after doing some calculations in March 2023 during her initial investigation. In calculations performed in December 2023, for the purposes of this penalty hearing, FWI Roberts found that Mr Schulz had underestimated his underpayment by $179.63. According to FWI Robert’s calculations, based on her reasonable belief, Mr Schulz’s is owed $4,586.14.
I accept that the size of the penalty necessary to achieve the objective of deterrence might be informed by the Court’s impression of the overall seriousness of the employer’s conduct, including its impact on affected employees. However, the consideration of this factor must be framed by the relevant contravention in respect of which the penalty is sought, in this case the failure to comply with a compliance notice pursuant to s 716(5).
In considering how the Court might penalise an employer’s failure to comply with a compliance notice, it is perfectly proper to have regard to the seriousness of the employer’s conduct generally including that which triggered the enforcement action. The amount of alleged underpayments about which the FWI has formed a reasonable view is a matter which can be taken into account generally in considering the gravity of the employer’s conduct. It is open to the Court, based on the FWI’s reasonable belief and any other relevant evidence before the court, to infer that employees have probably suffered some loss by reason of the employer’s alleged contravention of its statutory obligations under the FW Act, award or enterprise agreement. Even if those losses are not proven and not precisely quantified, the Court may be persuaded that the employer’s conduct viewed as a whole puts the compliance notice contravention into a context which is deserving of a particular penalty. For example, as a matter of discretion, the Court may consider that the contravention of a compliance notice should attract a higher penalty where the substantive underlying contraventions and the losses occasioned thereby appear serious.
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”
Furthermore, when looking to the extent that the financial circumstances of a contravener are taken into the Court’s consideration when determining penalty, his Honour Justice Heerey in Jordan v Mornington Inn Pty Ltd [2007] FCA 1384, stated at [99] that:
“[99][…] In any event, to the extent that financial hardship might mitigate what would otherwise be an appropriate penalty, such an argument would need to be based on evidence.”
There is no evidence before the Court regarding the financial circumstances of the respondent. One might infer from the fact that voluntary deregistration has been sought that things are not all well. However, that could be part of a corporate restructure or some other financial reorganisation by its owner. The Court just does not know.
Deterrence – general and specific
In light of all the available evidence and information, the ultimate question for the Court is what needs to be done to deter the respondent and other like-minded employers from further contravening the relevant legislative scheme.
The evidence in this case leads to the conclusion that the respondent is unlikely to acknowledge and comply with the legislative scheme without the imposition of a serious and meaningful penalty. The penalty should be sufficiently serious to send a clear signal to other like-minded employers that the type of conduct engaged in by the respondent is unacceptable.
In considering general deterrence, I note the Ombudsman’s submission that the respondent operated a business in the investigation and security service industry, an industry known to have a high rate of requests seeking assistance for underpaid wages. I accept that some weight should be given to this factor and that a significant penalty will serve as a warning to other industry participants about the cost of non-compliance.
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 - COMPENSATION
Introduction
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 A
1.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.
There has been scant judicial consideration about the appropriateness of such compensatory orders where, as here, the alleged underlying contraventions about which the inspector has formed a reasonable belief have not been judicially determined. The appropriateness of the Court making such orders has, surprisingly, only recently been questioned by his Honour Judge Blake of this Court in Fair Work Ombudsman v Carers Portland [2023] FedCFamC2G (Carers Portland). In that case his Honour exercised his discretion to refuse an application for a compensation order, for reasons I will explain shortly.
At the penalty hearing before me on 1 February 2024, the Ombudsman pressed for a compensation order and squarely submitted that Carers Portland had been wrongly decided. This submission was addressed in detail in the Ombudsman’s written submissions and it was the subject of an extensive exchange between the Court and counsel for the Ombudsman at the penalty hearing.
More recently, Judge Blake in Fair Work Ombudsman v Carers Portland (No 2) [2024] FedCFamC2G 72 (Carers Portland (No 2)) (handed down on 5 February 2024) ordered penalties against the employer for its contravention of s 716(5). However, in determining the quantum of penalty his Honour refused to take into account the losses alleged to have been suffered by the employee by reason of the employer’s alleged substantive contraventions of the FW Act and relevant award.
On 22 March 2024, her Honour Judge Mansini in Fair Work Ombudsman v Taing [2024] FedCFamCG2 270 (Taing) also refused to exercise her discretion to make compensatory orders in a case involving a contravention of a compliance notice. In doing so, her Honour approved the approach adopted by Judge Blake in Carers Portland.
After being informed that my judgment in this matter was about to be delivered, the Ombudsman sought and was granted leave to file a further written submission addressing the decisions of Carers Portland (No 2) and Taing. On 28 March 2024 the Ombudsman filed a further written submission. I deferred judgment delivery in this matter to enable consideration of those further submissions.
The Ombudsman’s primary position is that Carers Portland (No 2) is distinguishable from this proceeding. If that submission is not accepted, the Ombudsman’s alternative position is that both Carers Portland (No 2) and Taing are plainly wrong and should not be followed.
Given the controversy about this issue and the importance of it to the many proceedings commenced by the Ombudsman in this Court for contraventions of s 716(5), it is appropriate to consider the matter myself and add to the jurisprudence of this Court.
It is also important for this issue to be thoroughly canvassed because a great many cases brought by the Ombudsman for contraventions of s 716(5) of the FW Act proceed undefended, by way of default judgment. As there is no contradictor in these cases, the power of the Court to make compensation orders of the kind sought here and the appropriateness of doing so should be clearly established.
Carers Portland (liability decision)
In Carers Portland, a penalty proceeding initiated by the Ombudsman for a breach of s 716(5), Judge Blake refused to accede to the Ombudsman’s application for orders to compensate an employee for losses suffered as a result of the relevant employer’s failure to pay various entitlements. In that case, a FWI had formed a reasonable belief that the employer had contravened the National Employment Standards (NES) and the relevant modern award. The inspector issued a Compliance Notice to the employer. The employer did not take the steps required by the notice, and the Court found that employer did not have a reasonable excuse for not complying.
As here, the Ombudsman sought imposition of a pecuniary penalty on the employer by reason of its failure to comply with the compliance notice. However, in addition to penalties, the Ombudsman sought, among other things, the following order:
“3.Pursuant to section 545(2)(b) of the FW Act, the First Respondent take the steps that were required by the Compliance [Notice] within 28 days from the date of this order, by:
(a) paying the amount of $1,881.05 to Ms Binh Tran;[…]”
Judge Blake refused to make the compensation order. In framing his decision, his Honour observed that a contravention of section 716(5) of the FW Act is proved by establishing that a compliance notice was given and that there had been a failure to comply with the notice. Actual proof of the underlying contraventions of a modern award is not required[37].
[37] Hindu Society of Victoria (Australia) Inc v Fair Work Ombudsman [2016] FCCA 221
The Court confirmed that the statutory power to issue a Compliance Notice is engaged when an inspector “reasonably believes” that a person has contravened one or more workplace instruments[38]. As to what constitutes a reasonable belief for the purposes of s 716(1) of the Act, his Honour adopted the well-accepted observation of the High Court in George v Rockett (1990) 170 CLR 104 (Rockett), where the Court stated at [14].
“[14][…] The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.”
[38] FW Act s 716(1)
In Carers Portland, when considering the proposed compensation orders sought by the Ombudsman, Judge Blake appeared troubled by two matters. First, the differing degree of proof required to issue a compliance notice as compared to the more exacting standard which would apply if the Ombudsman were required to establish the underlying substantive contravention of the FW Act or an instrument. Secondly, the issue of causation and whether the loss said to have been suffered by the employees (unpaid wages) can truly be said to be the natural or logical consequence of the employer’s breach of s 716(5) (ie the failure to comply with the compliance notice).
In relation to the former issue, his Honour said at [43]-[44]:
“[43]The Applicant seeks an order for compensation equivalent to what it says is the failure by the Respondents to comply with the Award and the NES. This proceeding is not a proceeding concerned, however, with whether the Award or the NES has been contravened. It is not a proceeding commenced under section 44 of the Act (contravention of the NES) or section 45 of the Act (contravention of a modern award). The Applicant could have commenced such a case but elected not to do so. This is a proceeding concerning the contravention of section 716(5) of the Act. No contravention of section 44 or section 45 of the Act has been established.
[44]In her affidavit, the Inspector has set out how she has calculated the amount of compensation. The foundation of those calculations is, however, built on shifting sands. The Applicant has not proved that the Award or the NES has been contravened. Indeed, there is not any direct evidence that the Award or the NES has been contravened. The highest the evidence gets is that the Inspector formed a reasonable belief that there has been a contravention of the Award and the NES. The evidence rises no higher than that. How it is appropriate for the Court to award compensation based on alleged and unproved contraventions of the Award and the NES is not explained.”
Turning then to the issue of causation, Judge Blake continued at [45]:
“[45]Where compensation is to be awarded, the Court must ensure that there is an appropriate causal connection between the contravention and the loss claimed: see Dafallah v Fair Work Ombudsman [2014] FCA 328 (Mortimer J) at [159] referring to Barker J in Australian Licensed Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd (2011) 193 FCR 526 at [423]. There is not a causal connection in this matter. The contravention in this case is a contravention of section 716(5) of the Act. That is, the failure of the Respondents to comply with the Compliance Notice issued under section 716(1) of the Act (which Notice was itself based only on the reasonable belief of the Inspector that there had been a contravention of the Award and the NES). The contravention before the Court is not a finding that the Respondents have breached the Award or the NES. There is no causal connection between the contravention of the civil penalty provision at issue in this case, and the compensation claimed.”
His Honour also noted that the steps required to be undertaken pursuant to the issued compliance notice included a requirement for the employer to identify the hours worked by the employee, the amounts paid to the employee and to calculate the amounts the employee should have been paid. His Honour observed that a person responding to the compliance notice with information at its disposal may well come to the view, after performing relevant calculations, that an employee has been properly and lawfully paid what they owed. In that case, it could not be said that the failure to perform those calculations caused any loss.
In terms of the statutory scheme for dealing with non-compliance with minimum entitlements in the FW Act, Judge Blake concluded that the legislature could not have intended that an employer be required to pay compensation for contraventions of awards, enterprise agreements or the Act without the applicant in such proceedings being required to prove the actual breach of the relevant instrument to the requisite civil standard of proof. His Honour’s reasoning speaks for itself:
[51]In a proceeding for a contravention of section 716(5) of the Act, proof of the underlying breaches of an award or the NES is not required. This principle is commonly applied in this Court: see by way of example, Hindu at [26], or more recently, Fair Work Ombudsman v Gothic Downs Pty Ltd [2022] FedCFam2CG 21 at [13], and has been applied in this matter. It is not appropriate to order compensation equivalent to alleged breaches of an award or the NES where the nature of the proceeding, and its conduct means there is no requirement to prove the underlying contraventions.
[52]It is often stated in this Court that the issuing of a Compliance Notice is a means that enables efficient rectification of underpayments of wages and entitlements. The Applicant made that submission in this case. In Fair Work Ombudsman v Joys Child Care Ltd & Anor (No 2) [2020] FCCA 2326, Judge Altobelli expressed it in the following way at paragraph [11]:
[11]A compliance notice issued pursuant to section 716 of the FW Act provides an important statutory mechanism for a Fair Work Inspector to deal with non-compliance with minimum entitlements in the FW Act, as an alternative to commencing litigation for each underlying contravention of an entitlement. The compliance notice framework creates an opportunity for a person to whom it is served to rectify the matters set out in the notice and gain protection from civil remedy proceedings in respect of the underlying contravention(s), thus encouraging efficient and cost effective rectification of contraventions and payment of outstanding employee entitlements. Section 717 of the FW Act also provides a clear mechanism for a recipient of the notice to seek a review of the notice. (footnotes omitted)
[53]The propositions above are easily enough accepted where compliance with the Compliance Notice occurs. Where compliance with a Compliance Notice occurs, the system may work to produce an efficient rectification of underpayments of wages and entitlements.
[54]There are of course many instances where a respondent does not comply with a Compliance Notice. Litigation then ensues, and is not avoided. At that point, the Applicant as a regulator has a choice. The Applicant can choose to initiate proceedings for failure to comply with the Compliance Notice pursuant to subsection 716(5), as is the case here. Alternatively, the Applicant can choose to commence proceedings for contraventions of the Act or industrial instruments under sections 44, 45 and 50 of the Act.
[55]If the Applicant elects to commence proceedings for a contravention of subsection 716(5) of the Act (as is the case here), it gains the advantage of certain features pertinent to this cause of action. One feature is that a Compliance Notice may be issued on the basis that an inspector ‘reasonably believes that a person has contravened’ a provision of, among other things, the NES, award or enterprise agreement. An inspector does not need to be satisfied that a contravention of the NES, an award, or an enterprise agreement has occurred. Another feature is that proof of the underlying breaches of an award, enterprise agreement or the NES is not required to succeed in an application under section 716(5) of the Act. Alternatively to the above, the Applicant can commence proceedings alleging breach of an award, an enterprise agreement or the NES. In such cases, it is incumbent on the Applicant to commence proceedings under section 44, 45 or section 50 of the Act, and prove the actual breach of the relevant instrument or the NES.
[56]The Act expressly sets out a pathway for pursuing contraventions of an award, an enterprise agreement or the NES. It would undermine the integrity of these provisions of the Act if, effectively, compensation could be obtained for contraventions of awards, enterprise agreements or the NES in a proceeding commenced under section 716(5) of the Act, without having to prove the contraventions. The legislature could not have intended such a result.
Carers Portland (No 2) (penalty decision)
In Carers Portland (No 2), the Court ordered pecuniary penalties against the respondents but declined to make orders requiring the respondents to make a payment of compensation to the relevant employee.
In determining penalty, Judge Blake addressed the well-known French J considerations[39] to which I alluded earlier, including the issue of loss and damage. Judge Blake accepted, as I have, that the failure to comply with the compliance notice did occasion a public loss.
[39] CSR at [42]; see also Pattinson at [18]; Kelly v Fitzpatrick at [14]
However, his Honour declined to take into account, in the assessment of penalty, the Ombudsman’s submission that the employee had suffered loss because she had not been paid the entitlements due to her under the modern award. Referring to his reasons in Carers Portland (liability), his Honour did not accept that the relevant employee had suffered loss because “[t]he Applicant has not proved that [the employee] was underpaid her entitlements in the sum set out by the Applicant”[40]. Accordingly, the Court held that the asserted loss suffered by the employee was not a relevant consideration in determining the penalty for a contravention of s 716(5).
[40] Carers Portland (No 2) at [32]
Taing
In Taing, Judge Mansini considered an application by the Ombudsman for a compensation order as part of the relief for an established contravention of s 716(5). In that case, the employer had admitted the precise amount of money that was owing to a number of former employees.
In Taing, both parties were represented and they had jointly recommended that the Court make an order under s 545(1) requiring the employer to pay an amount of compensation to the employees. It was a fact, agreed between the parties, that the amount sought by way of compensation equated to the amount that would have been calculated and paid, had there been compliance with the compliance notice.
In imposing a penalty, her Honour took into account the agreed loss that had been suffered by the employees. However, while accepting that the Court had power to make compensation orders of the type sought under s 545(1), her Honour declined to exercise that discretion for he following reasons:
(1)any ‘underpayment’ was a loss occasioned by the failure to pay an entitlement for work performed in accordance with the relevant modern award and/or the NES. Her Honour found that there was no direct causal connection between the employees’ loss and the employer’s failure to comply with the compliance notice;
(2)the pleadings sought relief for contraventions of ss 718A (false or misleading documents), 535(1) (obligations in relation to employee records) and 716(5) (failure to comply with a compliance notice). The pleadings did not articulate, nor had the respondents admitted, contraventions of obligations to pay minimum terms and conditions of the FW Act; and
(3)relying on Carers Portland, it would potentially undermine the integrity of the FW Act enforcement framework (which provides a separate pathway for pursuing contraventions of a modern award, an enterprise agreement or the NES) were an application for contravention of one civil remedy provision to result in a compensation order directed at rectifying a separate and distinct contravention of a civil remedy provision which was not part of the originating claim or pleadings.
Appeals
In its supplementary written submissions in this proceeding, the Ombudsman informed the Court that the respondents in Carers Portland have filed an appeal in the Federal Court. The Ombudsman, in a cross-appeal, will contend that Judge Blake erred in finding that it was not appropriate to exercise the Court’s discretion under s 545 of the FW Act. It was foreshadowed, that the Ombudsman will argue his Honour erred in finding:
(1)that the compensation sought by the Ombudsman arose from a breach of a modern award or the NES rather than from a failure to comply with the compliance notice;
(2)that there was no causal connection between the compensation sought and the failure to comply with the compliance notice and that the Applicant was required to prove the reasonably suspected contraventions that were the subject of the compliance notice in order to establish loss or damage;
(3)that there was no utility in making the orders that the employer take further steps to comply with the contravention notice on the basis that the suspected contraventions could have been the subject of other civil penalty proceedings; and
(4)that declaratory relief and the imposition of a civil penalty was sufficient enforcement of the compliance notice.
Further, the Ombudsman will contend that his Honour Judge Blake erred in Carers Portland (No 2) by failing to take into account, in the assessment of penalty, the quantum of loss that flowed from the failure to comply with compliance notice. The Ombudsman submits that the proper question for the Court at the assessment of penalty stage is not whether the Ombudsman had proven a substantive underpayment contravention, but whether the loss to the employee was caused by the failure to comply with the compliance notice.
The Ombudsman also submits that Taing was wrongly decided and that her Honour Judge Mansini’s discretion miscarried. However, the Ombudsman informed the Court that no decision has yet been made about an appeal.
Ombudsman’s submissions
In the present case, the Ombudsman seeks orders that the respondent pay compensation of $4,586.14 to Ashley Schulz and of $2,373.04 to Anne Silva. Although the order is framed as imposing a requirement for Cobra Security to take steps “to remedy the direct effects of its contravention of s 716(5) of the FW Act”, its practical effect is to require the payment of compensation for alleged loss.
The Ombudsman submits that the Court has a broad power to make orders pursuant to s 545 and that it is appropriate, on the available evidence in this case, for the Court to exercise its discretion. The Ombudsman advances the following arguments in support of its position.
First, the Ombudsman argues that there is a direct causal connection between the contravention of s 716(5) and the loss suffered by the employees. In this respect the Ombudsman submits that Judge Blake’s finding and reasoning at paragraph [45] of Carer’s Portland is incorrect and should not be followed.
The Ombudsman submits that under s 716(2)(a), a compliance notice is directed at requiring a person (the employer) to take “specified action to remedy the direct effects of the contravention”. According to the Ombudsman, “the direct effects of the contravention”, in this case, include that the employees have not received the amount owed to them by the employer. The “specified action” to remedy this contravention involves the steps of calculating and paying the amount owed. It is appropriate then, submits the Ombudsman, to have regard to what would have happened had the employer complied with the Compliance Notice. The Ombudsman says the causal connection is established by the fact that, had the employer complied with the Compliance Notice rather than ignore it, the payment to the employee would have been made.
In other words, applying “but-for” analysis, the Ombudsman submits that the losses suffered by employees would have been rectified but for the employer’s failure to comply with the Notice. It is submitted that this consequence of the failure to comply with the Notice presents a sufficient nexus to enliven the discretion under s 545 for the Court to make any other order which it considers to be appropriate, including an order for compensation.
Secondly, the Ombudsman submits that an order for compensation of the type sought is consistent with and does not undermine the enforcement regime of the FW Act. The objectives of the FW Act include providing a “safety net of fair, relevant and enforceable minimum terms and conditions”[41]. Section 545, which sets out the nature of orders that can be made by the Courts in a civil remedy proceeding, allows:
“[…] remedies which meet the circumstances of any given contravention, taking into account the range of parties who may have brought proceedings in relation to the contravention, and the actions which might in any given circumstance be required to remedy the contravention, or to ensure it does not occur again.” [42]
[41] FW Act s 3(b)
[42] Dafallah v Fair Work Commission [2014] FCA 328 at [148]
Thirdly, as to the factual and legal basis for an order for compensation, the Ombudsman submits the reasonable belief of the FWI is a sufficient and proper basis to underpin an order. The Ombudsman contests Judge Blake’s finding in Carers Portland that it is necessary to prove a substantive breach of the relevant instruments as a necessary condition of seeking an order for compensation. Here, it is submitted that the Compliance Notice was properly and necessarily founded on an FWI’s reasonable belief – a reasonable belief which has not been contested - and that an order for compensation should be seen as an incidental consequence of the employer’s non-compliance.
The Ombudsman cites s 715(7)(b) as an example of the legislation expressly permitting the Courts to award compensation for loss suffered where there has been no proof of a substantive contravention. There the Court can make an order where an employer breaches a term of an enforceable undertaking given after the Ombudsman has formed a reasonable belief that a person has contravened a civil remedy provision. Therefore, argues the Ombudsman, contravention of a compliance notice which has been issued after the formation of a reasonable belief that a person has contravened the FW Act should also engage the power to order compensation or other appropriate remedies under s 545.
Fourthly, the Ombudsman submits that Judge Blake was wrong to conclude that compensation should be not awarded when there is no precise monetary amount specified on the Compliance Notice and where there has been no calculation by the employer to establish that money is actually owed to the employee.
The Ombudsman submits that the employer, not the Court, is best placed to make the calculations in accordance with the Compliance Notice because the employer has a statutory duty and should have the records to do so. If the employer makes the relevant calculations and finds that they have paid the employee what they are entitled to, the Ombudsman says they are able to apply for review of the Compliance Notice under s 717 to displace the reasonable belief of the inspector. However, if the employer does not take that course, the Ombudsman submits that the contravention of s 716(5) is made out and as a consequence the Court’s wide discretion to make orders (including compensatory orders) under s 545 is enlivened.
Finally, the Ombudsman submits that in the present case the employer has demonstrated that it is unlikely to rectify the direct effects of its contravention of s 716 without orders requiring it to pay the specific amounts sought. The contravening behaviour (which includes calculating entitlements and paying any underpayment) has not yet been rectified, and therefore the Ombudsman submits that the Court should not only order a penalty but also remedy the loss suffered by the employees as a result of the employer’s contravention. Therefore, this Court should exercise its discretion under s 545 to make the orders as proposed.
Am I bound to follow Carers Portland?
Generally, the notion of stare decisis would direct this Court to follow the law on this matter according to precedent, as laid down by higher Courts. As far as I am aware, there is currently no appellate authority which has determined the issues agitated in this proceeding. Therefore, it is appropriate to briefly discuss what regard I am to have to the Carers Portland decision and the decisions of other judges of this Court[43].
[43] For example, Fair Work Ombudsman v Corporation Sun Pty Ltd [2020] FCCA 2849 and Fair Work Ombudsman v L.E.C Builders and Designers Pty Ltd (No 2) [2022] FedCFamC2G 326, where Judge Kendall and Judge O’Sullivan respectively made orders of compensation for breaches of s 716(5)
When looking to and applying the law from other decisions of this Court, I am guided by the principle of judicial comity. In DVF18 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FedCFamC2G 135 at [23], Judge Egan of this Court observed:
“[23][…] [T]hough it is well accepted that for reasons of judicial comity a judge should usually follow a decision of another judge of the same Court, there is an exception where a judge is of the view that an earlier decision of another judge, based upon the same, or substantially the same facts, was plainly wrong.”
The word “usually” indicates a somewhat flexible approach. In La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201[44] at [204] the Court stated that “[t]he doctrine of stare decisis does not, of course, compel the conclusion that a judge must always follow a decision of another judge of the same court”.
[44] Cited in BVT20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCAFC 222
I acknowledge that Judge Blake’s decision in Carers Portland, on this specific point of law (namely the exercise of discretion under s 545 to make a compensatory order in a proceeding under s 716(5)), might be seen as a recent outlier compared to other decisions of this Court. However, I consider I should follow his Honour’s approach unless I am persuaded that it is plainly wrong in principle.
THE STATUTORY FRAMEWORK
Civil remedy provisions
The FW Act imposes obligations on employers to comply with the FW Act and various fair work instruments.
Certain provisions of the FW Act impose obligations on specific persons and are classified as civil remedy provisions. Column 1 of the table in sub-section 539(2) of the FW Act identifies those civil remedy provisions.
Civil remedy provisions of the FW Act include provisions which confer rights and entitlements upon employees or obligations on employers in respect of, among other things, minimum wages, leave entitlements, benefits under awards and enterprise agreements, general protection from adverse action and discrimination and numerous other matters.
The failure to comply with a compliance notice is itself a breach of the FW Act, unless a person has a “reasonable excuse” for non-compliance. Under the table, section 716(5) of the FW Act is identified as a civil remedy provision.
The table in s 539(2) also identifies the persons who have standing to apply for Court orders in relation to a contravention of a civil remedy provision. Relevantly, Item 33 of the table stipulates that only an “inspector” may make an application to a Court[45] for such an order. Pursuant to Part 4-1 of the FW Act, an “inspector” means an FWI, meaning a person appointed under section 700 or the Ombudsman in his or her capacity as a FWI under section 701 of the FW Act.
[45] The Federal Court, the Federal Circuit and Family Court of Australia (Division 2) or an eligible State or Territory court
Pecuniary penalty orders
Sub-section 546(1) vests a distinct power in the Court to make pecuniary penalty orders in circumstances where it is satisfied that the person contravened a civil remedy provision.
Column 4 of the table in s 539(2) identifies the maximum number of penalty units for contraventions of a civil penalty provision. At the time this proceeding was initiated, the maximum penalty for a contravention of s 716(5) was 30 penalty units for an individual contravenor[46]. Under s 546(2)(b), the penalty for a corporate respondent must not be more than five times the maximum amount number of penalty units referred to in the column 4 of the table in s 539(2). Accordingly, the maximum penalty amount for a corporate respondent in contravention of s 716(5) is 150 penalty units or $33,300.
[46] Pursuant to Item 142 of the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth), Item 33, Column 4 of the table in section 539(2) of the FW Act has been amended from “30 penalty units” to “60 penalty units”. This amendment commenced on 27 February 2024.
It is appropriate to note at this juncture that the maximum penalty for a contravention of s 716(5) is 50% of the penalty for most other contraventions under the FW Act, including contraventions of s 44 (NES), s 45 (modern award provisions) and s 50 (enterprise agreement provisions).
In this case, the Ombudsman seeks the imposition of a pecuniary penalty pursuant to s 546(1), in the amount of 80% of the statutory maximum, which is $26,640.00. I disagree with that assessment. For the reasons set out earlier in this judgment I consider a pecuniary penalty of $22,200 to be appropriate.
Orders that can be made under s 545
Sub-section 546(5) makes clear that a Court may make a pecuniary penalty order in addition to one or more orders made under section 545 FW Act.
Under sub-section 545(1) of the FW Act, the Court is granted power to make an order in relation to the contravention of a civil remedy provision. This Court has a wide discretionary power to “make any order the court considered appropriate if the court is satisfied that the person has contravened, or proposes to contravene, a civil remedy provision”. Section 545(1) operates alongside s 140 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) in granting power to this Court to make discretionary orders.
Under this sub-section, the Court is vested to a broad power to make orders in respect of contraventions of civil remedy provisions. Without limiting the breadth of s 545, ss 545(2) sets out examples of orders that the Court may make. There is no doubt the Court has power make an order awarding compensation for loss that a person suffered because of the contravention[47]. Whether or not the Court should do so in any given case is a matter of discretion.
[47] FW Act s 545(2)(b)
Compliance notice scheme
Section 716 of the FW Act establishes the mechanism for an inspector to issue a compliance notice. It forms part of the compliance powers conferred on inspectors under the FW Act. The Explanatory Memorandum to the Fair Work Bill 2008 (Explanatory Memorandum) states that this provision “provides inspectors with another option to deal with non-compliance instead of pursuing court proceedings”[48].
[48] Explanatory Memorandum of the Fair Work Bill 2008 at 2673
The application of the compliance notice scheme is enlivened only where an inspector reasonably believes that a person has contravened a term of a fair work instrument, such as the NES, modern awards, or enterprise agreements[49].
[49] FW Act s 716(1)(a)-(c)
Section 716(2) authorises an inspector to issue a notice to a person which requires the recipient, within a reasonable timeframe, to take specific action to remedy the “direct effects” of the contravention the inspector reasonably believes has occurred and/or to produce reasonable evidence of the person’s compliance with the notice.
The term “reasonably believes” is not defined by the FW Act or elaborated on within the Explanatory Memorandum. In determining whether or not an inspector has formed the requisite reasonable belief, it is not necessary for the Court to be satisfied on the balance of probabilities that the alleged underlying contraventions of fair work instruments have in fact occurred. The proper test is whether there was a rational basis for the inspector’s belief based on the information available to the inspector at the time the reasonable belief was formed[50]. In the present case, the reasonable belief of the inspector has not been challenged.
[50] Gothic Downs at [22]
A compliance notice issued by an inspector will not be valid unless it meets the form and content requirements specified in s 716(3). It is not necessary to say more about these requirements in the present case. The notice has not been challenged and the Court is satisfied that it is complaint.
Importantly, s 716(4A) specifies that an inspector must not apply for an order in Div 2 of Part 4-1 (ie ss 539-547) in relation to the contravention of a civil remedy provision in circumstances in which the inspector has issued a notice in relation to a contravention and either;
(1)the notice has not been withdrawn and there has been compliance with the notice; or
(2)the person has made an application for review under s 717 to the notice which has not been completely dealt with.
Further, s 716(4B) stipulates that a person who complies with a notice in relation to a contravention of a civil remedy provision is not taken to have admitted to contravening the provision or to have been found to have contravened that provision.
As previously mentioned, s 716(5) provides that a person must not fail to comply with a compliance notice. A failure to comply with this civil remedy provision may be the subject of an application for penalties by an inspector.
However, a failure to comply with a notice will not be a contravention if the recipient has a “reasonable excuse” for non-compliance[51]. It is for the respondent to raise “reasonable excuse” as a defence to an alleged contravention of s 716(5) and it falls to the respondent to produce evidence and satisfy the Court that a reasonable excuse existed at the relevant time. An employer who seeks to rely on the exception of “reasonable excuse” bears the onus of proof[52].
[51] FW Act s 716(6)
[52] Potter v Fair Work Ombudsman [2014] FCA 187 at [72]; Fair Work Ombudsman v Joys Child Care Limited & Anor [2019] FCCA 3356 at [20]
In the present case the employer has not challenged the Notice or raised the defence of reasonable excuse. Nonetheless, whether or not a reasonable excuse exists is an objective fact to be determined by the Court on all the evidence; it is not to be determined based on the respondent’s subjective belief. It must be an excuse that would be regarded as reasonable by a reasonable person in the relevant circumstances[53].
CONSIDERATION
[53] Fair Work Ombudsman v C&H Entertainment Pty Ltd [2021] FCCA 1216
Purpose of the compliance notice scheme
Much has been written in judgments of this Court about the purpose of the compliance notice regime established by s 716 of the FW Act. But nothing provides more concise guidance than the Explanatory Memorandum. As stated, the legislature intended for the scheme to provide inspectors with an option to deal with alleged non-compliance with relevant provisions of the Act and instruments – as an alternative to pursing court proceedings.
In Hindu Society of Victoria (Australia) Inc v Fair Work Ombudsman [2016] FCCA 221(Hindu Society), Judge Riethmuller (as his Honour then was) described the compliance notice scheme in the following terms:
“[23]Effectively, the use of the notice provision does not impose a penalty. It prohibits the Fair Work Ombudsman from suing for the imposition of a penalty. It does, however, provide a simple mechanism for requiring compliance by an employer in order to protect an employee’s rights. On the argument of the respondent [Ombudsman], the provision provides a reasonable balance between employer rights and administrative efficiency of the respondent. In that if an inspector holds the relevant belief, then for minor breaches a simple mechanism is available which alleviates the employer of the potential imposition of a penalty and alleviates the Fair Work Ombudsman of having to formally approve (sic) the case.”
Issuing a notice is an enforcement option for the inspector which presents a compliance opportunity for the employer. The notice is issued on the strength of an inspector’s reasonable belief that there has been a substantive contravention of the FW Act or a workplace instrument. As stated earlier, the formation of that reasonable opinion does not rise to or require formal proof of a substantive contravention. Once a compliance notice has been issued, the employer is afforded an opportunity to confront and correct the alleged contravention by taking the steps specified by the notice. The employer can comply with the notice without making any admission of liability. Compliance with the notice avoids the need for enforcement litigation and also affords the employer immunity from prosecution and protection against the higher penalties which attach to substantive breaches.
The statutory scheme provides an avenue for the recipient of a compliance notice to seek a review of it on the grounds prescribed in s 717(1) of the FW Act. The employer can seek to have a notice cancelled or varied on the basis that it did not commit the contravention alleged in the notice or because the notice did not comply with the service or technical requirements of ss 716(2) or (3). Even if a review is sought, the compliance notice remains in force and operative unless the Court orders otherwise[54].
[54] FW Act, s 717(2)
Absent a reasonable excuse, compliance with the notice is mandatory. Only an inspector may commence an action in relation to the employer’s failure to comply. Neither employees who are the subject of the alleged substantive contravention nor an employee organisation on their behalf have standing to make an application for civil penalties for a contravention of s 716(5)[55].
[55] cf Items 1-5 of the table in s 539 relating to contraventions of ss 44, 45 and 50 of the FW Act in respect of NES, Award and enterprise agreement entitlements
The maximum 30-unit penalty[56] for the failure to comply with a Compliance Notice is the sting which Parliament has chosen to attach to the contravention, presumably with a view to encouraging the informal path as the preferred course of dispute resolution. It is half the maximum penalty that would attach to the alleged substantive breaches upon which the notice was issued[57]. Nonetheless, there are serious and meaningful consequences for failing to comply with a Compliance Notice and there is a great deal of incentive for the employer to comply.
[56] 150 units for a body corporate
[57] See again eg Items 1-5 of the table in s 539 relating to contraventions of ss 44, 45 and 50
In my view, the statutory scheme and purpose of s 716 is plainly aimed at facilitating an alternative compliance pathway, but not a substitute. The provisions of s 716 stand separate and distinct from enforcement by way of formal proof and judicial determination. The essence of the informal mechanism is that it encourages compliance by affording the employer immunity from prosecution and higher penalties on a non-admissions basis.
Reasonable belief vs actual proof of a contravention
In characterising the compliance notice scheme as an alternative or option, it cannot be taken to provide a parallel pathway which is an equivalent to prosecution for a substantive breach. The compliance notice regime is inherently administrative rather than judicial.
The material facts that the Ombudsman must prove to establish a contravention of s 716(5) are that:
(1)a FWI formed a reasonable belief that the respondent had contravened one or more of the fair work instruments referred to in s 716(1);
(2)the FWI issued a Compliance Notice requiring the respondent to do one or more things contemplated by section 716(2);
(3)the Compliance Notice met certain technical requirements in terms of form and content;
(4)the Compliance Notice was given to the respondent; and
(5)the respondent failed to comply with the Compliance Notice.
In Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815, Judge Jarrett (as his Honour then was) confirmed that a breach of s.716(5) is established simply by proof of the giving of a relevant notice and the non‑compliance with it, without proof of the underlying breaches of the FW Act. Under the compliance notice regime, the alleged substantive contraventions are not put in issue and are not the subject of findings. At [7] his Honour observed:
“[7]The particular contraventions which were the subject of the compliance notice are not the subject of the proceedings before me and it is important to bear that firmly in mind. I am not being asked to impose penalties for the breaches by the first respondent of its obligations towards Mr Chen but rather, the penalties relate to the non-compliance with the compliance notice[…]”
The statutory condition for the issuing of a compliance notice never rises above an allegation based on an inspector’s reasonable belief. Where the expressions “contravened” or “contravention” are used in the context of s 716 and 717, there is an implied condition that they are “alleged” contraventions. Those alleged contraventions are the product of an inspector’s belief, albeit reasonably held.
The fact of a substantive contravention is not in issue. By way of an inspector’s reasonable belief a substantive contravention of the FW Act, an award or enterprise agreement may be suspected, but it is not established. To issue a compliance notice, the Ombudsman does not need to prove that the factual and legal assumptions informing the reasonable belief are true, only that the reasonable belief is held at the relevant time. A “reasonable belief” falls short of actual proof[58] – let alone proof to the standard necessary to sustain finding of breach in a civil penalty proceeding.
[58] George v Rockett (1990) 170 CLR 104 at [41]
The provisions of the compliance notice scheme do not deem the reasonable belief of the inspector to be evidence of the truth of the facts asserted. The provisions do not create a statutory presumption about the legal correctness of the inspector’s reasonable belief subject to the employer proving otherwise (see eg s 361). I do not accept the Ombudsman’s submission that such a presumption arises in the absence of an employer seeking a review of the notice under s 717.
Pursuant to s 716(4B), compliance with a compliance notice is expressly not taken as an admission of the alleged underlying contravention. But conversely, non-compliance with a Compliance Notice cannot constitute admission of the factual and legal assumptions upon which the inspector’s reasonable belief has been formed – it is simply non-compliance with an administrative notice for which a penalty attaches. Because the validity of the notice does not require proof of the underlying contravention, only a reasonable belief that there has been a contravention, non-compliance with the notice cannot elevate the proof beyond that reasonable belief. Furthermore, while s 717 presents an avenue to challenge a compliance notice (including on the ground that the recipient had not committed a contravention alleged in the notice), a decision by a person not to seek a review cannot be taken as an admission of any underlying contravention.
In its statutory context, the reasonable belief of the inspector is the administrative process which conditions the issuing of the compliance notice. The compliance regime under s 716 aims to achieve protection of employee rights and entitlements by affording an employer the opportunity to comply with the notice without an admission of liability or the imposition of a higher penalty. But an essential element of the scheme is that it alleviates the Ombudsman of having to formally prove the underlying contraventions in a judicial setting in accordance with the rules of evidence[59]. As Judge Reithmuller said in Hindu Society, the compliance notice scheme provides a reasonable balance between employer rights and the administrative efficiency of the respondent.
[59] FW Act s 551
The state of a reasonable belief necessary to issue a compliance notice is to be contrasted with the proof necessary to establish a substantive contravention of the FW Act or an industrial instrument. To establish a substantive contravention the Ombudsman would have to plead, particularise and prove in accordance with the rules of evidence and procedure for civil matters[60] the following material facts:
(1)the employment;
(2)application to the employment of relevant provisions of the FW Act and/or relevant workplace instruments;
(3)the applicable provisions giving rise to the employee entitlement in the employer obligation;
(4)the performance of work by the employee or other events giving rise to the employee entitlement;
(5)the failure by the employer to discharge its statutory obligations; and
(6)if compensation is being sought, evidence of loss suffered by the employees by reason of the contraventions.
[60] FW Act s 551
In the present case those material facts have not been pleaded, let alone proven. The employees are not (and cannot be) a party to a proceeding under s 716(5) and the Ombudsman has not filed direct evidence from them which could be tested in cross-examination. Had a substantive breach been properly pleaded, the respondent may have engaged differently in the proceeding.
Compliance notices routinely require, as a first step, that the employer undertake calculations. This begs an interesting question. If the Ombudsman’s inspector, properly informed after an investigation and having formed a reasonable belief that the employer is in breach of an industrial instrument, why not simply confront the employer with the alleged underpayment and require that it be rectified? Why ask the employer to do the calculations?
The answer, effectively conceded by the Ombudsman, is that the inspector has only done enough to form a reasonable belief. The Ombudsman says that the calculation of outstanding entitlements should be the task of the employer – in effect leaving liability (if any) for the alleged contraventions to be self-determined by the employer. The Ombudsman submits that the utility of the compliance notice scheme as a means of quick and efficient resolution of disputes would be lost if the Ombudsman was required to perform its own calculations and establish proof of the contraventions.
In my opinion, therein lies the issue which bifurcates the enforcement pathways available to the Ombudsman. There are important features of the compliance notice scheme which distinctly mark it as a separate, essentially administrative, stream of enforcement which does not involve judicial determination of the underlying contraventions.
For that reason, the Court must be cautious not to assume an established substantive contravention when assessing penalty for failure to comply with a compliance notice. True it is that non-compliance with the notice may have the effect of putting the Ombudsman to the inconvenience and cost of having to initiate substantive contravention proceedings. That fact might be relevant to penalty. But it would be wrong to simply assume that the substantive contravention and employee loss will inevitably be proven in line with the inspector’s reasonable belief.
Proceedings seeking a penalty for a failure to comply with a compliance notice cannot be used as a proxy vehicle for a substantive award breach prosecution. As Judge Blake observed in Carers Portland, the Ombudsman has to choose which route it wants to follow. It can issue a compliance notice based on reasonable belief, in the hope that the employer, under threat of penalty, will come to the party and take steps which lead to a rectification of the underlying complaint. Alternatively, the Ombudsman can proceed with a conventional prosecution, prove the elements of the contraventions and seek more substantial penalties and compensation in respect of proven conduct.
The FW Act expressly sets out a pathway for pursuing contraventions of an award, an enterprise agreement or the NES. I agree with Judge Blake that it would undermine the integrity of those provisions of the Act if, effectively, compensation could be obtained for substantive contraventions in a proceeding commenced under section 716(5) of the Act, without having to prove the contraventions. The legislature could not have intended such a result.
Therefore, while the Court may have discretion to make a compensatory order under s 545, the statutory scheme for enforcement presents a compelling reason not to do so in a proceeding commenced under s 716(5).
Causation - employee loss as a consequence of the failure to comply with a compliance notice?
In relation to penalty - s 546
The determination of an appropriate penalty pursuant to s 546 is a matter for the Court’s discretion. It is not in question that in exercising its discretion to impose a penalty pursuant to s 546 the Court is entitled to take into account any loss or damage that flowed from the contravention (Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 (CSR)).
As many judgements of this Court faithfully record, there is a well-established but non-exhaustive set of considerations which guide the Court in the task of determining an appropriate penalty. Consideration of the loss or damage that flowed from the contravention for which a penalty is sought is a common feature in the discretionary task. That principle is not disturbed by either of the recent decisions in Carers Portland or Taing.
In the present case the Ombudsman, citing CSR, submits that when determining penalty the Court should take into account the loss and damage which was a direct result the employer’s failure to comply with the compliance notice. The Ombudsman submits that this is what Judge Blake refused to do in Carers Portland (No 2).
The question of causation is central to the application of this principle. If loss or damage is to be taken into account in assessing penalty, it must be loss or damage which was caused by the offending conduct for which the penalty is to be imposed. In my view the Court’s exercise of discretion would miscarry if, in carrying out its statutory power under s 546, the Court was to determine a penalty by reference to loss or damage which was remote from the offending conduct and/or not established.
In CSR, French J (as His Honour then was) dealt with an application for penalties against a company which had admitted serious contraventions of the Trade Practices Act 1974 (Cth), involving anti-competitive conduct. In the exercise of his discretion to consider what penalty should be imposed, his Honour considered arguments about the extent of the loss and damage which was caused by the anti-competitive conduct which was the subject of the admitted contraventions. The Court’s enquiry was directed only at the question of loss which was directly related to or consequential upon the substantive proven contravening conduct.
In my view, the unpaid wages and entitlements asserted by the Ombudsman in the present case are not loss and damage which the Court is required to take into account in determining penalty for the employer’s breach of s 716(5). For reasons explained in more detail below, the unpaid wages are neither proven nor can they be said to be caused by nor are they a consequence of the employer’s failure to comply with the compliance notice.
In relation to compensation – s 545
The Ombudsman submits that the Court’s power to award compensation under s 545(2) is engaged because the employees concerned have suffered loss “because of the contravention”.
The Ombudsman’s submission proceeds on the following premise:
“[…] If the Respondent in this case had complied with the Compliance Notice, and taken the steps in the Compliance Notice, by taking those steps that would have resulted in the Respondent undertaking calculations which would have led to its finding an amount which it ought to have paid the employee. The Respondent then would have had to pay the employee the calculated amount. The failure to comply with the Compliance Notice was what occasioned the loss to the employee. That is the loss and damage that ought to be taken into account in determining the appropriate penalty”. (Emphasis added)
I accept that the Court has very wide powers under s 545 to make any order it considers appropriate in relation to contravention of civil remedy provisions and a specific power to order compensation.
However, the exercise of the Court’s discretion is conditioned by the requirement that any order be “appropriate”[61] and in the case of compensation the phrase “because of” presumes a causal nexus between the contravention and loss suffered by a person[62]. In deciding whether the order is appropriate the Court should properly turn its mind to the asserted link between the compensation sought and the contravention which is the subject of the present proceeding.
[61] FW Act s 545(1)
[62] FW Act s 545(2)
I do not accept the Ombudsman’s submission at [34] of its outline that the losses to the employees in this case are a “direct result” of the Company’s contravention of s 716(5). The Compliance Notice does not create any entitlement or cause of action enforceable by the employee. Non-compliance with a Compliance Notice may occasion disappointment and frustration, but it does not in and of itself give rise to a compensable loss for an employee. Any loss arises from the substantive breach of the applicable industrial instrument – crystallised when the employer allegedly failed to meet its statutory obligations. Any non-compliance with the notice came later in time and was not causative of that loss.
Nor do I accept the Ombudsman’s submission at [47] of its outline. It is a false premise that the Compliance Notice “requires the payment of a monetary entitlement”. The Ombudsman’s submission assumes the legal and factual correctness of the inspector’s reasonable belief and assumes that if the employer had undertaken the steps in the compliance notice, the employer would have calculated the outstanding entitlements as the inspector has now done and would have made a payment to the employees. This is entirely speculative.
At best the step in the Notice requiring payment to an employee is contingent, subject to the condition that calculations undertaken by the employer reveal an underpayment. As Judge Blake observed in Carers Portland, there can be no certainty that those calculations would have resulted in a payment to employees, let alone for the amount believed by the Ombudsman to be owing.
For similar reasons, I do not accept the submission advanced by the Ombudsman at [61] of its written outline. The Ombudsman asks the Court to accept that if the employer had taken the steps in the compliance notice, the employer would have calculated the employees’ loss to accord with the Ombudsman’s reasonable belief and the employees would have been paid that amount. The Ombudsman makes much of the fact that in the present case, in preparation for the penalty hearing, FWI Roberts “took the steps that ought to have been taken to calculate the hours worked and the amount outstanding using the records available, a number of which should come from the respondent”[63]. The Ombudsman submits that the Court can be satisfied that the inspector’s calculations demonstrate certainty in the amount sought to be paid by way of compensation. The Ombudsman places significant weight on the fact that the inspector’s calculations were “unchallenged” – an assertion which carries little weight where there is no contradictor.
[63] Supplementary submission at [14]
This “but-for” approach to establishing a causal link is unpersuasive – it amounts to speculation on the part of the Ombudsman and it is entirely premised on the asserted legal and factual correctness of the inspector’s reasonable belief. It is possible that compliance with the notice by an employer might yield a different result or reveal no underpayment at all. In the absence of a proper pleading, evidence and judicial determination, the reasonable belief the inspector (no matter how genuinely held) is an unsafe premise for an award of compensation.
Any loss suffered by an employee (if any) in terms of underpaid wages or loss of other entitlements arises can only be caused by an employer’s substantive contravention. The direct and proximate cause of the loss is employer’s failure to comply with the provisions of the FW Act or relevant award or enterprise agreement.
Finally, the Ombudsman makes the interesting submission that the penalties for a contravention of s 716(5) cannot rectify the loss which flows from the failure to comply with the notice. Implicit in the submission is that the employees will be left out of pocket unless the Court exercises its discretion to order compensation to cover the alleged underpayments.
The penalty which attaches to the contravention of s 716(5) should be taken to be what Parliament considers to be a meaningful and significant price on non-compliance. The penalty for that contravention is not intended to rectify alleged losses which have not been established to the requisite standard of proof.
Conclusion on compensation
The Ombudsman’s submissions conflate the alleged substantive contravention (based on reasonable belief) and the established non-compliance of the Compliance Notice as all comprising the “contravening conduct” in respect of which the Court should assess penalty and grant other relief. That is not the correct approach.
In my opinion, proceedings seeking a penalty for a failure to comply with a compliance notice cannot be used as a proxy for a substantive award breach prosecution. A Court may well consider it appropriate to order payment of compensation to employees where a substantive contravention has been established. But it is inappropriate for the Court to make such an order in a case where the asserted factual and legal basis for doing so does not rise above the inspector’s reasonable belief.
While not doubting that the Court has the power to make a compensatory order under s 545, proceedings for a contravention of section 716(5) do not present as an occasion to exercise that power to order the payment of compensation to employees. It is not appropriate for the Court to exercise its discretion in the current case because:
(1)the compliance notice regime is intended to be an alternative administrative pathway of enforcement, separate and distinct from conventional judicial prosecution for breaches of civil remedy provisions;
(2)it is an inherent feature of the compliance notice scheme that it does not require proof of substantive underlying contraventions;
(3)the substantive contraventions and particularisation of losses have not been pleaded and did not properly form part of the case before the Court. There is no evidence before the Court which would allow a finding of substantive contravention to the requisite Briginshaw[64] standard of proof;
(4)the employee losses asserted by the Ombudsman assume a substantive contravention by the employer of relevant industrial instruments;
(5)the asserted employee losses are not a direct or natural consequence of the employer’s failure to comply with the Compliance Notice; and
(6)the Ombudsman and the employees are not prevented from pursuing penalties and other relief, including compensation.
[64] Briginshaw v Briginshaw [1938] HCA 34
I am not persuaded that the judgments of Judge Blake in Carers Portland was wrong. I am also of the view that the discretion exercised by Judge Mansini in Taing was soundly based. My own analysis and consideration of the statutory scheme satisfies me that their Honours adopted the correct approach to the exercise of the Court’s discretion.
It cannot have been parliament’s intention that an order for compensation should be made under s 545 where the same order could not have been made on the same evidence and without the proof required to establish a contravention under section 44, 45 or 50 of the FW Act. In my view, the legislature would never have intended that the Ombudsman should access a remedy through the backdoor which cannot be accessed through the front.
DISPOSITION
I have already made a declaration that Cobra Security has contravened s 716(5) of the FW Act. That declaration is appropriate to mark the Court’s disapproval of the contravening conduct and to put others on notice that similar contravention may result in public admonishment.
I will order the respondent to pay a penalty of $22,200 for its contravention of s 716(5), which is two-thirds of the maximum. That penalty is to be paid to the consolidated revenue of the Commonwealth within 28 days.
For the reasons stated above, I decline to make an order requiring Cobra Security to pay compensation to the former employees, Mr Schulz and Ms Silva.
I also decline to make an order requiring Cobra Security to take the steps required to be taken by the Compliance Notice. The Company has failed to do so and it has been penalised for its contravention. For the reasons advanced by Judge Blake in Carers Portland Inc (No 2) at [55]-[58], I see no utility in requiring the respondent to do what it has already failed to do.
The Compliance Notice was issued to serve a purpose but failed to achieve its end. My decision not to make the order sought by the Ombudsman should not be seen as in any way diminishing the purpose or effectiveness of the alternative rectification pathway. The compliance notice regime has significant utility as a cost-effective and efficient mechanism to rectify underpayments of wages and entitlements, but here it has unfortunately not achieved its goal.
My decision not to make the compensation order or an order requiring the respondent to take steps to comply with the Compliance Notice does not in any way prejudice the Ombudsman or the employees or a registered employee organisation from commencing proceedings in relation to the alleged substantive contraventions. The enforcement regime of the FW Act expressly leaves this option open.
I certify that the preceding two hundred(200) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 18 April 2024
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