Fair Work Ombudsman v Davdot Pty Ltd

[2018] FCCA 2682

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v DAVDOT PTY LTD & ANOR [2018] FCCA 2682

Catchwords:
INDUSTRIAL LAW – Application under Fair Work Act 2009 – penalty hearing – failure to pay entitlements under award – failure to provide payslips – penalties imposed.

Legislation:

Fair Work Act 2009, s.23

Cleaning Services Award 2010

Cases cited:

Mason v Harington Corporation Pty Ltd [2007] FMCA 7

Kelly v Fitzpatrick [2007] FCA 1080

Applicant: FAIR WORK OMBUDSMAN

First Respondent: DAVDOT PTY LTD (ACN 111 381 741)

Second Respondent: DAVID LESLIE HINCHCLIFF

File Number: MLG 2372 of 2017

Judgment of: Judge Riethmuller

Hearing date: 28 May 2018

Date of Last Submission: 228 May 2018

Delivered at: Melbourne

Delivered on: 21 September 2018

REPRESENTATION

Counsel for the Applicant: Ms Holman

Solicitors for the Applicant: Office of the Fair Work Ombudsman

The Respondents did not appear.

THE COURT DECLARES THAT:

1. The First Respondent contravened the following civil remedy provisions of the Fair Work Act 2009 (Cth) (FW Act):

   (a)section 45 of the FW Act by failing to comply with the following terms of the Cleaning Services Award 2010 (Cleaning Award) between 24 October 2015 and 17 August 2016:

   (i)subclause 16.1 of the Cleaning Award by failing to pay Mr P and Ms S the minimum hourly rates of pay in respect of all ordinary hours of work;

   (ii)subclause 12.5(a) of the Cleaning Award by failing to pay Mr P, Ms S and Ms K (the Employees) the casual loading;

   (iii)subclause 27.2(a) of the Cleaning Award by failing to pay the Employees the applicable penalty rate for work performed between midnight Friday and midnight Saturday;

   (iv)subclause 27.2(b) of the Cleaning Award by failing to pay the Employees the applicable penalty rate for work performed between midnight Saturday and midnight Sunday;

   (v)subclause 27.3 of the Cleaning Award by failing to pay the Employees the applicable penalty rate for work performed on a Public Holiday;

   (vi)subclause 28.2 of the Cleaning Award by failing to pay Mr P the applicable rate for overtime worked between midnight Sunday and midnight Saturday;

   (vii)subclause 28.3 of the Cleaning Award by failing to pay Mr P the applicable rate for overtime worked on a Sunday;

   (viii)subclause 24.2(b) of the Cleaning Award by failing to pay Mr P and Ms K for the minimum engagement period; and

   (ix)subclause 20.1 of the Cleaning Award failing to pay the Employees on a weekly or fortnightly basis and no later than Thursday in each pay week;

   (b)subsection 536(1) of the FW Act by failing to provide the Employees with a payslip within one working day of paying amounts to the Employees in relation to the performance of work;

   (c)subsection 535(1) of the FW Act by failing to make and keep employee records as prescribed by the Fair Work Regulations 2009 (Cth) (FW Regulations) in relation to Ms Swaitch; and

   (d)subsection 712(3) of the FW Act by failing to comply with a notice to produce records or documents issued by the Applicant in respect of Ms B employment.

2. The Second Respondent was involved in the First Respondent’s contraventions set out in paragraph 1(a) to (d) above, pursuant to subsection 550(1) of the FW Act.

THE COURT ORDERS THAT:

1. Pursuant to subsection 547(2) of the FW Act that within 28 days, the First and Second Respondents, jointly and severally, pay interest to each of the Employees on their respective share of the underpayments, as set out in the Statement of Claim, at the Federal Court of Australia’s pre-judgment interest rate applying as at the date these orders are made.

2. Pursuant to subsection 546(1) of the FW Act, that the First Respondent pay a pecuniary penalty in the amount of $119,000 for its contraventions set out in paragraph 1 above.

3. Pursuant to subsection 546(1) of the FW Act, that the Second Respondent pay a pecuniary penalty in the amount of $25,000 for his involvement in the contraventions set out in paragraph 1 above.

4. Pursuant to subsection 546(3) of the FW Act that all penalties imposed on the Respondents be paid to the Consolidated Revenue Fund of the Commonwealth of Australia within 60 days.

5. Pursuant to subsection 545(1) of the FW Act, the Second Respondent:

   (a)within a period of one month, register with the Applicant’s “My Account” portal at and complete the profile including the Cleaning Award options;

   (b)within a further seven days after the period in subparagraph 7(a), provide to the Applicant his “My Account” registration number; and

   (c)within a period of two months:

   (i)register with the Applicant’s Online Learning Centre at ;

   (ii)complete the courses “Record-keeping and Payslips”, “Hiring Employees” and “Managing Employees”;

   (iii)provide the Applicant with evidence of completion of those courses.

6. Pursuant to subsection 545(1) of the FW Act:

   (a)the First Respondent will, at its own expense, engage a third party, or third parties, with appropriate qualifications in accounting and workplace relations to undertake an audit of the First Respondent's compliance with the FW Act and the Cleaning Award on the following terms:

   (i)the audit period will be the first financial quarter commencing after the making of the orders;

   (ii)the audit is to be completed within 30 days of the end of the audit period;

   (iii)the audit will apply to all employees employed by the First Respondent at any time during the audit period;

   (iv)the audit will assess the First Respondent's compliance with the following obligations according to each employee's classification of work, category of employment and hours worked during the audit period:

   A.wages and work−related entitlements under the Cleaning Award; and

   B.the requirement to issue payslips under the FW Act; and

   C.the requirements to make and keep records under the FW Act and FW Regulations;

   (b)within 14 days of the audit being completed, the First Respondent will rectify any contraventions identified in the audit;

   (c)within 30 days of the audit being completed, the First Respondent will provide to the Applicant:

   (i)a copy of the audit report, which will include a statement of the methodology used in the audit;

   (ii)a copy of the source materials used to audit the times worked by employees (including but not limited to rosters, time cards and time sheets) and the amounts paid to the employees (including but not limited to pay slips and pay reports);

   (iii)written details of any contraventions identified in the audit;

   (iv)evidence of rectification by the First Respondent of any contravention(s) identified in the audit.

7. The Applicant has liberty to apply on 7 days’ notice in the event that any of the preceding orders are not complied with.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 2372 of 2017

FAIR WORK OMBUDSMAN

Applicant

And

DAVDOT PTY LTD (ACN 111 381 741)

First Respondent

DAVID LESLIE HINCHCLIFFE

Second Respondent

REASONS FOR JUDGMENT

1. The applicant, the Fair Work Ombudsman (‘the FWO’) seeks the imposition of pecuniary penalties on the first and second respondents pursuant to the Fair Work Act 2009 (Cth) (‘the FW Act’).

2. The contraventions arose out of the underpayment of three casual employees during a 10 month period between October 2015 and August 2016. The employees were underpaid a combined total amount of $10,428.10. The three employees were employed on a casual basis to perform cleaning duties at various hotels at which the first respondent held cleaning contracts. It appears the employees were paid on a per hour and/or per room basis however this is not clear. The first employee Mr P was underpaid $8,294.52 over a period of 7 months, Ms S was underpaid $1,837.14 over a period of 5 weeks and Ms K was underpaid $296.44 over a period of 5 months.  The underpayments were rectified on 6 February 2018.  The contravention in relation to the Notice to Produce records relates to an employee, Ms B, and was issued on 18 January 2017.  No records were produced.

3. In the Statement of Agreed Facts (‘SOAF’) filed 9 February 2018, the first respondent admits the contraventions of the FW Act and the relevant Cleaning Services Award 2010 (“the Award”): see [3]. The second respondent, the sole director, secretary and shareholder of the first respondent and the person responsible for the management and control of the first respondent also admits being knowingly involved in the contraventions: see [4].

4. The respondents were legally represented in the proceedings, up until a Notice of Withdrawal was filed on the Friday before the hearing. Written submissions on penalty were filed on 2 March 2018, together with an Affidavit of the second respondent affirmed 2 March 2018.  Although the respondents did not appear at the hearing, I take into account the submissions and Affidavit filed on behalf of the respondents.

Groupings

1. The FWO submits that the respondents conduct falls into 12 separate contraventions, but the failure to pay overtime contraventions should be grouped together.  The respondents submit that the contraventions have similar elements and arose out of the one course of action, being the payment of a flat rate.  I am not persuaded by this submission as there are breaches of various different aspects of the Award that address different aspects of the employer and employee relationship.  Accordingly, I accept the groupings as proposed by the FWO.

2. The maximum penalties are as follows:

Contravention	First Respondent	Second Respondent
1	Failure to pay Mr P and Ms S minimum hourly rates	$54,000	$10,800
2	Failure to pay casual loading	$54,000	$10,800
3	Failure to pay Saturday penalty rates	$54,000	$10,800
4	Failure to pay Sunday penalty rates	$54,000	$10,800
5	Failure to pay public holiday penalty rate	$54,000	$10,800
6	Failure to pay Mr P overtime	$54,000	$10,800
7	Failure to pay Mr P and Ms K minimum engagement period	$54,000	$10,800
8	Failure to pay on a fortnightly basis	$54,000	$10,800
9	Failure to provide payslips	$27,000	$5,400
10	Failure to keep records for Ms S	$27,000	$5,400
11	Failure to comply with Notice to Produce	$54,000	$10,800
Total	$540,000	$108,000

1. The FWO proposes a penalty in the low to mid-range of $155,520 to $198,720 for the first respondent and $31,104 and $39,744 for the second respondent. The FWO proposes a 20 per cent reduction for the respondents’ admissions and corrective action. The respondents ask that no penalty be imposed or in the alternative a minimum penalty: see submissions at [25].

2. There are a number of relevant factors in determining penalty. Both parties have made submissions in relation to the factors identified in Mason v Harington Corporation Pty Ltd [2007] FMCA 7. Whilst not an exhaustive list, it is well accepted as a useful guide: see Tracey J in Kelly v Fitzpatrick [2007] FCA 1080. I turn now to consider those factors where they are relevant.

The nature, extent and circumstances of the conduct which led to the breaches.

1. The breaches occurred over a short period of time and resulted in an underpayment of a relatively small amount, in comparison to cases that regularly come before this Court.  However, the underpayments were very significant to two of the employees (given their income levels) and included periods of non-payment.

2. The employees were paid erratically and late (see Sch. E to the SOAF) and at times were required to message the second respondent seeking payment. Despite written requests to do so, no payslips were ever provided to the employees.  The employee’s had to maintain their own records which further exacerbated their uncertainty of their rates of pay.  This difficulty highlights the reality that the payslip provisions are not merely the imposition of an administrative burden, but a practical method of ensuring that an employee is paid appropriately and that any inadvertent errors can be identified quickly and corrected.  Knowledge of how pays are calculated also provides some degree of empowerment to the employee to insist upon proper payment (not that they should ever have to do so) and a deterrent against underpayment as the employer must set out the payments and basic calculation details in writing.

3. The second respondent submits that he incorrectly believed he was paying the correct rates pursuant to the Award. I find this difficult to accept. The respondents have a history of non-compliance as outlined in the submissions of the FWO at [28] to [29]. The respondents have been involved in two small claims proceedings in this Court where declarations and orders were made. In addition, since 2011 the FWO has received a number of complaints from employees of the respondents and advised them on numerous occasions of their legal obligation under the FW Act (although I note that complaints alone are not proven and I take this matter into account only as evidence of the employer having received advice previously, not as previous breaches). Further, it is not plausible with periods of non-payment, that the respondents could think that they were paying correct rates.

4. The employees are vulnerable in that Mr P and Ms K are migrants to Australia with English as their second language.  They were not aware of the Australian minimum standards or awards.  It was only following their employment through discussions with financial advisors that they became aware of the underpayments.

5. The respondents submit in relation to the failure to keep records breach, that employment records were damaged and destroyed following flooding in the second respondent’s home office. I do not accept this submission. At [11] of the SOAF the second respondent admits that the first respondent did not keep time records or provide payslips in relation to Ms S.

The nature and extent of any loss or damage sustained as a result of the breaches.

1. Ms K was underpaid approximately 5 per cent of her entitlements over the five and a half months that she was employed by the respondents. In her Affidavit, Ms K states her salary was used to pay household bills for her family and they found it difficult to make payments on their mortgage and cover their household bills: see [34] and [35].

2. Mr P was paid at around 50 per cent of his entitlement during his employment and this included 2 weeks of non-payment. Mr P also relied upon his income to support his wife and two teenage daughters.

3. Ms S, while only employed for approximately 5 weeks received only 20 per cent of her entitlements, which included three weeks of non-payment. I give these factors significant weight.

4. I note however, that the underpayments have been rectified in full and the respondents have agreed to pay interest.  This is a significant factor that must be given real weight in determining penalty.

Whether there had been similar previous conduct by the respondent.

1. The respondents submit that ‘No similar previous conduct has been alleged by the Applicant’. This is not correct.  As stated above the respondents have been involved in two small claims proceedings and had dealings with the FWO since 2011.  I accept the submissions of the FWO and find there has been similar previous conduct by the respondents with respect to the small claims cases.

Whether the breaches were properly distinct or arose out of the one course of conduct.

1. As stated above, I reject the submissions of the respondent that the breaches were one course of conduct and accept the groupings as proposed by the FWO.

The size of the business enterprise involved.

1. The respondents acknowledge the business is not a small business in accordance with s.23 of the FW Act but submits it is not a large business either. The respondents submit that the second respondent is responsible for all human resources and the payroll for the business which ‘engages approximately forty contractors and employees’: see [17] of the second respondent’s affidavit. It is further sworn by the second respondent that the financial position of the first respondent is declining and it would have limited capacity to pay any penalties. In addition the second respondent is in poor financial circumstances and would likely need to obtain a personal loan.

2. In response, the FWO submits that the respondents’ claims are not supported by any evidence of profit and loss statements, business account statements or bank account statements, or any assets and liabilities statement of the second respondent. The FWO submits that while the size and financial circumstances of the respondents are relevant, they do not ‘absolve’ the respondents of any responsibility and that the penalty should not be determined primarily by capacity to pay.

3. I find that there is clearly conduct that requires the imposition of a penalty that is not inconsequential.  In the absence of clear evidence of the respondents financial position (which only they have access to), I do not accept the claim of poor financial circumstances.

Whether or not the breaches were deliberate.

1. The respondents submit that the breaches were not deliberate and arose out of a ‘failure to exercise proper care’. I have not accepted the second respondent’s evidence that he believed he was paying the correct rates.  The FWO submits that the Court can draw an inference from the respondents’ prior conduct and advice from the FWO that they were clearly on notice as to their obligations and have therefore deliberately ignored that advice.

2. I accept the FWO’s evidence.

Whether senior management was involved in the breaches.

1. The second respondent is the sole director and shareholder and the person responsible for the day to day running of the business. The second respondent admits to the breaches.

Whether the party committing the breach had exhibited contrition and had taken corrective action.

1. The respondents submit that by admitting the contraventions at an early stage this can be taken to evidence of remorse and contrition.  The FWO submits that the respondents took seven months from when they were notified of the underpayments to pay the employees the subject of this proceedings and that there is no evidence of any steps by the respondents to rectify any other past or present employees payments.  It is submitted that the respondents history of only rectifying matters once court proceedings have commences shows the actions of the respondents amount to no more than an acceptance of their wrong doing.

2. I also note the FWO proposes a 20 per cent discount on penalty for the respondents’ admissions and corrective action.

3. I accept that the respondents have rectified the breaches following the FWO instigating court proceedings. I note the respondents have agreed to pay interest.

4. I find that the respondents, while having taken corrective action, have not expressed contrition to the extent of apologising to the employees or taking clear steps to demonstrate that they will ensure future compliance. I give this factor weight in favour of the respondents for the relatively early plea and significant weight for the rectification.

Whether the party committing the breach had cooperated with the enforcement authorities.

1. The respondents engaged with the FWO and entered into a SOAF shortly following obtaining legal representatives.

The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements

1. As discussed, the respondents have been found to have engaged in similar conduct. The evidence is limited as to the exact nature and size of the business and I note the respondents continue to operate the cleaning business as well as a restaurant business. The second respondent submits that he has engaged a part time book keeper and taken steps to engage an accountant as well as update his accounting software. The FWO submits there is no evidence of current compliance and it remains to be seen what effect there has been of engaging accounting staff.  The FWO seeks an order for an external audit.

1. In the circumstances I find it appropriate to make orders for an external audit to address the underlying issues with the business and ensure future compliance.  I am not persuaded it is open to the Court to order an audit of past payments.

The need for specific and general deterrence.

1. The respondents made no substantive submissions on deterrence. I find there is a need for specific deterrence as the first respondent continues to operate and employ staff. The FWO submits the respondent’s history of non-compliance also contributes to the need for specific deterrence and I accept that submission.  The respondents have been provided with advice from the FWO on several occasions since 2011 but continued to ignore such advice and underpay employees.

2. The FWO also made submissions on the need for general deterrence with respect to the cleaning industry as a whole, as an industry that attracts unskilled labour and vulnerable employees. The requirement to provide payslip also needs to be enforced as a means of providing employees with information as to current rate and entitlements to ensure they are being paid in accordance with awards and employment agreements

3. In the circumstances of this proceeding, I find the need for specific deterrence to be a significant factor.

Conclusion

1. In considering penalty, I must consider the penalty range for each contravention but also ensure the totality of the penalty is appropriate to the conduct.  I also take into account all of the above circumstances.

2. I find it is appropriate to impose penalties as follows:

Contravention	First Respondent	Second Respondent
1	Failure to pay Mr P and Ms S minimum hourly rates	$20,000	$4,000
2	Failure to pay casual loading	$15,000	$3,000
3	Failure to pay Saturday penalty rates	$7,000	$1,500
4	Failure to pay Sunday penalty rates	$7,000	$1,500
5	Failure to pay public holiday penalty rate	$7,000	$1,500
6	Failure to pay Mr P overtime	$10,000	$2,000
7	Failure to pay Mr P and Ms K minimum engagement period	$10,000	$1,500
8	Failure to pay on a fortnightly basis	$20,000	$4,000
9	Failure to provide payslips	$10,000	$3,000
10	Failure to keep records for Ms S	$8,000	$2,000
11	Failure to comply with Notice to Produce	$5,000	$1,000
Total	$119,000	$25,000

1. Accordingly, I order that the first respondent pay a penalty of $119,000 and the second respondent pay a penalty of $25,000.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller

Date: 21 September 2018