Fair Work Ombudsman v David Mayne Pty Ltd

[2018] FCCA 856

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v DAVID MAYNE PTY LTD & ANOR [2018] FCCA 856

Catchwords:
INDUSTRIAL LAW – Fair Work Act 2009 – Penalty hearing – failure to pay penalty rates – overseas backpackers.

Legislation:

Fair Work Act 2009 (Cth), s.550

Applicant: FAIR WORK OMBUDSMAN

Respondent: DAVID MAYNE PTY LTD & ANOR

File Number: DNG 19 of 2017

Judgment of: Judge Young

Hearing date: 20 February 2018

Date of Last Submission: 20 February 2018

Delivered at: Alice Springs

Delivered on: 20 February 2018

REPRESENTATION

Counsel for the Applicant: Ms Haig

Solicitors for the Applicant: Office of the Fair Work Ombudsman

Counsel for the Respondent: In Person

IT IS DECLARED:

1. That the First Respondent contravened the following provisions of the Fair Work Act 2009 (‘FW Act’):

   (a)Count 1: section 45 of the FW Act, by failing to pay the Sunday Penalty Rate to the Employees listed in Column A of Table 1 in Annexure A pursuant to clause 32.1 of the Hospitality Award:

   (b)Count 2: section 45 of the FW Act, by failing to pay the Public Holiday Rate to the Employees listed in Column B of Table 1 in Annexure A pursuant to clause 32.1 of the Hospitality Award;

   (c)Count 3: section 45 of the FW Act, by failing to pay the Weekday Overtime Rate to the Employees listed in Column C of Table 1 in Annexure A pursuant to subclause 33.3(a)(i) of the Hospitality Award; and

   (d)Count 4: section 45 of the FW Act, by failing to pay Broken Work Allowance to the Employees listed in Column D of Table 1 in Annexure A pursuant to clause 21.3(a) of the Hospitality Award.

2. That the Second Respondent was involved in each of the First Respondent’s contraventions as set out in paragraph 1 above, within the meaning of section 550(2) of the FW Act.

ORDERS:

1. The First Respondent is to pay penalties, pursuant to section 546(1) of the FW Act, in the total amount of $ 48,320 which is made up of:

   (a)Count 1: a penalty of $8,640 in respect of the Company’s contravention of section 45 of the FW Act, by failing to pay the Sunday Penalty Rate to the Employees as prescribed by clause 32.1 of the Hospitality Award;

   (b)Count 2: a penalty of $17,280 in respect of the Company’s contravention of section 45 of the FW Act, by failing to pay the Public Holiday Rate to the Employees as prescribed by clause 32.1 of the Hospitality Award;

   (c)Count 3: a penalty of $21,600 in respect of the Company’s contravention of section 45 of the FW Act, by failing to pay the Weekday Overtime Rate to the Employees as prescribed by subclause 33.3(a)(i) of the Hospitality Award; and

   (d)Count 4: a penalty of $800 in respect of the Company’s contravention of section 45 of the FW Act, by failing to pay Broken Work Allowance to the Employees as prescribed by clause 21.3(a) of the Hospitality Award.

2. The Second Respondent is to pay penalties, pursuant to section 546(1) of the FW Act, in the total amount of $8,456 which is made up of:

   (a)Count 1: a penalty of $1,512 in respect of his involvement in the First Respondent’s contravention of section 45 of the FW Act, by failing to pay the Sunday Penalty Rate to the Employees as prescribed by clause 32.1 of the Hospitality Award;

   (b)Count 2: a penalty of $3,024 in respect of his involvement in the First Respondent’s contravention of section 45 of the FW Act, by failing to pay the Public Holiday Rate to the Employees as prescribed by clause 32.1 of the Hospitality Award;

   (c)Count 3: a penalty of $3,780 in respect of his involvement in the First Respondent’s contravention of section 45 of the FW Act, by failing to pay the Weekday Overtime Rate to the Employees as prescribed by subclause 33.3(a)(i) of the Hospitality Award; and

   (d)Count 4: a penalty of $140 in respect of his involvement in the First Respondent’s contravention of section 45 of the FW Act, by failing to pay Broken Work Allowance to the Employees as prescribed by clause 21.3(a) of the Hospitality Award.

3. Pursuant to section 546(3)(a) of the FW Act that, within 28 days, the First Respondent and Second Respondent will pay any pecuniary penalties imposed to the Commonwealth.

4. Pursuant to subsection 545(1) of the FW Act the Second Respondent is, within 28 days, to:

   (a)register with the Fair Work Ombudsman’s “My Account” portal at and complete the profile including the Award options;

   (b)provide to the Fair Work Ombudsman his “My Account” registration number; and

   (c)register with the Fair Work Ombudsman’s Online Learning Centre at and complete all education courses designed for employers and provide the Applicant with evidence of completion of those courses within a further one month.

5. The Fair Work Ombudsman has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT ALICE SPRINGS

DNG 19 of 2017

FAIR WORK OMBUDSMAN

Applicant

And

DAVID MAYNE PTY LTD & ANOR

Respondent

REASONS FOR JUDGMENT

Ex Tempore

1. These reasons for judgment were delivered orally. They have been corrected from the transcript. Grammatical errors have been corrected and an attempt has been made to render the orally delivered reasons amenable to being read.

2. This is a penalty hearing under the Fair Work Act (‘the Act’). The respondents have admitted the contraventions. The contravened award is the Hospitality Award. The terms of the award breached are failure to pay:

   (a)     Sunday penalty rates under clause 32.1 of the Award.

   (b)    Public holiday rates under clause 32.2 of the Award.

   (c)     Week day overtime rates under clause 33.3(a) of the Award.

   (d)    A broken work allowance under clause 21.3(a) of the Award.

3. The second respondent, Mr Andrew Mayne, has been involved in the contraventions and pursuant to section 550 of the Act is treated as having contravened the provisions.

4. The respondent corporation owns and operates the Barkly Homestead, which offers accommodation, a caravan park, restaurant and bar.  It is situated between Tennant Creek and Camooweal. I am satisfied it is a family owned company and a successful and profitable one on the basis of the submissions made to me by Mr Mayne.

5. In my view, it is a small to medium sized business.  The second respondent, Mr Mayne, is the son of one of the principal shareholders and he, Mr Mayne, is the holder of an “E” class share himself, according to the company search attached to the affidavit of one of the witnesses.  The entitlements of an “E” class shareholder were not in evidence, so I do not know precisely what entitlement Mr Mayne may have as the holder of one “E” class share.  There were nine “E” class shares and something in the region of 220 ordinary shares.

6. Nevertheless, Mr Mayne is the manager of the business and responsible for its day-to-day operations and has been, I understand, for some years and was, it is conceded, responsible for the day-to-day operations of the business at the time of the breaches of the award. The applicant, the Fair Work Ombudsman, conducted an audit of businesses in the hospitality industry in the region in 2015 and 2016. The audit revealed that the company had underpaid 17 employees by a failure to pay overtime rates. There was a relatively minor failure in respect of a broken work allowance.

7. The underpayments total $23,753. The employees affected were mostly employed under subclass 417 visas. They were employed, in other words, on a working holiday. In colloquial terms, they were mostly overseas backpackers. The circumstances of the underpayment were somewhat controversial. Mr Mayne, who admitted he was responsible for the pay arrangements at the relevant time, said that he simply overlooked the employer’s obligations due to pressure of work in the business.

8. I have some difficulty accepting that the breaches were the result of inadvertence. In 2010, the business, perhaps not Mr Mayne personally, but certainly the business, and Mr Mayne was aware of this, sought advice from an HR consulting firm who gave some advice, in particular, about the concept of an annualised salary, which would, according to the advice that the respondents received, permit the identification of a flat hourly rate which would be based on an annual salary, including overtime.

9. It was not in evidence precisely how that was to be calculated but it was not in question that such an annualised salary calculation was permissible under the award. Essentially, as I understood the advice from the HR consulting firm, it involved the payment of a 25 per cent loading or a 25 per cent additional amount on top of an employee’s entitlements. Mr Mayne said that he took the hourly rate that was suggested by the HR consulting firm and simply applied it to the employees and increased it over the years according to CPI increases, as advised from time to time by the local branch of the Australian Hotels Association, of which the respondent company is a member.

10. The HR consulting firm provided a draft contract reflecting the proposed arrangement of an annualised salary. The draft contract provided by the HR consulting firm, which was in evidence, did not provide for overtime rates. In fact, the respondent did not use the proposed form of contract, but instead used a standard form, or template contract, for it employees, including the subject employees, and that standard or template contract, while in broad outline following the proposed contract proffered by the HR consulting firm, differed from it in that it expressly promised employees they would be paid overtime in accordance with the relevant award.

11. It is clear, I think, from that that the proposal of the consultants to create an annualised salary arrangement that would comply with the award was rejected and the employer decided to apply, or at least said it would apply, award hourly rates. Given that the contracts for the subject employees expressly provided for award rates, I do not accept that the employer could have reasonably thought it had some other obligation. The contracts used by the employer provided for an ordinary hourly rate of $19.21.

12. In fact, this was paid as an hourly rate for all work, including overtime, in contravention of the award.  I consider that the underpayments were the result of at least recklessness, and by that I mean I am satisfied that there was a deliberate failure to inquire about and implement the provisions in the employee contracts that required the application of the award in relation to overtime rates. 

13. The penalty considerations that I take into particular account are as follows:

    (a)The applicant acknowledged the respondents cooperated and proposed a 20 per cent reduction in the penalty that would otherwise be imposed for that cooperation.

    (b)Given that there is a statement of agreed facts and given that there has been an admission of the contraventions, I am satisfied that a 20 per cent deduction for cooperation at least is appropriate.

14. Another factor that I take into account is there has been repayment of the underpayments for most employees by the respondent corporation. Three of those employees have not been located and, in consequence, the underpayments have been paid to the Fair Work Ombudsman who will hold that money on trust, I assume, until and if those employees can be located. As I mentioned before, I consider the enterprise to be small to medium in size. There is no evidence about the precise number of employees of the respondent company but it is clear from the fact that there were 17 underpaid employees that it is an enterprise of some size.

15. I am also satisfied that it is profitable and successful and I am satisfied that the penalty proposed by the applicant is in conformity with the size and profitability of the respondent company. I also have to take into account the issue of deterrence, both general and specific. A civil penalty under the Fair Work Act is imposed primarily to achieve general deterrence. There is evidence of a high incidence of underpayment of entitlements in the hospitality industry and I consider that the underpayment of minimum standards, or the failure to comply with minimum standards, undermines the safety net that is one of the objects of the Act set out in section 3.

16. Another factor is that underpayments provide a competitive advantage for an underpaying employer and, to that extent, it upsets the level playing field and disadvantages enterprises that comply with minimum standards. Those factors are perhaps the most important ones, in my view, in imposing any penalty. In relation to specific deterrence, I accept Mr Mayne’s submission that the arrangements for the payment of employees have changed to ensure compliance. The company has taken advice from another HR consultant and Mr Mayne told me that he has implemented a system where employees are paid as casuals and paid casual rates plus award overtime.

17. It is also clear, nevertheless, that this enterprise will continue to employ people like these 17 employees, that is, people on working holidays, primarily from overseas. I am satisfied that a message needs to be given that these workers are as entitled to the same protection of minimum standards as an Australian worker. The applicant has set out some proposed penalties. In relation to the corporation, I consider that the proposed penalties are appropriate in all the circumstances and, indeed, I consider the proposals to be relatively lenient.

18. The maximum penalty for a corporation for each of these contraventions is $54,000, so the total fine that might be applicable in this situation to the admitted contraventions is some $216,000. The Fair Work Ombudsman proposes, in relation to the failure to pay Sunday penalties, that there be a penalty of 20 per cent of the maximum reduced by a further 20 per cent to acknowledge cooperation. The result of that is that for the failure to pay Sunday penalties, the proposal is a fine of $8,640.

19. As I have said, I consider each of the proposals and the approach adopted by the applicant to be appropriate and I intend to impose penalties in conformity with that submission. So in relation to, if I can call it that, count 2, the failure to pay public holiday penalties, the proposal is that there ought to be a fine of 40 per cent of the maximum with a reduction of a further 20 per cent to acknowledge cooperation. That produces a figure of $17,280. In relation to count 3, failure to pay week day overtime, the proposal is that the penalty should be 50 per cent of the maximum, again reduced by 20 per cent to acknowledge cooperation, which gives a figure of $21,600.

20. In relation to failure to pay the broken work allowance, which has seen quite modest losses to the employees, the proposed penalty is simply $1,000 with a deduction of 20 per cent to acknowledge cooperation, which gives $800.  The total figure is, therefore, $48,320. 

21. In relation to Mr Mayne personally, the applicant followed a similar approach. The maximum penalties for each of the four counts for an individual are $10,800, so the maximum penalty that could be imposed is $43,200. Applying the same discounts, that is, a 20 per cent discount on the first count, 40 per cent on the second count and 50 per cent on the second count, and a nominal amount for the broken work allowance, the applicant proposes that there be a 20 per cent discount for cooperation.

22. I consider that a more appropriate discount, not only to take into account cooperation but the fact that I am not satisfied that Mr Mayne has directly and personally profited from the contraventions, is 30 per cent.  The then result will be that the penalties imposed on Mr Mayne in relation to count 1 are $1,512, count 2, $3,024, count 3, $3,780 and for count 4, $140.  The total is $8,446. 

23. I have set out the affected employees and the penalties imposed in the table at Annexure A to these reasons for judgment.

ANNEXURE A

Table 1: List of Employees

A	B	C	D
Count 1	Count 2	Count 3	Count 4
Kristen Ahloy	Kristen Ahloy	Kristen Ahloy	Alexander Deller
Rachelle Arsenault	Rachelle Arsenault	Rachelle Arsenault	Charlotte Fleming
Linnea Blom	Aeri Cho	Linnea Blom	Amanda Kerr
Aeri Cho	Alexander Deller	Aeri Cho
Alexander Deller	Charlotte Fleming	Alexander Deller
Charlotte Fleming	Anthony Gregory	Charlotte Fleming
Anthony Gregory	Emma Holden	Anthony Gregory
Emma Holden	Pei Chi Huang (Page)	Emma Holden
Pei Chi Huang (Page)	Amanda Kerr	Pei Chi Huang (Page)
Amanda Kerr	Seunghee Kim (Chloe)	Amanda Kerr
Seunghee Kim (Chloe)	Lucas Snel	Seunghee Kim (Chloe)
Yi Hsuan Lin (Eva)	Wan Ting Tai (Sugar	Yi Hsuan Lin (Eva)
Leanna Radford	Yun Wen Tsai (Coreen)	Leanna Radford
Lucas Snel	Lucas Snel
Wan Ting Tai (Sugar)	Wan Ting Tai (Sugar)
Yun Wen Tsai (Coreen)	Yun Wen Tsai (Coreen)
Rachael Ward	Rachael Ward

Table 2 –Penalties (the Company)

Contraventions		Maximum Penalty	Proposed Penalty (%)	Proposed Penalty ($)	Penalty (including 20% discount)
1	Failure to pay Sunday penalties	$54,000	20%	$10,800	$8,640
2	Failure to pay public holiday penalties	$54,000	40%	$21,600	$17,280
3	Failure to pay overtime (Monday to Friday)	$54,000	50%	$27,000	$21,600
4	Failure to pay broken work allowance	$54,000	Nominal amount	$1,000	$800
Total		$216,000	$60,400	$48,320

Table 3 –Penalties (Mr Mayne)

Contraventions		Maximum Penalty	Proposed Penalty (%)	Proposed Penalty ($)	Penalty (including 30% discount)
1	Failure to pay Sunday penalties	$10,800	20%	$2,160	$1,512
2	Failure to pay public holiday penalties	$10,800	40%	$4,320	$3,024
3	Failure to pay overtime (Monday to Friday)	$10,800	50%	$5,400	$3,780
4	Failure to pay broken work allowance	$10,800	Nominal amount	$200	$140
Total		$43,200	$12,080	$8,456

I certify that the twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Young

Associate: 

Date:  10 April 2018