Fair Work Ombudsman v Domain Botanical Business Pty Ltd
[2021] FCCA 912
•12 May 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Fair Work Ombudsman v Domain Botanical Business Pty Ltd [2021] FCCA 912
File number(s): MLG 2234 of 2020 Judgment of: JUDGE BURCHARDT Date of judgment: 12 May 2021 Catchwords: INDUSTRIAL LAW – Application for declarations and penalties – statement of agreed facts but Court still required to determine discrete controversy going to the culpability of the second respondent – court not satisfied of second respondent’s denials – consideration of matters relevant to assessment of penalty – application of totality principle. Legislation: Fair Work Act 2009 (Cth) ss 44(1), 45, 90(2), 535(1), 546(1), 550, 557
Fair Work Regulations 2009 (Cth) cl 3.33(1)(b), 3.33(2), 3.34
Cases cited: A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union [2008] FCA 466
Fair Work Ombudsman v Lindsay F. Nelson Manufacturing Pty Ltd (No.2) [2020] FCCA 718
Fair Work Ombudsman v The Old Cop Shop Eatery Pty Ltd [2020] FCCA 1884
Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62
Number of paragraphs: 95 Date of hearing: 29 March 2021 Place: Melbourne Counsel for the Applicant: Mr Tracey Solicitor for the Applicant: Fair Work Ombudsman Counsel for the First Respondent: Mr Tindley Solicitor for the First Respondent: FCB Lawyers and Consultants Counsel for the Second Respondent: Mr Tindley Solicitor for the Second Respondent: FCB Lawyers and Consultants ORDERS
MLG 2234 of 2020 BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: DOMAIN BOTANICAL BUSINESS PTY LTD ACN 611 578 459
First Respondent
JAMES MCBRIDE
Second Respondent
ORDER MADE BY:
JUDGE BURCHARDT
DATE OF ORDER:
12 MAY 2021
THE COURT ORDERS THAT:
1.The form of orders to reflect the judgment delivered on this day be reserved.
2. The matter be adjourned to this Court on a date to be fixed.
REASONS FOR JUDGMENT
JUDGE BURCHARDT
This is an application by the Fair Work Ombudsman for the imposition of civil penalties on respondents, together with declaratory relief. There is a statement of agreed facts (“SOAF”) and accordingly, most of the aspects of this dispute are not contested, notwithstanding which a number of matters are quite strongly in issue. The most significant factual dispute is the extent to which the second respondent, Mr McBride, should be permitted to deflect responsibility for the course of conduct which led to the numerous contraventions of the Fair Work Act2009 (Cth) (“FW Act”) and the relevant award that are admitted by placing the substantive blame on his former advisors whom I will refer to as Blue Rock. There is a further dispute about the grouping of the contraventions and, unsurprisingly, there is a dispute about the level at which penalties should be imposed. For the reasons that follow, I do not accept Mr McBride’s version of events, I accept the FWO’s submissions in relation to grouping and I fix penalties at the level indicated at the end of this judgment.
AGREED MATTERS
There is no dispute about what one might describe as formal matters. There is no challenge to the applicant’s entitlement to bring the claim before the Court, nor as to the applicability of the Fair Work Act and the Restaurant Industry Award 2010. It is agreed that during the period assessed by the Fair Work Ombudsman, from 18 December 2017 to 17 June 2018, the first respondent admits contravening 15 civil remedy provisions as set out in paragraph 3 of the SOAF. There is no dispute that Mr McBride was involved in the operations and management of the business, including the overall management of the employees (SOAF paragraph 7(c)) and was responsible for ensuring that the company complied with its legal obligations under the Act and Fair Work Regulations (paragraph 7(d)).
It is further admitted that Mr McBride was at all relevant times, the controlling mind of the company and responsible for its overall direction, management and control (paragraph 103 SOAF); and that he aided abetted counsel or procured and/or was, by his acts or omissions, knowingly concerned in or party to, or otherwise involved with, in the meaning of section 550 of the Act, to the entitlement contraventions committed by the company.
It should be noted that during the assessment period, the company underpaid in respect of a substantial number of employees. The company underpaid a considerable number of employees a total of $53,850.20, which underpayment was rectified between 30 June 2020 and 9 July 2020 (paragraphs 101 and 102, SOAF). It is also beyond dispute that, in the course of the Fair Work Ombudsman’s investigation of the matter, in 2018 to 2019, the ombudsman felt obliged to serve no fewer than four Notices to Produce, and one failure to comply letter, one notice, and one contravention letter.
Mr Barry McDonnell, a Fair Work inspector, has deposed in an affidavit, sworn 18 September 2020 as to the widespread difficulties in the hospitality industry, including the two most common contraventions, relating to the underpayment of hourly wages, hourly rates, and the non-payment of time worked (paragraph 49 of the McDonnell affidavit). Mr McDonnell’s evidence has not been challenged. Mr McDonnell has also deposed that the investigation into the respondents in this proceeding followed widespread publicity, once again, as to non-compliance in the hospitality industry which, once again, has not been challenged.
THE PRIMARY AREA OF DIFFERENCE – THE STATE OF MIND OF MR MCBRIDE.
It is appropriate to start with what Mr McBride said in his affidavits, bearing in mind, the concessions as to his involvement with the various contraventions, and his overarching role in the company, already described in the SOAF.
In his first affidavit, relevantly, Mr McBride described the commencement of the operation of the Gilson restaurant in 2016. He deposed, at paragraph 7, to have been alerted to “an accounting firm he was familiar with, called Blue Rock. Chris presented them to me as having a specialised focus in the hospitality industry. They were an accounting business, but when I started engaging with them about how they could support the business, they presented themselves to me as being something more than this.”
Mr McBride deposed to the very extensive hours of operation of the business from its inception, something scarcely surprising, and went to assert, “having Blue Rock handle the financial side of the business was critical to me at the time.”
Having described the fact that Gilson was different from his prior, smaller, hospitality industry experience, he deposed at paragraph 11:
Blue Rock advised me that they managed payroll and so I instructed them to set up everything related to payroll for the business ensuring that we were compliant in this area. As part of their role in taking on this responsibility they advised a flat rate of pay for our lower staff. I was told by them that this is how they manage the hospitality businesses that they look after, and how their Managing Director paid his own staff in the hospitality businesses that he owned.
At paragraphs 13-14, Mr McBride deposed:
The agreement with Blue Rock commenced on 1 September 2019 (sic). My understanding of the agreement was that Blue Rock would be responsible for ensuring payroll was correct and the Domain was not exposed to any risk associated with payroll. I was of the understanding that they knew what they were doing, and would ensure staff were paid correctly. I recall receiving some updates from Blue Rock during the time they provided services to Domain, but I do not recall them advising me that I needed to monitor the amounts that staff were paid. I believed they were responsible for managing this.
As mentioned above, I was advised by Blue Rock that I could pay staff a flat rate of pay that was higher than the lowest rate in the award that applied to them, but was lower than some of the penalty rates that might apply. It was explained to me that things would balance out over time and so the staff would be better off overall when compared to the award. Blue Rock advised that they would calculate what rate the staff should be paid for me. I was asked by Blue Rock to prepare a calculation based on this. I recall providing them with this information, and they prepared for me a document calculating how much staff should be paid. Annexed and marked “JM2” is a copy of that calculation.
Under the heading Knowledge Of Issue With Payrates at paragraph 16, Mr McBride went on to depose:
The first time that I recall Blue Rock spoke to me specifically about any issue with the payrates at Domain was on 5 May 2018 when I received an email from Amy Riddell who was a director with Blue Rock. In that email Amy sought payment of an outstanding invoice and also advised that she wanted to speak to me about payroll and the industry award rates.
He continued at paragraphs 17-18:
On or around 12 June 2020 I received a call from Amy in which she advised me that we needed to move our payrates to the industry award. I recall she said to me that we couldn’t use rates we were paying anymore and needed to move across to paying strictly according to the rates in the award. She sent me an email some time after this confirming our discussion. …I realised that I needed to make the changes, but didn’t do so immediately due to being distracted by other responsibilities. I did not appreciate at the time the importance or urgency of making the changes. I didn’t realise from what Amy said to me that the way we had been paying staff was unlawful. Amy didn’t make this clear to me in the phone call or in her email. I was never told by Blue Rock that the flat rates I was paying were in any way unlawful. I thought, based on the agreement we had with them, that they would ensure the rates were correct and lawful.
At paragraphs 19-20, the affidavit Mr McBride deposed to his first meeting with inspectors from the Fair Work Ombudsman on 21 June 2018 and deposed:
I cannot recall the exact content of the discussion, but recall clearly understanding from the discussion that the way staff were being paid was wrong and needed to be corrected. The particular recollection I had was in relation to the flat rates of pay that Domain was paying.
Once I understood what the FWO inspectors had told me I was able to join the dots with what Amy had spoken to me about. Shortly after the visit from the FWO I called Nicole Donovan at Blue Rock to advise that the FWO had come into the business and told me that we weren’t paying people correctly. I told Nicole that we needed to correct this straightaway. Following our discussion, following Nicole and the team at Blue Rock made the necessary changes to payroll to ensure award rates were being paid.
The affidavit went onto depose to Mr McBride’s high value of his staff and his horror at underpaying. He said, however, and this is where the gravamen of the dispute arises, at paragraphs 23-24:
While I do feel aggrieved with Blue Rock because I believe I placed faith in them to give me the right support, I understand it is my responsibility to ensure my staff are paid correctly. I also fully accept that it was my responsibility to ensure the small number of staff members who I paid an annual salary to were paid correctly. I now fully appreciate the extent of this responsibility and will never again put myself in a position where my staff might be underpaid.
I recognise that the amounts that I have paid back to my employees are unlikely to represent the full amounts owing to all employees who worked for Domain since it opened. …I have started to look into the period before this to try to identify how much additional money is owed.
Mr McBride swore a further affidavit on 22 March 2021 in response to an outline of evidence previously filed by Ms Donovan. He took issue with a number of assertions that had been foreshadowed to be made by Ms Donovan, including that Ms Donovan had told him that he needed to be aware of the award and the relevant rates to be paid to staff prior to the Gilson starting its business (paragraph 4). He denied that Ms Donovan would suggest that Mr McBride was told to contact Blue Rock’s legal department prior to the commencement of trading of Gilson. He went on at paragraph 6 to depose that the Blue Rock legal department had been engaged and had provided advice about how staff should be paid and that Sarah Vincenzi was the lawyer so engaged.
At paragraph 7 he deposed that on 8 November 2016 he received from Sam McKeon, accountant at Blue Rock, the calculator annexed as “JM1” to the first McBride affidavit and he annexed an email in which Mr McKeon was said to advise that the calculator could be used to determine each employee’s flat rate of pay (paragraph 7). He also annexed an email from Ms Vincenzi providing advice as to individual flexibility agreements as “JM5”. He denied knowledge of what was known as “the Deputy inbuilt function” and denied foreshadowed conversations with Ms Donovan as to alleged inappropriate failure to pay penalty rates. And, put shortly, Mr McBride denied everything that it was foreshadowed Ms Donovan might allege.
Ms Donovan filed a responding affidavit affirmed on 23 March 2021. She deposed to being employed at Blue Rock from 10 October 2016 and being a senior bookkeeper then an account manager. She ceased employment with Blue Rock in March 2019.
At paragraph 13, Ms Donovan deposed to being present at a meeting before Gilson commenced trading in December 2016, with Mr McBride and various officers of Blue Rock at the meeting. She deposed that one or other of the other Blue Rock attendees:
a.telling Mr McBride that he needed to be aware of what award applies to the Business and relevant rates to be paid under the award as the Business was slightly different to another business owned and operated by Mr McBride at the time called Mammoth, which was a café whereas the Business is a restaurant.
b.Discussed with Mr McBride the use of Deputy to set up rosters and record hours worked by employees of the business.
She went on to depose at paragraph 14 that Gilson used Deputy to set up rosters and record hours and was responsible for inserting pay rates for each employee into Deputy.
Relevantly, Ms Donovan went on at paragraph 21 to depose:
In the first half of 2017, I had a conversation with Mr McBride during which I said to Mr McBride that he needed to check the right penalty rates were paid to the employees of his business. During this conversation, Mr McBride told me that he had received legal advice about this and that “he was doing the right things”.
Ms Donovan went on to depose at paragraph 22 to several occasions in 2017 and 2018 where she had allegedly emailed Mr McBride about the minimum pay rates under the award, which emails are annexed as ND1.
She went on to assert at paragraph 25 that:
In around November 2017, I expressed my concerns to the new director of Blue Rock at the time, Ms Amy Riddell (Ms Riddell) in relation to the pay rates paid by the company. I told her that I was not comfortable in continuing to process payroll for the Company as I was not sure that the rates were better off overall and that the Company was undertaking their own calculations to check whether its employees were paid enough for the time worked.
She went on to depose at paragraph 26 to Ms Riddell sending a message to Mr McBride on 12 June 2018, asserting relevantly:
as discussed we will not be able to continue processing payroll unless you move to the industry award. As you have decided to continue payroll as is unfortunately we’re not comfortable to continue with payroll as both Nicole and I are personally liable. Therefore, we agreed that the decisions to find another bookkeeper to come to work in house.
That email was annexed as ND2.
Ms Donovan went on to depose at paragraph 27 that in or around late June 2018, after Ms Donovan had become aware the FWO was conducting an investigation, she received a phone call from Mr McBride who said words to the effect of, “I’ve realised I’m not paying the correct rates. We need to change it straight away.” She went on to depose that she was aware that about that time Gilson commenced to use the Deputy in-built function. She deposed on 28 June 2018 she forwarded an email which was annexed as “ND3”.
She went on to deny that it was at any stage Blue Rock’s role to ensure that the rates paid to staff were true and correct. She deposed that the calculation provided by Sam McKeon was only an example which could be used if Gilson went down the path of an enterprise agreement which never occurred; she otherwise took issues with the matters that Mr McBride put forward.
It is worth traversing the various email exchanges between Blue Rock and Gilson. The first email, I believe, in the various exchanges is that from Peter Lalor, a director of Blue Rock, to Mr McBride, dated 30 June 2017. This enclosed a final offer from Blue Rock and said:
Here is the final offer from EI to get our clients on board for their service and putting staff on their enterprise agreement to ensure you don’t have any issues. I have also attached the payrates they pay the staff. We should chat regarding this to ensure everyone is sorted out (exhibit R3).
The documentation sent includes part of the Inn Restaurants Enterprise Agreement 2015 and contains a document marked Award Comparison, which is not, at least for me, easy to construe; and also a copy of the Inn Hospitality Pty Ltd enterprise agreement, together with payrates.
The final version of the actual engagement letter prepared for Gilson has been tendered. And I have marked it as “MFI-2”. I do not propose to traverse it in detail as it speaks for itself. I think it is clear that the primary thrust of the document was that Blue Rock would be providing bookkeeping services together with what might be described as corporate compliance with tax and other related matters.
The only aspect of the terms of engagement seem to me to touch on the question of award compliance or payrates, is under the heading Bookkeeping, which included bank reconciliations, accounts payable, but also “payroll processing including superannuation payments monthly or quarterly in Government approved super stream environment”. There was also a dot point to the effect that Blue Rock would not attend “employee queries that are over and above basic payroll enquiries”.
The contract also contained standard terms and conditions, which relevantly included item 16, “No advice we provide to you is intended to constitute or will constitute legal advice and it should not be relied upon by you as such.”
The next relevant email is from Nicole Donovan to Jamie McBride (annexure “ND-1”) dated 24 July 2017. That relevantly said, “Please see the attached Awards Rate spreadsheet that has been updated for the 2018 financial year. This shows you all the base rates and penalty rates for each employment level under the award. As discussed previously, these spreadsheets also have the ability to calculate a fixed hourly rate but please note that the BOOT (Better Off Overall Test) must be met by all employees. Any questions in relation to this, please call me.”
The next email (subject to a caveat that emerged in cross-examination, to which I shall return) is an email from Ms Donovan to a number of people at Gilsons, including Mr McBride, at 11.41 am on 1 May 2018. This relevantly asserts,
Hi Adam/Jamie,
As you have confirmed, Gilson is to be covered by the restaurant industry award 2010.
Attached is the information on this award – the description of why Gilson falls under this category and also details the classification descriptions for all staff to enable you to work out the applicable pay rates. link here (link provided).
I have also attached the award pay rate guide for your review.
A further email, sent by Ms Riddell, on 5 May 2018, is JM3 to Mr McBride’s first affidavit, which shows Ms Riddell complaining of a late payment of an account, and goes on to say, relevantly, “I will also need to discuss the situation with payroll, and the industry award rates at some point. I am on leave for two weeks, but I am hoping we can discuss when I return.”
The next email is “ND-2”, which relevantly includes Ms Riddell’s email to Mr McBride, dated 12 June 2018, which relevantly says
wages – as discussed we will not be able to continue processing payroll unless you move to the industry award. As you have decided to continue payroll as is, unfortunately we are not comfortable to continue with payroll as both Nicole and I are personally liable. Therefore we agreed that the decision is to find another bookkeeper to come work in house.”
On 28 June 2018 (“ND-3”), Ms Donovan emailed Adam Cash with a copy to Mr McBride, which provided, “Please see attached the new payrates for the Restaurant Industry Award.”
A further email, sent by Ms Riddell, on 5 May 2018, is JM3 to Mr McBride’s first affidavit, which shows Ms Riddell complaining of a late payment of an account, and goes on to say, relevantly:
I will also need to discuss the situation with payroll and the industry award rates at some point. I am on leave for 2 weeks but am hoping we can discuss when I return.”
Mr McBride’s second affidavit, annexures as “JM-4”, the email from Mr McKeon dated 8 November 2016, which relevantly asserts:
Please find attached enterprise agreement calculator, for you to determine each employee’s flat rate, based on their relevant level.
The purpose is to calculate a standard rate per employee, based on a better off overall test, as discussed.
That email was, indeed, forwarded to, amongst others, Sarah Vincenzi at Blue Rock.
Annexure “JM-5” to the same affidavit, is an email dated 28 November 2016 from Sarah Vincenzi to Randa, relevantly, saying:
Gilson:
Individual flexibility agreement (IFA) 1,
I have now uploaded to the Gilson Dropbox Folder the IFA Cover Letter, Agreement and checklist. (checklist is for your assistance only, and does not need to be provided to employees) for Gilson restaurant. All new staff should receive and sign an employment agreement, as well as an IFA, which allows us to amend the award.
THE ORAL EVIDENCE GIVEN AT COURT
What follows is taken from my notes.
Ms Donovan was called and adopted her affidavit as true and correct. Under cross-examination, she confirmed that she has sent the email ND1 – being part of exhibit ND1 at 11.41am to Mr Cash, with a copy to Mr McBride.
She was then cross-examined about another email sent on 1 May 2018 at 11 hours, 40 minutes and 53 seconds in slightly different terms (which was tendered as exhibit R1). When asked how it was possible that there were two emails sent in such a short space of time in different terms, Ms Donovan said she could not be sure. They had a policy that emails were reviewed before being sent, so it was possible that the first was a draft.
The second one seemed to have been reviewed. She could not say if she sent one or two emails. She might have sent the first one and tried to recall it. It was towards the end of her employment at Blue Rock. It might have been sent by her email address.
Ms Donovan said that Blue Rock did not advise that flat rates of pay be paid and she said she had not told Mr McBride this. She was taken to exhibit “JM-5”, to Mr McBride’s second affidavit, being the email from Sarah Vincenzi. She said she was not involved with that. When questioned about exhibit “JM-4”, being the email to Mr McBride from Mr McKeon referring to a standard rate based on the better off overall test, Ms Donovan said she had very little interaction with the respondents. There had been meetings between the respondent and Employment Innovation, but she had never dealt with them herself.
When cross-examined about paragraph 22 of her affidavit, Ms Donovan said it was an ongoing thing for herself. She wanted all clients to be doing the right thing. She had specific evidence about Gilson. She knew Blue Rock was not doing calculations of best off overall rates. She worked next to the accountants. That is where her concern came from. Her email of 30 April came after a conversation with Adam Cash. She told him about media reports about the industry and that the Fair Work Ombudsman was cracking down. It was Mr McBride who told her about legal advice.
Mr McBride was called and adopted his affidavits as true and correct. He conceded that he is the manager of the Gilson Restaurant and has no other businesses at the moment. He dealt with Blue Rock in early mid-2016 and the business started in about December 2016. It was put that he had been told he needed to know the award, but said he did not recall such a meeting taking place. It was put that Blue Rock told him of the award rates and he denied this. When it was put that he was told about the existence of the café and restaurant being different awards, he said there was no such discussion. He had multiple meetings with Blue Rock.
It was put that he had discussed Deputy software. He said that they used Deputy for rostering. He discussed with Blue Rock and put hours and the roster into the system. It was put that in June 2018, he had a discussion with Ms Donovan about converting to Deputy inbuilt function. He said he had only read this in the affidavit. He started this in June 2018 (with the Deputy inbuilt functions).
When it was put that Ms Donovan had told him to check the penalty rates, he said he could not recall. It was put that he had told her that he had had legal advice and was doing the right thing to which Mr McBride said he could not be sure. It was in 2017 he thought he was doing the right thing. He admitted he had not told Ms Donovan that he had received legal advice from Blue Rock. It was put that legal advice had not been given to him by Blue Rock but he disagreed with Ms Donovan. He conceded reading the email from Ms Donovan of 24 July 2017 being part of exhibit “ND-1”. He also conceded receiving and having read the email dated 28 June 2018 at exhibit annexure “ND-3”. He knew from then that the award rates go up every July.
He was cross-examined about his record of interview with the Fair Work Ombudsman at pages 224 and 225. He denied that he knew rates went up every July. It was put that he was misleading the inspectors but he denied this. He said he made a mistake. He still did not fully understand. He considered he could have said that they needed to change it straight away.
It was put that he was responsible for the financial side of the business assisted by Blue Rock but Mr McBride did not answer directly. He then said it was his responsibility to pay employees correctly. He was taken to the agreement with Blue Rock being annexure “BM-2”, the Blue Rock agreement. It was put that there was no mention of Blue Rock managing updates to payrates. Mr McBride said this fell under bookkeeping and payroll processing. He was taxed with standard term and condition 16 which denied legal advice. He did not agree that Blue Rock was not providing legal advice. He then volunteered that he got legal advice from Blue Rock from Sarah Vincenzi. He was taken to paragraph 13 of his first affidavit in which he essentially blamed Blue Rock for any difficulties. He said it was his responsibility but not his job. He stood by the evidence in paragraph 18 of his first affidavit in which he denied unlawful conduct. That was what he thought. He was interviewed by the Fair Work Ombudsman in February 2019 and was aware that the Ombudsman was investigating and there was a risk of underpayments. He agreed that the FWO found a contravention in November 2019. When it was put that there were no repayments until July 2020 he agreed and said this was far too long. He was also cross-examined about his concession in his first affidavit that it was probable that there were underpayments from 2016 to 2018. He agreed he had not put on any evidence yet as to his investigations. He said his accountant was working on this. There have been underpayments. He ought to be aware of this. He had not rectified any earlier underpayments. It was put that he was not sorry for his contraventions and was only sorry for what had happened to him but he said this was not correct.
CONCLUSION ON THIS ASPECT OF THE DISPUTE
I have no doubt that Mr McBride knew from a very early stage of the existence of the award. The emails sent to him from time to time make this quite clear. If one goes to annexure “BM-14” to Mr McDonnell’s first affidavit, it being the record of interview on 19 February 2019, at page 154 Mr McBride relevantly said:
Yeah, we paid yeah, flat rates, we’d say, you know, ah 25 bucks an hour, you know, whatever it might be and you’d pay that rate day in, day out… And that’s sort of the way that I’ve been – been taught, you know, in my family business, when I was a kid and that’s how I guess, the – like and I guess that’s where we want the industry to go away from, but ah, you know, it was a – it’s been a – it’s been a learning curve and a change in the industry.
At page 216 to page 218 of the court book, Mr McBride traversed the commencement of the business and I note that Randa was Randa Asi, the respondent’s first general manager. He had already said earlier on the page that the flat rates came in from Blue Rock. On page 217, he repeated that the better off overall advice came from Blue Rock 100 per cent, although, he had known by May 2018 that penalty rates might apply.
When asked about legal advice at page 234 to 235, he could not remember who had provided legal advice, but said it was a lady and that he definitely had an email from her, this being a reference, no doubt, to the email from Ms Vincenzi.
It should be noted, however, that the evidence of Rhys Davies, which has been unchallenged, at paragraph 21 of his affidavit, is that in or about early December 2017, he had a conversation with Mr McBride in which he expressly said, “What you are paying us is not what’s under the Award.. what’s the story?”, to which Mr McBride replied, “We’re a young business, inside the first year, we don’t have to meet the Award anyway. Come January, we’d switch to the Award then.”
It seems reasonably clear that Blue Rock were not contracted to provide legal advice, although some contact with Ms Vincenzi appears to have taken place. What is also clear, however, is that some of the documentation sent by Blue Rock to Mr McBride may have referenced the better off overall test and the possibility of all-inclusive rates of pay.
The difficulty I have with Mr McBride’s evidence is that, putting the matter shortly, having heard and seen him and Ms Donovan give their evidence, I believe Ms Donovan and do not believe Mr McBride. He well knew the existence of the award. He also knew of industry practice of playing flat rates of pay. I have no doubt that the materials that he received from BlueRock from time to time fitted, as it were, the path upon which he was already determined to go. His assertion that the award did not apply for a year is not grounded in any objective evidence and derives no support from any of the materials. He also told Mr Davies that they would move to the award in January 2018 and plainly failed to do so.
Whether Mr McBride was consciously, as it were, thumbing his nose at the award and the obligations it imposed or whether he simply did not care is a matter only he will know. What is clear is that Mr McBride’s adamantine insistence, made combatively in the witness box I might add, that it was in effect, all Blue Rock’s fault, is not one I am prepared to accept. Not only was it clear to Mr McBride from relatively early on that he was likely to be in breach of award obligations, he sheltered behind the apparent comfort of such documents as he was sent to maintain his position. If he was not deliberate in his breaches of the award obligations, he was, at the very least, wilfully blind to them.
Having disposed of this aspect of the controversy, it is proper to move to what is, in effect, the agreed methodology adopted by the parties.
COURSE OF CONDUCT, SECTION 557 OF THE FAIR WORK ACT
The 15 discrete contraventions of the FW Act and the award are set out in paragraph 3 of the SOAF. It is not necessary to set them out seriatim. The question initially is the extent to which they arise out of a course of conduct and should be grouped accordingly. The applicant submits that each separate discrete contravention should be assessed as a separate course of conduct because they should be treated as separate contraventions.
The respondents’ submissions take issue only with the matters at paragraph 17(a) and (b) of the FWO written submissions. These concern, first, the breaches of clause 28.2 of the award. The FWO says there are two discrete contraventions because the first respondent failed to keep records of the start and finishing times of its full time salaries employees (other than in two cases) and further, failed to carry out reconciliations with respect to full time employees. The respondents, by way of contradiction say that the obligation under clause 28.2 is a single obligation directed to ensuring employees are paid an annual salary and not disadvantaged. It is submitted (paragraph 9 of the written submissions) that the record keeping aspect, clause 28.2, is not a separate obligation, but is rather a necessary component of the obligation to conduct the reconciliation.
I would repeat what I said in Fair Work Ombudsman v Lindsay F. Nelson Manufacturing Pty Ltd (No.2) [2020] FCCA 718 at [12], as to this being essentially a matter of common sense. The outcome produced two discrete matters, even though the failure to keep proper records necessarily had the effect of a failure to reconcile. I think that these matters should not be grouped together.
The next matter raised by the Fair Work Ombudsman in this regard are the three contraventions of clause 34.1 of the award, which is submitted, relate to failure to pay separate penalty rate obligations: namely Saturday, Sunday and public holiday rates respectively. The respondents’ written submissions take issue with this matter (paragraph 12) and submit that the contraventions relate to a single term of the award and the employees were paid a flat rate of pay which was a single act which led to each of the infractions.
I do not agree with the respondents’ position. The obligation to pay penalty rates on Saturdays, Sundays and public holidays relate to discrete and different obligations. It is, in my view, inappropriate to treat them as arising under a course of conduct. It should be noted, in passing, that the Courts have decisively rejected the proposition that the Court should treat all infractions arising out of such matters as a flat rate of pay as giving rise to a course of conduct governing all of them (Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62, and the authorities referred to therein).
GROUPING AS A COURSE OF CONDUCT UNDER THE COMMON LAW
The parties agree that once the Court has applied section 557 of the Act, it is open to the Court to consider the application of the common law course of conduct principles to the contraventions, to ensure that the penalties imposed do not result in a respondent being penalised twice for substantially the same conduct.
The FWO submits that it is appropriate to treat the contraventions of clause 31.1(c) (failure to pay overtime rates to casual employees) and clause 33.1(a) (failure to pay overtime rates to full time employees) as a single contravention of section 45 as both of the award terms relate to the same conduct. The respondents accept this (paragraph 17, written submissions).
The applicant also submits that the conduct which constituted record keeping contributions contraventions involved separate failures to comply, but in recognition of some overlap, submitted that the record keeping obligations should be grouped to form one contravention under 535(1) of the Act, once again this being something the respondents accept (paragraph 18, written submissions). The respondents further submit that other matters should be grouped on the basis set out in the written submissions.
In the end, I hope it is sufficient if I make it clear that the written submissions (and both parties were essentially content to rely upon these) amply support the conclusions contended for by the applicant. The respondents’ groupings are over generalised and, in my view, fail to pay regard to the authorities. I accept, in the end, the submission of the applicant (paragraph 10(a) of the reply submissions) that while there is a superficial and attractive quality to the notion that the failure to keep records and the failure to reconcile arise out of the same course of conduct, in the end, the fact that they involved differing and discrete breaches in respect of particular employees (a matter not itself in issue) means that they should not, in the ultimate, be grouped. There are accordingly 14 groups of contraventions as set out in annexure B to the applicant’s written submissions.
This necessarily means that the maximum penalties that could be imposed are $882,000 for the first respondent and $176,400 for Mr McBride.
ASSESSMENT OF APPROPRIATE PENALTIES
The parties, once again, are broadly agreed as to the methodology, albeit not as to the outcome. The first matter both parties deal with is the nature, extent and circumstances of the contravening event. The respondents’ submissions, at paragraph 24, assert that the underpayment contraventions arose in three ways. First, the respondent paid hourly rate employees a flat rate of pay. The second, the first respondent paid annualised salaries to some salaried employees that did not sufficiently compensate those employees for their hours worked. Third, the first respondent failed to pay some employees in respect of annual leave entitlements.
Unsurprisingly the written submissions of the applicant place the matter slightly differently by referring to the flat rates of pay paid and the fact that this was insufficient to meet minimum rates, casual loading, Saturday rates, Sunday rates and public holidays rates under the award. The first respondent also did not pay employees (with one exception) evening or morning penalty rates even though this occurred in circumstances where the employees worked a variety of days and shifts. The applicant notes that the highest individual owed a payment of $4030.18 to a single employee Manish Adikar amounted to 30 per cent of his entire wage entitlement for the assessment period.
Each set of written submissions necessarily places emphasis on certain aspects of the matter that purport to either increase or decrease the culpability of the respondents.
What seems to me to be most relevant is that the underpayments amounted to $53,000 over a fairly short period. It is accepted by the respondents that other underpayments occurred before the assessment period but as I find the respondent has done little if anything to address those earlier matters. The underpayments (leaving aside overpayments here and there) were paid to persons who were working in many cases as casuals and in an industry in which it is notorious that underpayments are frequent, although this is a matter to be returned to under general deterrence.
To the extent that it is necessary to do so I find that the conduct of the respondents, of course identified through the state of mind of Mr McBride, were at the very least wilfully blind to the obligation to comply with the award, even though Mr McBride well knew that the award existed, and knew from an early stage that the award provided for a number of penalty rates which the respondents in effect ignored.
The failure to keep appropriate records of time is likewise significant and pervasive.
I note that it is accepted that Mr McBride cannot blame Blue Rock for his underpayments to salaried employees. All of this is part and parcel of the insouciant (at the very best) attitude of the respondents to their obligations under the Act and the award.
I appreciate these comments are being made at some level of generality but I would refer to with respect and adopt the reasoning of Giles J in A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union [2008] FCA 466 at [6] where his Honour said, relevantly:
However, the discretion is at large. There are no mandatory statutory criteria and it is wrong to regard factors seen as relevant by one court as statutory criteria. Indeed, lists of factors can confuse an essentially straightforward task and lead to over-elaborate reasoning
These were in my view significant underpayments and I refer again to the evidence of Mr Davies. Mr McBride must have known by December 2017 that what he was doing was in contravention of the award.
So far as the recording keeping contraventions were concerned, it is absolutely apparent that company’s conduct was inadequate and this self-evidently has made the question of rectification more difficult. The same can properly be said of the meal break contraventions as well for the reasons set out in the applicant’s written submissions.
I note that during the assessment period over half of the employees underpaid were visa holders and came from non-English speaking countries and 14 were 25 years or younger with the youngest being 19 years old. Many were casuals. Their vulnerability is in my view a relevant consideration.
Cooperation, Contrition and Corrective Action
Although the parties, as the respondents’ written submissions assert “fundamentally disagree” about this aspect of the matter, in my view the overall picture is reasonably clear. First, it should be noted that the applicant accepts that the first respondent cooperated in the investigation by providing various records in response to notice to produce and attending a voluntary recorded interview and by making full admissions, and entering into a statement of agreed facts. Unlike the respondents, I accept that Mr McBride’s attempts (ultimately unsuccessful) to place the blame, essentially, on Blue Rock counts as a countervailing factor. However, it should also be noted, and I bear in mind, that a party is not to be penalised for, as it were, pleading not guilty (to use an analogy from the criminal law sphere). The fact that Mr McBride has tried to blame Blue Rock and I do not accept his explanation does not mean that any greater penalty should be imposed. It is simply that Mr McBride does not get the additional mitigation, so to speak, that might have arisen, had I accepted that evidence.
It is agreed that the company undertook corrective action, but I accept there was a lengthy period before this took place, and I note Mr McBride’s affidavit evidence, as to his delay and failure to address this issue.
Involvement of Senior Management
While, of course, Mr McBride was senior management for all relevant purposes, this needs to be seen in context. This was not some huge corporation, with multiple tentacles. It was a single restaurant in which Mr McBride was, effectively, the owner and manager. I bear in mind his seniority and responsibility, but in my opinion, in the particular circumstances of this case, it adds little.
Similar Previous conduct
There is none alleged.
Need to Ensure Compliance with Minimum Standards
It is sufficient to say that I accept the applicant’s submissions as to this important matter. The safety net is, as the written submissions assert, “of particular importance in a competitive service industry, such as the restaurant industry, where the underpayment of wages can provide a competitive advantage” (paragraph 50, written submissions). I also accept the submission that proper record keeping is the bedrock of compliance with workplace laws and this is a matter that I take into account.
Specific Deterrence
The applicant submits that Mr McBride’s lack of proper contrition points to a need for specific deterrence. I confess I found Mr McBride’s evidence unpersuasive, albeit that the questions put to him were closed questions which gave him little opportunity to expand more fully. I think it is more probable than otherwise that the outcome of this decision is likely to deter Mr McBride in the most potent way from any further repetition.
General Deterrence
General deterrence is important in this industry. The matters referred to in paragraphs 57 to 60 of the applicant’s written submissions are plainly cogent and I accept the observation by one of my fellow judges that this industry is one that is notorious for underpayment to staff (Fair Work Ombudsman v The Old Cop Shop Eatery Pty Ltd [2020] FCCA 1884 at [36]). General deterrence is plainly important.
Size and Financial Capacity of the Business.
This is not a large business, and that is a relevant consideration, but the scale and scope of the underpayments is important. There is no direct evidence of the particular circumstances of the first or second respondent, although I accept that during the recent COVID difficulties, business is highly likely to have been significantly affected. It is worth remembering, however, that it is not the Court’s task to match the imposition of an appropriate penalty simply with the capacity of the respondent to pay it.
THE OUTCOME OF THESE COMPETING CONCLUSIONS
The submissions of the applicant suggest that a maximum discount of 20 per cent should be provided in respect of the cooperation provided by the respondents. The respondents submit that the discount should be 50 per cent. Although it is not expressed in terms in the body of the written submissions, the methodology adopted by the applicant is to apply the 20 per cent discount to the maximum applicable penalty and then set a penalty which incorporates the application of the totality principle.
The sums recommended by the Fair Work Ombudsman by way of individual penalties vary from matter to matter, but vary between approximately 15 and 50 per cent of the applicable maximums. The respondents, who have grouping of contraventions that obviously produce a lower total number of contraventions, suggest outcomes in the range of approximately 10 to 30 per cent. Taken cumulatively, the applicant’s proposed total for the first respondent, including a 25 per cent reduction on the totality principle, produced total of $170,100 to $223,000 for the first respondent and $34,020 to $44,604 for the second respondent. The respondents’ countervailing figures are $51,900 for the first respondent and $10,380 for the second respondent.
It’s important to remember that the totality principle is something that applies separately from all the other considerations. I think (as a matter of impression) that the range proposed by the applicant is not, as the respondents submit, inappropriate, but appears to reflect the significance of the respondents’ multifarious breaches of their various obligations.
These observations however must be qualified by the fact that with the greatest of respect I am not able to follow the methodology set out in the applicant’s outline of submissions on penalty. In these circumstances, regrettably, and accepting that the failure to comprehend will doubtlessly emerge to be wholly a betise on my part, the matter will need to be re-listed for short further argument. It will be important however to pay proper attention to a methodology which first produces a set of figures and then to apply the totality principle to it.
That brings us to the operation of the totality principle.
TOTALITY PRINCIPLE
The totality principle, as the submissions of both parties acknowledge, involves the Court taking a final look at the aggregate penalty and applying the totality principle to determine whether it is an appropriate response to the respondents’ conduct and to ensure that it is not oppressive or crushing. Nonetheless, the approach must reflect the nature of the respondent’s conduct. I accept the written submission of the applicant at paragraph 67 that:
it may be appropriate in this case to apply a reduction for totality, given the number of different contraventions and the cumulative effect of the penalties proposed for each separate contravention of each Respondent, and the effect upon the business of recent adverse trading conditions.
These matters are matters of judgment and discretion. I note that the penalties proposed by the respondent amount to less, even for the first respondent, than the total of underpayments. This is manifestly inappropriate.
The penalties to be imposed must reflect the seriousness of the conduct, and the seriousness of the outcomes to which it gave rise, most particularly, for the employees who were underpaid. The quantification of discount to be applied under the totality principle will necessarily have to await the quantification of the penalties that will otherwise be proposed.
The applicant’s written submissions append what are described as agreed declarations and orders. I have not been addressed as to whether declarations are appropriate. There is a wealth of authority as to the question of declarations, and it is, perhaps, sufficient to observe that the Court needs to be satisfied that declarations are appropriate. I have prepared draft declarations and orders but will wish to hear from the parties before making any final declaratory relief
I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Burchardt. Associate:
Dated: 12 May 2021
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