Fair Work Ombudsman v Easy Vaping Company Pty Ltd
[2024] FedCFamC2G 66
•2 February 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Easy Vaping Company Pty Ltd [2024] FedCFamC2G 66
File number(s): SYG 516 of 2022 Judgment of: JUDGE OBRADOVIC Date of judgment: 2 February 2024 Catchwords: FAIR WORK – PENALTY – Cashback arrangement- Where employee required to pay back to employer part of wages – Employee deprived of benefit of wages – Company sponsoring employee’s visa – Admissions as to contraventions – Corrective action taken – Penalty imposed Legislation: Corporations Act 2001 (Cth)
Fair Work Act 2009 (Cth)
Migration Regulations 1994 (Cth)
Cases cited: Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union [2018] HCA 3
Australian Meat Industry Employees Union v Dick Stone Pty Ltd (No 2) [2022] FCA 1263
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8
Banks & Banks [2015] FamCAFC 36
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46
CPSU v Telstra Corporation Ltd [2001] FCA 1364
Fair Work Ombudsman v AJR Nominees Pty Ltd (No.2) [2014] FCA 128
Fair Work Ombudsman v Bosen Pty Ltd [2011] VMC 81
Fair Work Ombudsman v Promoting U Pty Ltd & Anor [2012] FMCA 58
Fair Work Ombudsman v Rubee Enterprises Pty Ltd [2016] FCCA 3456
Kelly v Fitzpatrick [2007] FCA 1080
Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249
Trade Practices Commission v CSR Ltd [1990] FCA 521
Division: Division 2 General Federal Law Number of paragraphs: 52 Date of last submission/s: 29 January 2024 Date of hearing: On the papers Place: Parramatta Solicitor for the Applicant: Mr Wright of the Office of the Fair Work Ombudsman Solicitor for the Respondents: Ms Ticehurst of Active Law Pty Ltd
Table of Corrections 5 February 2024 From the heading “CONSIDERATION” the paragraph numbers have been corrected so that they are continuous throughout the Reasons for Judgment. ORDERS
SYG 516 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: THE EASY VAPING COMPANY PTY LTD (ACN 607 944 436)
First Respondent
KATE DILLON CHAN
Second Respondent
EDWARD CHAN
Third Respondent
ORDER MADE BY:
JUDGE OBRADOVIC
DATE OF ORDER:
2 FEBRUARY 2024
THE COURT ORDERS THAT:
1.Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (“FW Act”):
(a)The first respondent pay a pecuniary penalty of $26,775 to the Commonwealth within 28 days of this order for its contraventions of s.325(1) of the FW Act declared on 3 April 2023;
(b)The second respondent pay a pecuniary penalty of $5,355 to the Commonwealth within 28 days of this order for her involvement in the first respondent’s contravention of s.325(1) of the FW Act declared on 3 April 2023; and
(c)The third respondent pay a pecuniary penalty of $5,355 to the Commonwealth within 28 days of this order for his involvement in the first respondent’s contravention of s.325(1) of the FW Act declared on 3 April 2023.
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
JUDGE OBRADOVIC:
On 3 April 2023, the Court made declarations:
(a)That the first respondent, The Easy Vaping Company Pty Ltd (“Easy Vaping”), contravened s.325(1) of the Fair Work Act 2009 (Cth) (“Act”); and
(b)That the second respondent, Kate Dillon Chan (“Ms Chan”), and the third respondent, Edward Chan (“Mr Chan”), were involved in the contravention within the meaning of s.550(2) of the Act.
The contravention relates to Easy Vaping unreasonably requiring a former employee, Mr Xu Hong (“Mr Hong”), to pay back part of his salary.
These are the Reasons for Judgment in respect of the penalty to be imposed on the respondents in respect of these matters.
RELEVANT BACKGROUND
Easy Vaping is, and was at all relevant times, a company incorporated under the Corporations Act 2001 (Cth), registered since 30 August 2015. It operates a business trading as ‘Easy Vape Distribution’ and ‘Easy Vape Australia’ distributing vape products.
Ms Chan is, and was at all relevant times, the sole director and shareholder of Easy Vaping. She is responsible for the operation, management, and control of Easy Vaping, the engagement of Mr Hong on behalf of Easy Vaping, and for ensuring that Easy Vaping complies with its legal obligations under the Act.
Mr Chan is, and was at all relevant times, the operations and finance manager of Easy Vaping. He is responsible for the operation, management, and control of Easy Vaping, and for ensuring that Easy Vaping complies with its legal obligations under the Act.
The applicant brought these proceedings in its role as a Fair Work Inspector and pursuant to s.539(2) of the Act on behalf of the employee Mr Hong. Those proceedings were commenced by way of an Originating Application and Statement of Claim, both filed on 6 April 2022.
The employee, Mr Hong, was employed by Easy Vaping on a full-time basis as a marketing specialist pursuant to a written agreement dated 15 March 2017. Mr Hong was, in the period of 12 July 2017 to 19 March 2018 (“the relevant period”), a ‘national system employee’ within the meaning of s.13 of the Act, a foreign national from China, and permitted to work in Australia under a Temporary Work (Skilled) (subclass 457) visa (“457 visa”) sponsored by Easy Vaping.
From January 2017 until on or around 20 June 2017, Easy Vaping paid Mr Hong a flat rate of $22 (gross) per hour. In or around April 2017, the Australian Government’s policy for 457 visas, pursuant to reg.2.72 of the Migration Regulations 1994 (Cth), required Mr Hong to be paid the annual market salary rate of $65,000 per annum for his occupation. From around 21 June 2017 to 23 June 2020, Easy Vaping paid Mr Hong in accordance with the regulation, equating to a rate of $32.89 (gross) per hour. Easy Vaping paid Mr Hong by electronic funds transfer, withheld a tax amount from each payment, and gave Mr Hong payslips in respect of each payment. On 3 July 2017, Easy Vaping paid Mr Hong $5,036.80 as back-pay to affect the implementation of the rate of $32.89 (gross) per hour from 29 March 2017.
During the relevant period, Easy Vaping required Mr Hong to pay back the difference between his original salary of $22 (gross) per hour and the increased salary of $32.89 (gross) per hour. In or around April 2017, this arrangement (“Cashback Arrangement”) was communicated to Mr Hong by either Ms Chan or Mr Chan. Easy Vaping represented to Mr Hong that it would sponsor his 457 visa, that Easy Vaping was unable to afford to pay Mr Hong the $65,000 minimum salary, and that Mr Hong will have to pay the difference.
In accordance with the Cashback Arrangement, Mr Hong paid Easy Vaping cash amounts for the relevant period. Mr Hong asserts he paid back amounts between $1,000 and $2,000 at a time and totalling $13,000. The respondents assert that they do not have any records of the payments but estimate a total between $5,000 to $6,000 was paid back.
For the relevant period, the Cashback Arrangement was:[1]
[1] Statement of Agreed Facts filed 18 January 2024 at [29].
(a)unreasonable in the circumstances, on the basis that:
(i)the Cashback Arrangement deprived Mr Hong of the benefit of his minimum entitlements;
(ii)the Cashback Arrangement resulted in Mr Hong being paid less than his entitlements for the work that he performed in the relevant period; and
(iii)it was not Mr Hong’s role or responsibility to assist with the Company’s purported financial difficulties; and
(b)directly or indirectly for the benefit of the Company on the basis that:
(i)Mr Hong paid the Cashback Amounts directly to Mr Chan in Mr Chan’s capacity as an employee of the Company;
(ii)the Cashback Arrangement resulted in the creation of false payroll records; and
(iii)the false payroll records created, as set out at paragraph 29(b)(ii) above, enabled the Company to represent that it was meeting the minimum requirements of Mr Hong’s 457 Visa.
On 10 February 2021, Natalie Barney, acting in her capacity as a Fair Work Inspector, issued a Findings of Contravention Letter to Easy Vaping. The letter identified a contravention of s.325(1) of the Act and required Easy Vaping to rectify the contravention by paying $13,000 (gross) to Mr Hong by 31 March 2021. On 31 March 2021, Easy Vaping paid Mr Hong the sum of $13,000.
Ms Chan and Mr Chan, through each of their acts, were each intentional participants in the factual matters comprising of Easy Vaping’s contravention. They were involved in Easy Vaping’s contravention within the meaning of s.550(2) of the Act.
PARTIES’ SUBMISSIONS
For determination of the issue of penalty, both the applicant and respondents rely on the Statement of Agreed Facts filed on 18 January 2024 and their written submissions. The Court has read and considered carefully all of the submissions which the parties make. Consideration does not however, mean discussion. The absence of discussion of the detail of each submission made does not reflect any failure to consider it.[2]
[2] Banks & Banks [2015] FamCAFC 36.
The parties agree and propose to the Court that an appropriate penalty range is between 40-50% of the maximum penalty, with a 15% discount for admissions. This equating to a penalty of between $21,420 to $26,775 as against Easy Vaping, and between $4,284 and $5,355 each as against Ms Chan and Mr Chan.
CONSIDERATION
Principles Relevant to the Determination of Penalty
The primary purpose of a pecuniary penalty is to promote the public interest in compliance. It is “to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act.”[3] The “price” must be such that it is not regarded by the contravener as an “acceptable cost of doing business.”[4]
[3] Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 (“FW Building Industry Inspectorate”) at [55], citing Trade Practices Commission v CSR Ltd [1990] FCA 521.
[4] FW Building Industry Inspectorate at [55] and [110], citing Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249.
The greater the impact of the penalty on the contravener, the more potent will be the example that the penalty sets for other potential contraveners. Likewise, it will be more likely that the contravener will seek to avoid the risk of subjection to further penalties and be deterred from further contravention.[5]
[5] Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union [2018] HCA 3 at [116].
Penalties should however be just and appropriate,[6] and a penalty should not be oppressive or crushing.[7]
[6] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 (“McAlary-Smith”) at [95] citing CPSU v Telstra Corporation Ltd [2001] FCA 1364.
[7] Kelly v Fitzpatrick [2007] FCA 1080 (“Kelly”) at [30].
Factors Relevant to Penalty
The relevant factors going to penalty have been identified as follows:[8]
[8] Kelly at [14] adopting Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7 at [26]-[59].
(a)The nature and extent of the conduct which led to the breaches;
(b)The circumstances in which that conduct took place;
(c)The nature and extent of any loss or damage sustained as a result of the breaches;
(d)Whether there had been similar previous conduct by the respondent;
(e)Whether the breaches were properly distinct or arose out of the one course of conduct;
(f)The size of the business enterprise involved;
(g)Whether or not the breaches were deliberate;
(h)Whether senior management was involved in the breaches;
(i)Whether the party committing the breach had exhibited contrition;
(j)Whether the party committing the breach had taken corrective action;
(k)Whether the party committing the breach had cooperated with the enforcement authorities;
(l)The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
(m)The need for specific and general deterrence.
Consideration of the well-known penalty factors is to be undertaken within the overarching consideration of what penalty will achieve the principal object of deterrence, both specific and general. These factors are well-settled, but not a “rigid catalogue of matters for attention.”[9]
[9] McAlary-Smith at [88] to [91].
The identified factors, while a convenient checklist, do not restrict the Court in the exercise of its discretion.
The penalty should be no more and no less than is necessary to achieve the purpose to deter the wrongdoer from engaging in contraventions of a like kind and to deter others who might be tempted to contravene. The penalty should be no more than might be considered to be reasonably necessary to deter further contraventions of a like kind.[10]
[10] Australian Meat Industry Employees Union v Dick Stone Pty Ltd (No 2) [2022] FCA 1263 at [25] (“Dick Stone”), citations omitted.
The imposition of the maximum penalty is appropriate where it is considered necessary for the purpose of deterrence even if the nature of the conduct does not fall into the most serious category of wrongdoing.[11]
DETERMINATION
[11] Dick Stone at [29] citing Australian Building and Constructions Commissioner v Pattinson [2022] HCA 13.
Nature, extent and circumstances of the conduct and loss
The respondents’ conduct was deliberate and it denied Mr Hong his lawful entitlements. The requirement for Mr Hong to repay part of his wages to the respondents in cash, the Court accepts, was part of a calculated strategy to disguise the unlawful conduct.
The respondents were aware that minimum wages were required to be paid to Mr Hong, and the outward appearance of company records was that such wages were being paid. The Cashback Arrangement, while maintaining the outward appearance of legality, was in fact deceitful and demonstrated a contemptuous disregard for workplace laws.[12]
[12] Fair Work Ombudsman v Rubee Enterprises Pty Ltd [2016] FCCA 3456 at [43].
In addition, the respondents’ conduct was exploitive of a sponsored worker whose livelihood and stay in Australia was dependant on his immigration status. Mr Hong was only permitted to work in Australia pursuant to a 457 visa sponsored by Easy Vaping.
The conduct is objectively serious, and warrants the imposition of meaningful penalties.
The loss suffered by Mr Hong, while ultimately rectified some three years post the conduct, was between $5,000 and $13,000, an amount which is far from insignificant.
Involvement of Senior Management
Ms Chan, as its sole director and shareholder, was the operative and controlling mind of Easy Vaping and was responsible for ensuring it complied with its legal obligations.
Mr Chan, as the operations and finance manager, was likewise responsible for ensuring the company complied with its legal obligations.
Both Ms Chan and Mr Chan was heavily involved in the management of Easy Vaping and in the contravening conduct. They were the highest level of management at the company.
Corrective Action, Co-Operation and Contrition
The respondents admitted the contraventions by the amended defence and facilitated the matter to proceed to a determination of penalty, without the time and expense of a contested liability hearing. This serves the public interest.
The respondents also took corrective action in re-paying Mr Hong $13,000.
There is no evidence of contrition or remorse, except through the submissions made on behalf of the respondents.
Size and Financial Circumstances of the Company
Easy Vaping’s business was run out of a two-bedroom apartment where Mr Chan and Ms Chan also lived. It employed only one full-time and two part-time employees. In the relevant period Easy Vaping reported an annual taxable income of $48,854. It is a small enterprise.
In its most recent tax return (for the financial year 2021-22) Easy Vaping posted a taxable net loss of $248,253. In the most recent financial year 2022-23, Ms Chan had a taxable income of $50,211 and Mr Chan had a taxable income of $50,351.
However, the size and financial circumstances of the employer do not exculpate breaches of workplace laws.[13] Capacity to pay a penalty is of less relevance than the objective of general deterrence.[14]
[13] Fair Work Ombudsman v Bosen Pty Ltd [2011] VMC 81 at [51].
[14] Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [69].
Deterrence
There is a need for both specific and general deterrence in respect of the matters before the Court.
Conduct involving cashback arrangements raises particularly strong general deterrence considerations as such conduct is deceptive and designed to give the impression of compliance with the law, but is in fact insidious in its non-compliance. Employers’ obligations to workers cannot be avoided or abrogated.
Specific deterrence is aimed at ensuring that the contravener does not take the risk of engaging in such conduct in the future.[15]
[15] Fair Work Ombudsman v AJR Nominees Pty Ltd (No.2) [2014] FCA 128 at [50].
It is submitted on behalf of the respondents that there are a number of mitigating factors as a result of which the respondents “are already deterred from and will not engage in similar conduct in the future”. The respondents submit that both Mr and Ms Chan were unsophisticated small business operators, and that they both assert that they were not aware at the relevant time that the Cashback Arrangement was in breach of any law.
The matter proceeded to penalty hearing by way of an agreed statement of facts.
In light of the agreed facts, the Court rejects the submissions made by the respondents in respect of these mitigating factors. Mr and Ms Chan each knew that the Cashback Arrangement was unreasonable in the circumstances and that it was of benefit to Easy Vaping. The respondents knew that the arrangement was deceptive and that it did not reflect Mr Hong’s lawful entitlements.
While Easy Vaping may be affected by the regulatory changes dealing with the importation of disposable single-use vapes, and the use of therapeutic vapes, such that it becomes less profitable or as the respondents expect it will “collapse”, this of itself does not necessarily negate the need for specific deterrence.
Easy Vaping remains registered and continues to operate. Ms Chan continues as its sole director and shareholder, although she submits that she is now working as a school teacher. Mr Chan continues in his role at the business, and is also a director of another registered company.
Specific deterrence is therefore a relevant consideration in the circumstances.
The Penalty to be Imposed
The maximum penalties that the Court may impose in respect of the contraventions are $63,000 for Easy Vaping and $12,600 each for Ms Chan and Mr Chan.
The penalty imposed must be proportionate to the conduct engaged in by the respondents and not have the effect of exonerating the conduct.[16]
[16] Kelly at [30]; McAlary-Smith at [23] per Gray J, at [66]-[73] per Graham J, at [98]-[102] per Buchanan J; Fair Work Ombudsman v Promoting U Pty Ltd & Anor [2012] FMCA 58 at [55]- [57].
The determination of an appropriate penalty is, of course, a matter that must be determined by the Court, despite the agreed position of the parties as to what is appropriate and reasonable in the circumstances.
In the circumstances, and taking into consideration all of the relevant factors referred to earlier in these Reasons for Judgment, the Court imposes the following penalties:
(a)The first respondent, Easy Vaping, a penalty of $31,500 being 50% of the maximum penalty with a 15% discount for admissions, totalling $26,775.
(b)The second respondent, Ms Chan, a penalty of $6,300 being 50% of the maximum penalty with a 15% discount for admissions, totalling $5,355.
(c)The third respondent, Mr Chan, a penalty of $6,300 being 50% of the maximum penalty with a 15% discount for admissions, totalling $5,355.
The Court so orders.
I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Obradovic. Associate:
Dated: 2 February 2024
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