FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v ECOSWAY PTY LTD | [2015] FCCA 202 |
| Catchwords: INDUSTRIAL LAW – Alleged breach of breach of terms of modern award – failure to pay minimum wage, leave loading and penalties for work on weekends and public holidays – respondent denies liability on basis individual concerned was not an employee but was engaged as an independent contractor – matter fixed for hearing on liability in this court in May of 2015 – both parties originally sought hearing of the matter in this court – respondent now seeks transfer of proceedings to Federal Court – matters to be considered – resources of the court – complexity – question of general importance – balance of convenience and cost – fees in Federal Court for hearing are significantly greater – public purse considerations – wishes of the parties – interests of justice. |
| Legislation: Fair Work Act 2009, ss.42, 45, 357, 539(2) Federal Circuit Court Act of Australia Act 1999, s.39 |
| Re Porter; Re Transport Workers Union of Australia [1989] 34 IR 179 Aon Risk Services Australia v Australian National University [2009] HCA 27 |
| Applicant: | FAIR WORK OMBUDSMAN |
| Respondent: | ECOSWAY PTY LTD |
| File Number: | ADG 189 of 2013 |
| Judgment of: | Judge Brown |
| Hearing date: | 28 January 2015 |
| Date of Last Submission: | 28 January 2015 |
| Delivered at: | Adelaide |
| Delivered on: | 2 February 2015 |
REPRESENTATION
| Counsel for the Applicant: | Ms Walker |
| Solicitors for the Applicant: | Office of the Fair Work Ombudsman |
| Counsel for the Respondent: | Mr Austin |
| Solicitors for the Respondent: | Scales & Partners |
ORDERS
The trial listed in this Court scheduled to commence on 18 May 2015 be vacated.
The proceedings herein be transferred to the Federal Court of Australia at Adelaide for hearing and determination.
The costs of this application be reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 189 of 2013
| FAIR WORK OMBUDSMAN |
Applicant
And
| ECOSWAY PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant in these proceedings, the Fair Work Ombudsman “the FWO”, has standing under the provisions of the Fair Work Act 2009 (Cth) “the FWA” to commence proceedings against any person whom it believes has breached the terms of any applicable modern award or provision of the FWA in respect of the employment of any other person.
The respondent to these proceedings, Ecosway Pty Ltd “Ecosway”, is a subsidiary of a company incorporated in Malaysia, Cosway (M) Sdn Bhd “Cosway”. Besides Australia, this company has operations in North and South America; Europe; and Asia.
Cosway sells and distributes hair and beauty products, organic food products, skin care products and homewares worldwide through outlets in Singapore, Indonesia, Thailand, Japan, South Korea, USA, Mexico, Columbia, Russia, Hong Kong, UK, New Zealand, as well as Australia and other countries.
Cosway owns all the shares in Ecosway, which is incorporated in Australia. It describes itself as an international networking business not a retailer. It asserts that…
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- Case
- [2015] FCCA 202
- Decision Date
CaseChat Overview and Summary
The court was required to determine whether Ms Wardell was an employee of Ecosway or an independent contractor. This central issue involved assessing the nature of the relationship between Ecosway and Ms Wardell, particularly in light of Ecosway's assertion that she operated her own enterprise and that Ecosway exerted no control or supervision over her activities. The FWO sought declarations, pecuniary penalties for alleged contraventions, and an order for the payment of wages due to Ms Wardell.
The court noted the significant volume of documents and the complexities that had arisen in managing the proceedings, including issues concerning the evidence of Ecosway's former solicitor and potential conflicts of interest. Given these circumstances and the insufficient time allocated for a trial in the Federal Circuit Court, the judge raised the possibility of transferring the proceedings to the Federal Court of Australia. This consideration was based on the court's power to transfer proceedings under section 39 of the Federal Circuit Court of Australia Act 1999, taking into account factors such as the interests of justice and the court's resources.
Ultimately, the court ordered that the trial listed for 18 May 2015 be vacated and that the proceedings be transferred to the Federal Court of Australia at Adelaide for hearing and determination. The costs of this application were reserved.
Orders
Orders of the court
1.
The trial listed in this Court scheduled to commence on 18 May 2015 be vacated.
2.
The proceedings herein be transferred to the Federal Court of Australia at Adelaide for hearing and determination.
3.
The costs of this application be reserved.
FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT ADELAIDE
ADG 189 of 2013
FAIR WORK OMBUDSMAN
Applicant
And
ECOSWAY PTY LTD
Respondent
REASONS FOR JUDGMENT
Introduction
1.
The applicant in these proceedings, the Fair Work Ombudsman “the FWO”, has standing under the provisions of the Fair Work Act 2009 (Cth) “the FWA” to commence proceedings against any person whom it believes has breached the terms of any applicable modern award or provision of the FWA in respect of the employment of any other person.
2.
The respondent to these proceedings, Ecosway Pty Ltd “Ecosway”, is a subsidiary of a company incorporated in Malaysia, Cosway (M) Sdn Bhd “Cosway”. Besides Australia, this company has operations in North and South America; Europe; and Asia.
3.
Cosway sells and distributes hair and beauty products, organic food products, skin care products and homewares worldwide through outlets in Singapore, Indonesia, Thailand, Japan, South Korea, USA, Mexico, Columbia, Russia, Hong Kong, UK, New Zealand, as well as Australia and other countries.
4.
Cosway owns all the shares in Ecosway, which is incorporated in Australia. It describes itself as an international networking business not a retailer. It asserts that it pays a commission to any other business or store operator who sells any of its products to a customer, through any one of a variety of channels.
5.
Ecosway sells its products through business owners, affiliated with it, who sell through networks of contacts, which they the business owners have established themselves; or through actual outlets, which are operated by persons, who are designated as store operators.
6.
Ecosway has developed a specific client base, the members of which are designated as VIP members. They are entitled to discounts and reward points. VIP members pay a small annual fee or achieve their status as a consequence of the amount of their purchases.
7.
Business members sell Ecosway products to the VIP members, whom they have attracted. Business members pay a registration fee to Ecosway and receive documentary advice about how to sell products effectively. They receive a commission on the products which they sell. Business members are not linked to a specific location, but sell products in private homes or at meetings.
8.
Store operators sell Ecosway products from a specific location. They can also sign up VIP members. Such operators many sign up other business members to sell products for themselves. They gain a commission from their down line network of business members.
9.
Chee Fee Phan is the general manager of Ecosway in Australia. It is his evidence that the main way Ecosway distributes its products is through its business members, whom he describes as being independent persons, usually operating their businesses from home. They receive a commission of 5% on each item they sell.
10.
Store operators are also regarded as business members by Ecosway. Mr Phan deposes that they sell Ecosway products on consignment from the company. They receive a 12% handling fee, as well as a 5% commission on each item sold. It is Mr Phan’s position that store operators are not employees of Ecosway but are to be regarded as independent contractors or self-employed business operators.
11.
Heather Ruth Wardell joined Ecosway, as a business owner, in early 2010. She was signed up by two other business owners. Later, between March 2011 and September 2012, she was a store operator at two separate locations in suburban Adelaide, firstly at Unley and then at Kensington Park.
12.
Ms Wardell entered a Store Operator Agreement with Ecosway on 23 February 2011. It is her evidence that she derived a meagre income as a business owner, at best $245.00 per month. In addition, she asserts that she earned around $1,100.00 per month as a store operator at Unley and less when the location was moved to Kensington Park.
13.
Between June and September of 2012, Ms Wardell made complaints to the FWO regarding these arrangements with Ecosway. She asked the FWO to determine whether she was to be regarded as an independent contractor (as she had been told she was by Ecosway) or was due some form of wage as an employee of Ecosway. She was concerned that she had been working in excess of 45 hours per week for what amounted to around $5.00 per hour, which she considered grossly unfair.
14.
As a consequence of this complaint, the FWO appointed a Fair Work Inspector, Joanne Latz to investigate Ms Wardell’s claims. Ms Latz interviewed Ms Wardell and Mr Phan and examined many documents regarding Ecosway’s operations in Adelaide.
15.
Ultimately, Ms Latz reached the conclusion that Ms Wardell was to be regarded as an employee of Ecosway and her employment to be covered by the terms of the General Retail Industry Award 2010, which is a modern award as defined by provisions within the FWA. In addition Ms Latz concluded that some of the National Employment Standards, particularly relating to holiday pay had also been breached.
16.
Ms Latz calculated that, after the deduction of handling fees of $38,524.62 and network income of $3,269.76, paid to Ms Wardell by Ecosway, during the period of the relationship between the two, she (Ms Wardell) was due a further sum of $32,116.80 by way of wages as a consequence of her employment at both the Unley and Kensington Park outlets.
17.
Ecosway’s solicitors advised the FWO that its client had sought extensive advice from a firm of solicitors based in Sydney prior to starting its operations in Australia. It was given to understand that its various store operators were not to be regarded as employees for the purposes of applicable domestic Australian Law and it would not be regarded as having breached any Australian Industrial or Consumer legislation.
18.
The FWO takes a different view and commenced proceedings in this court on 2 July 2013. It contends that Ms Wardell was an employee of Ecosway because she performed a variety of duties for it, including:
· opening and closing its store, at specific times;
· displaying its stock, as directed;
· selling its goods;
· banking the proceeds; and
· regularly reporting to Ecosway management in respect of sales.
19.
The FWO further contends that Ecosway controlled the activities of Ms Wardell, in particular directed her as to opening times, how stock was to be displayed and like matters. As such, it submits that Ms Wardell cannot be regarded as an independent contractor of Ecosway.
20.
In this context, in the statement of claim filed with its application, the FWO seeks declarations and the imposition of pecuniary penalties for what it alleges have been five contraventions of the applicable modern award and two contraventions of National Employment Standards [see FWA at sections 44 & 45] .
21.
These contraventions relate to a failure to pay the minimum wage; failure to pay overtime; failure to pay penalties for evening work; failure to pay penalties for work on Saturdays; failure to pay leave on termination; and failure to pay leave loading.
22.
The maximum penalty for these contraventions is set out in section 539(2) of the FWA. As Ecosway is a corporation the maximum penalty for each contravention of the applicable modern award or breach of National Employment Standards is $33,000.00.
23.
In addition, the FWO alleges that Ecosway has breached the provisions of section 357 of the FWA, which renders it a civil offence for an employer to misrepresent to one of its employees that he or she is performing work as an independent contractor, pursuant to a contract for services, rather than through a contract of employment. Again the maximum penalty is one of $33,000.00.
24.
In addition to civil penalties and the making of declarations, the FWO seeks an order for the payment of the wages, which it says are due to Ms Wardell.
25.
In its defence filed on 19 November 2013, Ecosway denies these various allegations of breaches of the FWA. It asserts that Ms Wardell was an independent contractor, pursuant to an agreement with it made on 24 February 2011. As such, neither the modern award nor the National Employment Standards applied to her.
26.
Essentially, it is contended that there were no controls or any form of supervision exerted by Ecosway upon Ms Wardell, who was running her own enterprise. It denies the allegation of sham contracting regarding her employment.
The history of the matter to date
27.
Regrettably, the course of the proceedings to date has not been a smooth one. Originally the matter was allocated to the docket of Judge Lindsay, who has since resigned his commission with the court. Following an unsuccessful mediation, the matter was fixed for a three day liability hearing on 23 July 2014. This hearing was allocated by Judge Lindsay on 13 December 2013 and orders were made for each party to file evidence.
28.
The hearing allocated for 23 July 2014 did not proceed. On 21 March 2014 the solicitor for the FWO filed a bundle of relevant documents. Bundle is something of a misnomer. The documents were voluminous and consisted of eight thick volumes. Later, on 16 May 2014, the respondent filed its own volume of documents. All in all, as a common tender, there are in excess of 3,300 pages of documents, said to be relevant to the proceedings.
29.
From the perspective of the respondent, there is much at stake in these proceedings. It has arrangements with other individuals throughout Australia, at other outlets, which it asserts are analogous to the arrangement it had with Ms Wardell. Ecosway vehemently asserts that the arrangements surrounding these individuals are extraneous to the application of the Fair Work Act 2009. In these circumstances, it retained Mr Duggan of senior counsel to represent it in the proceedings scheduled for mid-July.
30.
Due to the resignation of Judge Lindsay, the matter was allocated to me. On 25 March 2014, with the consent of each of the parties, I confirmed the liability hearing in July and made further orders for the filing of material, including directions as to when objections were to be taken to any aspect of the evidence.
31.
On 23 July 2014, it was Mr Duggan’s position that the trial could not proceed due to the manner in which the various documents, which each party asserted were relevant to the proceedings, had been thus far collated. Mr Duggan’s view was that the manner in which the documents had been collated was, in effect, unworkable and was likely to lead to confusion and the almost certain over-running of the trial.
32.
At this stage, Mr Duggan viewed the estimated duration of the trial, at three days, as being woefully inaccurate. He believed the trial was likely to take between seven and ten days. He further submitted that it would be necessary for there to be a more rigorous compilation and indexation of the various documents on which each party relied and which he asserted were illustrative of the true nature of the relationship between Ecosway and Ms Wardell and, by necessary implication, other persons in similar contractual relationships, with the respondent, throughout Australia.
33.
Ms Walker, counsel for the FWO was not unsympathetic to the position advocated by Mr Duggan. She agreed that much work needed to be done in order to regulate how the tender to the court of the voluminous documents relevant to the case was to be managed.
34.
Looming large in these considerations was the tender of documents from the file of the solicitor who had earlier advised the respondent about its business operations in Australia, which was said to be particularly relevant to the issue of sham contracting.
35.
It is a defence to a charge of sham contracting for the employer concerned to demonstrate that it did not know and did not act recklessly, when the representation relating to the independent status of the employee concerned was made.
36.
Issues arose as to how the solicitor, who had advised Ecosway, as to its Australian structure, was to give evidence. From Ecosway’s perspective, it was concerned that, if the case was determined in a manner adverse to it, there would be serious ramifications for it, as it would have to review the status of its many other store operators throughout Australia. It might also be liable for further prosecution for breaching industrial regulation in respect of numerous other individuals.
37.
In addition, in such circumstances, it was likely to wish to pursue the solicitor concerned for some civil remedy arising from negligent misstatement or breach of contract. Clearly, in such a scenario, there was the potential for a serious conflict of interest to arise between Ecosway and its former solicitor.
38.
In all these circumstances, there was general consensus between Ms Walker and Mr Duggan that it was inappropriate for the July 2014 trial to proceed. Essentially, it was conceded that three days was inadequate to complete it and work needed to be done on the tender bundle. Mr Duggan also wished to give thought as to how Ecosway’s former solicitor should give evidence and ascertain indeed whether that person wished to be independently represented in the case.
39.
At this stage, I raised with counsel for each of the parties, as I am entitled to do pursuant to the provisions of section 39 of the Federal Circuit Court of Australia Act 1999, the possibility of the proceedings being transferred to the Federal Court. The section empowers the court to transfer proceedings either on its initiative or on the application of a party.
40.
The matters to be considered on such a transfer are enumerated in section 39(3) and are as follows:
· the applicable rules of court;
· whether proceedings are pending in respect of an associated matter in the Federal Court;
· whether the resources of the Federal Circuit Court are sufficient to hear and determine the proceedings;
· the interests of the administration of justice.
41.
If proceedings are transferred, the Federal Circuit Court may make any order it considers necessary pending the disposal of the matter in the Federal Court [section 39(5)]. No appeal lies from the decision to transfer [section 39(6)]. However, as with all discretions, I take it, the discretion to transfer a matter to the Federal Court is to be exercised judicially.
42.
The applicable rule of court, dealing with transfer, is Rule 8.02 of the Federal Circuit Court Rules 2001. If a party wishes the transfer of a proceeding, it must be made on or before the first return date, unless the court orders otherwise. An application for transfer must be supported by an affidavit. In addition, pursuant to Rule 8.02(4), the following factors are identified as relevant to the exercise of the discretion to transfer:
· whether the proceedings entail a question of general importance such that it would be desirable for there to be a decision of the Federal Court on the issue;
· whether, if the proceedings are transferred, it would lead to a reduction of costs and be more convenient to the parties concerned;
· whether the proceedings could be heard sooner;
· the availability of particular procedures appropriate to the class of proceedings concerned;
· the wishes of the parties.
43.
Neither Ms Walker nor Mr Duggan advocated for the transfer of the proceedings to the Federal Court. Mr Duggan conceded that the case was one of significant moment for his client, but did not contend that the issues raised by the case were of such moment that it should be transferred to the superior court.
44.
From Mr Duggan’s perspective, the case raised management or logistical issues, stemming from the number of documents which were likely to be in issue and which would have to be consulted by the judge, counsel and witnesses regularly throughout the proceedings. He was confident these logistical issues could be largely resolved through a re-organisation of the tender bundle and preparation of an agreed index.
45.
In addition, neither party asserted that the case raised issues of particular legal novelty, although from Mr Dugan’s perspective there were elements of complexity. It being generally conceded that the distinction between contracts of employment and contracts for services was a path relatively well trammelled in the jurisprudence of this country, over the last century or so, although not any less controversial for all of that.
46.
In short, neither party, in mid-2014, appeared anxious to leave the Federal Circuit Court. For my part, I was concerned that the proceedings had been on foot for about a year, by that stage, and there had been the disruption to the orderly management of the case arising from the resignation of Judge Lindsay.
47.
In these circumstances, I felt duty bound to do my best to accommodate the case and at least give the parties a firm date on which the matter could be heard. I acted on the assumption, provided by Mr Duggan, that it would be better to allocate too much time, rather than too little. His topside estimate, for the case, if the respondent’s former solicitor did not provide an affidavit and was independently represented, was ten days.
48.
It is a significant thing for me to find ten consecutive days for hearing. The Federal Circuit Court is a busy first instance court with a wide jurisdiction in family law and matters of general federal law. One of the characteristics of family law courts, particularly at first instance, is a high volume of matters, often requiring the urgent resolution of issues relating to the care of children.
49.
This leads to the need to slot in matters at short notice, often in the morning or afternoon before and after the time courts have traditionally convened in this country, so that the matters can be determined expeditiously, on an interim basis. At the same time, the court must deal with the final hearing of cases, which have moved beyond the interlocutory stage.
50.
In addition the Federal Circuit Court operates a docket system where cases are allocated to the one judicial officer permanently. This is to avoid the evil of litigants having to reiterate their cases to a fresh judge, upon the making of an interlocutory application. This mechanism is said to be an aid to efficient case management and to hasten the finalisation of cases.
51.
Accordingly, at any one time, each judge of the Federal Circuit Court has an individual docket comprising many individual files, which he or she is required to manage from instigation to completion. Necessarily the docket system creates many calls on the time of the judge concerned, both in pre-trail management and at final hearing. The rationale of the docket system being that the court is to be a helping one, which is readily accessible to persons from all walks of life.
52.
Aspects of the general federal law jurisdiction of the court also encompass areas of law, which are to be characterised as areas of high volume. These areas are particularly the judicial review of decisions of the Refugee and Migration Review Tribunals and small claims arising under the Fair Work Act 2009. Many applicants in these types of application are unrepresented, as they often are in family law matters.
53.
The Federal Magistrates Court (or Service), as it was then known was inaugurated in 2000. The epithet Service was particularly evocative of the intention of the then Attorney-General. The court was intended to augment the work of the superior Federal Courts by easing the work-load of the Federal and Family Courts, by relieving those courts of less complicated cases, so each could concentrate on matters of greater complexity, which by necessary implication were likely to take longer to hear.
54.
The then Attorney-General, Mr Williams said as follows in the Second Reading Speech introducing the
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