Fair Work Ombudsman v First Group of Companies Pty Ltd (Deregistered)
[2018] FCCA 1228
•23 May 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v FIRST GROUP OF COMPANIES PTY LTD (DEREGISTERED) & ORS | [2018] FCCA 1228 |
| Catchwords: INDUSTRIAL LAW – Pecuniary penalties to be imposed on second, third and fourth respondents pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (“the Act”) – first respondent contravened provisions of the Act and the Cleaning Services Award 2010 (“the Award”) – first respondent has been deregistered – second and third respondents were at all material times directors of the first respondent and have admitted involvement in various contraventions pursuant to s.550(1) of the Act – fourth respondent is a contractor providing cleaning services at the Melbourne Cricket Ground (“the MCG”) after Australian Football League matches pursuant to contract with the Melbourne Cricket Club – first respondent supplied labour to the fourth respondent to perform cleaning services at the MCG pursuant to a contract with the fourth respondent – fourth respondent admitted involvement in various contraventions arising from underpayment of monetary amounts under the Award pursuant to s.550(1) of the Act – consideration of approach and matters relevant to imposition of pecuniary penalties – consideration of responsibilities of contractor in supply chain when engaging subcontractors to perform services – penalties imposed. |
| Legislation: Crimes Act 1914 (Cth), s.4AA Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Act 2012 (Cth), sch.3 item 7 Evidence Act 1995 (Cth), s.191 Fair Work Act 2009 (Cth), ss.12, 45, 323(1)(c), 340, 342, 357(1), 536(1), 539(2), 546, 550(1), 557, pt.3-1 Workplace Relations Act 1996 (Cth), s.719(2) Cleaning Services Award 2010, cls.12.5(a), 16.1, 17.6, 17.8, 20.1, 24.2(b), 27.1, 27.2, 27.3, 28.2, 28.3, 28.4 |
| Cases cited: Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39 Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] FCAFC 59 Fair Work Ombudsman v A Dalley Holdings Pty Ltd [2013] FCA 509 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | FIRST GROUP OF COMPANIES PTY LTD (DEREGISTERED) |
| Second Respondent: | SHARAD PATEL |
| Third Respondent: | SIDARTH LUTHRA |
| Fourth Respondent: | ISS FACILITY SERVICES AUSTRALIA LIMITED (ACN 001 827 041) |
| File Number: | MLG 2824 of 2015 |
| Judgment of: | Judge Jones |
| Hearing date: | 1 February 2018 |
| Date of Last Submission: | 1 February 2018 |
| Delivered at: | Melbourne |
| Delivered on: | 23 May 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr Avallone |
| Solicitors for the Applicant: | Fair Work Ombudsman |
| There being no appearance by or on behalf of the First, Second or Third Respondents. |
| Counsel for the Fourth Respondent: | Mr Moore QC and Mr Fetter |
| Solicitors for the Fourth Respondent: | Dentons Australia |
DECLARATIONS
The Second Respondent
Pursuant to s.550(1) of the Fair Work Act 2009 (Cth) (“the Act”), the Second Respondent was involved in contraventions by First Group of Companies Pty Ltd (“the First Respondent”) of s.357(1) of the Act by representing to each of the following employees that the contract of employment under which the employee was or would be employed by the First Respondent was a contract for services under which each employee performed or would perform work as an independent contractor:
(a)Sachin Chinsab;
(b)Ronajane Danez;
(c)Carmelo De Mesa;
(d)Marwin Gamboa;
(e)Sundeep Kunduru;
(f)Zigmun Macopia;
(g)Parth Patel;
(h)Rutul Patel;
(i)Dharma Teja Reddy;
(j)Sarah Sanchez; and
(k)Aditya Sundini.
(“collectively, “the employees”)
Pursuant to s.550(1) of the Act, the Second Respondent was involved in contraventions by the First Respondent of s.323(1)(c) of the Act by failing to pay each of the employees at least monthly.
Pursuant to s.550(1) of the Act, the Second Respondent was involved in contraventions by the First Respondent of s.536(1) of the Act by failing to provide each of the employees with a pay slip within one working day of payment.
The Third Respondent
Pursuant to s.550(1) of the Act, the Third Respondent was involved in contraventions by the First Respondent of s.357(1) of the Act by representing to each of the employees that the contract of employment under which each employee was or would be employed by the First Respondent was a contract for services under which each employee performed or would perform work as an independent contractor.
Pursuant to s.550(1) of the Act, the Third Respondent was involved in contraventions by the First Respondent of s.323(1)(c) of the Act by failing to pay each of the employees at least monthly.
Pursuant to s.550(1) of the Act, the Third Respondent was involved in contraventions by the First Respondent of s.536(1) of the Act by failing to provide each of the employees with a pay slip within one working day of payment.
The Fourth Respondent
Pursuant to s.550(1) of the Act, ISS Facility Services Australia Limited (“the Fourth Respondent”) was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the minimum hourly rates of pay payable under cl.16.1 of the Cleaning Services Award 2010 (“the Award”) for each ordinary hour worked Monday to Friday which was an actual hour worked during the period from 24 March 2014 to 31 August 2014 (“the assessment period”).
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the casual loading payable under cl.12.5(a) of the Award for each actual out worked by the employees during the assessment period.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the afternoon/night shift penalty payable under cl.27.1 of the Award for each actual hour worked by the employees during the assessment period which qualified for the afternoon/night shift penalty rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the Saturday penalty rates payable under cl.27.2(a) of the Award for each actual hour worked by the employees during the assessment period which qualified for the Saturday penalty rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the Sunday penalty rates payable under cl.27.2(b) of the Award for each actual hour worked by the employees during the assessment period which qualified for the Sunday penalty rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the public holiday penalty rates payable under cl.27.3 of the Award for each actual hour worked by the employees during the assessment period which qualified for the public holiday penalty rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the Monday to Saturday overtime payable under cl.28.2 of the Award for each actual hour worked by the employees during the assessment period which qualified for the Monday to Saturday overtime rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the Sunday overtime payable under cl.28.3 of the Award for each actual hour worked by the employees during the assessment period which qualified for the Sunday overtime rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the public holiday overtime payable under cl.28.4 of the Award for each actual hour worked by the employees during the assessment period which qualified for the public holiday overtime rates.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the level two employees the leading hand allowance payable under cl.17.6 of the Award for each actual hour worked by the level two employees during the assessment period which qualified for the leading hand allowance.
Pursuant to s.550(1) of the Act, the Fourth Respondent was involved in contraventions by the First Respondent of s.45 of the Act by failing to pay the employees the refuse collection allowance payable under cl.17.8 of the Award for each actual hour worked by the employees during the assessment period which qualified for the refuse collection allowance.
ORDERS
The Second Respondent
Pursuant to s.546(1) of the Act, the Second Respondent pay penalties of $7,752 in respect of the contravention set out in declaration 1 herein.
Pursuant to s.546(1) of the Act, the Second Respondent pay penalties of $6,783 in respect of the contravention set out in declaration 2 herein.
Pursuant to s.546(1) of the Act, the Second Respondent pay penalties of $3,391.50 in respect of the contravention set out in declaration 3 herein.
The Third Respondent
Pursuant to s.546(1) of the Act, the Third Respondent pay penalties of $7,752 in respect of the contravention set out in declaration 4 herein.
Pursuant to s.546(1) of the Act, the Third Respondent pay penalties of $6,783 in respect of the contravention set out in declaration 5 herein.
Pursuant to s.546(1) of the Act, the Third Respondent pay penalties of $3,391.50 in respect of the contravention set out in declaration 6 herein.
The Fourth Respondent
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $21,675 in respect of the contravention set out in declaration 7 herein.
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $23,842.50 in respect of the contravention set out in declaration 8 herein.
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $26,010 in respect of the contraventions set out in declarations 9, 10, 11 and 12 herein.
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $26,010 in respect of the contraventions set out in declarations 13, 14 and 15 herein.
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $19,507.50 in respect of the contravention set out in declaration 16 herein.
Pursuant to s.546(1) of the Act, the Fourth Respondent pay penalties of $15,172.50 in respect of the contravention set out in declaration 17 herein.
Other matters
For the purposes of these proceedings, the First Respondent’s name be changed from “First Group of Companies Pty Ltd (ACN 133 333 409)” to “First Group of Companies Pty Ltd (Deregistered)”.
Pursuant to s.546(3)(a) of the Act, the Respondents pay their respective penalty amounts to the Commonwealth within 28 days of these orders.
The Applicant have liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2824 of 2015
| FAIR WORK OMBUDSMAN |
Applicant
And
| FIRST GROUP OF COMPANIES PTY LTD (DEREGISTERED) |
First Respondent
| SHARAD PATEL |
Second Respondent
| SIDARTH LUTHRA |
Third Respondent
| ISS FACILITY SERVICES AUSTRALIA LIMITED (ACN 001 827 041) |
Fourth Respondent
REASONS FOR JUDGMENT
Introduction
The Fair Work Ombudsman (“the FWO”) seeks the imposition of pecuniary penalties pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (“the Act”) on:
a)Mr Sharad Patel (“the Second Respondent”);
b)Mr Sidarth Luthra (“the Third Respondent”); and
c)ISS Facility Services Australia Limited (“the Fourth Respondent”);
in relation to their involvement in contraventions of the Act admitted by the First Respondent, First Group of Companies Pty Ltd (Deregistered) (“the First Respondent”).
The First, Second and Third Respondents, and the FWO have made a Statement of Agreed Facts (“the FCG SOAF”) for the purposes of s.191 of the Evidence Act 1995 (Cth). The Fourth Respondent and the FWO have made two SOAFs (“the ISS SOAF” and “the Further ISS SOAF”, respectively) for the purposes of s.191 of the Evidence Act 1995 (Cth). The factual material set out below is taken from the SOAFs.
The contraventions of the Act admitted by the First Respondent relate to the period from 24 March 2014 to 31 August 2014 (“the assessment period”).
The Fourth Respondent operates a contracting business which provides cleaning services. It provided cleaning services at the Melbourne Cricket Ground (“the MCG”) under a contract with the Melbourne Cricket Club (“the MCC”). Pursuant to a contract with the Fourth Respondent dated 9 February 2009, the First Respondent supplied labour to the Fourth Respondent to perform cleaning services at the MCG (“the FGC Agreement”). The Fourth Respondent also supplied its employees to perform cleaning services at the MCG to perform the same or similar work.
During the assessment period, the First Respondent engaged the following 11 casual cleaners to perform cleaning duties, including rubbish collection and sweeping (“cleaning duties”):
a)Sachin Chinsab;
b)Ronajane Danez;
c)Carmelo De Mesa;
d)Marwin Gamboa;
e)Sundeep Kunduru;
f)Zigmun Macopia;
g)Parth Patel;
h)Rutul Patel;
i)Dharma Teja Reddy;
j)Sarah Sanchez; and
k)Aditya Sundini.
(collectively, “the employees”)
Three of the employees also performed supervision duties, supervising up to 10 employees during some shifts (“leading hand duties”). The cleaning duties and leading hand duties were performed by the employees during and after the completion of Australian Football League (“AFL”) games at the MCG, usually on weekends, public holidays and at night, under the FGC Agreement. At all material times, the Cleaning Services Award 2010 (“the Award”) applied to the First Respondent and covered the employees. The Award also applied to the Fourth Respondent, and covered its employees, who performed the same cleaning duties as the employees at the MCG.
The First Respondent admitted to contravening the following provisions of the Act:
a)section 357(1) of the Act, by representing an employment contract as a contract for services (“the sham contracting contraventions”);[1]
[1] The Statement of Agreed Facts (between the Applicant, and the First, Second and Third Respondents) filed on 27 May 2016 (“the FGC SOAF”) at [79].
b)section 45 of the Act, by contravening the Award, resulting in a total underpayment to the employees of $37,471.10 because of the failure to pay:
i)base hourly rate of pay in accordance with cl.16.1 of the Award (“the minimum hourly rates contravention”);[2]
[2] Ibid at [84].
ii)casual loading in accordance with cl.12.5(a) of the Award (“the casual loading rates contravention”);[3]
[3] Ibid at [88].
iii)afternoon and non-permanent night shift penalties in accordance with cl.27.1 of the Award (“the afternoon/night shift penalty contravention”);[4]
[4] Ibid at [92].
iv)Saturday penalties in accordance with cl.27.2(a) of the Award (“the Saturday penalty contravention”);[5]
[5] Ibid at [96].
v)Sunday penalties in accordance with cl.27.2(b) of the Award (“the Sunday penalty contravention”);[6]
[6] Ibid at [100].
vi)public holiday penalties in accordance with cl.27.3 of the Award (“the public holiday penalty contravention”);[7]
[7] Ibid at [104].
vii)Monday to Saturday overtime rates in accordance with cl.28.2 of the Award (“the Monday to Saturday overtime rates contravention”);[8]
[8] Ibid at [108].
viii)Sunday overtime rates in accordance with cl.28.3 of the Award (“the Sunday overtime rates contravention”);[9]
[9] Ibid at [112].
ix)public holiday overtime rates in accordance with cl.28.4 of the Award (“the public holiday overtime rates contravention”);[10]
[10] Ibid at [116].
x)leading hand allowance in accordance with cl.17.6 of the Award (“the leading hand allowance contravention”);[11] and
xi)refuse collection allowance in accordance with cl.17.8 of the Award (“the refuse collection allowance contravention”),[12]
(collectively, “the underpayment contraventions”)
xii)minimum engagement periods in accordance with cl.24.2(b) of the Award;[13] and
xiii)fortnightly payment in accordance with cl.20.1 of the Award;[14]
c)section 323(1)(c) of the Act by failing to pay employees at least monthly (“the monthly pay contraventions”);[15] and
d)section 536(1) of the Act by failing to provide pay slips to employees (“the pay slip contraventions”).[16]
[11] Ibid at [120].
[12] Ibid at [124].
[13] Ibid at [128], for which there is no accessorial liability.
[14] Ibid at [134], for which there is no accessorial liability.
[15] Ibid at [137].
[16] Ibid at [140].
The employees were employed by the First Respondent for periods ranging from one month, to just over two years.[17]
[17] Ibid at [10].
The First Respondent engaged the employees on the basis that the First Respondent would pay each of them hourly rates of between $18 and $25, depending on whether the employee worked hours on Monday to Friday, Saturday, Sunday or on a public holiday. The First Respondent did not pay any overtime rates.[18]
[18] Ibid at [80]; the Statement of Agreed Facts (between the Applicant and the Fourth Respondent) filed on 9 June 2017 (“the ISS SOAF”) at [37].
Under the FGC Agreement, the Fourth Respondent paid rates to the First Respondent for each hour worked by each of the employees for the services. These rates were insufficient to meet the employees’ entitlements under the Award to casual loading, penalties and overtime rates.[19] This occurred in circumstances where the Fourth Respondent knew that the Award applied to it and its employees.[20] The Fourth Respondent has admitted that it knew that the Award applied to the First Respondent and the employees.[21]
[19] The ISS SOAF at [122].
[20] Ibid at [112]-[114].
[21] Ibid at [122], [123].
The hourly rates of pay paid to the First Respondent by the Fourth Respondent, and the hourly rates paid to the employees over the assessment period by the First Respondent were as follows:[22]
[22] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [53]; the FGC SOAF at [11].
Day/time period
Hourly rate paid to the First Respondent by the Fourth Respondent
Hourly rate paid to the employees by the First Respondent
Monday to Friday
6.00am to 6.00pm$22.59
$18.00
Monday to Friday 6.00pm to 6.00am
$23.63
$18.00
Saturday
$28.92
$21.00
Sunday
$34.95
$22.00
Public holiday
$42.06
$25.00
The FWO identified the contraventions of the Award by the First Respondent following an investigation conducted by the FWO, which was commenced after it received a report from United Voice Victoria, regarding contract cleaners at the MCG.[23] The First Respondent rectified the underpayments in full by June 2016.[24]
[23] The Affidavit of Ann Sanders filed on 17 July 2017 at [6], [16]; Exhibit AS-1, Tab 2, 3-51; Exhibit AS-1, Tab 26, 689-695.
[24] Ibid at [28]; Exhibit AS-1, Tab 36, 748.
The Second and Third Respondents have reached agreement with the FWO about the range of pecuniary penalties that should be imposed on them. The pecuniary penalties that should be imposed on the Fourth Respondent for its admitted involvement in the contraventions are disputed. Accordingly, the consideration of the pecuniary penalty to be imposed on the Second and Third Respondents, and the Fourth Respondent, shall be divided into two separate parts. The first part will consider the pecuniary penalty to be imposed on the Second and Third Respondents, and the second part will consider the pecuniary penalty to be imposed on the Fourth Respondent. The principles that apply to the approach and the matters relevant to the determination of the pecuniary penalty to be imposed do not differ.
The documents before the Court are as follows:
a)the FWO’s Initiating Application and Statement of Claim filed on 18 December 2015;
b)the FGC SOAF;
c)the ISS SOAF;
d)the Further ISS SOAF;
e)Affidavits filed on behalf of the FWO:
i)
the Affidavits of Fair Work Inspector Ann Sanders filed on
17 July 2017[25] and 30 October 2017; and
[25] At the penalty hearing, the Applicant sought and was granted leave to withdraw part of Exhibit AS-1 to the affidavit of Ann Sanders filed on 17 July 2017. See order 1 of the orders made on 1 February 2018.
ii)the Affidavit of Dharma Teja Reddy filed on 14 July 2017;
f)the Affidavit of Scott William Erwin filed on behalf of the Fourth Respondent on 5 October 2017;
g)the FWO’s Penalty Submissions filed on 10 November 2017;
h)
the FWO’s Penalty Submissions in Reply filed on
21 December 2017; and
i)the Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018.
The Court’s approach to the determination of penalty
The Court’s power to impose penalties arises under s.546 of the Act, which relevantly provides:
(1) The Federal Court, the Federal Circuit Court or an eligible State or Territory court may, on application, order a person to pay a pecuniary penalty that the court considers is appropriate if the court is satisfied that the person has contravened a civil remedy provision.
Note: Pecuniary penalty orders cannot be made in relation to conduct that contravenes a term of a modern award, a national minimum wage order or an enterprise agreement only because of the retrospective effect of a determination (see subsections 167(3) and 298(2)).
In determining what penalties, if any, ought to be applied in respect of the contravening conduct by each of the Respondents, the Court is required to:
a)first, identify the “separate contraventions”. Each breach of each separate obligation found in the Act and the Regulations is a separate contravention of a civil remedy provision for the purposes of s.539(2) of the Act;[26]
b)second, apply s.557(1) of the Act. Section 557(1) of the Act provides that if a person commits multiple contraventions of an applicable provision, they should be treated as a single contravention if they arise out of a single course of conduct;
c)third, to the extent that two or more contraventions have common elements, the Court may take this into account in considering the appropriateness, in all the circumstances, of the quantum of penalty for the contraventions.[27] This reflects the basic principle that a contravenor should not be penalised more than once for what, in a practical sense, amounts to the same contravening conduct, such that the penalties imposed by the Court should be an appropriate but fair response to the contravention of statutory obligations. This is a distinct exercise from, and is in addition to, the final application by the Court of the “totality principle”;[28]
d)fourth, fix an appropriate penalty for each single or grouped contravention, taking into account all relevant circumstances; and
e)finally, the Court should apply the “totality principle” by considering whether the aggregate penalty is an appropriate response to the conduct which led to the contraventions. The Court should apply an “instinctive synthesis” in making this assessment.[29]
[26] Gibbs v the Mayor, Councillors and Citizens of City of Altona [1992] FCA 553; (1992) 37 FCR 216 at 223; McIver v Healey [2008] FCA 425 at [16].
[27] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8.
[28] Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70.
[29] Kelly v Fitzpatrick [2007] FCA 1080 at [30].
Section 557(1) of the Act
The operation of s.557(1) of the Act (and its predecessor, s.719(2) of the Workplace Relations Act 1996 (Cth)), was explained by White J in Fair Work Ombudsman v South Jin Pty Ltd (No 2) [2016] FCA 832
(at [22]-[24]):22. The “2 or more contraventions” of a civil remedy provision or of an applicable provision, to which s 557(1) and s 719(2) refer, may be committed in respect of two or more employees: Clothing and Allied Trades Union v Snugglerite Industries Pty Ltd (1990) 34 IR 124 at 126. That is to say, contraventions of the same provision but in respect of two or more employees will constitute “2 or more contraventions”, as will successive contraventions of the one provision in respect of a single employee. The pertinent question is whether the breaches arose out of a single course of conduct.
23. However, it is not possible to regard contraventions of corresponding provisions in the WR Act, the Transitional Act and the CS Award as constituting a single contravention. That is because each of s 719(2) and s 557(1) apply only to contraventions of the same provision. They have no application to contraventions of different provisions, even if those provisions impose obligations of the same or a broadly similar kind.
24. The civil remedy provisions to which s 557(2) refers are not just the sections which it lists. They include each term of a modern award which has been breached. That has the consequence that, in a case like the present, in which there have been breaches of more than one term of a modern award, s 557(1) does not operate to deem a single contravention of s 45. It operates instead to deem a single contravention of each particular award term which has been contravened: Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62; (2014) 221 FCR 153.
It is to be noted that s.557(1) of the Act only applies to the civil remedy provisions referred to in s.557(2) of the Act.
Grouping of contraventions
The purpose of “grouping” contraventions is to avoid penalising a respondent twice for the same conduct. As their Honours Middleton and Gordon JJ observed in Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39 (“Cahill”) (at [47]):
47. …What the single course of conduct principle recognises is that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality…
(Emphasis in original)
As is evident from the authorities relied on by the FWO and the Fourth Respondent in their submissions, the courts have applied a variety of approaches to give effect to this principle. In some cases, the court has approached grouping by imposing a single penalty for a group or category of contraventions where contraventions of multiple provisions of the Act or an Award contain common elements, or can be said to overlap with each other.[30] Similarly, this approach may be taken where there are multiple contraventions of a single provision that is not covered by s.557 of the Act.
[30] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 at [46], [72] (Graham J); at [93] (Buchanan J); Fair Work Ombudsman v Tiger Telco Pty Ltd (in liq) [2012] FCA 479 at
[24]-[25]; Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151 at [61]-[71].The authorities relied on by the FWO and the Fourth Respondent in their submissions reveal a diverse approach to what category of contraventions display sufficiently common elements to justify grouping.[31] This diverse approach may perhaps arise because, as Barker J said, “there is no exact science” in the grouping decision; rather, “[i]t is a question of considering the nature of the contraventions and the nature of the “criminality” involved”.[32]
[31] See Fair Work Ombudsman v NHS North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301; Stratton Finance Pty Limited v Webb [2014] FCAFC 110.
[32] Fair Work Ombudsman v Sureguard Security Pty Ltd [2017] FCA 1566 at [43]; Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151.
In other cases, the court has treated each contravention separately (save where s.557(1) of the Act applies), but either:
a)in the affixation of each penalty, has taken into account the fact that the contraventions arose from a course of conduct, or that there is relevant overlap in the elements or impact of particular contraventions;[33] or
b)considered whether the penalties should be imposed cumulatively or concurrently (or partly concurrently) in order to ensure that the penalty total is just and appropriate.[34]
[33] Fair Work Ombudsman v South Jin Pty Ltd (No 2) [2016] FCA 832 at [44].
[34] Construction, Forestry, Mining and Energy Union v Williams [2009] FCAFC 171 at [19]; Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] FCAFC 59 at [40] (overturned by the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46 on a different point); Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557 at [420]-[439].
I note that the Fourth Respondent propose a novel approach in relation to the grouping of contravening conduct, by what it describes as a third party. This approach is considered below.
In any event, the FWO and the Fourth Respondent agree that both the “grouping” and “overlap” approaches are open to the Court.
Totality principle
After fixing a penalty for each separate contravention identified, the final step for the Court is to look at the aggregate penalty, to determine whether it is an appropriate response to the contravening conduct. The penalty imposed must not be crushing or oppressive; it must be proportionate to the conduct engaged in by a respondent and not have the effect of exonerating the conduct.[35]
[35] See Kelly v Fitzpatrick [2007] FCA 1080 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 at [23] (Gray J); at [66]-[73] (Graham J), at [98]-[102] (Buchanan J).
Factors relevant to penalty
The courts have developed a number of guidelines for the exercise of their power to impose pecuniary penalties. In Kelly v Fitzpatrick [2007] FCA 108 (“Kelly”), Tracey J referred to the following “potentially relevant and applicable” considerations (at [14]):
· The nature and extent of the conduct which led to the breaches.
· The circumstances in which that conduct took place.
· The nature and extent of any loss or damage sustained as a result of the breaches.
· Whether there had been similar previous conduct by the respondent.
· Whether the breaches were properly distinct or arose out of the one course of conduct.
· The size of the business enterprise involved.
· Whether or not the breaches were deliberate.
· Whether senior management was involved in the breaches.
· Whether the party committing the breach had exhibited contrition.
· Whether the party committing the breach had taken corrective action.
· Whether the party committing the breach had cooperated with the enforcement authorities.
· The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements and
· The need for specific and general deterrence.
…
The guidelines identified in Kelly assist in the determination of the appropriate penalty, and do not constitute mandatory considerations. In Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151, Mansfield J said the following (at [74]):
74. That provides a convenient checklist, but it does not restrict matters that may be taken into account in the exercise of judicial discretion: Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 at [11]; Australian Ophthalmic Supplies v McAlary-Smith (2008) 165 FCR 560 (Australian Ophthalmic Supplies) at [91]; Offshore Marine Services at [12]. Nor does it require specific attention to matters which are not relevant or not focused on in submissions. In the exercise of judicial discretion, the Court should not be distracted from paying “appropriate regard to the circumstances in which the contraventions have occurred and the need to sustain the public confidence in the statutory regime which imposes the obligations”: Australian Ophthalmic Supplies at [91]; Offshore Marine Services at [12]; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Service Union of Australia v QR Limited (No 2) [2010] FCA 652 at [34]-[35].
Maximum penalty
An essential element of determining the penalty to be imposed is the maximum penalty set for each contravention. The maximum penalty is used as a “yardstick”, considered with all of the other relevant factors.[36]
[36] Markarian v R [2005] HCA 25; (2005) 228 CLR 357 at [31].
The pecuniary penalty that is imposed depends on the type of contravention, and whether or not the person in question is an individual or a body corporate. The maximum penalty in respect of an individual must not be more than the maximum number of penalty units referred to in the relevant item in column 4 of the table in s.539(2) of the Act: s.546(2)(a) of the Act. In respect of a body corporate, the penalty must not be more than five times the maximum number of penalty units referred to in the relevant item in column 4 of the table in s.539(2) of the Act: s.546(2)(b) of the Act.
The maximum penalty for a contravention of the Regulations is included in the table contained in s.539(2) of the Act by the operation of reg.4.01A of the Regulations.
A “penalty unit” has the same meaning as in s.4AA of the Crimes Act 1914 (Cth): s.12 of the Act. During the assessment period when the admitted contraventions by the First Respondent occurred, a penalty unit was defined as $170.[37]
[37] Crimes Act 1914 (Cth) s.4AA(1), as amended by Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Act 2012 (Cth) sch.3 item 7.
General discount
The Fourth Respondent argues that the concept of applying a general discount is inappropriate. However, the Fourth Respondent submits that if the Court finds that it should apply a general discount, the discount for the Fourth Respondent should be at a high level.
In Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 (“Mornington Inn”), their Honours Stone and Buchanan JJ discussed the circumstances in which a discount on penalty is appropriate where a guilty plea is entered, and the possible quantum of that discount. Their Honours relevantly stated (Mornington Inn at [75]):
75. A conventional consideration in assessing a discount in a criminal case for a plea of guilty is the stage in the proceedings at which the plea is entered. Normally, the maximum discount for this factor, sometimes thought to be 25%, is reserved for a plea made at the first reasonable opportunity…
Their Honours went on to note that the rationale for a discount for an early plea in a criminal case (Mornington Inn at [76]):
76. …does not apply neatly to a case, such as the present, where a civil penalty is sought and the case proceeds on pleadings. Nevertheless, in our view, it should be accepted… that a discount should not be available simply because a respondent has spared the community the cost of a contested trial. Rather, the benefit of such a discount should be reserved for cases where it can be fairly said that an admission of liability: (a) has indicated an acceptance of wrongdoing and a suitable and credible expression of regret; and/or (b) has indicated a willingness to facilitate the course of justice.
Part I – the Second and Third Respondents
At all material times, the Second and Third Respondents were shareholders and directors of the First Respondent. The Second and Third Respondents have admitted that they were involved in the sham contracting contraventions, monthly pay contraventions, and pay slip contraventions, and that pursuant to s.550 of the Act, that they are taken to have contravened the relevant provisions of the Act and the Award.[38]
[38] The FGC SOAF at [151], [155].
Section 557(1) of the Act
The FWO submits, and I agree, that it is appropriate to group the 11 sham contracting contraventions because they consist of similar (albeit, separate) representations made to each employee, that their contracts of employment were contracts for services under which they were independent contractors.
Grouping
I agree with the FWO that there should not be any grouping of the sham contracting contravention, monthly pay contravention and pay slip contravention, because each of the remaining contraventions relate to a separate and distinct entitlement or obligation under the Award or the Act. Therefore, each should be treated as a separate contravention, attracting an appropriate penalty.
Applying this approach to grouping of the contraventions, there are now three separate groups of contraventions in respect of each of the Second and Third Respondents.
The penalties sought by the FWO to be imposed on each of the Second and Third Respondents are set out in Annexure A and Annexure B to this decision, respectively. In summary, the FWO submits that aggregate penalties (after grouping, and inclusive of discounts) within the following ranges should be imposed:
a)the Second Respondent: 74% to 80% of the maximum penalties, being $16,983 to $18,360; and
b)the Third Respondent: 74% to 80% of the maximum penalties, being $16,983 to $18,360.
Nature and extent of contravening conduct, including the loss and damage sustained
I agree with the FWO that the sham contracting contraventions are serious, as they were designed to save costs and avoid the First Respondent’s obligations under the Act and the Award, in circumstances where it was clear that the employees were not independent contractors running their own businesses.[39] There is evidence before the Court that one of the employees did not understand why he was required to provide the First Respondent with an Australian Business Number (“ABN”), nor did he understand the true nature of his working relationship with the First Respondent.[40]
[39] The FGC SOAF at [15], [18], [21]-[27].
[40] The Affidavit of Dharma Teja Reddy filed on 14 July 2017 at [7], [9]-[10]; the Affidavit of Ann Sanders filed on 17 July 2017 at [9]; Exhibit AS-1, Tab 5, 89, Tab 11, 181, Tab 12, 196, Tab 13, 215, Tab 17, 294.
The evidence is that the monthly pay contraventions also negatively impacted the employees. During the assessment period, there were 11 occasions when the First Respondent did not make payments to the employees for at least 36 days (and for as long as 51 days on two occasions) after the employees had performed work.[41] For example, Mr Reddy’s evidence is that waiting for 45 days to receive his first payment from the First Respondent made it difficult for him to pay rent, bills, and basic living expenses, and resulted in him having to borrow money from friends.[42]
[41] The FGC SOAF at [136]; Annexure 12.
[42] The Affidavit of Dharma Teja Reddy filed on 14 July 2017 at [22]-[23].
The Second and Third Respondents have admitted to their involvement in the monthly pay contraventions, as the Second Respondent calculated and administered the payments made by the First Respondent to the employees,[43] and the Third Respondent checked the pay calculations for those payments.[44] Both the Second and Third Respondents knew when the employees performed work, and when they were paid by the First Respondent.[45]
[43] The FGC SOAF at [149].
[44] Ibid at [153].
[45] Ibid at [148].
The failure to provide the employees with pay slips further disadvantaged the employees in their employment relationship. One of the purposes of the pay slip obligations under the Act is to enable employees to independently verify their entitlements, and thereby provide employees with an ability to enforce compliance. I agree that the failure to provide employees with pay slips in accordance with the Act and the Regulations disempowers employees from enforcing their entitlements.[46] I further agreed that the failure to provide pay slips effectively creates “a structure within which breaches of industrial laws can easily be perpetrated”.[47]
[46] Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd & Anor [2012] FMCA 258 at [67], cited with approval in Fair Work Ombudsman v Bundaberg Security Pty Ltd [2014] FCCA 592 at [26].
[47] Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd & Anor [2012] FMCA 258 at [67]; Fair Work Ombudsman v Zillion Zenith International Pty Ltd & Anor [2014] FCCA 433 at [76].
Circumstances of the contravening conduct
The contravening conduct occurred in circumstances that involved employees who were student visa holders.[48]
[48] The Affidavit of Ann Sanders filed on 17 July 2017 at [9]; Exhibit AS-1; Parth Patel: Tab 3, 55-57; Rutul Patel: Tab 4, 68-69; Zigmun Macopia: Tab 5, 86-87; Tab 6, 92; Sundeep Kunduru: Tab 10, 162-163; Aditya Sundini: Tab 11, 178-179; Marwin Gamboa: Tab 12, 191; Carmelo De Mesa: Tab 13, 207; Sachin Chinsab: Tab 14, 233-234; Sarah Sanchez: Tab 17, 286-287.
Other than Mr Reddy,[49] there is no evidence about the circumstance of the individual employees, including the reasons why they complied with the direction to obtain an ABN, and accepted the rates of pay offered. The FWO submits that seven of the employees were under the age of 26 during the assessment period, and that they relied on minimum wages and unskilled work. I accept that the employees were dependent on the minimum wages under the Award, and that they clearly performed unskilled work. The implication from the young age of seven of the employees was not drawn out by the FWO in submissions, or by way of direct evidence from the employees.
[49] See the Applicant’s Penalty Submissions filed on 10 November 2017 at [67].
In Fair Work Ombudsman v Amritsaria Four Pty Ltd & Anor [2016] FCCA 968, Smith J relevantly stated (at [60]):
60. The evidence of the vulnerability of the employees was sketchy. In their complaints to [the FWO], both Mr Yousaf and Mr Ahmed claimed that they were new to this country and jobless. Mr Yousaf claimed that he had found it difficult to find a job. I accept that this was the case and that this made them both vulnerable to exploitation. However, I do not think that this goes very far. Many employees are vulnerable to a certain extent and for different reasons: age, employment experience, financial needs, lack of control of record-keeping, and lack of knowledge of workplace rights. As Lucev FM (as his Honour then was) said in Fair Work Ombudsman v Ultra Tune Australia Ltd (2012) 225 IR 326; [2012] FMCA 560 at 336 [14], one cannot simply assume that because an employee is a foreign national, he or she is unfamiliar with Australia’s labour practices, or more vulnerable to underpayment or exploitation than any other employee.
Whilst I am prepared to give some weight to the fact that all of the employees were student visa holders, in the absence of sufficient evidence as to the impact of this on the employees (other than Mr Reddy), I am not prepared to afford it significant weight.
The Second and Third Respondents have admitted that they were responsible for making decisions on behalf of the First Respondent regarding the engagement of the employees. Accordingly, I am satisfied that they were aware of the particular circumstances of each of the employees.
Ensuring compliance with minimum standards
One of the principal objects of the Act, as set out in s.3(b) of the Act, is to ensure:
…a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders…
In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45, the High Court (comprising French CJ, Kiefel, Bell, Gageler and Nettle JJ) described the “evident purpose” of s.357 within the scheme of pt.3-1 of the Act as follows (at [16]):
16. …That purpose is to protect an individual who is in truth an employee from being misled by his or her employer about his or her employment status. It is the status of an employee which attracts the existence of workplace rights.
Those workplace rights include a guaranteed safety net of minimum terms and conditions under the Act and the Award. The conduct of the Second and Third Respondents in relation to the sham contracting contraventions undoubtedly misled the employees about their workplace rights under the Act and the Award.
I respectfully agree with the statement of Bromberg J in Fair Work Ombudsman v A Dalley Holdings Pty Ltd [2013] FCA 509. His Honour stated (at [19(7)]):
7. …In imposing a penalty, it is imperative for the Court to impose a penalty that reinforces the fundamental importance of compliance with the safety net of entitlements specified by the National Employment Standards and the general protection provisions of the FW Act…
Accordingly, I am satisfied that weight should be given to the impact of the sham contracting contraventions in undermining the purpose of the objects of the Act, and undermining enforcing compliance with the safety net provisions under the Act.
The pay slip contraventions are also relevant to this consideration. One of the purposes of the of pay slip obligations under the Act is to enable employees to independently verify their entitlements and, thereby, provide them with an ability to enforce compliance with minimum standards (see [43] above).
Deliberateness of contravening conduct
The FWO submits that the actions of the Second and Third Respondents in relation to the sham contracting contraventions were, at the very least, reckless.[50] In my opinion, the conduct was deliberate. The Second and Third Respondents have admitted to their involvement in the sham contracting contraventions. They have admitted that they were responsible for making decisions on behalf of the First Respondent regarding the engagement of the employees, the terms and conditions of engagement (including the requirement to obtain an ABN), and the terms of the document entitled “Code of Conduct, Conditions and Responsibilities”.[51] The Second and Third Respondents have further admitted that they had actual knowledge of, and personally made or authorised on behalf of the First Respondent, the representations which comprised the sham contracting contraventions, and knew that the employees were employed by the First Respondent, and were not independent contractors.[52]
[50] Ibid at [75].
[51] The FGC SOAF at [73].
[52] Ibid at [144]-[146].
Although the pay slip contraventions arose from the sham contracting contraventions, the Second and Third Respondents have admitted that they were involved in the calculation and administration of payments to the employees, and knew when they were paid by the First Respondent (see [42] above).
Size and financial circumstances
In Hansen v Mt Martha Community Learning Centre Inc (No 2) [2015] FCA 1283, Jessup J relevantly stated (at [5]-[6]):
5. The next matter concerns the size and financial circumstances of the respondent. It was submitted on behalf of the respondent that it was “a small, not-for-profit enterprise”. That submission, which was not put in issue, factually, by [the FWO], must be accepted. But it was submitted on behalf of [the FWO], remarkably in my respectful assessment, that “the size and financial resources of a business is not relevant”. Counsel relied on the judgment of Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14 for the proposition that “a penalty will normally be imposed at a meaningful level”. In that case, his Honour said (166 IR at 21, [28]):
No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction “must be imposed at a meaningful level”: see Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] ATPR 41-815 at [13].
So much may be accepted, but what constitutes an “appropriate monetary sanction”, or the imposition of a penalty at “a meaningful level”, can rarely be determined without at least some consideration of the size of the relevant contravener, as Tracey J himself accepted in Kelly (see 166 IR at 18-19 [14] and 20 [21]). The authorities in this area of the law were recently discussed by the Full Court in Australian Competition and Consumer Commission v BAJV Pty Ltd [2014] FCAFC 52 at [39]-[41].
6. In an associated submission on behalf of [the FWO], it was put that “a respondent’s financial situation is irrelevant to the assessment of a penalty”, for which the judgment of Wilcox CJ in Printing and Kindred Industries Union v Vista Paper Products Pty Ltd (1994) 127 ALR 673 was said to be authority. Far from amounting to such an authority, however, his Honour’s judgment in that case contained the following passage (127 ALR at 686):
In determining what monetary penalty to impose on an offender it is usual for a court to take into account the offender’s capacity to pay. A monetary sum that would constitute a reasonable penalty to a person of average income might be unduly oppressive if imposed on an impecunious person.
Otherwise, I am unable to discern where in Vista there was anything that might justify this submission made on behalf of [the FWO].
In respect of the financial circumstances of the Second and Third Respondents, the FWO submits:[53]
79. Searches conducted by the FWO show that:
a) [the Second Respondent] is a current Director of five companies (not including [the First Respondent]) and a shareholder of two of those companies (not including [the First Respondent])[54] and has a property interest in Victoria with an estimated value of $360,371;[55] and
b) [the Third Respondent] is a current Director and shareholder of two companies (not including [the First Respondent])[56] and has four property interests in Victoria with a total estimated value of $2,946,799.[57]
(Footnotes in original)
[53] The Applicant’s Penalty Submissions filed on 10 November 2017 at [79].
[54] The Affidavit of Ann Sanders filed on 17 July 2017 at [52]; Exhibit AS-1, Tab 56, 1032-1066 (Note that the Equifax Report in Tab 55 references the Second Respondent being a current director and shareholder of the First Respondent. The First Respondent was deregistered subsequent to the Equifax Report).
[55] Ibid at [54]; Exhibit AS-1, Tab 58, 1133-1135.
[56] Ibid at [51]; Exhibit AS-1, Tab 55, 1015-1031 (Note that the Equifax Report in Tab 55 references the Second Respondent being a current director and shareholder of the First Respondent. The First Respondent was deregistered subsequent to the Equifax Report).
[57] Ibid at [54]; Exhibit AS-1, Tab 58, 1121-1132.
In my view, the above information produced by the FWO’s searches is directly relevant to the question of specific deterrence (see [66]-[67] below). The value of the property interests as an indication of the Second and Third Respondents’ capacity to pay is limited, as it says nothing about their net equity position, or indeed their ability to obtain loans. There is no evidence about the profitability of the businesses, or what income is derived by them from the businesses.
As the FWO has pointed out, neither the Second nor the Third Respondent has filed any evidence in these proceedings of their current financial position, and to this extent, the task of the Court in assessing an appropriate monetary penalty with regard to this matter is impossible.
Contrition, corrective action and cooperation
The FWO acknowledges that during its investigation, the Second and Third Respondents both participated in recorded interviews, and provided the FWO with documentary evidence. The FWO further acknowledges that both the Second and Third Respondent (along with the First Respondent) made full admissions by way of the FGC SOAF within six months of the commencement of this proceeding. The FWO acknowledges that this indicates some acceptance of wrongdoing, and has facilitated the efficient conduct of this proceeding.[58]
[58] The Applicant’s Penalty Submissions filed on 10 November 2017 at [84]-[85].
The FWO points out that the rectification of the underpayment was made by the First Respondent, however, there is no evidence that neither the Second nor the Third Respondent personally made any contribution to the repayment of the employees.[59] Furthermore, the Second and Third Respondents placed the First Respondent into liquidation, and ultimately the First Respondent was deregistered.
[59] Ibid at [86].
The reality is that save for the Second and Third Respondents’ admissions of the relevant conduct and involvement in the contraventions, there is no evidence of contrition or remorse on the part of the Second or the Third Respondent personally.
Deterrence
In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46 at [55], the High Court of Australia confirmed that deterrence was the primary purpose of civil penalties. The High Court cited with approval the statement by French J in Trade Practices Commission v CSR Ltd [1990] FCA 762; (1991) ATPR 41-076, in which his Honour stated (at 52,152):
…The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.
For a penalty to have the desired deterrent effect, it must be imposed at a meaningful level: Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 at [13].
Specific Deterrence
Specific deterrence is directed to ensuring that a contravenor is not prepared to embark upon the risk of engaging in the same contravening conduct in the future.[60] In determining the need for specific deterrence, the Court should consider the Respondents’ attitude to remorse and steps taken to prevent further contraventions.[61]
[60] Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128 at [50].
[61] Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union [2008] FCAFC 170 at [37] (Gray J).
As noted earlier, the Second and Third Respondents are current directors and shareholders of a number of other companies (see [58] above). There is no evidence before the Court regarding the business of those companies, or whether those businesses employ staff currently, or may in the future. Nevertheless, there is a sufficient risk that the companies may be engaged in businesses that fall within the safety net of Awards made under the Act, and may employ staff that are covered by an Award, currently or in the future.
General Deterrence
When considering the question of general deterrence, a penalty should be fixed with a view to ensuring that it is not regarded by respondents and others “as an acceptable cost of doing business”, and should be likely to act as a deterrent to likeminded persons or organisations.[62] Employers should be in no doubt that they carry a responsibility to ensure that they comply with the obligations which they owe to their employees under the law.[63]
[62] Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 at [62]-[63]; Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65 at [93] (Lander J).
[63] Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2) [2012] FCA 557 at [29].
In my opinion, general deterrence is significant in this case. In particular, general deterrence is significant because of the sham contracting contraventions, which undermine not only the objects of the Act, but deny the employees their proper entitlements under the Act and the Award. It is necessary to make clear to any employer who may be contemplating engaging in a sham contracting arrangement that they are required to ensure that employees receive their entitlements under workplace laws. The pecuniary penalty imposed must be at a level that would deter an employer engaging in such serious contraventions of the Act.
The FWO has produced evidence in relation to, “Disputes completed relating to Building and Other Industrial Cleaning Services: 1 Jul 2013 – 31 Mar 2017”.[64] The analysis discloses only 3% of total disputes completed by the Fair Work Ombudsman. Relevantly, the greatest proportion (41% in total) of disputes in the industry concerned allegations of the non-payment or underpayment of wages. Furthermore, 18% of all completed disputes in the industry involved young workers of less than 26 years of age, and 21% of the disputes involved visa holders (10% of whom were student visa holders). Relevantly, the average amount recovered in underpayments per employee was $2,761, out of a total of $1,209,224.
[64] The Affidavit of Ann Sanders filed on 17 July 2017 at [55], Exhibit AS-1, Tab 59, 1136.
General discount
The FWO submits that a 10% discount of penalty is appropriate for the Second and Third Respondents, in recognition of their cooperation with the FWO during the investigations, and their admissions made by way of the FGC SOAF.
In my opinion, the appropriate discount would be 5%, as the Second and Third Respondents’ actions have simply spared the parties the costs of going to trial on liability. However, there is no evidence of genuine contrition and remorse, or a commitment to the pursuit of justice.
Appropriate penalty for the contraventions
Having considered the evidence and submissions before the Court, the factors which are particularly relevant in determining the penalty that ought to be imposed on the Second and Third Respondents in relation to the contraventions are:
a)the nature of the conduct, which has involved, in particular, sham contracting arrangements;
b)the level of cooperation displayed by the Second and Third Respondents with the enforcement authority during the investigation, and admission of liability under the FGC SOAF;
c)the absence of remorse and contrition demonstrated by the Second and Third Respondents; and
d)the need for specific, as well is general, deterrence.
Having regard to all of the circumstances, I have determined the appropriate penalty for each of the grouped contraventions, as set out below. Annexed to this decision are tables that set out the calculations of these amounts for each of the Second and Third Respondents.
After applying the general 5% discount, I have imposed the same penalty on both the Second and Third Respondents, as I am satisfied that they were equally involved in the grouped contraventions. These penalties are:
a)80% in relation to sham contracting contraventions;
b)70% in relation to the monthly pay contraventions; and
c)70% in relation to the pay slip contraventions.
I am satisfied that a total penalty of $17,926.50 should be imposed on the Second Respondent (see Annexure A), and that a total penalty of $17,926.50 should be imposed on the Third Respondent (see
Annexure B).
Totality principal
The final step the Court must take is to look at the aggregate penalty, to determine whether it is an appropriate response to the contravening conduct. The penalty imposed must not be crushing or oppressive; it must be proportionate to the conduct engaged in by the Respondents and not have the effect of exonerating the conduct.[65]
[65] See Kelly v Fitzpatrick [2007] FCA 1080 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 at [23] (Gray J); at [66]-[73] (Graham J), at [98]-[102] (Buchanan J).
On the evidence before the Court, I am satisfied that the aggregate pecuniary penalty to be imposed on each of the Second and Third Respondent is appropriate.
Part II – the Fourth Respondent
The Fourth Respondent has admitted that it was involved in the underpayment contraventions, and pursuant to s.550 of the Act, is taken to have contravened the relevant provisions of the Act and the Award.[66] The Fourth Respondent has made the following relevant admission:[67]
[66] The ISS SOAF at [132]-[134].
[67] Ibid at [11], [17]-[20].
11. At all times during the Assessment Period, the Fourth Respondent, through its employees, and on occasion through employees of the First Respondent who were managed and/or supervised by the Fourth Respondent:
(a) exercised management and supervisory control over the work performed by the Employees in the provision of the Services;
(b) required the Employees to register the hours that they were in attendance at work at the MCG through the use of biometric thumbprint scans taken at the commencement and completion of each shift;
(c) prepared a computer generated record of hours worked based on the biometric thumbprint scans referred to in paragraph 11(b) (Thumbprint Scanning Records);
(d) separately recorded times the Employees spent providing the Services using timesheets completed by hand (Handwritten Timesheets);
(e) recorded times as set out in paragraph 11(d) above by hand writing a commencing and finishing time for each Employee after the Employee had already signed the Handwritten Timesheets; and
(f) prepared a summary of hours worked each week based on the Handwritten Timesheets, and provided a copy of this weekly summary to the First Respondent.
…
17. At all material times that the Employees performed the duties referred to in paragraphs 13 and 14 above, the Employees:
(a) were subject to the requirements contained in the Code of Conduct;
(b) were subject to direction, supervision and management, in relation to where, when and how they performed their duties, by the First Respondent and the Fourth Respondent;
(c) were required by the First Respondent and the Fourth Respondent, at the commencement and the end of each shift, to scan in using the Fourth Respondent’s thumbprint scanning technology, which led to the creation of the Thumbprint Scanning Records;
(d) were required by the First Respondent and the Fourth Respondent, at the commencement and the end of each shift, to sign their names on the Handwritten Timesheets;
(e) were on many occasions instructed by the First Respondent and the Fourth Respondent not to enter the start and finish times on the Handwritten Timesheets at the time that they signed these documents;
(f) did not supply any capital, equipment or uniforms relating to or connected with the performance of the Services;
(g) wore uniforms and identity cards supplied by the Fourth Respondent; and
(h) used equipment supplied by the Fourth Respondent.
18. At all material times during the Assessment Period, the Employees attended at the MCG to commence work:
(a) at start times directed by the First Respondent; or
(b) at start times as directed by the Fourth Respondent.
19. At all material times during the Assessment Period, the Employees finished work at the MCG at end times directed by the Fourth Respondent.
20. The Fourth Respondent, when it engaged in the conduct referred to in paragraphs 11, 17(b), 17(c), 17(d), 17(e), 17(g),17(h), 18(b) and 19 above, engaged in that conduct:
(a) on behalf of the First Respondent; and
(b) at the direction, or with the consent or agreement of:
(i) the Second Respondent; and/or alternatively
(ii) the Third Respondent;
each of them being an officer of the First Respondent.
The Fourth Respondent admitted that it knew that the hourly rate of pay paid by it to the First Respondent (see [11] above) was not sufficient to cover the employees’ entitlements under the Award to casual loading, afternoon/night shift penalty, Saturday, Sunday or public holiday rates, or Monday to Saturday, Sunday and public holiday overtime rates.[68]
[68] Ibid at [122].
The Fourth Respondent further admitted that:[69]
120. The Rates Paid by the Fourth Respondent to the First Respondent were agreed between the First Respondent and the Fourth Respondent, as evidenced by:
(a) an email from the Second Respondent to an employee of the Fourth Respondent, sent at 12.38pm on 12 February 2014;
(b) an email from an employee of the Fourth Respondent to the Second Respondent, sent at 1:27pm on 24 February 2014; and
(c) an email sent at 2:36pm on 29 July 2014 from an employee of the Fourth Respondent, to an employee of the First Respondent, in which the Fourth Respondent confirmed that it only paid the evening rate ($23.63) for hours from 6.00pm to midnight Monday to Friday, not the hours between midnight and 6.00am.
[69] Ibid at [120], [127].
…
127. By an email sent at 12.07pm on 26 June 2014, the Second Respondent sent to employees of the Fourth Respondent a letter which stated that the First Respondent paid the following hourly rates to its personnel (including the Employees):
(a) Monday to Friday: $18 per hour;
(b) Saturday: $21 per hour;
(c) Sunday: $23 per hour; and
(d) Public holiday: $25 per hour.
The Fourth Respondent admitted that throughout the assessment period (including after 24 February 2014), it knew it was paying rates of pay to the employees that were less than the minimum rates required by the Award in respect of ordinary hours of work, overtime hours, all hours of work (whether overtime or not) on Saturdays, Sundays and public holidays, and the casual loading and refuse collection allowance.[70] Further, that on and from 26 June 2014, the Fourth Respondent knew that the hourly rates paid by the First Respondent to the employees were less than the minimum rates required by the Award in respect of ordinary hours of work, overtime hours, all hours of work (whether overtime or not) on Saturdays, Sundays and public holidays, the casual loading and refuse collection allowance.[71]
[70] Ibid at [124]-[125].
[71] Ibid at [127]-[129].
It is to be noted that the Further ISS SOAF sets out steps that the Fourth Respondent has taken, or is in the process of taking, in rectifying the Fourth Respondent’s involvement in the admitted contraventions. These steps, as well as other evidence produced by the Fourth Respondent, are considered under the question of contrition below.
Section 557(1) of the Act
The FWO accepts that the Fourth Respondent is entitled to the benefit of the course of conduct provisions contained in s.557(1) of the Act, in relation to repeated contraventions of separate obligation under the Award. Accordingly, the FWO submits that the Fourth Respondent engaged in 11 separate contraventions of the Award.[72] The Fourth Respondent accepts that it is liable, as a consequence of the operation of s.557(1) of the Act, for 11 separate contraventions of the Award.
[72] The Applicant’s Penalty Submissions filed on 10 November 2017 at [24].
I am satisfied that, applying s.557(1) of the Act, the Fourth Respondent engaged in 11 separate contraventions of the Award (these being the underpayment contraventions set out at [7(b)(i)-(xi)] above).
Grouping
There is a dispute between the FWO and the Fourth Respondent as to whether, and to what extent, the Award contraventions should be further grouped, or subjected to an “overlap approach” (see the discussion at [20]-[24] above), in accordance with the principle that a respondent should not be penalised twice for the same contravening conduct: Cahill at [47].
The FWO submits that there should be no grouping of the 11 separate underpayment contraventions, because each of the contraventions relate to a separate and distinct entitlement under the Award, and consequently, should be treated as a separate contravention attracting an appropriate penalty. The FWO seeks that the Court impose pecuniary penalties on the Fourth Respondent in the range of 60% to 80% of the maximum penalties, being $302,940 to $403,920.
ISS proposes a novel approach to the question of grouping. The Fourth Respondent argues that the 11 separate underpayment contraventions should be treated as two contraventions for which a penalty should be imposed. In the alternative, if the Court does not accept its preferred approach to grouping, the Fourth Respondent proposes the grouping of the 11 separate underpayment contraventions into six contraventions. The Fourth Respondent then proposes, as an alternative, an “overlap” approach to the 11 separate contraventions. The Fourth Respondent argues that the following pecuniary penalties are appropriate in the circumstances of the case:[73]
a)where the Court adopts its preferred approach of two contraventions: 68% for the first contravention, and 88% for the second contravention, producing a total penalty of $80,000; or
b)where the Court groups the 11 separate contraventions into six contraventions: 25% of the relevant maximum, which it argues is $306,000, producing a total pecuniary penalty of $76,500; or
c)where the Court adopts the “overlap” approach, a total pecuniary penalty of $48,000.
[73] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [112]-[117].
The Fourth Respondent commenced its submissions regarding its preferred approach to grouping by emphasising the underlying principle that a contravener should not be punished twice for the same underlying contravening conduct. In respect of its preferred approach, the Fourth Respondent contends:[74]
29. This was recognised by McHugh, Hayne and Callinan JJ in the following extract from Pearce v R [(1998) 194 CLR 610] about the avoidance of double-punishment as being the sentencing rationale for the grouping of contraventions (emphasis added):
To the extent to which two offences of which an offender stands convicted contain common elements, it would be wrong to punish that offender twice for the commission of the elements that are common. No doubt that general principle must yield to any contrary legislative intention, but the punishment to be exacted should reflect what an offender has done; it should not be affected by the way in which the boundaries of particular offences are drawn. Often those boundaries will be drawn in a way that means that offences overlap. To punish an offender twice if conduct falls in that area of overlap would be to punish offenders according to the accidents of legislative history, rather than according to their just deserts.
[74] Ibid at [29]-[33].
Their Honours continued (citations omitted, emphasis added):
The identification of a single act as common to two offences may not always be as straightforward. It should, however, be emphasised that the inquiry is not to be attended by “excessive subtleties and refinements”. It should be approached as a matter of common sense, not as a matter of semantics.
30. This is acknowledged by the FWO in its submissions that the purpose of grouping contraventions is to avoid penalising a respondent twice for the same conduct – “the principle recognises is that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality.”
31. In applying these principles in the present matter in a common sense way, the focus must be identifying [the Fourth Respondent’s] contravening conduct. Two matters are of central and defining relevance in that inquiry. First, regard must be had to the fact that [the Fourth Respondent] was not the employer of the Employees, but a third party to their employment relationships with [the First Respondent]. [The Fourth Respondent] was not legally responsible for payment to the Employees of the various benefits and amounts to which they were properly entitled under the Modern Award. Secondly, regard must be had to the fact that [the Fourth Respondent’s] contravening conduct was an omission. The evidence establishes that [the Fourth Respondent] engaged in two omissions, or two “courses of omission”.
(a) The first omission or course of conduct, which lasted from the start of the Assessment Period until 26 June 2014, was its failure to act despite knowing that the fees it paid to [the First Respondent] were too low to allow [the First Respondent] to cover the Employees’ entitlements under the Modern Award at times other than for ordinary hours of work between Monday and Friday.
(b) The second omission or course of conduct began on 26 June 2014 and lasted until the end of the Assessment Period, during which time [the Fourth Respondent] failed to act despite knowing the actual rates of pay which [the First Respondent] was paying the Employees, and knowing those rates covered only the basic rate of pay. [The Fourth Respondent] accepts that this second omission has a different and more serious quality than the first omission.
32. In the language of Pearce, the punishment to be exacted on [the Fourth Respondent] should reflect what it has done, namely, the above two courses of conduct which, after grouping the contraventions, amount to 2 contraventions for which a penalty should be imposed. To do otherwise would be to inflict double-punishment on [the Fourth Respondent] because the factual elements of its contravening conduct are the same for each of the 11 Underpayment Contraventions in relation to each of the above two time periods. To put it another way, because [the Fourth Respondent] was not the employer of the Employees, there is no separate conduct by which it failed to pay the Employees each of the 11 types of benefits provided for by the Modern Award.
33. If a direct employer pays an unlawfully low, flat, rate of pay, it contravenes a range of award obligations imposed directly upon them, and as an exercise of the sentencing discretion, it may be appropriate that it be penalised by reference to those obligations. Where that occurs, it is done because the Court considers that the penalty should reflect the specific legal form of the obligations cast on the employer. However, there is no reason why an accessory, who did not bear the same direct obligations, and whose obligations may be of a different nature, must be penalised in the same mechanical way. In this case, [the Fourth Respondent’s] obligation was to intervene to stop [the First Respondent’s] contraventions, or else to cease trading with [the First Respondent]. It is by reference to that obligation and conduct which [the Fourth Respondent] should be penalised.
(Emphasis in original, underlining and footnotes omitted)
I reject the Fourth Respondent’s preferred approach to the grouping of contraventions for the following reasons.
The Fourth Respondent’s submissions overlook one of its fundamental admissions. The Fourth Respondent has admitted that it was involved in the underpayment contraventions pursuant to s.550 of the Act. The Fourth Respondent admitted that, throughout the assessment period, by way of its acts or omissions, it:
a)aided, abetted, counselled, or procured the contraventions of the First Respondent in relation to casual loading rates, afternoon/night shift penalty, Saturday penalty, Sunday penalty, public holiday penalty, Monday to Saturday overtime rates, Sunday overtime rates, public holiday overtime rates, the leading hand allowance and the refuse collection allowance; and
b)was directly or indirectly, knowingly concerned in each of the contraventions listed at [91(a)] above.[75]
[75] The ISS SOAF at [132]
The Fourth Respondent further admitted that after 26 June 2014 and for the remainder of the assessment period, it aided, abetted, counselled, or procured the contraventions of the First Respondent in relation to minimum hourly rates of pay, and was directly or indirectly, knowingly concerned in that contravention of the First Respondent.[76]
[76] Ibid at [133].
The Fourth Respondent admitted that pursuant to s.550(1) of the Act and by reason of its admitted involvement in the contraventions, the Fourth Respondent is treated as having contravened each of the provisions of the Award that the First Respondent contravened; namely, the minimum hourly rates of pay, casual loading rates, afternoon/night shift penalty, Saturday penalty, Sunday penalty, public holiday penalty, Monday to Saturday overtime rates, Sunday overtime rates, public holiday overtime rates, the leading hand allowance and the refuse collection allowance.
Section 550(1) of the Act provides that “[a] person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.”
Having admitted that it was involved in the First Respondent’s contraventions of the Award, by legislative intent, the Fourth Respondent is taken to have contravened the provisions of the Award (see[7(b)(i)-(xi)] above).
In light of the admissions made by the Fourth Respondent and the operation of s.550(1) of the Act, it is simply incorrect to describe the Fourth Respondent as a “third party”, if the use of that word is designed to minimise or reduce the Fourth Respondent’s responsibility for its involvement in the contraventions for the purpose of the Court’s determination of a pecuniary penalty. The Fourth Respondent was not the direct employer of the employees, but it is nevertheless taken to have contravened those provisions.
As a large contractor[77] which entered into an agreement with a subcontractor, and by its own admissions, the Fourth Respondent had direct knowledge of all matters relevant to the contravening conduct. It knew the hours worked by the employees, the hourly rates of pay it paid to the First Respondent, and from 26 June 2014, the hourly rates of pay paid by the First Respondent to the employees.
[77] The Affidavit of Scott William Erwin filed on 5 October 2017 at [8].
Of course, the First Respondent was the entity obliged to pay the correct entitlements under the Award to the employees. I accept that the FGC Agreement required the First Respondent to comply with its obligations under the Award. However, in my opinion, the fact that these obligations on the First Respondent were part of the FGC Agreement is not relevant to any assessment of the Fourth Respondent’s contravening conduct.
I reject the Fourth Respondent’s submission that its conduct amounted to acts only of “omission”. On the evidence before the Court (the Fourth Respondent’s admissions in the ISS SOAF, extracted at [81] above), I am satisfied that during the entire assessment period, it paid to the First Respondent amounts which it knew were less than the hourly rates required to be paid to the employees under the Award. The Fourth Respondent had knowledge of the hourly rates that were required to be paid by the First Respondent under the Award, if the employees of FCG were to receive the correct entitlements. There is no evidence before the Court regarding the circumstances or reasons for this conduct. In my opinion, that conduct was conduct by commission, not omission.
Moreover, after 26 June 2014, the Fourth Respondent also knew that the First Respondent was not paying the employees their correct entitlements under the Award. I view this as an aggravating factor of the Fourth Respondent’s conduct by commission during the latter part of the assessment period.
The evidence in relation to this latter part of the assessment period is contained in an email exchange between Mr Pat Dalton (the Regional Client Services Manager of the Fourth Respondent), and the Second and Third Respondents. The exchange commences with an email dated 26 June 2014 from Mr Dalton to the Second and Third Respondents, requesting that they provide correspondence “…outlining that [he is] meeting [his] obligation as per [their] Sub contractor agreement, that [he is] paying [his] staff cleaning award rates”.[78]
[78] The Affidavit of Ann Sanders filed on 17 July 2017, Exhibit AS-1, Tab 20I, 342.
The FWO submits that on the same day, the Second Respondent sent an email to Mr Dalton attaching a letter addressed to Mr Dalton dated 26 June 2014, setting out the hourly rates of pay paid to the employees for work on Monday to Friday, Saturdays, Sundays, and public holidays[79] (see table at [11] above). This version of events is consistent with [127] of the ISS SOAF.
[79] Ibid 343.
There is no dispute that on 1 July 2014, Mr Dalton replied to the Second Respondent by email, requesting him to resend the letter on the First Respondent’s letterhead (which the Second Respondent did). Mr Dalton said that he had “…made a couple of minor changes in the wording [in the Second Respondent’s letter] but the context is the same”.[80]
[80] Ibid 344.
The FWO alleges that the Fourth Respondent took deliberate action to conceal the hourly rates that the First Respondent was paying from the principal, the MCC. The FWO’s evidential basis for this allegation is a series of email exchanges as follows.
The FWO submits that the letter that Mr Dalton attached to his email dated 1 July 2014, and was subsequently sent by the Second Respondent under his signature, is dated 27 June 2014, and refers in general terms as follows:[81]
The rates we pay are above the minimum pay rates as calculated out by the Fair Work Ombudsman calculator. Our personnel are getting paid accordingly.
[81] Ibid Tab 25, 674.
The FWO submits that it is reasonable to infer from this email that the Fourth Respondent removed any reference to the rates actually paid by the First Respondent from the correspondence from the Second Respondent to the Fourth Respondent, because it knew the rates paid by the First Respondent were insufficient to meet the Award rates, and alleges that this was done “…to deliberately conceal the rates from [the Fourth Respondent’s] customer, the MCC.”[82]
[82] The Applicant’s Penalty Submissions filed on 10 November 2017 at [64].
Counsel for the Fourth Respondent agreed that the letter dated 27 June 2014 was likely to be the version that was drafted by Mr Dalton. However, as I understand it, the Fourth Respondent submits that this letter, although it is dated 1 July 2014, was drafted and sent in or around September 2014; after the Fourth Respondent took steps to terminate its contract with the First Respondent.
This argument is based on the fact that the Second Respondent signed a letter dated 27 June 2014 stating that the First Respondent used independent contractors, and they paid contractors in accordance with arrangements made between them and the independent contractors.[83]
[83] The Affidavit of Ann Sanders filed on 17 July 2017, Exhibit AS-1, Tab 40C, 899.
There is an exchange of emails between some employees of the Fourth Respondent, dated 12 September 2014. The gist of these emails is that the correspondence dated 27 June 2014 was correspondence that the First Respondent’s solicitors told the First Respondent to send to the Fourth Respondent, and that the First Respondent needed to confirm they were paying the legal wage, and not what they agreed with their contractors, “otherwise they will be terminated.”[84]
[84] Ibid 897.
In the absence of direct evidence from Mr Dalton and/or the Second Respondent, the sequence of events in the email exchange is not evident to the Court. The email exchange is somewhat confusing. The correspondence referred to in the emails as attached letters do not follow in sequence in exhibit AS-1 to the affidavit of Ann Sanders. In these circumstances, the evidential basis upon which the Court could accept the serious allegation made by the FWO is simply not available. I am not prepared to draw the inference that the FWO seeks.
Having rejected the preferred approach of the Fourth Respondent to grouping the 11 separate contraventions, I now turn to consider whether I should group any of those separate contraventions.
Grouped Contraventions
I have decided that the 11 separate contraventions should be grouped as follows.
I am satisfied that the following penalty rate contraventions should be grouped as one contravention:
a)the Saturday penalty contravention;
b)the Sunday penalty contravention;
c)the public holiday penalty contravention; and
d)the afternoon/night shift penalty contravention.
(collectively, “the penalty rates contravention”)
In my opinion, the above grouping is justified because each of these provisions that the Fourth Respondent was involved in the contravention of relate to the payment of penalty loadings for work performed during hours which might be described as “unsociable hours”. I do not accept the FWO’s submission that because these are the hours the employees generally worked during the assessment period, the contravention should not be grouped. As is clear from the authorities, the focus must be on the common elements of the contraventions; in other words, the factual and legal circumstances underlying the contraventions.
I am satisfied that the following contraventions of provisions of the Award involving the payment of overtime should be grouped into one contravention:
a)the Monday to Saturday overtime rates contravention;
b)the Sunday overtime rates contravention; and
c)the public holiday overtime rates contravention.
(collectively, “the overtime rates contravention”)
I agree with the Fourth Respondent that these provisions of the Award should be grouped as one contravention, as they impose obligations to pay overtime for different periods in which overtime is worked.
This process of grouping results in the following six separate contraventions by the Fourth Respondent of the Award:
a)the minimum hourly rates contravention;
b)the casual loading rates contravention;
c)the penalty rates contravention;
d)the overtime rates contravention;
e)the leading hand allowance contravention; and
f)the refuse collection allowance contravention.
Factors relevant to penalty
Nature and extent of contravening conduct, including the loss and damage sustained
The FWO notes that the six month assessment period represents just under 9% of the time that the FGC Agreement operated (from
9 February 2009 until 24 September 2014), and submits that it is reasonable to infer that the conduct that comprised the underpayment contraventions occurred throughout the entire period of the FGC Agreement. The FWO submits that this inference should be taken into account in imposing a monetary penalty. I reject this submission. In the absence of any evidence to support the FWO’s submission, it is mere speculation. I also reject the Fourth Respondent’s submission that the employees who worked casually “likely had other sources of income”,[85] as it is also an exercise in speculation.
[85] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [62].
The FWO submits that the total amount of underpayment contraventions of $37,471.10 is significant. The FWO submits that this is particularly so as it accrued over a limited six month period, and constituted substantial amounts for the employees who were low income earners, and reliant on the minimum Award wage.[86]
[86] The Applicant’s Penalty Submissions filed on 10 November 2017 at [50].
The Fourth Respondent submits that in determining appropriate penalty, the Court should focus specifically on the loss and damage caused by the Fourth Respondent’s contraventions, as distinct from that caused by the Second and Third Respondents. The Fourth Respondent relies on a comparison of the hourly rate paid by it to the First Respondent for work at various times, with the actual hourly rate paid to the employees by the First Respondent for work at those various times (see table at [11] above). The Fourth Respondent submits:[87]
54. …What is apparent from the above table is that, although [the Fourth Respondent] paid [the First Respondent] materially higher rates for periods of work other than ordinary hours, [the First Respondent] did not commensurately increase the rate of pay paid to the Employees.
[87] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [54].
Having provided an analysis of particular hourly rates prescribed by the Award, and the proportion of this paid by it to the First Respondent and then by the First Respondent to the employees, the Fourth Respondent submits that:[88]
57. The above analysis demonstrates that, to a very substantial extent, it was [the First Respondent’s] contraventions, rather than [the Fourth Respondent’s] conduct, which caused the loss and damage suffered by the Employees. This is a factor in mitigation of the penalty to be imposed on [the Fourth Respondent], at least in relation to the first omission or course of conduct prior to it having knowledge from 26 June 2014 of the rate of pay paid by [the First Respondent] to the Employees
[88] Ibid at [57].
In my opinion, this submission is misconceived for the reasons set out earlier in relation to the Fourth Respondent’s preferred approach to the grouping of contraventions. The Fourth Respondent has admitted that it was involved in the contraventions, and pursuant to s.550(1) of the Act, the Fourth Respondent is taken to have contravened the provisions. In my view, it is inconsistent with the legislative intent underlying s.550(1) of the Act to suggest that, by reason of the fact that the Fourth Respondent paid to the First Respondent a higher hourly rate for various times worked (although less than that required under the Award) than that which the First Respondent paid to the employees, this is a mitigating factor in relation to the penalty to be imposed on the Fourth Respondent for the underpayment contraventions. As stated above, the conduct of the Fourth Respondent over the whole of the assessment period was conduct by commission (not omission), and the conduct of the Fourth Respondent in the period from 26 June 2014 to the end of the assessment period is to be treated as an aggravating factor in the consideration of the amount of penalty to be imposed.
The Fourth Respondent further argues that “the Court should however appreciate” that the underpayments “…were only modest in absolute, dollar, terms, for many of the employees…”[89] I find this submission of the Fourth Respondent to be patronising, as it fails to appreciate the fact that the employees, who performed work that could only be described as unskilled and unpleasant, were clearly dependent on the minimum Award rates. The amount of $276.68 over a period of five months (the underpayment for one employee identified by the Fourth Respondent)[90] may be described as modest when looked from the perspective of a professional salary earner. However, the same could not be said for an employee classified at the lowest classifications in an Award covering a low-paying occupation.
[89] Ibid at [61].
[90] Ibid at [60].
I agree with the FWO’s submission that the relevant consideration is the loss in monetary terms as a proportion of the amount they were entitled to under the Award. The FWO submits that the employees were each denied between 48% and 64% of their Award entitlements.[91] By any account, the proportionate loss of entitlements is substantial.
[91] The Applicant’s Penalty Submissions in Reply filed on 21 December 2017 at [20].
Circumstances of the contravening conduct
The FWO submits that the vulnerability of the employees is an aggravating factor in this matter. The vulnerability of the employees is said to arise from the fact that:
a)the employees were foreign nationals in Australia on student visas;
b)the fact that a number of the employees were under the age of 26; and
c)the hardship imposed on the employees as a result of the underpayments.
I have earlier addressed the question of the employees’ vulnerability as foreign nationals and by reason of their age, and the FWO’s submissions regarding the hardship suffered by the employees (see [41], [44]-[46] above).
Ensuring compliance with minimum standards
I have considered the relevance of compliance with minimum standards in the imposition of a pecuniary penalty (see [49]-[54] above).
I appreciate that the Fourth Respondent was addressing the FWO’s submission that the fact that the employees were not provided with “basic entitlements” should be treated as an aggravating factor in the imposition of pecuniary penalty. However, I find the Fourth Respondent’s following submission to be misguided:[92]
67. The problem with this submission is that in every underpayment case, an employee’s “basic entitlements” have, by definition, not been provided. The Court cannot and should not regard every underpayment case as involving an aggravated contravention of the Act, particularly where the underpayments are small. Each case must be decided on its own facts.
[92] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [67].
There is no doubt that the employees were not paid their basic entitlements in monetary amounts under the Award. This conduct, which the Fourth Respondent has admitted that it was involved in, clearly undermines the objects of the Act. This is a relevant consideration in considering an appropriate pecuniary penalty.
I agree with the observations of Jarrett J in Fair Work Ombudsman v Mai Pty Ltd & Anor [2016] FCCA 1481 (at [134]):
134. It is also vital to recognise the importance of maintaining a level playing field for all employers in an industry, with respect to wage costs. Those employers who fail to comply with minimum obligations gain an unfair monetary advantage over those employers who do comply with their obligations. It is clear in this case that the respondents sought to reduce the costs of their business and were, as such, at an advantage…
However, I agree with the submission of the Fourth Respondent that given the relatively short timeframe of the assessment period, any commercial advantage by their involvement in the underpayment contraventions would have been limited.
Deliberateness
The FWO submits that “[a]t the very least, [the Fourth Respondent] was reckless as to its involvement in the [u]nderpayment [c]ontraventions”.[93]
[93] The Applicant’s Penalty Submissions filed on 10 November 2017 at [77].
The Fourth Respondent has chosen not to place before the Court direct evidence of those employees who were directly involved in determining the payments made to the First Respondent for the various work performed, or of those employees who became aware on and from 26 June 2014 that the First Respondent was not paying the correct hourly rates for various work performed under the Award.
An affidavit has been filed by Mr Erwin, who was the National Human Resources Manager for the ISS Group during the assessment period.[94] I accept Mr Erwin’s evidence that he was not aware of any allegations that the First Respondent may not be complying with the Award until
7 September 2014, when a program was aired on SBS World News regarding the allegations.[95] Accordingly, Mr Erwin is not in a position to give evidence as to the deliberateness or otherwise of the Fourth Respondent’s involvement in the underpayment contraventions.
[94] The Affidavit of Scott William Erwin filed on 5 October 2017 at [5].
[95] Ibid at [16]-[17].
Drawing upon the matters deposed by Mr Erwin, the Fourth Respondent submits that it acted recklessly.[96]
[96] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [69].
I find that the Fourth Respondent’s conduct was reckless; however, it is relevant that the involvement of the Fourth Respondent in the underpayment contraventions during the assessment period was conduct by commission.
Size and financial circumstances
The FWO and the Fourth Respondent agree that the Fourth Respondent is part of a large corporate group, and that this is relevant to the Court’s consideration as to what amount of penalty imposed will be “meaningful”.
Contrition, corrective action, and cooperation
The FWO has acknowledged that:[97]
a)the Fourth Respondent cooperated with the FWO during the investigation by providing the FWO with documentary evidence;
b)as a consequence of the fact that 18 months after the commencement of the proceedings, the Fourth Respondent made full admissions of its involvement in the underpayment contraventions by way of the ISS SOAF, the Fourth Respondent has accepted its wrongdoing, and has facilitated the efficient conduct of these proceedings;
c)the Fourth Respondent also entered into the Further ISS SOAF, which set out a number of corrective steps that have been taken, and will be taken by the Fourth Respondent, which are directed at preventing future similar contraventions; and
d)Mr Ewin’s affidavit includes further details of the Fourth Respondent’s remedial action to avoid future occurrences of similar contraventions.
[97] The Applicant’s Penalty Submissions filed on 10 November 2017 at [87]-[89].
In my opinion, this acknowledgement is somewhat understated and reluctantly given, having regard to the following.
In relation to contrition, Mr Erwin said in his affidavit:[98]
28. [The Fourth Respondent] considers the failure of [the First Respondent] to comply with its obligations to the [the First Respondent’s] Workers to be unacceptable. [The Fourth Respondent] accepts responsibility for the failures of the ISS Group’s standards and processes which allowed [the First Respondent’s] non-compliance with its obligations under [the Act] to the [the First Respondent’s] Workers to occur. The conduct offends the standards of the ISS Group holds itself to which I have outlined above. On behalf of [the Fourth Respondent], I apologise to the [the First Respondent’s] Workers, and to the Court, for [the Fourth Respondent’s] involvement in the First Respondent’s contraventions of [the Act].
[98] The Affidavit of Scott William Erwin filed on 5 October 2017 at [28].
In relation to cooperation, on 4 February 2015 (at least ten months before the proceeding was commenced), the Fourth Respondent proposed to the FWO that the investigation into the Fourth Respondent’s conduct be resolved on the basis that the Fourth Respondent would:[99]
a)make a contribution to any compensation payable to the employees in the event that the First Respondent is unable to directly rectify any underpayments to the employees; and
b)voluntarily enter into a “proactive compliance deed” with the FWO, pursuant to which it would:
i)establish a complaints hotline for the benefit of its subcontractors’ employees;
ii)seek to resolve any complaints received through the hotline in an agreed timeframe, and provide periodic reports to the FWO about any complaints received and their resolution; and
iii)undertake a program of random audits of its subcontractors as to their compliance with their legal obligations, and the results of such audits to be shared with the FWO.
[99] Ibid at [79]; the Affidavit of Ann Sanders filed on 17 July 2017, Exhibit AS-1, Tab 42, 953-954.
There is no dispute that the Fourth Respondent formally made admissions well before any trial, and consequently, the resources of the Court and the parties were not taken up with litigation as to liability.
The Fourth Respondent has relevantly identified its corrective action as follows:[100]
[100] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [76]-[85].
76. First, [the Fourth Respondent] commenced the process of terminating the FGC contract within a week of Mr Erwin becoming aware of the allegations of underpayments and, pursuant to its contractual terms with the First Respondent, terminated the contract 9 days later.
77. Secondly, immediately after it terminated the FGC contract, it offered employment to all of the First Respondent’s employees - 250 accepted employment.
…
79. Thirdly, at the MCG and elsewhere, [the Fourth Respondent] is ensuring that, where possible, workers are directly engaged by [the Fourth Respondent] rather than by its subcontractors (the “self-delivery model”).[101] The proportion of salary and subcontractors’ costs incurred in the Specialised Services Division of the ISS Group (being the part of the ISS Group which provides contract cleaning services) which is referable to its directly employed workforce increased from 82% to 90.4% between 2014 and August 2017.[102]
80. Fourthly, [the Fourth Respondent] has audited all of its existing subcontractors in relation to their compliance with labour laws, and has terminated contracts with those who did not comply with labour laws. It intends to continue conducting random audits.[103]
81. Fifthly, [the Fourth Respondent] has reviewed and improved its procurement system so that it has greater insight into the wage arrangements of subcontractors when they bid for work.[104] Bidders are now required to undergo an independent pre-qualification process which includes investigation of compliance with labour laws.[105] Successful subcontractors will sign contracts under which they must verify their compliance with workplace laws (by statutory declaration) and which allow [the Fourth Respondent] to enter premises and inspect records.[106]
82. Sixthly, [the Fourth Respondent] has implemented training for its managers about workplace laws.[107]
83. Seventhly, [the Fourth Respondent] has established arrangements to more readily allow workers to notify it of any concerns over pay and conditions – it has set up the ‘Speak Up’ telephone hotline,[108] a “Company Ombudsman” scheme,[109] and a special hotline for workers in its contract cleaning division.[110]
84. Eighthly, [the Fourth Respondent] has put in place measures which will ensure greater transparency over employee payments. It has done this by accelerating the roll-out of an electronic sign-in system which allows it to monitor employees’ times of work, and thereby correctly calculate their award entitlements[111] and by launching an app to give employees mobile access to their time and wage records.[112]
85. Ninthly, [the Fourth Respondent] is participating in the “Cleaning Accountability Framework” program, which includes submitting itself to external audits examining compliance with labour laws.[113]
(Footnotes and emphasis in original)
[101] The Affidavit of Scott William Erwin filed on 5 October 2017 at [32]-[34].
[102] Ibid at [34(a)].
[103] Ibid at [51]-[53].
[104] Ibid at [35]-[38].
[105] Ibid at [47]-[50].
[106] Ibid at [59]-[61].
[107] The Further ISS SOAF, [1(g)-(h)].
[108] The Affidavit of Scott William Erwin filed on 5 October 2017 at [62]-[66].
[109] Ibid at [67]-[70].
[110] Ibid at [71]-[73].
[111] Ibid at [39]-[42].
[112] Ibid at [43]-[46].
[113] Ibid at [74]-[77].
As to the apology from Mr Erwin, the FWO correctly observes that there is no evidence that Mr Erwin has personally apologised or taken steps to personally apologise to the individual employees. In the context in which the apology is given (see [140] above), and despite its admissions in the ISS SOAF, it seems to me that the Fourth Respondent does not fully accept that it was involved in the contraventions. Mr Erwin refers to the failure of the Fourth Respondent’s processes in allowing the First Respondent’s non-compliance with the Award. In my opinion, this falls short of a complete acceptance of the Fourth Respondent’s involvement in the underpayment contraventions. Nevertheless, I accept that through Mr Erwin, the Fourth Respondent has proffered an apology to the Court, and that it is a genuine apology.
In my view, the cooperation by the Fourth Respondent with the FWO, and in particular, the corrective steps that the Fourth Respondent has taken, are to be accorded significant weight in the Court’s consideration of the penalty to be imposed. It may well be that, as the FWO claims, the Fourth Respondent only introduced its subcontractor verification process in April 2017; some two and a half years after Mr Erwin became aware of the allegations of underpayments by a subcontractor of the Fourth Respondent. However, I do not regard this as a relevant factor in considering the penalty to be imposed. The FWO’s second criticism that the amended subcontractor standard contract may not guarantee compliance is unconvincing. Obviously, any contractual terms do not guarantee compliance with the Act and the Award. Compliance will depend on the tranche of other measures adopted by the Fourth Respondent.
In summary, I give significant weight to the corrective action taken by the Fourth Respondent in this matter.
Deterrence
It is settled principle that deterrence is the primary purpose of the imposition of civil penalties (see [64] above). Both the FWO and the Fourth Respondent accept this principle.
Specific deterrence
The FWO submits that because the Fourth Respondent is a large company that currently employs approximately 11,000 employees, and engages at least 21 subcontractors nationally,[114] and notwithstanding the Fourth Respondent’s remedial action, there is still a significant need for specific deterrence in this matter.
[114] The Affidavit of Ann Sanders filed on 30 October 2017 at [20].
I disagree with the FWO’s submission. I am satisfied that the Fourth Respondent and the ISS Group are committed to the corrective action taken in relation to the engagement of subcontractors.
Since July 2016, Mr Erwin has been in the position of Director of People and Culture, employed by ISS Administrative Services Pty Ltd; a wholly-owned subsidiary of the Fourth Respondent. Mr Erwin has overall responsibility for all human resources matters across the group of companies, of which the Fourth Respondent is the parent company in Australia.[115] I am satisfied that I can infer from the contents of Mr Erwin’s affidavit which sets out the Fourth Respondent’s corrective actions that the Fourth Respondent is genuinely committed to avoiding the circumstances which resulted in these proceedings.
[115] The Affidavit of Scott William Erwin filed on 5 October 2017.
Furthermore, I accept that it is a relevant consideration as to the question of specific deterrence that neither the Fourth Respondent, nor any other company within the ISS Group, has previously been convicted and/or penalised for contravening workplace laws[116] during its operation as a business over a period of more than three decades.[117]
[116] Ibid at [9].
[117] Company search: the Affidavit of Ann Sanders filed on 17 July 2017, Exhibit AS-1, Tab 57, 1067; ABN extract: the Affidavit of Ann Sanders filed on 17 July 2017, Exhibit AS-1, Tab 57, 1120.
General deterrence
I am satisfied that general deterrence is a significant factor in these proceedings.
The Fourth Respondent submits that the data collected by the FWO in relation to Building and Other Industrial Cleaning Services Industry (see [70] above) may be relevant to the First Respondent, but is not relevant to the Fourth Respondent. The Fourth Respondent submits that:[118]
101. …[the Fourth Respondent] was the principal in a contracting chain. The FWO has not adduced any evidence to show that there are other principals in the industry who contravene, or are tempted to contravene, and who need to be deterred.
[118] The Fourth Respondent’s Amended Submissions on Penalty filed on 31 January 2018 at [101].
Clearly, the Fourth Respondent was the principal contractor in a contracting chain. In my opinion, the question of general deterrence arises in relation to the desirability of a contractor taking responsibility for the conduct of those subcontractors it engages as part of a supply chain.
I am satisfied that I can take judicial notice of the fact that the arrangement of contracting and subcontracting is prevalent in the Australian economy. It seems to me that the prevalence of this arrangement is recognised in the scheme of the Act. For example, under pt.3-1 of the Act (“the General Protections”), s.340 of the Act prohibits a person taking “adverse action” for various reasons. This is a civil remedy provision. Section 342 of the Act (which sets out the meaning of “adverse action”) includes action taken by (item 3):
a person (the principal) who has entered into a contract for services with an independent contractor against the independent contractor, or a person employed or engaged by the independent contractor.
(Emphasis in original)
In my opinion, Parliament intended to extend the General Protections afforded under pt.3-1 of the Act to arrangements in which the principal contractor is part of the supply chain with subcontractors.
Principal contractors who have entered into arrangements with subcontractors ought not be able to absolve themselves of the responsibility to ensure that the subcontractors who they have engaged to perform services comply with all workplace laws in respect of the subcontractor’s employees, who perform the work required by the principal contractor, under the contract reached between the principal contractor and the subcontractor.
Without doubt, principal contractors ensure that the work performed by the subcontractor for the entity with which a principal contractor has agreed to provide services, is at the standard required by the business, and is delivered within timelines required by that business, corporate or government statutory entity. Principal contractors will do so to ensure that they secure further work with those entities, and expand their business with others.
Given the objects of the Act (in particular, the maintenance of a safety net of minimum standards), principal contractors must be deterred from engaging subcontractors without taking steps to ensure that so long as those subcontractors are engaged by them, they comply with the Act. There are many reasons for this. Firstly, in the absence of this requirement as a business imperative, principal contractors may be tempted to contract out of the Award by the practice of the supply chain. Secondly, if principal contractors do not treat this as a business imperative, the notion of a level playing field in which principal contractors tout for business on the basis of the same labour costs, would collapse. Thirdly, the consequence of both of the above reasons is the undermining of the minimum Award system in Australia.
I accept that, in this case, there is a tension between the imperative purpose of the imposition of civil penalties to deter future behaviour, and the acknowledged corrective action taken by the principal contractor in the present matter (being the Fourth Respondent). However, general deterrence must be a paramount consideration in determining a meaningful pecuniary penalty.
General discount
The FWO submits that a general discount of 10% is appropriate, taking into account the cooperation of the Fourth Respondent, and its contrition and corrective action.
In my opinion, taking into account the admissions made by the Fourth Respondent, its cooperation and corrective action, and its contrition in relation to its involvement in the underpayment contraventions, an appropriate discount is 15%.
Appropriate penalty for the contraventions
Having considered the evidence and submissions before the Court, the factors which are particularly relevant in determining a penalty that ought to be imposed on the Fourth Respondent in relation to its involvement in the First Respondent’s contraventions are:
a)the nature of the Fourth Respondent’s conduct involved in the underpayment contraventions, which is conduct by commission (and not omission);
b)the level of cooperation, contrition, and in particular, the corrective action taken by the Fourth Respondent; and
c)the need for general deterrence.
Having regard to all the circumstances, I have determined the appropriate penalty for each of the grouped contraventions as set out below. Annexure C to this decision contains a table which sets out the calculation of these amounts.
After applying the 20% discount, I have imposed the following penalties on the Fourth Respondent in relation to each of the grouped contraventions. These penalties are:
a)50% in relation to the minimum hourly rates contravention;
b)55% in relation to the casual loading rates contravention;
c)60% in relation to the penalty rates contravention;
d)60% in relation to the overtime rates contravention;
e)45% in relation to the leading hand allowance contravention; and
f)35% in relation to the refuse collection allowance contravention.
I am satisfied that a total penalty for the contraventions identified of $132,217.50 should be imposed on the Fourth Respondent (see Annexure C).
Totality principal
The final step for the Court is to look at the aggregate penalty to determine whether it is an appropriate response to the conduct which led to the breaches.
On the evidence before the Court, I am satisfied that the aggregate pecuniary penalty to be imposed on the Fourth Respondent is appropriate.
Conclusion
For the reasons set out in this judgment, I make the declarations and orders set out above.
I certify that the preceding one hundred and sixty-nine (169) paragraphs are a true copy of the reasons for judgment of Judge Jones
Date: 23 May 2018
Annexure A – Penalty imposed on the Second Respondent
| Contravention or grouped contravention | Maximum penalty | Maximum penalty discounted by 5% | FWO’s proposed penalty | Penalty imposed |
| Sham contracting contraventions – s.357(1) of the Act | $10,200 | $9,690 | 80% | $7,752 |
| Monthly pay contraventions – s.323 of the Act | $10,200 | $9,690 | 70% | $6,783 |
| Pay slip contraventions – s.536 of the Act | $5,100 | $4,845 | 70% | $3,391.50 |
| Total penalty | $17,926.50 |
Annexure B – Penalty imposed on the Third Respondent
| Contravention or grouped contravention | Maximum penalty | Maximum penalty discounted by 5% | FWO’s proposed penalty | Penalty imposed |
| Sham contracting contraventions – s.357(1) of the Act | $10,200 | $9,690 | 80% | $7,752 |
| Monthly pay contraventions – s.323 of the Act | $10,200 | $9,690 | 70% | $6,783 |
| Pay slip contraventions – s.536 of the Act | $5,100 | $4,845 | 70% | $3,391.50 |
| Total penalty | $17,926.50 |
Annexure C – Penalty imposed on the Fourth Respondent
| Contravention or grouped contravention | Maximum penalty | Maximum penalty discounted by 15% | FWO proposed penalty or penalty range | Penalty imposed |
| Minimum hourly rates contravention | $51,000 | $43,350 | 50% | $21,675 |
| Casual loading rates contravention | $51,000 | $43,350 | 55% | $23,842.50 |
| Penalty rates contravention | $51,000 | $43,350 | 60% | $26,010 |
| Overtime rates contravention | $51,000 | $43,350 | 60% | $26,010 |
| Leading hand allowance contravention | $51,000 | $43,350 | 45% | $19,507.50 |
| Refuse collection allowance contravention | $51,000 | $43,350 | 35% | $15,172.50 |
| Total penalty | $132,217.50 |
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