Fair Work Ombudsman v Happy Cabby Pty Ltd & Anor
[2013] FCCA 397
•26 July 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
FAIR WORK OMBUDSMAN v HAPPY CABBY PTY LTD & ANOR [2013] FCCA 397
Catchwords:
INDUSTRIAL LAW – Sham contracting – underpayment of award rates – failure to keep proper employment records – assessment of penalties.
Legislation:
Fair Work Act 2009 (Cth), ss.45, 357, 535, 536, 546, 550, 557Fair Work Regulations 2009 (Cth)
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8
Blandy v Coverdale NT Pty Ltd ACN 102 611 423 [2008] FCA 1533
Carr v CEPU & Anor [2007] FMCA 1526
CFMEU v Nubrick Pty Ltd [2009] FMCA 981
Cousins v Merringtons Pty Ltd (No.2) [2008] VSC 340
Fair Work Ombudsman v Bosen Pty Ltd [2011] VMC 81
Fair Work Ombudsman v Cleaners New South Wales Pty Ltd [2009] FMCA 683
Fair Work Ombudsman v Ramsay Food Processing Pty Ltd (No.2) [2012] FCA 408
Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors [2011] FMCA 459
Fair Work Ombudsman v EA Fuller & Sons Pty Ltd & Anor [2013] FCCA 5
Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557
Gibbs v Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216
Kelly v Fitzpatrick (2007) 166 IR 14
Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306; 3 FCR 503
McIver v Healey [2008] FCA 425
Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70
Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543
Seymour v Stawell Timber Industries Pty Ltd (1985) 9 FCR 241
Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550
Workplace Ombudsman v Securit-E Holdings Pty Ltd (In Liquidation) & Ors [2009] FMCA 700
Applicant: FAIR WORK OMBUDSMAN
First Respondent: HAPPY CABBY PTY LTD
ABN 27 141 722 714
Second Respondent: GRAEME THOMAS PAFF
File Number: SYG 1141 of 2012
Judgment of: Judge Driver
Hearing date: 28 May 2013
Delivered at: Sydney
Delivered on: 26 July 2013 REPRESENTATION
Solicitors for the Applicant: Ms A Kovalsky
Office of the Fair Work Ombudsman
Counsel for the Respondents: Mr E A Walker
Solicitors for the Respondents: Osborn Jensen ORDERS
(1)The first respondent is to pay penalties pursuant to sub-section 546(1) of the Fair Work Act 2009 (Fair Work Act) in the total amount of $252,120 in respect of the first respondent’s contraventions of the Fair Work Act (as declared by consent by the Court on 13 February 2013). The total penalty amount is comprised of:
(a)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Kevin Ronald Baker (Mr Baker) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(b)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Adrian Arthur Charlton (Mr Charlton) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(c)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Carolyn Jane Jarvis (Ms Jarvis) that the contract of employment under which she was employed was a contract for services under which she would perform work as an independent contractor;
(d)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Frederick Lawrence (Mr Lawrence) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(e)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to John Roy Munson (Mr Munson) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(f)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Steven Dennis Sherwood (Mr Sherwood) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(g)a penalty of $18,480 in respect of the first respondent’s contravention of sub-section 357(1) of the Fair Work Act by representing to Stephen James Yates (Mr Yates) that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor;
(h)a penalty of $13,200 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay minimum wages to six of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Sherwood and Mr Yates as required under clause 14.1 of the Passenger Vehicle Transportation Award 2010 [MA000063] (Modern Award);
(i)a penalty of $10,560 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay casual loadings to six of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Sherwood and Mr Yates as required under clause 10.5(c) of the Modern Award;
(j)a penalty of $10,560 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay a minimum payment of three hours pay per shift to four of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis and Mr Lawrence as required under clause 10.5(d) of the Modern Award;
(k)a penalty of $13,200 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay each of the seven employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Munson, Mr Sherwood and Mr Yates for periods of waiting time as required under clause 21.5 of the Modern Award;
(l)a penalty of $13,200 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay overtime rates of pay for hours of work in excess of 38 hours per week performed by six of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Sherwood and Mr Yates as required under clause 23.1 of the Modern Award;
(m)a penalty of $10,560 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay penalty rates for hours of work performed on a Saturday or Sunday by five of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence and Mr Sherwood as required under clause 23.2 of the Modern Award;
(n)a penalty of $13,200 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay penalty rates for hours of work performed on a public holiday by four of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis and Mr Lawrence as required under clause 23.4 of the Modern Award;
(o)a penalty of $10,560 in respect of the first respondent’s contraventions of section 45 of the Fair Work Act by failing to pay penalty rates to six of the employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Sherwood and Mr Yates for hours of work performed prior to 6:00am or after 7:00pm as required under clause 23.5 of the Modern Award;
(p)a penalty of $9,240 in respect of the first respondent’s contraventions of sub-section 535(1) of the Fair Work Act by failing to make and keep employee records which included the information prescribed by regulations 3.32(d), 3.32(e), 3.33(1) - (3), 3.34, 3.36(1), and 3.37 of the Fair Work Regulations 2009 (Cth); and
(q)a penalty of $5,280 in respect of the first respondent’s contraventions of sub-section 536(1) of the Fair Work Act by failing to provide each of the seven employees, that is, Mr Baker, Mr Charlton, Ms Jarvis, Mr Lawrence, Mr Munson, Mr Sherwood and Mr Yates with payslips.
(2)The second respondent is to pay penalties pursuant to sub-sections 546(1) and 550(1) of the Fair Work Act in the total amount of $47,784 in respect of his involvement in the first respondent’s contraventions of the Fair Work Act (as declared by consent by the Court on 13 February 2013). The total penalty amount is comprised of:
(a)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(a) above;
(b)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(b) above;
(c)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(c) above;
(d)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(d) above;
(e)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(e) above;
(f)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(f) above;
(g)a penalty of $3,696 in respect of the second respondent’s involvement in the contravention listed in order 1(g) above;
(h)a penalty of $2,640 in respect of the second respondent’s involvement in the contraventions listed in order 1(h) above;
(i)a penalty of $2,112 in respect of the second respondent’s involvement in the contraventions listed in order 1(i) above;
(j)a penalty of $2,112 in respect of the second respondent’s involvement in the contraventions listed in order 1(j) above;
(k)a penalty of $2,640 in respect of the second respondent’s involvement in the contraventions listed in order 1(k) above;
(l)a penalty of $2,640 in respect of the second respondent’s involvement in the contraventions listed in order 1(l) above;
(m)a penalty of $2,112 in respect of the second respondent’s involvement in the contraventions listed in order 1(m) above;
(n)a penalty $2,640 in respect of the second respondent’s involvement in the contraventions listed in order 1(n) above;
(o)a penalty of $2,112 in respect of the second respondent’s involvement in the contraventions listed in order 1(o) above;
(p)a penalty of $1,848 in respect of the second respondent’s involvement in the contraventions listed in order 1(p) above; and
(q)a penalty of $1,056 in respect of the second respondent’s involvement in the contraventions listed in order 1(q) above.
(3)The first and second respondents are to pay the penalty amounts set out in orders 1 and 2 respectively to the Consolidated Revenue Fund of the Commonwealth pursuant to subsection 546(3)(a) of the Fair Work Act within a period of 28 days.
(4)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 SYDNEY
SYG 1141 of 2012
FAIR WORK OMBUDSMAN Applicant
And
HAPPY CABBY PTY LTD ABN 27 141 722 714 First Respondent
GRAEME THOMAS PAFF Second Respondent
REASONS FOR JUDGMENT
Introduction and background
1.The applicant (Fair Work Ombudsman) in these proceedings seeks the imposition of penalties against Happy Cabby Pty Ltd (the Company), the first respondent, which carried on a business offering airport shuttle services (business) and Graeme Thomas Paff (Mr Paff), the second respondent, who was the sole director and company secretary of the Company, and who was principally responsible for the overall direction of the Company’s operations and the terms and conditions of the Company’s employees.
2.On 13 February 2013, by consent, the Court made declarations that the respondents had admitted contraventions of the Fair Work Act 2009 (Cth) (Fair Work Act) and ordered that the respondents pay their employees (drivers) outstanding moneys which they were owed ($26,082.22 plus $2,640 interest) within a period of four months. As will appear, that order has been substantially complied with.
3.The Fair Work Ombudsman is seeking high penalties for sham contracting and record keeping contraventions and mid range penalties for eight types of underpayment contraventions and for the Company’s failure to issue payslips. The Fair Work Ombudsman seeks those penalties because:
a)the business operated by the Company is well established as it has been trading since 1999[1] and engaged 27 workers (22 bus drivers and five administrative workers) during the Claim Period[2];
[1] First Paff Affidavit at [3]
[2] Second Domino Affidavit at [7(i)]
b)the Company has an extensive prior history of misrepresenting that employees are independent contractors in either employment or taxation contexts. By way of example, the issue of whether a bus driver working for the Company was an employee or an independent contractor has been subject to determination by the Australian Tax Office (ATO), Administrative Appeals Tribunal (AAT) and Fair Work Australia as well as being the subject of four separate workplace complaints;
c)the Fair Work Ombudsman contends that the sham contracting contraventions were deliberate, or at the very least characterised by wilful blindness, due to the following:
i)given the Company’s extensive history of disputation regarding the correct classification of its bus drivers the Company has had ample opportunity to learn the difference between an employee and an independent contractor;
ii)the Company was expressly put on notice by the Fair Work Ombudsman about the misclassification of bus drivers and the application of the relevant Modern Award. The Company was given the opportunity to voluntarily rectify its workplace arrangements after the Fair Work Ombudsman issued a Letter of Caution but chose to make no changes to the way in which it engaged the drivers or take any steps to implement the terms of the Modern Award; and
iii)approximately a week before these proceedings were filed the Company sought to retrospectively legitimise the purported independent contracting relationships by offering its workforce a document titled “Independent Contractor Agreement”[3];
d)the sham contracting contraventions caused the drivers to be underpaid by $26,082.22 within a short period of time (11 months) and this is a conservative calculation given that the Company did not keep any time records of when the drivers were working;
e)since 10 April 2013, the business operated by the Company has been operated by another company of which Mr Paff is a director and company secretary[4]. The respondents have provided no credible explanation for this change and have failed to explain the impact of the change on the assets or income of the Company;
f)there is a need for specific deterrence as the business operated by the Company continues to engage bus drivers (albeit now through a different corporate entity) and a need for general deterrence to send a message to the community that an employer cannot avoid paying minimum entitlements to employees by falsely labelling the relationship as an independent contracting relationship; and
g)the Company had not (prior to these proceedings) taken any corrective action and has expressed only limited contrition for the contraventions.
[3] ASOF at [107]
[4] Second Domino Affidavit at [9(e)]
4.The Fair Work Ombudsman relies upon the same penalty factors in relation to Mr Paff who was the controlling hand and mind of the Company at all material times.
5.The Fair Work Ombudsman submits that the respondents should be afforded no more than a ten per cent discount in respect of admissions made as they were not made at the earliest opportunity to allow for the efficient conduct of this matter.
6.The Company admits contravening provisions of the Fair Work Act and the Passenger Vehicle Transportation Award 2010 (Award) and Mr Paff admits to his involvement, within the meaning of s.550 of the Fair Work Act, in respect of each of the Company’s contraventions. Nevertheless, the respondents contend that the penalties sought by the Fair Work Ombudsman are excessive, having regard to the circumstances in which the contraventions occurred, the nature of the business and its present trading circumstances, the efforts recently made by the respondents to make good the underpayments due to the drivers, the concessions made in the proceedings and the totality principle.
7.In this judgment, I have decided that substantial penalties should be awarded, although somewhat less than those sought by the Fair Work Ombudsman.
8.The facts bearing upon the imposition of penalties are substantially contained in the Statement of Agreed Facts (ASOF) filed on 31 January 2013. That statement is annexed to this judgment (Annexure A). The admitted contraventions all flow from the Company’s engagement of seven drivers as independent contractors in circumstances where they are properly categorised as employees who are the subject of the Award.
9.The drivers’ primary duty was to drive passengers between the greater Newcastle area and Sydney International and Domestic airports. The drivers were required to drive passenger vehicles in accordance with run sheets issued by the Company (which set out pick up and drop off times and locations for passengers who had booked to use the Company’s services)[5].
[5] ASOF at [13] and [17]
10.At all material times, the Company represented to each of the drivers that they were engaged under a contract for services under which each of the drivers was performing work as an independent contractor[6] when they were in fact employees of the business[7].
[6] ASOF at [31]
[7] ASOF at [11]
11.The drivers were paid fixed rates of pay per driving run which did not satisfy the minimum entitlements under the Award.
12.On 13 January 2011, the Fair Work Ombudsman put the respondents on notice that the drivers had been misclassified as independent contractors through a letter of caution (Letter of Caution)[8]. These proceedings relate to the Company’s business practices in the 11 months following the Letter of Caution being issued (Claim Period). During the Claim Period the Company continued to treat the drivers as independent contractors and caused the drivers to be underpaid their lawful entitlements under the Award. The drivers were underpaid a total amount of $26,082.22.
[8] Exhibit MJEL-1to the Longmire Affidavit at Tab 20
13.In the ASOF[9], the respondents have admitted liability for 17 contraventions of the Fair Work Act.
[9] ASOF at [4]-[5]
14.The admitted contraventions (as set out in Annexure B) are as follows:
a)misrepresenting the nature of the relationship between the Company and seven of its employees (sham contracting);
b)failure to pay six of the drivers their minimum hourly rates of pay;
c)failure to pay six of the drivers their casual loadings;
d)failure to pay four of the drivers their minimum shift engagements;
e)failure to pay seven of the drivers for their waiting time;
f)failure to pay six of the drivers their overtime entitlements;
g)failure to pay five of the drivers their weekend penalty rates;
h)failure to pay four of the drivers their public holiday entitlements;
i)failure to pay seven of the drivers their early/late work penalties;
j)failure to make and keep employee records for seven of the drivers; and
k)failure to issue payslips to seven of the drivers.
15.The Company commenced operating a business in 1999 whereby it transported people to and from the Newcastle area to Sydney and Newcastle airports[10].
[10] First Paff Affidavit [3]
16.Mr Paff deposes that he understood from his experience in the industry that arrangements in the nature of those engaged by the Company were legally acceptable[11] and worked for the drivers who were largely retirees[12].
[11] ibid [5]
[12] ibid [6]
17.Concern regarding the arrangement the Company had with the drivers arose in the context of a superannuation audit conducted by the ATO in 2008. The Company took advice from counsel, in whose opinion the Company’s arrangements with drivers was arguably not that of an employer and employee[13]. Further, Mr Paff says that the Company’s solicitor expressed a belief that the drivers were not employees[14].
[13] ibid, page 45
[14] ibid [10]
18.At the time the Fair Work Ombudsman was auditing the Company’s operations in May 2011, Mr Paff says he was informed by an inspector, Ms Lieu, that an earlier determination by the applicant that the drivers were employees was being re-assessed, and that Ms Lieu would recommend that the drivers be assessed as contractors[15]. Ms Lieu denies that. However, Mr Paff says that affirmed his belief at the time that the arrangements were legitimate[16].
[15] ibid [11]
[16] ibid [12]
19.In June 2011, as the Fair Work Ombudsman was investigating the Company, the Company obtained further professional advice from a workplace consultant. That consultant, Mr Evans, prepared documents that Mr Paff says were endorsed by Mr Evans as compliant with the law[17]. They included an “Agreement to Contract” with drivers[18]. The Company’s relationship with Mr Evans ended when he purported to act against the Company[19].
[17] First Paff Affidavit [15]
[18] ibid page 71
[19] ibid pages 74-75
20.In September 2011, the respondents engaged another firm of solicitors to advise it. Mr Paff says that those solicitors advised the respondents that the drivers were contractors[20], which is reflected in correspondence from those solicitors[21]. That opinion changed in July 2012[22]. At that time, the respondents started to take action to resolve these proceedings[23].
[20] ibid [19]
[21] ibid page 77
[22] ibid page 88
[23] ibid [23]
21.By 30 October 2012, the respondents’ solicitors terminated their retainer because, as Mr Paff says, the respondents could not afford their legal representation[24]. Mr Paff has, as a result, attempted to bring this matter to an end without the benefit of consistent legal representation[25].
[24] ibid [28]
[25] ibid [28]-[29]
22.Since these proceedings commenced, the Happy Cabby business has, according to Mr Paff, seen about a 40-50 per cent downturn in passenger numbers[26].
[26] ibid [33]
23.The respondents suggest that they do not have significant resources from which they can meet a penalty imposed by this Court[27]. Ultimately, in Mr Paff’s view, these proceedings are likely to see the Company placed into liquidation and Mr Paff declare himself bankrupt[28]. This is said to be reflected in Mr Paff selling property to pay the underpaid drivers[29], and the Company’s inability to afford legal advice to complete the documentation of casual employment contracts prior to now[30].
[27] ibid [35]
[28] ibid [35]
[29] Second Paff Affidavit [2]
[30] ibid [1]
Relevant documents
Applicant’s documents
24.The Fair Work Ombudsman relies upon the ASOF and the:
a)application and statement of claim dated 25 May 2012;
b)affidavit of Fair Work Inspector Matthew John Edward Longmire affirmed 15 November 2012 (Longmire Affidavit);
c)affidavit of Fair Work Inspector Eva Renata Domino sworn on 15 November 2012 (Domino Affidavit);
d)affidavit of Fair Work Inspector James David Klousia sworn on 16 November 2012 (Klouisa Affidavit);
e)affidavit of Stephen James Yates affirmed on 15 November 2012 (Yates Affidavit);
f)affidavit of Carolyn Jane Jarvis sworn on 15 November 2012 (Jarvis Affidavit);
g)affidavit of Frederick Thomas Lawrence affirmed on 16 November 2012 (Lawrence Affidavit);
h)affidavit of Steven Dennis Sherwood sworn on 16 November 2012 (Sherwood Affidavit);
i)affidavit of John Roy Munson affirmed on 15 November 2012 (Munson Affidavit);
j)affidavit of Kevin Ronald Baker sworn on 15 November 2012 (Baker Affidavit);
k)affidavit of Adrian Arthur Charlton affirmed on 26 November 2012 (Charlton Affidavit);
l)affidavit of Inspector Eva Renata Domino sworn on 10 April 2013 (2nd Domino Affidavit);
m)affidavit of Inspector Vi-Lay Liu affirmed on 10 April 2013 (Liu Affidavit);
n)affidavit of Nicholas Frank Peter Arends sworn on 10 April 2013 (Arends Affidavit);
o)affidavit of Anna Kovalsky affirmed on 10 April 2013 (Kovalsky Affidavit); and
p)documents tendered in the proceedings.
Respondents’ documents
25.The respondents have filed:
a)their response filed on 3 August 2012; and
b)their defence filed on 18 October 2012;
26.For the purposes of determining the penalties, the respondents rely upon affidavits made by Mr Paff on 15 March 2013, 24 May 2013 and 27 May 2013. At the trial of this matter I gave leave to the respondents to file and serve additional evidence concerning compliance with the orders made by the Court on 13 February 2013 for the payment of sums due to the drivers. Pursuant to that leave, the respondents have filed a further affidavit made by Mr Paff on 11 June 2013 which I have taken into account.
27.Both parties made written and oral submissions as to penalty.
Consideration
Relevant principles
28.The parties agree on the relevant principles to be applied.
a)the first step for the Court is to identify the separate contraventions involved. Each breach of each separate obligation found in the Fair Work Act in relation to each employee is a separate contravention[31];
b)secondly, the Court should consider whether the breaches arising in the first step constitute a single course of conduct[32];
c)thirdly, to the extent that two or more contraventions have common elements, this should be taken into account in considering what is an appropriate penalty in all the circumstances for each contravention. The respondents should not be penalised more than once for the same conduct. The penalties imposed by the Court should be an appropriate response to what the respondents did[33]. This task is distinct from and in addition to the final application of the “totality principle”[34];
d)fourthly, consider the appropriate penalty for the single breaches and, if relevant, each group of contraventions, taking into account all of the relevant circumstances; and
e)finally, consider whether it is an appropriate response to the conduct which led to the breaches[35]. The Court should apply an “instinctive synthesis” in making this assessment[36]. This is known as an application of the “totality principle”.
[31] Gibbs v Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216 at 223; McIver v Healey [2008] FCA 425 at [16]; Blandy v Coverdale NT Pty Ltd ACN 102 611 423 [2008] FCA 1533 at [56].
[32] Subsection 557(1) of the Fair Work Act
[33] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 (Merringtons) at [46] (Graham J)
[34]Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 (Mornington Inn) at [41]-[46] (Stone and Buchanan JJ)
[35] See Kelly v Fitzpatrick (2007) 166 IR 14 at [30] (Tracey J) (Kelly); Merringtons at [23] (Gray J), [71] (Graham J) and [102] (Buchanan J)
[36] Merringtons at [27] (Gray J) and [55] and [78] (Graham J)
Identified contraventions
29.The Fair Work Ombudsman has identified the contraventions as set out in the table at Annexure B. The matter involves 17 contraventions comprising:
a)misrepresenting the nature of the relationship between the Company and seven of its employees (sham contracting);
b)failure to pay minimum hourly rates of pay;
c)failure to pay casual loadings;
d)failure to pay minimum shift engagements;
e)failure to pay waiting time;
f)failure to pay overtime;
g)failure to pay weekend penalties;
h)failure to pay public holidays;
i)failure to pay early / late work penalties;
j)failure to make or keep employee records; and
k)failure to issue payslips.
Grouping of contraventions – Course of conduct and common elements
Course of conduct – underpayments, record keeping and failure to issue payslips
30.The Fair Work Act contains statutory course of conduct provisions. Each of the contraventions involved multiple employees as set out at [14] above and multiple instances of contravening conduct (eg the drivers were underpaid in several pay periods).
31.Section 557 of the Fair Work Act sets out that multiple breaches of particular provisions may attract the operation of the course of conduct provisions. Particularly relevant is whether the breaches arose out of separate acts or decisions of the employer, or out of a single act or decision. The latter case will constitute a course of conduct but the former will not[37]. The onus of establishing the benefit of s.557 of the Fair Work Act is on the respondents[38].
[37] Seymour v Stawell Timber Industries Pty Ltd (1985) 9 FCR 241 at 266-267 per Gray J (with whom Northrop J agreed at 245)
[38] Workplace Ombudsman v Securit-E Holdings Pty Ltd (In Liquidation) & Ors [2009] FMCA 700 at [5]
32.As this case involves contraventions of multiple Award terms, the Fair Work Ombudsman draws the Court’s attention to a number of authorities which outline that each separate obligation imposed by an award is to be regarded a separate contravention[39]. Accordingly, the Fair Work Ombudsman submits that each of the eight underpayment contraventions attract separate civil penalties and should not be grouped. I accept that submission.
[39] Gibbs v Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216 at 223; McIver v Healey [2008] FCA 425 at [16]; Blandy v Coverdale NT Pty Ltd ACN 102 611 423 [2008] FCA 1533 at [56]
33.The Fair Work Ombudsman accepts that, based on the facts in this case, the Company has the benefit of s.557 of the Fair Work Act in respect of each of the contraventions (other than the sham contracting contraventions). Taking this into account, even though each of the underpayment contraventions affected multiple employees, the Fair Work Ombudsman has counted each contravention type as a single contravention (eg failing to pay minimum wages to six employees has been taken to be a single contravention). Accordingly the Fair Work Ombudsman’s penalty calculations have been performed on the basis of 17 contraventions (rather than the full 65 contraventions which would apply in the absence of course of conduct considerations). I have adopted that approach and consider that no further grouping is required.
Course of conduct – sham contracting
34.The Fair Work Ombudsman is seeking separate penalties for each of the seven sham contracting contraventions. The respondents contend that there was a single course of conduct from which all the contraventions flowed, namely the incorrect classification of the drivers as independent contractors.
35.The course of conduct provisions in s.557(1) of the Fair Work Act apply only to contraventions of the provisions listed at s.557(2) of the Fair Work Act. The list is comprised of contraventions which involve payments to employees. The list specifically does not include s.357(1) of the Fair Work Act or any other provisions contained in Part 3-1 of the Fair Work Act (General Protections).
36.Accordingly, Parliament has made a deliberate decision that the statutory course of conduct provision will not apply to sham contracting contraventions[40].
[40] Fair Work Ombudsman v EA Fuller & Sons Pty Ltd & Anor [2013] FCCA 5; Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2)[2012] FCA 557; CFMEU v Nubrick Pty Ltd [2009] FMCA 981 and Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors [2011] FMCA 459
37.I accept Fair Work Ombudsman’s further submission that it is appropriate for the Court to set separate penalties for each of the sham contracting provisions because each of the drivers was engaged to perform work for the Company at different points in time[41] and were thus subject to separate misrepresentations about the nature of their working relationship with the Company. Put simply, the contraventions do not represent “one transaction”.
[41] Baker, Charlton, Jarvis, Lawrence, Munson, Sherwood and Yates Affidavits each at [1]
Factors relevant to determining penalties
38.The factors relevant to the imposition of a penalty under the Workplace Relations Act were summarised by Mowbray FM in Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar[42] at [26]-[59], as follows:
[42] [2007] FMCA 7 (Pangaea)
a)the nature and extent of the conduct which led to the breaches;
b)the circumstances in which that conduct took place;
c)the nature and extent of any loss or damage sustained as a result of the breaches;
d)whether there had been similar previous conduct by the defendant;
e)whether the breaches were properly distinct or arose out of the one course of conduct;
f)the size of the business enterprise involved;
g)whether or not the breaches were deliberate;
h)whether senior management was involved in the breaches;
i)whether the party committing the breach had exhibited contrition;
j)whether the party committing the breach had taken corrective action;
k)whether the party committing the breach had cooperated with the enforcement authorities;
l)the need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
m)the need for specific and general deterrence.
39.This summary was adopted by Tracey J in Kelly at [14]. While the summary is a convenient checklist, it does not prescribe or restrict the matters which may be taken into account in the exercise of the Court’s discretion[43].
[43] Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 at [11]; Merringtons at [91] per Buchanan J
40.I will now consider each of the relevant factors.
The nature and extent of the offending conduct
41.The policy underlying Parliament’s proscription of sham contracting is clear. It is Parliament’s intention that sham contracting contraventions should be regarded as serious:
a)the Minister for Employment and Workplace Relations stated as follows in his concluding remarks on the parliamentary debate in respect of the introduction of the sham contracting contravention[44]:
While the government fully supports genuine independent contracting arrangements, it will not tolerate the use of sham arrangements and considers that people found to have knowingly disguised an employment relationship in this way should be subject to penalties. The government has demonstrated this by proposing four new penalty provisions. These would apply to employers who knowingly seek to disguise employment relationships as independent contracting arrangements. They would also apply to employers who deceive employees in order that they become independent contractors or who dismiss or threaten to dismiss a person for the purpose of engaging them as an independent contractor to perform substantially the same work. (emphasis added); and
b)the Minister also stated in the second reading speech in respect of the penalties proposed that
These penalties will send a clear message to employers that this sort of unscrupulous behaviour will not be tolerated (emphasis added)[45].
[44] Hansard 13 September 2006, p. 9.
[45] Hansard 22 June 2006, page 8
42.The offending conduct in this case saw seven drivers underpaid $26,082.22. The offending conduct flowed from the mischaracterisation of the nature of the Company’s relationship with the drivers as “contractors” as opposed to “employees”.
The circumstances in which the conduct took place
43.The manner in which the Company conducted itself with the drivers was a manifestation of Mr Paff’s understanding of what was acceptable having regard to his experience in the industry and what he thought suited the drivers and himself.
44.Mr Paff’s evidence is directed to the proposition that the respondents did not consciously disregard compliance with workplace law or intentionally avoid it. The respondents took active steps to address the sufficiency of the Company’s compliance with workplace law as they understood it. They did so by engaging solicitors, counsel, and a workplace consultant to advise them. The fact that the Company was prepared to go to those lengths (and incur the associated fees) evidences the determined manner in which the respondents treated the issue. The Company, wrongly as it turned out, acted on the advice it was given, and (on Mr Paff’s account) on what Mr Paff understood would be the Fair Work Ombudsman’s findings having regard to his communications with Ms Lieu. They deny that there is anything sinister or devious about the manner in which the respondents conducted themselves. They also deny that the Company took conscious and calculated action to deceive the drivers.
45.Nevertheless, the respondents’ refusal to change course in the face of the Letter of Caution from the Fair Work Ombudsman until these proceedings were brought is suggestive of at least wilful blindness.
The nature and extent of any loss or damage
46.The Fair Work Ombudsman submits that the drivers suffered both a financial and non-monetary loss as a result of the Company’s sham contracting contraventions.
47.The Company paid the drivers fixed rates of pay per run regardless of the time taken to complete a run (which could vary considerably depending on the number and location of passengers, the amount of waiting time required and traffic conditions).
48.By structuring the drivers’ pay arrangements in this way the Company avoided paying the drivers their entitlements to minimum hourly rates of pay, casual loadings, minimum engagement periods, payments for waiting time, overtime rates of pay and penalties for early or late work. The drivers also received less than their full entitlement to weekend and public holiday penalties as the Company paid a flat $25.00 loading for work performed on those days regardless of the shift length. These contraventions resulted in the drivers being underpaid at least $26,082.22.
49.The Fair Work Ombudsman submits that the detriment caused as a result of the Company’s sham contracting contraventions was not purely financial. In addition to the underpayments set out at [48] above the Company also failed to:
a)make any superannuation guarantee payments in respect of the drivers;
b)provide workers compensation insurance coverage; or
c)provide public liability or personal accident insurance coverage[46].
[46] ASOF at [31(d)] to [(f)]
50.The drivers also did not receive payslips as required under sub-section 536(1) of the Fair Work Act and as a consequence did not receive a record of the amounts that they were being paid. The absence of such documentation can impact on employees by making it difficult for employees to obtain banking services or to accurately complete required taxation forms.
51.The denial of non-monetary entitlements can in some instances cause greater damage than a simple failure to pay a monetary amount. For example, by denying the drivers insurance coverage (particularly in an industry where the risk of having a traffic accident is apparent) the Company moved the cost of a serious business risk onto the shoulders of the drivers who if they did not obtain their own insurance coverage would be left exposed to potentially ruinous financial and/or medical consequences if they were involved in a serious accident.
Limitations of underpayment calculations
52.The calculated total underpayment figure of $26,082.22 represents the only account of the amounts owed to the drivers due to the Company’s failure to make or keep any records of the hours that the drivers worked.
53.The Fair Work Ombudsman is seeking high penalties in respect of record keeping contravention due to the significant flow on effects of this contravention, that is, without employee records it is impossible to calculate the true quantum of the underpayments. The Fair Work Ombudsman submits that the failure to make and keep employee records can serve to frustrate underpayment claims. I agree
54.The steps taken by the Fair Work Ombudsman to perform its underpayment calculations could not feasibly have been taken by an individual employee seeking to enforce his or her rights. By way of example, in order to perform the underpayment calculations the Fair Work Ombudsman reconstructed the driver’s shift time using run sheets issued to the drivers by the Company (which showed which bus a driver was assigned to on a given day), Global Positioning Satellite (GPS) data in the form of 175 Microsoft Excel workbooks (which showed the times the bus was in motion) and invoices generated by the drivers (which showed the amounts paid to the driver)[47]. This process took approximately three months of data entry and analysis and required the Fair Work Ombudsman to sort through more than two million lines of data[48].
[47] Klousia Affidavit at [9]
[48] ibid at [14] to [15]
55.Even using this methodology the Fair Work Ombudsman was not able to perform calculations for a significant number of shifts due to missing documentation. Run sheets supplied by the Company indicated that the drivers performed 1091 runs during the Claim Period. The Fair Work Ombudsman was provided with the corresponding invoices and GPS for only 669 runs (61.32 per cent of runs performed)[49]. The Fair Work Ombudsman has taken a conservative approach to the calculation of the drivers’ underpayments and has not made any claims in regards to the 422 runs (38.68 per cent of runs performed) where the run data was incomplete. I accept that the amounts owing to the drivers could be significantly higher if a full set of records were available.
[49] The calculation report at Tab 9 of the Exhibit JDK-1 of the Klousia affidavit stated that there were missing records for 582 of 1086 runs (50.83 % of runs performed during the Claim Period). This figure has been revised downwards as a result of amended GPS data which was provided by the Company on 29 August 2012 (as set out at [20]-[22] of the Klousia Affidavit).
Safety implications
56.The Fair Work Ombudsman has not kept records of the hours that the drivers were working. Further, the Company did not record the hours that the drivers spent waiting for incoming passengers (the time between dropping passengers to the airport and collecting passengers for the return journey) or pay the drivers for these periods of waiting time.
57.The Fair Work Ombudsman submits, and I accept, that there is a well-established link between fatigue and poor road safety; as a result, there is significant public interest in keeping track of the hours worked by drivers of public vehicles to ensure that the drivers do not undertake excessive shift lengths and are granted appropriate breaks to ensure that they are alert and responsive when on the road.
58.The fact that the Company did not pay the waiting periods means that the Company did not have any incentive to reduce these periods.
59.I find that penalties should be imposed on a meaningful level so as to deter other employers within the transport industry from failing to record their employees’ driving hours, and deter other employers for not paying their workers for all hours worked.
Vulnerability
60.The Fair Work Ombusman submits that the nature of the contraventions is particularly serious in circumstances where the employees were vulnerable because the Company’s workforce generally consists of mature workers[50]. At the commencement of the Claim Period the drivers were aged between 50 and 71 years of age. The age of the drivers meant that it may have been more difficult for the drivers to find alternative work, especially in a regional centre.
[50] First Paff Affidavit at [6]
61.The respondents do not dispute that failure to meet workplace laws is a serious matter but point to the relevantly modest underpayments per driver and the total underpayment of $26,082.22 as being relatively moderate. That, however, does not detract from the issue of vulnerability.
Similar previous conduct
62.The respondents have a history of disputation regarding the status of bus drivers as either employees or independent contractors. This history encompasses two determinations by the ATO, one AAT decision, an unfair dismissal proceeding, two workplace complaints lodged with the Fair Work Ombudsman, two workplace complaints pursued independently by former workers and a formal Letter of Caution issued by the Fair Work Ombudsman. The Fair Work Ombudsman submits that this extensive history is a significant aggravating factor which supports the imposition of high penalties for the sham contracting contraventions. The most notable events include:
a)the Fair Work Ombudsman’s involvement with the Business[51] commenced on 27 November 2009 when the Business was selected for inclusion in an audit campaign titled “Hunter Region Service and Tourist Couch Drivers Industry Campaign”[52]. This campaign had a specific focus on sham contracting contraventions within the industry and location in which the Company operates. The audit was commenced on 14 January 2010[53];
b)whilst the campaign was still ongoing the Fair Work Ombudsman also received a workplace complaint from a driver engaged by the Company, Ms Linda Louise Osborne (Ms Osborne), alleging that she had been misclassified as an independent contractor when she was in fact an employee[54]. The Fair Work Ombudsman notified the respondents of the complaint and was informed by Mr Paff that the same issue had been raised by another driver, Mr James Black (Mr Black), who had made a complaint to the ATO in respect of unpaid superannuation (which he was owed if he was an employee rather than an independent contractor) [55];
c)the respondents requested that the Fair Work Ombudsman’s campaign audit and investigation in respect of Ms Osborne be deferred pending the outcome of the ATO proceedings. Given the similarity of issues in dispute the Fair Work Ombudsman agreed with this approach. On 17 November 2010, the Fair Work Ombudsman was notified that the ATO proceedings had been resolved in favour of Mr Black;
d)the Fair Work Ombudsman subsequently became aware that the ATO proceedings were carried on in three stages and at each stage it was determined that Mr Black was an employee who was entitled to superannuation payments:
i)on 22 September 2009, the ATO determined that Mr Black was an employee for the purpose of superannuation guarantee legislation and was entitled to receive superannuation payments;
ii)on 16 December 2009, HC&AT (the corporate entity which operated the Business prior to the Company) unsuccessfully attempted to object to the ATO determination of 22 September 2009. This decision was subsequently appealed to the AAT; and
iii)on 21 December 2010, by agreement between the parties, the AAT proceedings were resolved in favour of Mr Black and the prior decision of 16 December 2009 was affirmed[56];
[51] At this time the Business was still being operated by HC&AT as the Company was not registered until 29 January 2010 – see Longmire Affidavit at [15].
[52] Longmire Affidavit at [18]
[53] ibid at [20]
[54] ibid at [23]
[55] ibid at [30]
[56] 2nd Domino Affidavit at [12] and Tabs 32 to 33 of Exhibit ERD-1 of the Domino Affidavit
e)after the conclusion of the ATO proceedings the Fair Work Ombudsman resumed the audit campaign and investigation which had earlier been deferred. The Fair Work Ombudsman determined that the workers who had been interviewed as part of the audit campaign had been misclassified as independent contractors when they were in fact employees;
f)on 13 January 2011, the Fair Work Ombudsman issued the Company with a Letter of Caution[57] which expressly informed the Company that the Fair Work Ombudsman would take into account the written warning if future contraventions were found. The Letter of Caution states[58]:
[57] Longmire Affidavit at [41]
[58] A copy of the Letter of Caution was provided at Tab 20 of Exhibit MJEL-1 to the Longmire Affidavit.
If Happy Cabby & Airport Transport Pty Ltd and/or Happy Cabby Pty Ltd was to be involved in any contraventions in the future, the fact that it has already been issued with a Letter of Caution will be relevant to the Fair Work Ombudsman deciding that it is in the public interest in commencing civil penalty proceedings in respect of those contraventions.
It also means that the defence in section 357(2) of the Fair Work Act 2009 relating to sham contracting (which is likely available to Happy Cabby & Airport Transport Pty Ltd and/ or Happy Cabby Pty Ltd in the present circumstances) will not be available in future. The educative nature of this formal caution means that Happy Cabby & Airport Transport Pty Ltd and/ or Happy Cabby Pty Ltd cannot say that it:
(a) did not know; and
(b) was not reckless as to whether;
the contract was a contract of employment rather than a contract for service.”
g)on 20 January 2011, the Fair Work Ombudsman discussed the Letter of Caution with Mr Paff and advised that it was likely that a follow-up audit would be conducted[59];
h)on 8 February 2011, the Fair Work Ombudsman received a new workplace complaint from Mr Michael Allan Griffiths (Mr Griffiths) a driver engaged by the Company[60]. The Fair Work Ombudsman contacted Mr Paff regarding Mr Griffiths’ complaint and was informed that Mr Griffths’ complaint was also subject to an application to Fair Work Australia for unfair dismissal (which could only be proven if Mr Griffiths was first established to be an employee rather than an independent contractor). Mr Paff requested that the Fair Work Ombudsman defer investigation pending the unfair dismissal proceedings. The Fair Work Ombudsman agreed to this request[61]. The Fair Work Ombudsman subsequently became aware that the respondents sought to resist Mr Griffiths’ claim on the basis that he was an independent contractor (despite contrary findings by the ATO, AAT and the earlier investigation by the Fair Work Ombudsman)[62];
i)on 5 April 2011, the Fair Work Ombudsman commenced a follow-up audit of the Company’s workplace arrangements. This follow up audit covered the period from 14 January 2011 (the day after the Letter of Caution was issued) to 4 November 2011. The follow-up audit found that the Company made no changes to the way in which the drivers were engaged after receiving the Letter of Caution and continued to misrepresent that they were independent contractors[63]; and
j)additionally, at [16] of the Paff Affidavit, Mr Paff refers to two additional complaints dated 7 October 2011 which were raised by bus drivers who performed work for the Company. The outcome of these complaints is not known but it is clear from the correspondence annexed at pages 74 and 75 of the Paff Affidavit that the core nature of both complaints was that the workers had been incorrectly classified as independent contractors and thus denied their award entitlements.
[59] Longmire Affidavit at [42]
[60] ibid at [44]
[61] ibid at [45] to [47]
[62] ibid at [49]
[63] Domino Affidavit at [49]
63.For their part, the respondents contend that the Company has not in the past knowingly conducted itself in contravention of the law, or in stark disregard of previous action taken against it for like breaches. They also assert that they acted upon advice from 2009.
64.Based on this history of similar previous conduct I accept that high penalties are appropriate in this case for the sham contracting contraventions as the respondents were put on notice, on multiple occasions, of the differences between an employment and independent contracting relationship both prior to and during the Claim Period.
Deliberateness of the breaches
65.The Fair Work Ombudsman submits that the evidence does not support the respondents’ assertion that the contraventions were committed inadvertently. Given the respondents’ extensive history of being involved in disputes over whether bus drivers are employees or independent contractors, the Fair Work Ombudsman submits that the sham contracting contraventions were either deliberate or characterised by wilful blindness as the respondents have had ample opportunity to learn the difference between an employee and an independent contractor. Furthermore, prior to these proceedings the Company was afforded the benefit of a formal Letter of Caution and the opportunity to voluntarily rectify its workplace arrangements but has failed to do so.
66.If it is accepted that the respondents deliberately misclassified the drivers as independent contractors it follows that the respondents deliberately denied the Drivers their minimum employment entitlements under the Modern Award. This is particularly the case where the Letter of Caution expressly informed the Company of the existence and application of the Modern Award and the Company failed to take any steps to implement its terms during the Claim Period.
67.The respondents submit that they took the matter very seriously once they were aware of the problem by obtaining advice. Mr Paff gave evidence that he was led to believe that the Company had sound legal basis on which to engage the drivers in the manner it did. The respondents contend that the Company’s conduct was misinformed and naïve.
68.In my view, the Company and Mr Paff could have been in little doubt of the true legal position following the AAT proceedings, and any lingering doubt should have been removed by the Letter of Caution. Their refusal thereafter to change their position was deliberate, based on wilful blindness.
The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements
69.Ensuring compliance with minimum standards is an important consideration in this case. One of the principle objects of the Fair Work Act is the maintenance of an effective safety net of employer obligations and effective enforcement mechanisms. The substantial penalties set by Parliament for contravention of those obligations reinforce the importance placed on compliance with minimum standards.
70.In the present case, a consequence of the sham contracting contraventions was that the drivers were denied their minimum Award entitlements to the following:
a)minimum hourly rates of pay: under clause 14.1 of the Award the drivers were entitled to be paid at their relevant hourly rate of pay pursuant to the Award. By instead paying the drivers based on fixed rates of pay per run, the Company created a situation where the drivers could be either paid more or less than their award wages on any given run depending on its duration (which was entirely dependent on factors within the Company’s control, such as, the number and location of passengers booked onto the run and the scheduled timing of the run);
b)casual loadings: the drivers were engaged on a day to day basis only receiving notification that they had been offered a run the afternoon before it was scheduled to be performed. This type of on-demand labour attracts a casual loading under clause 10.5(c) of the Award. The purpose of a casual loading is to compensate an employee for the uncertain nature of their employment and specifically to compensate for the fact that they are not entitled to accrue paid annual leave or personal / carer’s leave. In the present case the drivers did not receive a casual loading or access to paid leave entitlements;
c)minimum engagement periods: clause 105(d) of the Award prescribes a minimum engagement period of three hours per shift. Some of the Drivers performed runs which were known as “link-ups” involving transporting passengers around the local Newcastle area to link-up with a bus which was travelling to or from Sydney. At times the duration of the link-up shifts was less than three hours and the drivers were not paid for their full minimum engagement period;
d)payments for waiting time: on a typical run, the drivers would transport passengers from Newcastle to Sydney domestic or international airport and then wait for incoming passengers (often for several hours) before transporting the incoming passengers back to Newcastle. Clause 21.5 of the Award requires payment at 50 per cent of ordinary rates for periods of waiting time. The Company did not pay the Drivers for periods of waiting time unless that period exceeded 3.5 hours in which case they would be paid $12.50 per hour;
e)overtime rates of pay: the Company did not keep track of the drivers’ hours of work and did not make any payment in respect of periods of overtime worked by the drivers. Pursuant to clause 23.1 of the Award the drivers were entitled to be paid overtime rates of pay if they worked more than 38 ordinary hours per week;
f)penalties for early or late work: clause 23.5 of the Award provides for a 15 per cent penalty rate to apply for work performed prior to 6:00am or after 7:00pm. The drivers were regularly required to work at these unsociable hours as the Company offered transport services covering the first to last flights of day in or out of Sydney. The Company did not pay any penalty rates to the drivers;
g)weekend penalties: under clause 23.2 of the Award the Company was required to pay time and a half for ordinary hours of work performed on a Saturday and double time for ordinary hours of work performed on a Sunday. The Company paid a flat $25.00 loading for any run performed on a Saturday or Sunday regardless of the shift length; and
h)public holiday penalties: under clause 23.4 of the Award the Company was required to pay the drivers at a rate of double time and a half for work performed on public holidays. In practice the Company paid the drivers a flat $25.00 loading for any run performed on a public holiday.
71.The Fair Work Ombudsman submits that the Company’s multiple contravention of the terms of the Award should be recognised with serious penalties. This is particularly the case when the respondents were put on notice as to the existence and application of the Modern Award through the Letter of Caution.
72.The Fair Work Ombudsman has recommended penalties in the range of either 40-50 per cent for each of the underpayment contraventions at Annexure C. The penalties sought for individual contraventions reflect either the monetary impact of that contravention on the overall underpayment or the relative seriousness of the contravention on maintaining minimum standards. For example, it is well known among the community that employees performing work on a public holiday are entitled to public holiday penalties. If an employer was able to substitute their own (lower) flat rate penalty this would undermine the community’s expectation that public holidays would either be observed or be appropriately compensated in a consistent manner so as not to give one business an unfair advantage over other businesses which comply with the Award.
Whether the party committing the breach has exhibited contrition
73.The Fair Work Ombudsman submits that the respondents have shown very limited contrition. Mr Paff has given evidence which indicates that the contraventions were inadvertent and to a large extent based on incorrect advice. Mr Paff has placed particular reliance on legal advice obtained from EA Bishop of counsel (Bishop Advice) and on a statement allegedly made by Fair Work Inspector Vi-Lay Liu (Inspector Liu). I accept that it was not reasonable for the respondents to rely on either of these pieces of “advice” during the Claim Period for the following reasons.
b)further notified the inspectors that Happy Cabby & Airport Transport Pty Ltd had appealed a determination by the ATO (which had found that the worker in question was an employee) to the Administrative Appeals Tribunal (AAT). The first and second respondents subsequently on 23 January 2013 provided copies of professional advice to the applicant supporting the view that Mr Black was engaged as an independent contractor rather than an employee. The advice was obtained:
i)on 16 October 2009 from Hillier Hewitt Pty Ltd, Chartered Accountants;
ii)on 1 February 2010 from E A Bishop of Ground Floor Wentworth Chambers; and
c)indicated to the inspectors that if as a result of the AAT proceedings Mr Black was found to be an employee of Happy Cabby & Airport Transport Pty Ltd then the company would rectify the issue for all other workers.
83.On 27 July 2010, Mr Kevin Anthony (Mr Anthony) of Braye Cragg Solicitors wrote to Inspector Longmire to request a deferral of the NTP issued to Happy Cabby & Airport Transport Pty Ltd on 16 July 2012. Mr Anthony requested that a response to the NTP be deferred until after a decision was handed down by the AAT as “[t]hat decision confirms whether Mr Black is a contractor or an employee and the issues raised in Mr Black’s matter would be similar issues to matters raised in respect of Ms Linda Osborne”.
84.In response to the request outlined in the paragraph above, the applicant consented to a deferral of the NTP issued on 16 July 2010 pending the outcome of the AAT proceedings.
85.On 17 November 2010, Inspector Longmire received notification from Mr Anthony that the AAT matter had been resolved. The effect of the AAT proceedings, via decision issued on 21 December 2010, was to affirm the ATO’s original decision that Mr Black was an employee.
86.On 18 November 2010, Inspector Longmire informed the second respondent that the applicant had determined there was an employment relationship between Happy Cabby & Airport Transport Pty Ltd and some of its workers and that a letter of caution advising of the determination would subsequently be issued.
87.On 13 January 2011, the applicant issued Happy Cabby with a letter of caution (Letter of Caution) in relation to the misclassification of employees as independent contractors. The Letter of Caution was addressed to both Happy Cabby & Airport Transport Pty Ltd and Happy Cabby. The Letter of Caution:
a)identified that the applicant had conducted an investigation into whether Happy Cabby & Airport Transport Pty Ltd and Happy Cabby had contravened:
b)section 357 of the FW Act – misrepresenting employment as an independent contracting relationship;
c)the terms of the Transport Industry – Tourists and Service Coach Drivers (State) Award as preserved as a Notional Agreement Preserving a State Award (NAPSA) prior to 1 January 2010; and
d)the terms of the Passenger Vehicle Transportation Award 2010 on and from 1 January 2010;
e)stated that the applicant had determined that Happy Cabby & Airport Transport Pty Ltd and Happy Cabby had contravened section 357(1) of the FW Act by misrepresenting employment relationships as independent contracting relationships; and
f)advised that a defence to section 357(1) of the FW Act applied where the contravention was not committed knowingly or recklessly and that in this instance the applicant considered that the defence may apply. However, the Letter of Caution further advised that for any future contraventions the Letter of Caution may be used as evidence that Happy Cabby & Airport Transport Pty Ltd and Happy Cabby were put on notice in relation to the contraventions.
88.On 20 January 2011, Inspector Longmire had a telephone conversation with the second respondent regarding the applicant’s findings. During this telephone conversation, the second respondent indicated that he was seeking legal advice regarding ways to restructure Happy Cabby’s workplace arrangements. During this telephone conversation, Inspector Longmire informed the second respondent that a follow up audit in the near future was likely.
89.On 8 February 2011, the applicant received a workplace complaint from Mr Michael Allan Griffiths (Mr Griffiths) a driver engaged by Happy Cabby. The principal matter in dispute was whether Mr Griffiths was an employee or a contractor. The investigation was subsequently discontinued because Mr Griffiths chose to pursue an unfair dismissal claim before Fair Work Australia (FWA) instead. The principal matter in dispute during the unfair dismissal proceedings was whether Mr Griffiths was an employee or a contractor.
90.On 5 April 2011, the applicant wrote to Happy Cabby to advise that Happy Cabby had been selected for auditing as part of a sham contracting national compliance campaign.
91.On 17 May 2011, Inspector Vi-Lay Liu (Inspector Liu) and Inspector Nicholas Arends (Inspector Arends) attended the Happy Cabby worksite and discussed the audit process with the second respondent prior to conducting worker interviews. As part of these discussions the second respondent indicated that he had engaged Mr Brian Evans (Mr Evans) from Resolutions @ Work Pty Ltd to help him understand his obligations.
92.On 6 June 2011, Inspector Eva Domino (Inspector Domino) issued the second respondent with a written offer of interview in regards to allegations of sham contracting and underpayment of entitlements under the National Employment Standards and the Passenger Vehicle Transportation Modern Award 2010 during the period 13 January 2011 onwards (that is, from the date of the Letter of Caution).
93.On 7 June 2011, Inspector Domino and Inspector Maria Loutsopoulos (Inspector Loutsopoulos) met with the second respondent to discuss the outcome of the 17 May 2011 site visit. During the meeting:
a)the second respondent stated that Happy Cabby had engaged the services of Mr Evans;
b)the second respondent indicated that Mr Evans had advised that the workers were employees and recommended the preparation of a workplace agreement;
c)the second respondent stated that he had already paid Mr Evans to prepare the recommended workplace agreement but had placed those arrangements on hold pending the conclusion of Inspector Liu’s investigation; and
d)the second respondent indicated that following Inspector Liu’s site visit on 17 May 2011 (that is, 3 weeks prior) he believed that Inspector Liu agreed with his view that the workers were contractors and that Inspector Liu would be speaking to her manager about the arrangement.
94.Inspector Domino clarified that it appeared that the second respondent had misunderstood Inspector Liu on 17 May 2011 as his recollection of the conversation was inconsistent with Inspector Liu’s documented findings and recommendation following the site visit.
95.Inspector Domino expressly confirmed that the applicant’s determination of 13 January 2011 still applied.
96.During the meeting on 7 June 2011, Inspector Domino made an on-site request for records specifically including documents relating to Happy Cabby’s workplace arrangements from 14 January 2011 (that is, after the date of the Letter of Caution).
97.On 9 June 2011, the second respondent produced documents in response to the on-site request for records made on 7 June 2011 and further on site request for records made on 9 June 2011. Included with the produced documents was a cover letter from the second respondent which stated that since his discussions with Inspector Longmire in late 2010 regarding the issuance of a letter of caution he had taken the following steps:
a)increased drivers’ rates of pay;
b)sought advice from Mr Anthony on restructuring contractor arrangements; and
c)sought advice from Mr Evans on the preparation of a workplace agreement.
98.On 14 June 2011, the second respondent verbally declined the voluntary offer of interview which was offered by Inspector Domino on 6 June 2011. During this conversation, the second respondent offered to arrange for Mr Anthony to send a letter to the applicant outlining all steps taken after the issuance of the Letter of Caution.
99.On 16 June 2011, Inspector Domino received a phone call from Mr Anthony during which Mr Anthony indicated that the Happy Cabby was planning to enter into new workplace arrangements for both employees and independent contractors in response to the Letter of Caution.
100.On 28 June 2011, Inspector Domino received a phone call from Mr Anthony during which Mr Anthony indicated that all new workplace arrangements had been drafted but were on hold on the basis of advice from the applicant allegedly indicating that the contractor arrangements Happy Cabby had in place were legitimate. Inspector Domino clarified that the second respondent may have misunderstood Inspector Liu on 17 May 2011 and indicated that this issue had already been clarified with the second respondent on 7 June 2011.
101.On 1 July 2011, Inspector Domino received a letter from Mr Anthony outlining all steps that had been taken by Happy Cabby following the date of the Letter of Caution. The letter also offered undertakings that the first respondent would be shortly transferring its drivers to employee status on appropriate employment contracts.
102.On 4 November 2011, the applicant issued three NTPs (two to Happy Cabby and one to the second respondent) in relation to Happy Cabby’s workplace arrangements.
103.On 16 November 2011, Inspector Domino received a call from Mr Peter Doughman of Carroll & O’Dea indicating that Happy Cabby was now represented by Carroll & O’Dea.
104.Between 21 November 2011 and 22 December 2011, Happy Cabby and the second respondent provided documents in response to the three NTPs issued on 4 November 2011.
105.During the period from January to early March 2012, the applicant analysed the documents provided by Happy Cabby and the second respondent and determined that there had been no change in Happy Cabby’s workplace arrangements following the date of the Letter of Caution and that as a result of their misclassification several employees had been underpaid their entitlements under the Modern Award.
106.On 12 March 2012, the applicant wrote to all potentially misclassified employees to advise that the applicant intended to commence proceedings against the first and second respondents. The potentially misclassified employees were advised to contact the applicant if they wanted to be included as claimants in the proceedings.
107.On 17 March 2012, Happy Cabby invited all members of its workforce to attend an on-site meeting with the second respondent in response to the applicant’s proposed proceedings. During the on-site meeting the attendees were encouraged to sign a document titled ‘Independent Contractor Agreement’.
108.On 25 May 2012, the applicant commenced proceedings against Happy Cabby and the second respondent. Carroll & O’Dea acted on behalf of the first respondent and the second respondent until 16 November 2012.
ANNEXURE B
Contraventions and power to impose penalties
| CONTRAVENTIONS OF THE FW ACT | ||||||
| Provisions contravened | Description of contravention | Maximum penalty (1st R) | Maximum penalty (2nd R) | Reference for maximum penalty | Contraventions / employees | Power to impose penalty |
| Subsection 357(1), FW Act | Misrepresenting employment as an independent contracting arrangement | $33,000 per breach (that is, $231,000 for 7 breaches)[94] | $6,600 per breach (that is, $46,200 for 7 breaches) | Item 11 sub-section 539(2) of the FW Act | Repeated contraventions, 7 employees (Baker, Charlton, Jarvis, Lawrence, Munson, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 357(1) FW Act). |
| Section 45, FW Act | Contravening clause 14.1 of the modern award (minimum wages) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 6 employees (Baker, Charlton, Jarvis, Lawrence, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 10.5 (d) of the Modern Award (casual loading) | $33,000 per breach | $6,600 per breach | Section 539 of the FW Act | Repeated contraventions, 6 employees (Baker, Charlton, Jarvis, Lawrence, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 10.5 (d) of the modern award (minimum shift engagements) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 4 employees (Baker, Charlton, Jarvis and Lawrence) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 21.5) of the Modern Award (waiting time) | $33,000 per breach | $6,600 per breach | Section 539 of the FW Act | Repeated contraventions, 7 employees (Baker, Charlton, Jarvis, Lawrence, Munson, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 23.1 of the modern award (overtime) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 6 employees (Baker, Charlton, Jarvis, Lawrence, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 23.2 of the modern award (weekend penalties) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 5 employees (Baker, Charlton, Jarvis, Lawrence and Sherwood) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 23.4 of the modern award (public holidays) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 4 employees (Baker, Charlton, Jarvis and Lawrence) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Section 45, FW Act | Contravening clause 23.5 of the modern award (early / late penalties) | $33,000 per breach | $6,600 per breach | Item 2 sub-section 539 of the FW Act | Repeated contraventions, 6 employees (Baker, Charlton, Jarvis, Lawrence, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 45 FW Act). |
| Subsection 535(1), FW Act | Failure to keep employee records in accordance with sub-regulation Chapter 3, Part 3-6, Division 3, regulations 3.32(d) – (e), 3.33(1)-(3),3.34, 3.36(1) and 3.37 of the FW Regulations | $16,500 per breach | $3,300 per breach | Item 29 sub-section 539(2) of the FW Act | Repeated contraventions, 7 employees (Baker, Charlton, Jarvis, Lawrence, Munson, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 535(1) FW Act). |
| Subsection 536(1), FW Act | Failure to issue payslips | $16,500 per breach | $3,300 per breach | Item 29 sub-section 539(2) of the FW Act | Repeated contraventions, 7 employees (Baker, Charlton, Jarvis, Lawrence, Munson, Sherwood and Yates) | Section 546 FW Act – eligible court can impose a penalty if Court is satisfied that person has contravened civil remedy provision (incl s 536(1) FW Act). |
[94] Course of conduct provisions under subsection 557(2) of the FW Act do not apply in relation to sham contracting contraventions.
ANNEXURE C
Calculation of penalties
Provision Contravened
Description of contravention
Maximum penalty
Maximum penalty less 20% discount
Percentage of penalty applied
Total penalty (Company)
Total penalty (Mr Paff)
Subsection 357(1) Fair Work Act Sham contracting in relation to Baker $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Charlton $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Jarvis $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Lawrence $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Munson $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Sherwood $33,000 $26,400 70% $18,480 $3,696 Subsection 357(1) Fair Work Act Sham contracting in relation to Yates $33,000 $26,400 70% $18,480 $3,696 Section 45, Fair Work Act Clause 14.1 of the modern award (minimum wages) $33,000 $26,400 50% $13,200 $2,640 Section 45, Fair Work Act Clause 10.5 (d) of the Modern Award (casual loading) $33,000 $26,400 40% $10,560 $2,112 Section 45, Fair Work Act Clause 10.5 (d) of the modern award (minimum shift engagements) $33,000 $26,400 40% $10,560 $2,112 Section 45, Fair Work Act Clause 21.5 of the Modern Award (waiting time) $33,000 $26,400 50% $13,200 $2,640 Section 45, Fair Work Act Clause 23.1 of the modern award (overtime) $33,000 $26,400 50% $13,200 $2,640 Section 45, Fair Work Act Clause 23.2 of the modern award (weekend penalties) $33,000 $26,400 40% $10,560 $2,112 Section 45, Fair Work Act Clause 23.4 of the modern award (public holidays) $33,000 $26,400 50% $13,200 $2,640 Section 45, Fair Work Act Clause 23.5 of the modern award (early / late penalties) $33,000 $26,400 40% $10,560 $2,112 Subsection 535(1), Fair Work Act Failure to keep employee records $16,500 $13,200 70% $9,240 $1,848 Subsection 536(1), Fair Work Act Failure to issue payslips $16,500 $13,200 40% $5,280 $1,056 TOTAL
$528,000
$422,400
-
$252,120
$47,784
8
19
3