Fair Work Ombudsman v Hiyi Pty Ltd

[2016] FCCA 1634

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v HIYI PTY LTD & ORS [2016] FCCA 1634

Catchwords:
INDUSTRIAL LAW – appropriate penalties under s.546 of the Fair Work Act 2009 (Cth) – admitted contraventions – agreed penalties and agreed statement of facts – relevant considerations – held agreed penalties are appropriate to be ordered against Respondents.

Legislation:

Fair Work Act 2009, ss.45, 536, 545, 546, 550, 557, 559, 715

General Retail Industry Award 2010, cls., 17, 13.2, 29.4, 30.3, schs. A.6.4, A.7.3, B.1

Cases cited:
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46
Fair Work Ombudsman v Bosen Pty Ltd & Ors(Industrial) [2011] VMC 21
Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2) [2012] FCA 557
Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd [2012] FMCA 258
Hansen v Mt Martha Community Learning Centre Inc (No 2) [2015] FCA 1283
Kelly v Fitzpatrick (2007) 166 IR 14
Mason v Harrington Corporation Pty Ltdt/as Pangaea Restaurant & Bar [2007] FMCA 7
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357; (2008) 177 IR 243
Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65
Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 38

Applicant: FAIR WORK OMBUDSMAN

First Respondent: HIYI PTY LTD

Second Respondent: YIRAN GU

Third Respondent: HAIYAO XU

File Number: MLG 2243 of 2015

Judgment of: Judge Jones

Hearing date: 21 April 2016

Date of Last Submission: 21 April 2016

Delivered at: Melbourne

Delivered on: 1 July 2016

REPRESENTATION

Counsel for the Applicant: Ms Knowles

Solicitors for the Applicant: Office of the Fair Work Ombudsman

Counsel for the Respondents: Mr Minucci

Solicitors for the Respondents: Archer Thompson Lawyers

THE COURT DECLARES THAT:

1. The First Respondent, Hiyi Pty Ltd, contravened the following civil remedy provisions of the Fair Work Act 2009 (Cth) (“the Act”) as follows:

   (a)s.45 of the Act by virtue of a contravention of cl.17 of the General Retail Industry Award 2010 (“the Award”) by failing to pay the applicable minimum hourly wages to the following employees of the First Respondent:

   a.      Mr Nan Gao;

   b.      Mr Tejinder Jit Singh;

   c.      Ms Lakhvinder Kaur;

   d.      Mr Mohtashim Ahmed;

   e.      Mr Zi Li;

   f.       Mr Syed Fahim Yousaf Bukhari;

   g.      Ms Dan Liu;

   h.      Mr Azfar Ahmed Khan;

   i.       Mr Muhammad Hamza Ali Khan;

   j.       Mr Dawer Ali Khan;

   k.      Mr Vishwajeet Ajit Kokil; and

   l.       Mr Kalyan Polavarapu; and

   (b)s.45 of the Act by virtue of a contravention of cl.13.2 of the Award by failing to pay the casual loading of the following employees of the First Respondent:

   a.      Mr Nan Gao;

   b.      Mr Tejinder Jit Singh;

   c.      Ms Lakhvinder Kaur;

   d.      Mr Mohtashim Ahmed;

   e.      Mr Zi Li;

   f.       Mr Syed Fahim Yousaf Bukhari;

   g.      Ms Dan Liu;

   h.      Mr Azfar Ahmed Khan;

   i.       Mr Muhammad Hamza Ali Khan;

   j.       Mr Dawer Ali Khan;

   k.      Mr Vishwajeet Ajit Kokil; and

   l.       Mr Kalyan Polavarapu; and

   (c)s.45 of the Act by virtue of a contravention of sch.A.6.4 of the Award by failing to the following employees of the First Respondent a Sunday casual loading:

   a.      Mr Nan Gao;

   b.      Mr Tejinder Jit Singh;

   c.      Mr Mohtashim Ahmed;

   d.      Mr Zi Li;

   e.      Mr Syed Fahim Yousaf Bukhari;

   f.       Ms Dan Liu;

   g.      Mr Muhammad Hamza Ali Khan;

   h.      Mr Dawer Ali Khan; and

   i.       Mr Vishwajeet Ajit Kokil; and

   (d)s.45 of the Act by virtue of contraventions of cl.29.4(b) of the Award and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent a Saturday loading:

   a.      Mr Tejinder Jit Singh;

   b.      Ms Lakhvinder Kaur;

   c.      Mr Mohtashim Ahmed;

   d.      Mr Zi Li;

   e.      Mr Syed Fahim Yousaf Bukhari;

   f.       Ms Dan Liu; and

   g.      Mr Vishwajeet Ajit Kokil; and

   (e)s.45 of the Act by virtue of contraventions of cl.29.4(c) and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent a Sunday loading:

   a.      Mr Nan Gao;

   b.      Mr Tejinder Jit Singh;

   c.      Mr Mohtashim Ahmed;

   d.      Mr Zi Li;

   e.      Mr Syed Fahim Yousaf Bukhari;

   f.       Ms Dan Liu;

   g.      Mr Muhammad Hamza Ali Khan; and

   h.      Mr Vishwajeet Ajit Kokil; and

   (f)s.45 of the Act by virtue of contraventions of cl.29.4(d) and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent a Public holiday loading:

   a.      Mr Tejinder Jit Singh;

   b.      Ms Lakhvinder Kaur;

   c.      Mr Mohtashim Ahmed;

   d.      Mr Zi Li;

   e.      Mr Syed Fahim Yousaf Bukhari;

   f.       Ms Dan Liu;

   g.      Mr Muhammad Hamza Ali Khan; and

   h.      Mr Vishwajeet Ajit Kokil; and

   (g)s.45 of the Act by virtue of contraventions of cl.30.3(a) and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent shiftwork rates of pay from Monday to Friday:

   a.      Mr Tejinder Jit Singh;

   b.      Mr Zi Li;

   c.      Ms Dan Liu;

   d.      Mr Azfar Ahmed Khan;

   e.      Mr Muhammad Hamza Ali Khan; and

   f.       Mr Dawer Ali Khan; and

   (h)s.45 of the Act by virtue of contraventions of cl.30.3(b) and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent shiftwork rates of pay for Saturdays:

   a.      Mr Zi Li;

   b.      Ms Dan Liu; and

   c.      Mr Azfar Ahmed Khan; and

   (i)s.45 of the Act by virtue of contraventions of cl.30.3(c) and sch.A.7.3 of the Award by failing to pay the following employees of the First Respondent shiftwork rates of pay for Sundays:

   a.      Mr Zi Li;

   b.      Ms Dan Liu;

   c.      Mr Azfar Ahmed Khan; and

   d.      Mr Muhammad Hamza Ali Khan; and

   (j)s.536(2) of the Act by giving payslips to each of the employees listed in (1)(a) above, that did not accurately state the number of hours worked, or the hourly rates paid.

2. The Second Respondent, Ms Yiran Gu, and the Third Respondent, Mr Haiyao Xu, were involved in each of the contraventions committed by the First Respondents specified in paragraph (1) above.

ORDERS

1. Pursuant to sub-s.545(2) of the Act, the First Respondent pay $564.25 to Mr Dawer Ali Khan within 28 days of the Court’s Orders.

2. Pursuant to sub-s.559(2) of the Act, in the event that Mr Dawer Ali Khan cannot be located within 28 days of the Court’s Orders, the First Respondent pay the amount due to Mr Dawer Ali Khan to the Commonwealth within a further seven days.

3. The First Respondent shall pay penalties pursuant to sub-s.546(1) of the Act to a total amount of $110,000.00 in respect of the First Respondent’s contraventions listed in paragraph (1) above.

4. The Second Respondent shall pay penalties pursuant to sub-s.546(1) of the Act to a total amount of $20,000.00 in respect of the Second Respondent’s involvement in the contraventions of the First Respondent listed in paragraph (1) above.

5. The Third Respondent shall pay penalties pursuant to sub-s.546(1) of the Act to a total amount of $20,000.00 in respect of the Third Respondent’s involvement in the contraventions of the First Respondent listed in paragraph (1) above.

6. Pursuant to sub-s.546(3) of the Act all pecuniary penalties imposed by the Court be paid to the Consolidated Revenue Fund of the Commonwealth within six months of these Orders.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 2243 of 2015

FAIR WORK OMBUDSMAN

Applicant

And

HIYI PTY LTD

First Respondent

YIRAN GU

Second Respondent

HAIYAO XU

Third Respondent

REASONS FOR JUDGMENT

Introduction and Background

1. This decision is in relation to an application by the Fair Work Ombudsman (“FWO”) for penalties pursuant to s.546 of the Fair Work Act 2009 (Cth) (“the Act”) for a series of contraventions of the Act by the Respondents.

2. The First, Second and Third Respondents have admitted the contraventions alleged by the FWO. The parties have prepared an Agreed Statement of Facts (“ASOF”). In addition, the parties have come to an agreed view as to the appropriate penalty to be imposed against the First Respondent, and the Second and Third Respondents as persons involved in the contraventions within the meaning of sub-s.550(1) of the Act. Each party has provided the Court with written submissions, and the Court has taken into account the ASOF, the affidavits filed by the Second Respondent (on 11 January 2016 and 16 March 2016), the Third Respondent (on 11 January 2016, 24 February 2016 and 16 March 2016) and Ashley Kate Hurrell, Senior Fair Work Inspector, filed on 12 February 2016 and 8 April 2016.

3. The following background is taken from the ASOF and the affidavits as filed.

4. The First Respondent operated a 7-Eleven convenience franchise business located at 55 Royal Parade, Parkville, in the state of Victoria (“the Parkville store”), between 5 October 2011 and 11 November 2014, under a franchise agreement with 7-Eleven Stores Pty Ltd (“the 7-Eleven Head Office”). 

5. The Second and Third Respondents were at all material times the sole directors and shareholders of the First Respondent.

6. The Second and Third Respondents were at all material times responsible for the direction, management, supervision and decisions regarding the terms and conditions under which persons employed by the First Respondent would work. Likewise, they were responsible for ensuring that the First Respondent complied with its legal obligations under the Act.

7. The contraventions took place during the period from 13 September 2013 to 14 September 2014 (“the relevant period”). They involve underpayment of wages, casual loadings, penalty rates for shiftwork, weekend work and public holidays, as well as the failure to provide payslips which accurately recorded the hours worked or hourly rates paid to twelve casual employees, employed by the First Respondent during the relevant period. The employees were:

   a)Mr Nan Gao (Clive);

   b)Mr Tejinder Jit Singh (Jeet);

   c)Ms Lakhvinder Kaur (Lucky);

   d)Mr Mohtashim Ahmed (Ahmed);

   e)Mr Zi Li (Leon);

   f)Mr Syed Fahim Yousaf Bukhari (Fahim);

   g)Ms Dan Liu (Dan);

   h)Mr Azfar Ahmed Khan (Azfar);

   i)Mr Muhammad Hamza Ali Khan (Hamza);

   j)Mr Dawer Ali Khan (Khan);

   k)Mr Vishwajeet Ajit Kokil (Vish); and

   l)Mr Kalyan Polavarapu (Kalyan),

   (collectively, “the employees”).

8. The total underpayment to the employees was $84,047.32. The First Respondent has subsequently rectified the underpayments that are the subject of the admitted contraventions.

9. The General Retail Industry Award 2010 (“the Award”) covered the employees and the First Respondent. The applicable classification under the Award was Retail Employees Level 1, as defined in sch.B.1 of the Award.

10. The employees were advised by the First Respondent, at the commencement of their employment, that they would be paid an hourly rate of between $12.00 and $17.00 and were, over the relevant period, paid amounts within this range. This resulted in the underpayments.

11. To process the amount paid to ten of the employees, the Respondents used the payroll system provided by 7-Eleven Head Office, which did not allow for manual rates of pay to be entered, which were less than applicable rates under the Award.  To pay the flat hourly rates of pay between $12.00 and $17.00, the Respondents employed a process of ‘reverse calculating’ the employees’ entitlements by totalling their weekly wages and then entering inaccurate hours and rates of pay into the payroll system, which created records purporting to show that the employees were paid at Award rates of pay. The 7-Eleven Head Office then processed the transfer of funds to these employees’ bank accounts, on the basis of the data entered into the 7-Eleven Head Office payroll system. The actual payments received by the employees approximately reflected the flat hourly rate of between $12.00 and $17.00 for the hours actually worked.

12. The pay for the remaining two employees was processed outside of the 7-Eleven Head Office payroll system. The Second or Third Respondent prepared their pay in an alternative payroll system and processed the transfer of funds to their bank accounts.

13. The FWO became involved in this matter when Fair Work Inspectors visited the Parkville store as part of an audit campaign by the FWO into 7-Eleven stores. Following this site visit, the FWO commenced an investigation in relation to the wages paid by the First Respondent to the employees during the relevant period. The Respondents cooperated with the FWO during the investigation.

14. In approximately July 2013, the First Respondent acquired a second 7-Eleven store, located at the corner of Spencer Street and Flinders Street, Melbourne, in the State of Victoria (“the Spencer Street store”) which it continues to operate.

15. In the course of conducting its investigation into the Parkville store, the FWO became aware of the existence of the Spencer Street store. The FWO commenced an investigation to determine whether the Spencer Street store was compliant with workplace laws. This confirmed that the Respondents had employed a similar system for paying employees in the Spencer Street store, albeit with higher agreed rates of pay than were paid in the Parkville store.

16. The Respondents cooperated with the FWO to conduct a self-audit of the Spencer Street store, verified by the FWO, which identified underpayments. The Respondents have committed to taking steps to rectify these underpayments and to ensure their future compliance with their obligations to employees, including entering into an enforceable undertaking pursuant to s.715 of the Act (“the Enforceable Undertaking”) to agree to rectify outstanding underpayments of $106,189.22, conduct a future compliance audit, and establish a complaint resolution process for any further requests received by (current or former) employees (Exhibit A2).

The Law

1. Section 546 of the Act provides:

   “Pecuniary penalty orders

   (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)).

   Determining amount of pecuniary penalty

   (2)  The pecuniary penalty must not be more than:

   (a)  if the person is an individual--the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2); or

   (b)  if the person is a body corporate--5 times the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2).

   Payment of penalty

   (3)  The court may order that the pecuniary penalty, or a part of the penalty, be paid to:

   (a)  the Commonwealth; or

   (b)  a particular organisation; or

   (c)  a particular person.

   Recovery of penalty

   (4)  The pecuniary penalty may be recovered as a debt due to the person to whom the penalty is payable.

   No limitation on orders

   (5) To avoid doubt, a court may make a pecuniary penalty order in addition to one or more orders under section 545.”

2. Relevantly, sub-s.557(1) of the Act provides that:

   “Course of conduct

   (1)  For the purposes of this Part, 2 or more contraventions of a civil remedy provision referred to in subsection (2) are, subject to subsection (3), taken to constitute a single contravention if:

   (a)  the contraventions are committed by the same person; and

   (b)  the contraventions arose out of a course of conduct by the person.”

3. The provisions included in sub-s.557(2) of the Act, include contraventions of s.45 and sub-ss.536(1) and (2) of the Act.

The Principles

1. The discretion given to the Court to order penalties under the Act is a broad one. However, the Courts have developed principles in deciding the appropriate approach to adopt in determining any penalty to apply for civil remedy contraventions. In addition, the Courts have developed what is described as a convenient checklist, in determining the penalty to apply for each contravention.

2. The FWO has summarised, by reference to authorities, the approach the Court should adopt in determining the question of appropriate penalty. I concur with this summary, which is as follows:[1]

   [1] Applicant’s Penalty Submissions filed on 8 April 2016 at [28] to [36].

   “28.  The authorities establish that the following principles should be taken into account in determining the question of appropriate penalty.

   29. The first step for the Court is to identify the separate contraventions involved. Each contravention of each separate obligation in the FW Act in relation to each employee is a separate contravention.

   30. Secondly, the Court should consider whether some or all of the contraventions arising in the first step constitute a single course of conduct pursuant to section 557(1) of the FW Act. Section 557(1) of the FW Act provides that where two or more contraventions of a term of an applicable civil remedy provision are committed by the same person and arise out of a course of conduct, the contraventions constitute a single contravention of the provision. Particularly relevant is whether the breaches arose out of separate acts or decisions of the Respondents, or out of a single act or decision. The latter case will constitute a course of conduct but the former will not. The onus of establishing the benefit of section 557 of the FW Act is on the Respondent.

   …

   32.    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.  The task is distinct from and in addition to the final application of the totality principle.

   …

   35.    Fourthly, the Court should consider an appropriate penalty in respect of each contravention, whether a single contravention, a course of conduct or a group of contraventions, having regard to all of the circumstances of the case.

   36.    Finally, having fixed an appropriate penalty for each contravention, the Court should take a final look at the aggregate penalty, to determine whether it is an appropriate response to the contravening conduct.  This is known as the “totality principle”.”

   (Footnotes omitted)

1. The matters that the Court should take into account when considering the imposition of a penalty under the Act were summarised by Mowbray FM in Mason v Harrington Corporation Pty Ltdt/as Pangaea Restaurant & Bar [2007] FMCA 7. This summary was adopted by Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14 at [30] and has been consistently used ever since. The Court acknowledges that the summary is a convenient checklist but does not prescribe or restrict the matters which may be taken into account in the exercise of its discretion: Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 per Gray, Graham and Buchanan JJ.

2. That list is as follows:

   ·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.

1. The position of the Court when faced with an agreement on penalties was considered by the Full Bench of the Federal Court in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 (“Mobil Oil”), where the principles discussed in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 (“NW Frozen Foods”) at [298]-[299] per Burchett and Keifel JJ were endorsed. Those principles were applied by the Full Court in relation to the determination of penalties in an industrial context in Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65 (“Ponzio”) at [57] and [129].

2. The approach of the Court, where the parties have agreed on the penalties to be applied in respect of contraventions of workplace laws, was recently considered by the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 (“Director, Fair Work Building Industry Inspectorate”). In a joint judgment, French CJ, Kiefel, Bell, Nettle and Gordon JJ, approved the line of authority in Mobil oil and NW Frozen Foods. Their Honours stated the following:

   “46. …there is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.

   …

   48. NW Frozen Foods and Mobil Oil do not suggest that the task of a judge faced with an agreed civil penalty submission is to determine whether the submitted penalty is “wholly outside” the “range of penalties reasonably available” or that the court is “bound to impose [an agreed] penalty irrespective of whether it is considered appropriate”. To the contrary, as was emphasised in Mobil Oil, those cases make plain that the court is not bound by the figure suggested by the parties. The court asks “whether their proposal can be accepted as fixing an appropriate amount” and for that purpose the court must satisfy itself that the submitted penalty is appropriate.”

   (Footnotes omitted)

3. Their Honours proceeded to set out the differences between criminal and civil proceedings, and said:

   “57.  In contrast, in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy. Accordingly, settlements of civil proceedings are commonplace and orders by consent for the payment of damages and other relief are unremarkable. … More generally, it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate.

   58.    Possibly, there are exceptions to the general rule. There is, however, no reason in principle or practice why civil penalty proceedings should be treated as an exception. Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills - , highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. …”

   (Footnotes omitted)

4. Turning to the way in which a Court should treat the submissions of a regulator and the Respondent, their Honours stated:

   “60. …As was emphasised in NW Frozen Foods, it is the function of the relevant regulator to regulate the industry in order to achieve compliance and, accordingly, it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance.

   61. That being said, the submissions of a regulator will be considered on their merits in the same way as the submissions of a respondent and subject to being supported by findings of fact based upon evidence, agreement or concession. As was also said in NW Frozen Foods:

   “Courts have learned to be suspicious of claims of secret knowledge; and justice should be done in the light, with the relevant facts exposed to view. It is the Court which bears the responsibility.””

   (Footnotes omitted)

Consideration

The contraventions

1. The contraventions of the Act in respect of each of the employees were:

   a)s.45 of the Act by virtue of a contravention of cl.17 of the Award by failing to pay each of the employees the applicable minimum hourly wages;

   b)s.45 of the Act by virtue of a contravention of cl.13.2 of the Award by failing to pay each of the employees a casual loading;

   c)s.45 of the Act by virtue of a contravention of sch.A.6.4 of the Award by failing to pay Clive, Jeet, Ahmed, Leon, Fahim, Dan, Hamza, Khan and Vish a Sunday casual loading;

   d)s.45 of the Act by virtue of contraventions of cl.29.4(b) of the Award and sch.A.7.3 of the Award by failing to pay Jeet, Lucky, Ahmed, Leon, Fahim, Dan and Vish a Saturday loading;

   e)s.45 of the Act by virtue of contraventions of cl.29.4(c) and sch.A.7.3 of the Award by failing to pay Clive, Jeet, Ahmed, Leon, Fahim, Dan, Hamza, Khan and Vish a Sunday loading;

   f)s.45 of the Act by virtue of contraventions of cl.29.4(d) and sch.A.7.3 of the Award by failing to pay Jeet, Lucky, Ahmed, Leon, Fahim, Dan, Hamza and Vish a Public holiday loading;

   g)s.45 of the Act by virtue of contraventions of cl.30.3(a) and sch.A.7.3 of the Award by failing to pay Jeet, Leon, Dan, Azfar, Hamza and Khan a shiftwork rate of pay from Monday to Friday;

   h)s.45 of the Act by virtue of contraventions of cl.30.3(b) and sch.A.7.3 of the Award by failing to pay Leon, Dan and Azfar a shiftwork rate of pay for Saturdays;

   i)s.45 of the Act by virtue of contraventions of cl.30.3(c) and sch.A.7.3 of the Award by failing to pay Leon, Dan, Azfar and Hamza a shiftwork rate of pay for Sundays; and

   j)s.536(2) of the Act by giving payslips to each of the employees that did not accurately state the number of hours worked, or the hourly rates paid.

2. The Second and Third Respondents each admit that they were involved in each of the above contraventions within the meaning of s.550(2) of the Act.

3. I am satisfied that sub-s.557(1) of the Act, in relation to repeated breaches of each separate obligation under the Award of the Act, applies to the repeated contraventions in respect of each of the 12 employees over the relevant period. This results in nine separate contraventions of the Award and s.45 of the Act, and one contravention of sub-s.536(2) of the Act.

4. Aside from the statutory course of conduct provisions, the parties agree that it would be appropriate to group the two contraventions which relate to casual loading entitlements, namely the contravention of cl.13.2 in respect of failure to pay casual loading and the contravention of sch.A.6.4 in respect of Sunday casual loading. I am satisfied that these two contraventions should be grouped together as they each arose from a failure to apply the correct casual loading entitlements for hours worked, in circumstances where the Sunday casual loading rate was required to be phased out from the transitional instrument. 

5. The grouping of these two contraventions results in there being nine separate contraventions attracting penalties which, I am satisfied, relate to a separate and distinct entitlement or obligation and should each be treated as a separate contravention attracting an appropriate penalty.

The Appropriate Penalty

1. The penalties agreed by the parties are set out in Annexure A to this Judgment. I now turn to consider whether the submitted penalties are the appropriate penalties in the circumstance of this case.

The nature and extent of the conduct which led to the breaches and the circumstances under which they occurred

1. There is no doubt that the contraventions were serious, in that they involved, for 12 casual employees, over a period of one year, contraventions of fundamental minimum entitlements, including the failure to pay minimum wages, casual loadings, loadings for shiftwork out of normal hours and for work on weekends as well as public holidays, in accordance with the Award. The underpayments of these employees, who were dependent on minimum Award rates of pay were, in my opinion, substantial. The failure to provide the employees with payslips which accurately recorded the hours worked, in contravention of the Act, is not a simple administrative issue. It has serious consequences for the employees, who were misinformed about their actual hours worked and thereby denied the capacity to monitor and pursue their legal entitlements under the Act and the Award. I concur with the observations of (then) Federal Magistrate Riethmuller in Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd [2012] FMCA 258 at [67]:

   “…Without proper pay slips employees are significantly disempowered, creating a structure within which breaches of the industrial laws can be easily perpetrated”.

2. I am satisfied that many of the employees employed at the Parkville store were vulnerable employees. Annexure 25 to the affidavit of Ashley Kate Hurrell filed on 12 February 2016, is a spreadsheet prepared by the Department of Immigration and Border Protection regarding the Visa status of the Parkville store employees. This spreadsheet discloses that eleven of the twelve employees were on various (temporary) visas, and some of these employees were students.[2] In Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 38 (“Saya Cleaning”) Simpson FM (as his Honour then was) said at [20]:

   “Ms Iglesias was 18 years of age at the time of the contraventions concerning her.  Mr Elbehidi was a person who had newly arrived in Australia from Iraq.  It is reasonable to conclude that he had limited experience both of working in Australia and of his legal entitlements.  Both employees were vulnerable employees.  The vulnerability of these employees and the way they were exploited by the respondents is a significant factor when assessing the quantum of penalty:  Cotis v Pow Juice Pty Ltd [2007] FMCA 140 at [57-58]; Jones v Hanssen Pty Ltd [2008] FMC 291 at [8].”

   [2] Affidavit of Ashley Kate Hurrell filed on 12 February 2016, Annexure 25.

3. I am satisfied that, absent the audit of 7-Eleven stores engaged in by the FWO, it is likely that the underpayments would have continued unabated. Although I accept that the circumstances in the Spencer Street store are not the subject of this penalty hearing, and that the Respondents have both co-operated and taken proactive steps by way of an Enforceable Undertaking to rectify underpayments made in the past and to ensure their obligations under the Act and Award are met into the future, the fact is that the conduct of the Respondents in respect of the Parkville store was not isolated. The Respondents engaged in the same conduct in relation to the Spencer Street store. It is not disputed that the Respondents did not voluntarily disclose the existence of the Spencer Street store to the FWO investigators. It is not clear to the Court whether this conduct (involving contraventions of the Act and Award) would have ceased in the absence of the identification by the FWO of the operation of the Spencer Street store by the Respondents, during the course of the investigation into the Parkville store by the FWO.

4. The Respondents submit that they operated under a franchising model which was extremely detrimental to them. This model, and the subsequent changes to the model, were described in their Outline of Submissions as follows:

   “23. The First Respondent entered into a Franchise Agreement with 7-Eleven Stores Pty Ltd (7-Eleven Head Office) to operate the Parkville Store (the Franchise Agreement). Amongst other things, it was a term of the Franchise Agreement with 7-Eleven Head Office that:

   a. 7-Eleven Head Office were to receive 57% of the total gross income made at the Parkville Store; and

   b. the Parkville Store would remain open for 24 hours per day.

   24. The evidence of the Second Respondent is that the franchise model “made it very difficult for us to pay our employees the appropriate minimum wage entitlements.”  This evidence is unchallenged by the Applicant and ought be accepted by the Court.

   25. 7-Eleven Head Office has subsequently revised the terms of their franchising model.  The Affidavit of Yiran Gu dated 11 January 2016 relevantly provides as follows:

   7-Eleven Head Office has provided a revised franchise agreement to all franchise owners. In my opinion this is in recognition of the flaws in the franchise model under which the Parkville Store operated. HiYi has entered into this revised franchise arrangement for its Spencer Street store (the Revised Agreement). Now produced and shown to me and marked YG-5 is a true and correct copy of the Revised Agreement, entered into by HiYi and 7-Eleven Head Office in relation to the Spencer Street Store.

   In particular, as part of the terms of the Revised Agreement:

   (a) 7-Eleven Head Office has given HiYi a minimum income guarantee of at least $340,000 per annum. This is enough to pay all of the relevant minimum entitlements to staff, as well as providing Harry and I with the ability to service our loans and provide us with a wage to live off;

   (b) 7-Eleven Head Office has also altered the profit sharing arrangements. For stores who earn less than $500,000 per annum, the profits are split 50/50. Further details of the arrangements are set out on page 12 of the Revised Agreement;

   (c) 7-Eleven Head Office is now responsible for paying employees and processing the relevant pay advices, payroll and superannuation entitlements.

   …

   27.    The Respondents submit that by reason of 7-Eleven Head Office’s proposal of a new franchising model, 7-Eleven Head Office has acknowledged how difficult it was for franchise owners (including the Respondents) to ensure that minimum wage entitlements were met under the old franchising regime. …”

   (Footnotes omitted)

5. I accept that the previous franchising model of the 7-Eleven Head Office placed significant restrictions on the capacity of the Respondents to generate an income from the operation of the franchise. It is apparent that the revised franchise agreement establishes a business model for the Respondents which, into the future, ensures a minimum income for the Respondents for the purpose of the payment of minimum entitlements to employees of its Spencer Street store, improves the profit arrangement as between the 7-Eleven Head Office and the Respondents and removes the capacity of the Respondents to manipulate the payroll system. I am not prepared to infer the motivation of the 7-Eleven Head Office in entering into this new arrangement.

6. I do not accept that the terms of the previous franchising agreement excused the Respondents from ensuring that employees employed at the Parkville store were paid in accordance with the minimum entitlements under the Act and the Award. The Respondents entered into the franchise agreement, presumably voluntarily, and I would expect that the Second and Third Respondents would have undertaken due diligence before entering into the franchise. As I find below, they set out to deliberately avoid paying employees of the Parkville store their minimum entitlements under the Act and the Award. At most, in my opinion, the previous franchise agreement bears on a consideration of the level of penalty. I make it clear, however, that I do not give this factor the significant weight which the Respondents appear to have sought in their submissions.

The nature and extent of any loss or damage sustained as a result of the breaches

1. I have already dealt with this factor. The casual employees were deprived of their minimum entitlement to wages, loadings and penalties in circumstances where they regularly worked shiftwork and weekend work and, in some cases, public holidays. The FWO has usefully summarised, in its written submissions, the disparity between the employee’s entitlements and the amounts actually paid:

   “56. Over the Assessment Period, the Employees were entitled to a minimum hourly rate of pay of between $22.48 and $23.15 (inclusive of casual loading), plus applicable weekend and public holiday loadings and shiftwork rates. Nine of the Employees undertook work on Sundays where the applicable hourly rate was between $32.37 and $37.04 and seven of the Employees worked on public holidays where they were entitled to be paid between $39.56 and $46.31 per hour. The Employees were instead paid rates that were generally between $12 and $17 an hour, and at times, lower. …”

   (Footnotes omitted)

2. I am satisfied that the disparity in rates of pay reflect a gross underpayment by the Respondents of minimum entitlements to vulnerable employees.

3. The Respondents did take corrective action to rectify the underpayments. Nevertheless, until that point, these employees carried the burden of the loss flowing from the Respondents’ contraventions.

Whether there had been similar previous conduct by the defendant

1. The Respondents have not previously been the subjects of proceedings by the FWO, or its predecessor, for contraventions of workplace laws.

The size of the enterprise involved

1. The Respondents submit that they have not profited from the underpayments, and that the First Respondent was, during the relevant period, in a straitened financial position. The Respondents submit that they do not rely on these matters to absolve them of responsibility for the breaches, but rather, that these matters are relevant matters to be taken into account when the Court determines the appropriate penalty to be applied.

2. In Saya Cleaning at [26]-[27], Simpson FM (as he then was) said:

   “26. The first respondent is a small company and, I infer, has very few if any assets. However as Justice Tracey said in Kelly v Fitzpatrick (above):

   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.

   27. In Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at paras 27 to 29 it was said:

   Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to a Court’s consideration of penalty.”

3. In Hansen v Mt Martha Community Learning Centre Inc (No 2) [2015] FCA 1283, Jessup J observed at [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 applicant, must be accepted. But it was submitted on behalf of the applicant, 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].”

1. I am satisfied that, whilst the size and financial circumstances of a Respondent employer does not exculpate conduct by employers contravening the Act, it may be a relevant consideration in determining the appropriate penalty.

2. The Respondents rely on the following in relation to their financial circumstances:

   a)during the period of the underpayment, the Parkville store made a net profit of $27,267.00;

   b)the Second Respondent earned $50,993.00 of taxable income for the financial year ending 30 June 2013, $99,440.00 of taxable income for the financial year ending 30 June 2014 and $4,371.00 of taxable income in the financial year ending 30 June 2015;

   c)the Third Respondent earned $30,046.00 of taxable income for the financial year ending 30 June 2013, $46,225.00 of taxable income for the financial year ending 30 June 2014 and $17,828.00 of taxable income for the financial year ending 30 June 2015;

   d)the First Respondent’s Company Tax Return for the 2015 financial year discloses that the First Respondent operated at a net loss of $12,505.00; and

   e)the First Respondent’s Financial Report for the 2015 financial year discloses that the First Respondent’s liabilities are over $1.6 million.

3. The Respondents submit that their current financial position supports the appropriateness of the agreed penalties and that they are able to obtain enough capital to pay the agreed penalties and comply with the Enforceable Undertaking in relation to the Spencer Street store.[3]

   [3] Outline of submissions of the First, Second and Third Respondents at [42].

4. The FWO accepts that, during the relevant period, the Parkville store made only a limited profit. However, the FWO submits that the Respondents’ reliance on their straitened circumstances needs to be assessed against the totality of the corporate interests of the First Respondent, and the financial purchases made by the Respondents during and after the relevant period. The FWO relies on the following:

   a)the admission by the Second Respondent during her interviews with Fair Work Inspectors that she made the decision to pay the employees below Award rates of pay so that the Respondents could service their business loan;[4]

   b)one employee (a family friend of the Second and Third Respondent) was paid at above Award rates;[5]

   c)the Respondents have had access to other significant sources of funds:

   i)in July 2013, the First Respondent acquired a second 7-Eleven franchise at Spencer Street;

   ii)the taxable income of the Second and Third respondents for the financial year ending 30 June 2014 were $99,440.00 and $46,225.00 respectively;

   iii)the Second and Third Respondents were able during the relevant period to purchase a residential property in the amount of $1,355,000.00 (August 2014);[6]

   iv)the Second and Third Respondents purchased an investment property in the amount of $959,000.00 (November 2015);[7]

   v)an additional property was sold in January 2016 for an amount of $540,000.00.[8]

   [4] Affidavit of Ashley Kate Hurrell filed on 12 February 2016 at [15], Annexure 5.

   [5] Ibid.

   [6] Affidavit of the Third Respondent filed on 24 February 2016 at [12].

   [7] Ibid at [11].

   [8] Ibid [8].

5. The FWO submits that the Respondents made a deliberate choice to apply funds to finance the purchase of personal properties and/or the Spencer Street store rather than comply with their obligations under the Award.

6. The FWO submits that, as the Respondents have acknowledged that they have the capacity to pay the agreed penalties, their present financial position is not relevant to a determination of whether these penalties are appropriate, as it is evident that the agreed penalties are not “crushing or oppressive”.

7. It seems to me, that the dispute between the parties is about the weight to be accorded the financial circumstances of the Respondents and, at which point, in the Court’s consideration of the appropriate penalty, it should have regard to those financial circumstances.

8. I accept that the financial circumstances of a Respondent may well be relevant in determining the size of the penalty: Mt Martha Community Learning Centre Inc (supra). On the evidence before the Court, however, I do not accept that, during the relevant period, the financial circumstances of the Respondents are a factor I should give weight to in determining the appropriate penalty. Although the profit of the First Respondent was modest, the Second and Third Respondents (husband and wife) derived an income of around $140,000.00 from both the Parkville and Spencer Street stores. From the affidavit of the Third Respondent filed on 24 February 2016, it seems that the Second and Third Respondents had access to financial resources, primarily through their parents, being able to secure loans for themselves and the business using the real property provided or gifted by their parents. Their parents appear to have purchased an investment property for them, from which they derive a personal benefit.

9. I accept, however, on the evidence, that the financial circumstances of Respondents has subsequently deteriorated. I am satisfied that in turning to the application of the totality principle, their present financial circumstances are relevant.

10. There seems to be no dispute that whilst the First Respondent is not a large business, as part of the 7-Eleven franchise, the Respondents had access to significant human resource expertise and assistance, including training on minimum entitlements and record-keeping, updated information on the applicable minimum wages under the Award, access to payroll technology, and assistance to process payments of wages and generate payslips. Further, the Second and Third Respondents held tertiary qualifications in Commerce and Accounting and were well-equipped to operate the business conformably with applicable laws, including workplace laws.

Whether or not the breaches were deliberate

1. I find that the breaches engaged in by the Respondents were deliberate. I am satisfied that the Second and Third Respondents were well aware of their obligations to pay the employees employed by the Parkville Store their minimum entitlements under the Award. They were provided with updated information from 7-Eleven Head Office regarding the applicable rates.

2. The 7-Eleven payroll system utilised by the Respondents required franchisees to process pay using Award or above Award rates of pay. The Second and Third Respondents deliberately entered incorrect data in relation to hours worked by the employees into the 7-Eleven payroll system, so that the wages actually paid to the employees were amounts within the range of $12.00 to $17.00 per hour. The consequences were that the Second and Third Respondents maintained an appearance that they were complying with the minimum Award entitlements.

3. For the relevant pay period that the Second and Third Respondents entered the incorrect data, they did so with the full knowledge of the applicable rate of pay, loading and penalties. To ensure that documents submitted to the 7-Eleven Head Office for processing stood up to scrutiny, the Second and Third Respondents entered rates for more than one type of entitlement; for example, shiftwork as opposed to ordinary hours, and adjusted the hours of work accordingly. There can be no doubt that the Second and Third Respondents understood their obligations, but set about a course of conduct to deliberately contravene the Award and to disguise those contraventions.

4. With respect to two employees, the Second and Third Respondents used a payroll system separate to the 7-Eleven payroll system. Again, this demonstrates deliberate action to avoid scrutiny.

5. This conduct calls for full condemnation and approbation in determining the appropriate penalty. I agree with the FWO that the deliberate nature of the contraventions is a highly aggravating factor in the consideration of the appropriate penalty is in this case. 

Whether senior management was involved in the breaches

1. The Second Respondent and the Third Respondent are, and were at all relevant times, the senior management of the First Respondent, being sole directors and shareholders. They were responsible for the business and financial management of the Parkville store. They were directly involved in the contraventions.

Whether the party committing the breach had exhibited contrition, has taken corrective action and/or cooperated with the enforcement authorities

1. I am satisfied that the following actions justify the removal of the aggravating factor in relation to the appropriate penalty, and a reduction in the level of penalty:

   a)the First Respondent has rectified the underpayment to all employees as far as is possible. The Respondents voluntarily rectified underpayments that they had identified following being issued with a Notice to Produce (“NTP”) in September 2014 and they rectified the remaining underpayments promptly after being notified of the total underpayments in June 2015;

   b)the Respondents have made fulsome admissions in relation to the contraventions, demonstrating acceptance of their responsibility. The admissions were made at an early stage of the proceedings and disclose a willingness of the part of the Respondents to facilitate the course of justice: Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [74] to [76]. This behavior ensured a consequential reduction in time required to conduct the case and associated costs;

   c)the Respondents have also sent apology letters to each of the employees, apologising for their conduct. They have expressed their remorse to the Court and to the FWO for the contravening conduct. I note that the letters were sent after the commencement of these proceedings and are expressed in almost the same terms. Nevertheless, I accept that these expressions of remorse should be given weight to by the Court; and

   d)throughout the FWO’s investigation into the Parkville store, the Respondents were cooperative. They provided records in response to two NTPs and provided full and frank explanations of the Respondents’ contravening conduct. When responding to the NTP issued in September 2014, the Second Respondent admitted to underpaying employees, explained their payment methodology and sought to clearly identify which records the FWO were able to rely upon. The Second Respondent also participated in a recorded interview with the FWO at an early stage, during which she made relevant and fulsome admissions about the Parkville store and the contravening conduct.

2. Where wrong-doers have co-operated and have also made admissions early in the course of an investigation, or soon after the commencement of proceedings, it is appropriate to allow a discount of penalty (in the vicinity of up to 25-30%). However, consistent with the decision in Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70, per Stone and Buchanan JJ at [76]:

   “… 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.”

3. I agree with the FWO that a countervailing consideration is the failure of the Respondents to disclose the fact that they operated a second 7-Eleven franchise – the Spencer Street store – in circumstances where they were engaging in conduct at that store, the subject of the investigations by the FWO. The FWO only became aware of the existence of this store in August 2015. Thus, at the same time as the Respondents were taking corrective action and co-operating with the regulator in relation to the Parkville store, they continued to fail to pay employees of the Spencer Street store their minimum entitlements.

4. However, I accept that the Respondents’ failure to reveal the existence of the Spencer Street store has been counterbalanced by the following:

   a)the Respondents’ willingness to co-operate with the regulator in relation to investigations as to underpayments at that store;

   b)the Respondents’ willingness to enter into an Enforceable Undertaking with respect to past and future compliance at that store;

   c)the fact that the Enforceable Undertaking has the following relevant terms:

   i)rectifying the identified underpayment (arising in the period from 1 July 2013 to 23 August 2015) to employees of the Spencer Street store within six months of entering into the Enforceable Undertaking;

   ii)notifying the FWO of the sale or purchase of any business interests;

   iii)undertaking an audit of compliance with workplace laws in the Spencer Street store;

   iv)implementing a procedure for resolving employee complaints in respect of wages and entitlements; and

   v)displaying a notice in the Spencer Street store, including information on minimum entitlements under the Award and the FWO.

5. I agree with the submissions of the FWO that entering into the Enforceable Undertaking, and the actions it entails from the Respondents, is commendable and relevant to various factors in determining the appropriate penalty including, contrition, corrective action and specific deterrence.

The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements

1. A fundamental object of the Act is to provide a guaranteed safety net of minimum terms and conditions for employees. Significant penalties are prescribed for non-compliance.

2. In Director, Fair Work Building Industry Inspectorate, the High Court affirmed the principle that the main, if not primary, purpose of the civil penalty provisions is the public interest in promoting deterrence:

   “55. No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance:

   “Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]. ... 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.””

   (Footnotes omitted)

Specific Deterrence

1. In relation to specific deterrence, Gray J observed in Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357; (2008) 177 IR 243 at [37] that:

   “… Specific deterrence focuses on the party on whom the penalty is to be imposed and the likelihood of that party being involved in a similar breach in the future. Much will depend on the attitude expressed by that party as to things like remorse and steps taken to ensure that no future breach will occur.…”

   (Footnotes omitted)

2. I am satisfied that by agreeing to enter into the Enforceable Undertaking in relation to the Spencer Street store (the Parkville store having now been sold), the Respondents have committed themselves to taking action that considerably lessens the determination of the penalty necessary to achieve specific deterrence. I am satisfied that it is very unlikely that these Respondents will engage in conduct which amounts to contraventions of the Act and the relevant Award, in respect of their employees in relation to their current business (the Spencer Street store) and any future business enterprise.

General deterrence

1. In Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2) [2012] FCA 557, Marshall J observed at [29]:

   “… It is important to ensure that the protections provided by the Act to employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected.…”

2. In relation to general deterrence, Lander J noted in Ponzio at [93]:

   “… In regard to general deterrence, it is assumed that an appropriate penalty will act as a deterrent to others who might be likely to offend: Yardley v Betts (1979) 22 SASR 108. The penalty therefore should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like minded persons or organisations. If the penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor in fixing the penalty: R v Thompson (1975) 11 SASR 217. …”

3. The parties agree that general deterrence is an important consideration in these proceedings, to ensure that employers in the retail sector comply with minimum entitlements, and that, in particular, general deterrence is an important consideration to ensure franchise owners, and in particular 7-Eleven franchise owners, comply with minimum employee entitlements prescribed by Australian workplace laws.

4. The parties submit that the agreed penalties are sufficient to reinforce the serious consequences for employers who fail to comply with Australian workplace laws, whilst still reflecting the particular conduct the subject of this proceeding.

5. The FWO relies on its internal audits and investigations in relation to 7-Eleven franchises[9], including an audit report into 7-Eleven Stores released in 2010 and analysis of complaints received and data gathered from site visits in 2014. It is to be noted that the Parkville store was not the subject of the 2010 audit report but was one of the stores visited in 2014. The audit report disclosed 30% rate of non-compliance. The analysis of the data in 2014 disclose that almost all employees were on some kind of visa, a large  proportion on student visas, and the majority of the employees were in the 21 to 25 year age bracket.

   [9] Affidavit of Ashley Kate Hurrell filed on 12 February 2016 at [41 to [51], Annexure 27 and 28.

6. The Senate Education and Employment References Committee Report, A National Disgrace: The Exploitation of Temporary Work Visa Holders (March 2016) (“the Senate Report”) was admitted into the penalty proceedings for a non-hearsay purpose. That is, its contents (so far as the report deals with 7-Eleven franchisees) are relevant to the question of general deterrence and not as proof of the matters asserted therein. 

7. The terms of the inquiry of the Senate Report included, as a term of reference, the circumstances of temporary work visa holders; including, the receipt of wages, conditions and other entitlements by comparison to their Australian counterparts. I accept that the Senate Report has been admitted for a non-hearsay purpose. Bearing that in mind, I set out the following extracts from the Senate Report. On page 262, at [8.273], the Senate Report stated:

   “…the overwhelming body of evidence indicated that the problem of under payment at 7-Eleven was, and may remain, widespread and systemic.”

   On page 262 at [8.277], the Senate Report stated:

   “.. In the committee’s view, the 7-Eleven business model and gross profit split was a key element in the underpayment of workers because it effectively placed often highly-indebted small business owners (the franchisees) in an invidious position. Based on evidence from Professor Fels himself, most franchisees could not make a go of a 7-Eleven franchise unless they underpaid their workers. …”

8. The Report referred to the new franchise arrangement and observed that it “can be taken as a de facto admission that the previous model was fundamentally flawed because it funnelled too much money to Head Office at the expense of the franchisee and the workers” (on page 262 at [8.278]).

1. On page 264 at [8.288], the Senate Report states:

   “…the committee observes that the penalties under the FW Act are relatively insignificant. However, as the 7-Eleven case has demonstrated, the repayment of underpaid wages can be a considerable expense (and the considerable deterrent) if the repayment mechanism is effective.”

2. The FWO has pointed out that a Court has previously imposed significant penalties against a 7-Eleven franchisee, relating to underpayment of employees, in circumstances involving inaccurate employee records: Fair Work Ombudsman v Bosen Pty Ltd & Ors(Industrial) [2011] VMC 21.

3. I am satisfied that general deterrence in the retail industry more broadly and, in particular, amongst 7-Eleven franchise owners, is a significant factor to be taken into account in determining an appropriate penalty in these proceedings.

Conclusion

1. Balancing all the relevant considerations, I am satisfied that the penalty for each of the admitted contraventions should be in an amount equal to a 25% discount of the maximum penalty for each of the contraventions. This would result in a total penalty for the First Respondent of $325,125.00 and a total penalty of $65,025.00 for the Second and Third Respondents to be liable to pay: see Annexure A to this judgment for the calculations.

The Totality Principle

1. The proper approach in determining penalty is to impose a penalty for each contravention, and then, as a check, to consider whether the aggregate penalty is appropriate for all of the contraventions as a whole. In Ponzio, Jessup J, with whom Lander J agreed, said at [145] to [146]:

   “145.    For the above reasons, his Honour’s disposition of the appellant’s case under s 187AA cannot stand. That does not mean, however, that the appeal must necessarily succeed. As I have said, the trial Judge recognised that this was a case in which the totality principle should apply. His Honour said that the principle required “that in imposing penalties for numerous offences, the penalties in aggregate are just and appropriate ...” For that proposition, his Honour relied upon CPSU v Telstra Corporation Ltd (2001) 108 IR 228, 230 [7]. In CPSU, Finkelstein J said that, in a case of multiple breaches punishable by pecuniary penalty, it would be –

   ... necessary to resolve upon the appropriate total penalty, dividing that penalty by the number of individual contraventions and record that amount as the penalty for each contravention, whether or not the sum produced might be regarded as an inappropriate individual penalty.

   With respect to his Honour, I do not believe this is the correct approach. The position was, in my view, correctly stated by Goldberg J in ACCC v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 53:

   The totality principle is designed to ensure that overall an appropriate sentence or penalty is appropriate and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved: McDonald v R (1994) 48 FCR 555; 120 ALR 629. But that does not mean that a court should commence by determining an overall penalty and then dividing it among the various contraventions. Rather the totality principle involves a final overall consideration of the sum of the penalties determined. In Mill v R (1988) 166 CLR 59; 83 ALR 1 the High Court accepted the following statement as correctly describing the totality principle:

   The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is “just and appropriate”. The principle has been stated many times in various forms: “when a number of offences are being dealt with and specific punishments in respect of them are being totted up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong;” “when ... cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences.”

   As Spender J pointed out in McDonald v R at FCR 556; ALR 631:

   Implicit in that statement is that the sentence for each offence should be “properly calculated in relation to the offence for which it is imposed”.

   It is explicit in this statement that a sentencer or penalty fixer must, as an initial step, impose a penalty appropriate for each contravention and then as a check, at the end of the process, consider whether the aggregate is appropriate for the total contravening conduct involved: McDonald v R at FCR 563, per Burchett and Higgins JJ.

   The position as stated in Mill, on which Goldberg J relied, was described by Gummow, Callinan and Heydon JJ as the “orthodox, but not necessarily immutable, practice” in Johnson v The Queen [2004] HCA 15; [2004] 205 ALR 346, [26].

   146.  In a setting which did not involve an agreement on penalty, it would, therefore, be necessary to commence with an assessment of an appropriate penalty for each contravention, paying due regard to such mitigating factors as there were. In the judgments to which the trial Judge referred, it seems to have been accepted that, absent strong mitigating circumstances such as sheer inadvertence, a penalty of about $200 for each contravention of s 187AA on the facts existing on 5 and 6 August 2003 could not be regarded as excessive. On the facts of the present case, and having regard to what I have described as the conventional mitigating circumstances referred to by his Honour, I do not think that a penalty of $200 for a single contravention would have been excessive. It may not have been the penalty that I would have imposed, but on no view might it have been regarded as outside the permissible range. If that penalty had been imposed for each of the contraventions which came before his Honour, a total of $20,200 would be the aggregate result. Manifestly the application of the totality principle was then required.”

2. I now turn to consider whether the total penalties determined at [84] above, exceed what is proper having regard to the totality of the contravening conduct involved.

3. I am satisfied that it would be manifestly excessive to require the Respondents to pay those total penalties. In the circumstances, I am satisfied that the Agreed Penalties are appropriate. I am satisfied that that it is appropriate that:

   a)the First Respondent pay a penalty of $110,000.00;

   b)the Second Respondent pay a penalty of $20,000.00;  and

   c)the Third Respondent pay a penalty of $20,000.00.

4. I will require that the penalties be paid to the Applicant within 60 days.

Conclusion

1. For the reasons set out in this judgment, I make the Orders set out above.

I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of Judge Jones

Date: 1 July 2016

Annexure A Agreed Proposed Grouping and Penalties

Contravention	Proposed Grouping	Maximum Penalty		Maximum Applying 25% discount
		First Respondent	Second and Third Respondent	First Respondent	Second and Third Respondent
Section 45 of the FW Act: Contravening a term of a modern award (Minimum rates of Pay – cl.17 of the Award)	Minimum Wages	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Casual loading – cl.13.2 of the Award)	Casual Loading	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Sunday casual loading – sch.A.6.4 of the Award)
Section 45 of the FW Act: Contravening a term of a modern award (Saturday loading – cl.29.4(b) and sch.A.7.3 of the Award)	Saturday Loading	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Sunday loading – cl.29.4(c) and sch.A.7.3 of the Award)	Sunday Loading	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Public holiday loading – cl.29.4(d) and sch.A.7.3 of the Award)	Public Holiday Loading	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Mon – Fri shiftwork rates – cl.30.3(a) and sch.A.7.3 of the Award)	Shiftwork Rate of Pay: Monday to Friday	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Sat shiftwork rates – cl.30.3(b) and sch.A.7.3 of the Award)	Shiftwork Rate of Pay: Saturday	$51,000	$10,200	$38,250	$7,650
Section 45 of the FW Act: Contravening a term of a modern award (Sun shiftwork rates – cl.30.3(c) and sch.A.7.3 of the Award)	Shiftwork Rate of Pay: Sunday	$51,000	$10,200	$38,250	$7,650
Section 536(2) of the FW Act: Failure to provide payslips with the information required by Reg.3.46 of the FW Regulations	Payslips	$25,500	$5,100	$19,125	$3,825
TOTAL	$433,500	$86,700	$325,125	$65,025
RECOMMENDED PENALTY: FIRST RESPONDENT	$110,000
RECOMMENDED PENALTY: SECOND RESPONDENT	$20,000
RECOMMENDED PENALTY: THIRD RESPONDENT	$20,000