Fair Work Ombudsman v Innovative Aluminium Pty Ltd (Trustee)
[2022] FedCFamC2G 477
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Innovative Aluminium Pty Ltd (Trustee) [2022] FedCFamC2G 477
File number(s): MLG 2191 of 2021 Judgment of: JUDGE SYMONS Date of judgment: 21 June 2022 Catchwords: INDUSTRIAL LAW – Fair Work Act 2009 (Cth) (“Act”) – first respondent admitting to contravening section 716(5) of the Act by failing to comply with a compliance notice – second respondent admitting to being involved in the contravention by the first respondent within the meaning of section 550(2) – Court asked to consider the appropriate pecuniary penalties imposed on the respondents on the papers – Court invited to determine penalty within an agreed range – complainant and second respondent reaching agreement to forego notice of termination in circumstances where business struggling – agreement contrary to law – first respondent a small business – respondents demonstrated contrition – Court finding imposition of penalties appropriate within the range submitted by the parties Legislation: Evidence Act 1995 (Cth ) s 191
Fair Work Act 2009 (Cth) ss 117, 546, 550, 716
Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (CFMEU) (2018) 262 CLR 157; [2018] HCA 3
Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (Non-Indemnification Personal Payment Case) (2018) 264 FCR 155; [2018] FCAFC 97
Commonwealth v Fair Work Building Industry Inspectorate (2015) 258 CLR 482; [2105] HCA 46
Kelly v Fitzpatrick (2007) 166 IR 14; [2007] FCA 1080
Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383; [2008] FCAFC 70
Division: Division 2 General Federal Law Number of paragraphs: 38 Date of last submissions: 1 April 2022 Date of hearing On the papers Place: Melbourne Solicitor for the Applicant: Maddocks Lawyers Solicitor for the Respondents: Rotstein Commercial Lawyers ORDERS
MLG 2191 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: INNOVATIVE ALUMINIUM PTY LTD (ACN 062 910 838) AS TRUSTEE FOR THE INNOVATIVE ALUMINIUM UNIT TRUST (ABN 53 648 907 193)
First RespondentSPIRO DOUVITSAS
Second Respondent
ORDER MADE BY:
JUDGE SYMONS
DATE OF ORDER:
21 JUNE 2022
THE COURT DECLARES THAT:
1.The first respondent contravened s 716(5) of the Fair Work Act 2009 (Cth) (“FW Act”) by failing to comply with the Compliance Notice issued on 19 April 2021.
2.The second respondent was involved, within the meaning of s 550(2) of the FW Act, in the first respondent’s contravention of s 716(5) of the FW Act, and is taken to have contravened s 716(5) of the FW Act by failing to comply with the Compliance Notice issued on 19 April 2021.
THE COURT ORDERS THAT:
3.Pursuant to s 546(1) of the FW Act:
(a)the first respondent pay a pecuniary penalty in the mount of $12,500 to the Commonwealth for the contravention set out in Declaration 1 above within 28 days of this order; and
(b)the second respondent pay a pecuniary penalty in the amount of $2,320 to the Commonwealth for his involvement (within the meaning of s 550(2) of the FW Act) in the contravention referred to at Declaration 1 above.
4.The applicant has liberty to apply on seven days’ notice in the event that any of the above orders are not complied with.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE SYMONS:
INTRODUCTION
By an application and statement of claim filed on 27 August 2021, the applicant seeks relief, including declarations and orders, against the first respondent (“Innovative Aluminium”) and the second respondent (“Mr Douvitsas”).
The parties have agreed that the applicant is entitled to the relief sought and the factual underpinning of that agreement is recorded in a statement of agreed facts dated 1 February 2022 (“SOAF”) which, pursuant to s 191 of the Evidence Act 1995 (Cth), constitutes an agreement by the parties that the various facts identified in that document are not to be disputed.
More particularly, Innovative Aluminium has admitted to contravening s 716(5) of the Fair Work Act 2009 (Cth) (“the FW Act”) by failing to comply with a compliance notice issued on 19 April 2021.[1] Mr Douvitsas has admitted his involvement (within the meaning of s 550(2) of the FW Act) in the contravention by Innovative Aluminium of s 716(5) of the FW Act. By reason of s 550(1) of the FW Act, Mr Douvitsas is taken also to have contravened s 716(5).
[1] SOAF, [16].
The parties further agree that reflecting these admissions, the Court should make declarations that record the breaches and that both Innovative Aluminium and Mr Douvitsas should pay a pecuniary penalty to the Commonwealth. The parties agree that in circumstances which will be elucidated below, a penalty in the range of $11,322-$14,153 is appropriate for Innovative Aluminium and a penalty in the range of $2,264-$2,831 is appropriate for Mr Douvitsas.
BACKGROUND
The first respondent is a business that supplies and installs custom aluminium windows and doors for homes and apartments.
The applicant commenced an investigation into the first respondent’s compliance with workplace laws in around December 2020.[2]
[2] SOAF, [6].
Following this investigation, the applicant formed a reasonable belief that Innovative Aluminium had contravened s 117(2)(b) of the FW Act by failing to pay a former employee, Mr Paul Cooper, in lieu of notice, on termination of his employment. Mr Cooper (“the employee”) was employed by Innovative Aluminium from 21 January 2019 to 28 September 2020, and was entitled to two weeks’ pay in lieu of notice on termination.
On the basis of this belief, the applicant gave a compliance notice to Innovative Aluminium on 19 April 2021 which required it to take certain steps to remedy the contravention. Those steps included that Innovative Aluminium identify the minimum period of notice required to be given to the employee under the National Employment Standards, identify the outstanding amount to be paid to the employee in lieu of notice, make the payment and produce reasonable evidence to the applicant of its compliance with these steps by 24 May 2021.[3] It is agreed that Mr Douvitsas was responsible for ensuring that Innovative Aluminium complied with the compliance notice.[4]
[3] SOAF, [10].
[4] SOAF, [17].
Although Innovative Aluminium did not comply with the compliance notice, it did:
(a)on 13 October 2021, make a payment to the employee’s bank account in the gross amount of $4,384.61, being the amount owed to the employee as a result of its failure to make a payment in lieu of notice;[5]
(b)on 22 October 2021, inform the applicant that it had made the payment and provide evidence of having done so; [6]
(c)on 31 January 2022, make a payment of $416.54 to the employee’s superannuation fund and provide the applicant with evidence of payment.[7]
[5] SOAF, [20].
[6] SOAF, [21]
[7] SOAF, [22]
PENALTY
I am satisfied on the basis of the facts recorded and the admissions made in the SOAF that it is appropriate to make declarations and orders in the terms sought by the parties directed at the contraventions of the FW Act. The only outstanding question is whether it is appropriate to make orders against Innovative Aluminium and Mr Douvitsas that they each pay a pecuniary penalty and, if yes, in what amount. The first question is largely academic. The parties agree that a penalty order should be made and in circumstances where I have indicated that the declarations as to contravention will be made, I also consider this to be appropriate. The second question is to be answered following a consideration of a range of factors, including those matters identified by the parties in the material that they have placed before the Court. In this regard, the parties agreed that the question of penalty was capable of being determined “on the papers” and by recourse to the following documents:
In the case of the applicant, an outline of submissions filed on 4 March 2022, its application and statement of claim, the SOAF and an affidavit of Fair Work Inspector Danielle Leikvold affirmed on 3 March 2022 (“Leikvold affidavit”).
In the case of the respondents, an outline of submissions filed on 1 April 2022, their defence filed on 10 November 2021, the SOAF and an affidavit of Mr Douvitsas affirmed on 1 April 2022 (“Douvitsas affidavit”).
The contraventions
For the purpose of imposing penalties in this case, there is a single contravention, namely a contravention of s 716(5) of the FW Act.
The maximum penalty that the Court may impose on Innovative Aluminium is $33,000 and on Mr Douvistsas, an amount of $6,600.
Although the parties seek orders for penalties that are substantially below these respective amounts, the authorities demonstrate that it is appropriate for the Court to consider the maximum penalties as an indication of the legislature’s view of the conduct and as part of determining where the contraventions sit as against the maximum “yardstick”.
Penalty objectives
Deterrence, both specific and general, is the “principal and indeed only” objective of pecuniary penalties under the FW Act: Commonwealth of Australia v Director of the Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at 506 [55]; Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (Non-Indemnification Personal Payment Case) (2018) 264 FCR 155 at 167 [19]. Retribution, denunciation and rehabilitation have no part to play.
The penalties in this case must be set at a level such that it would be likely to act as a deterrent to preventing similar contraventions by like-minded persons. It must have the necessary “sting or burden” to secure “the specific and general deterrent effects that are the raison d'être of its imposition”: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (CFMEU) (2018) 262 CLR 157 at [116].
The compliance notice regime established in the FW Act provides a mechanism for the efficient and cost-effective rectification of identified contraventions of the FW Act. The compliance notice at issue here sought to address the failure to provide payment in lieu of notice to one employee on the basis of a fair work inspector’s belief that the first respondent had contravened a provision of the FW Act (s 117(2)(b)). The compliance notice gave the first respondent the opportunity to rectify the contravention and thereby be protected from civil remedy proceedings, just like the present proceedings. The first respondent was also advised of the entitlement to seek a review of the compliance notice if it wished to.[8] The first respondent did not take up either opportunity. It did not pay the employee his outstanding entitlement for payment in lieu of notice until October 2021, five months after the time specified by the compliance notice.
[8] Leikvold affidavit, annexure “DL-3”
Agreement as to penalty
The High Court has considered how courts should approach a situation where the parties reach agreement on the range of civil penalties to be imposed. In Commonwealth v Fair Work Building Industry Inspectorate (2015) 258 CLR 482 (“Civil Penalty Decision”), the High Court accepted that submissions as to agreed civil penalties may be received by a court. The approach a court should adopt was explained by the High Court at paragraphs [48], [49], [58], [61], [65] and [66] and may be summarised as follows. First, the court must satisfy itself that the penalty is appropriate irrespective of the range submitted by the parties. Second, the court should not depart form the range of penalty proposed by the parties merely because it may be disposed to select some other figure. Third, the court should be sufficiently persuaded of the accuracy of the parties’ agreement as to the facts and that the penalty proposed is appropriate. Fourth, it is consistent with principle and desirable in practice for a court to accept the proposal of the parties, subject to what is stated above.
The relevant principles the court is to have regard to when determining a pecuniary penalty are well understood and were set out by the Federal Court in Kelly v Fitzpatrick [2007] FCA 1080 (“Kelly”). In Kelly the Federal Court identified a list of non-exhaustive factors relevant to the imposition of penalties under the FW Act. I consider the present matter in light of those principles.
Nature and circumstances of the conduct and extent of any loss
As noted above, the compliance notice regime was introduced as a means to quickly and inexpensively resolve underpayment claims. Had the first respondent complied with the compliance notice within the time frame specified, this litigation would have been avoided. As the applicant points out, the respondents were given numerous opportunities, including at the investigation phase and prior to the commencement of these proceedings, to rectify the contravention and comply with the compliance notice; the applicant sent the respondents an email reminder of the time for compliance on 14 May 2021, an email informing them they had failed to comply on 25 May 2021, and on 3 June 2021, FWI Leikvold called Mr Douvitsas to provide him with “a final opportunity to independently research the contravention and the implications of non-compliance’.[9] On 20 August 2021, the applicant’s legal representative sent a letter foreshadowing that failure to take corrective action immediately would result in litigation.[10] Only as a result of the filing of these proceedings was the non-compliance rectified.
[9] Leikvold affidavit at [10]-[12], annexure “DL-4”.
[10] Leikvold affidavit at [14], annexure “DL-5”.
The evidence filed by the respondents discloses that the failure to make a payment in lieu of notice arose in circumstances where the first respondent was experiencing a significant downturn in its business as a result of the COVID-19 pandemic. This required, in relation to the employee, that a decision be taken (within a short period of time) to firstly reduce his hours and then, to terminate his employment.
The respondents’ submissions place emphasis on the fact that the matter relates to a single contravention (in respect of a single employee only) in circumstances where the respondents had no prior history of contravening the FW Act. It is submitted that the contravention was not a result of a “wilful and continuing disregard of the FW Act”, but rather the second respondent’s genuine belief that he and the employee had a “mutual agreement” that his employment would cease effective immediately without notice or payment in lieu. It was not until the respondents engaged legal representation when the litigation commenced that Mr Douvitsas recognised that Innovative Aluminium had contravened the FW Act at which time steps were promptly taken to rectify the non-compliance.[11]
[11] Douvitsas affidavit at [16].
There are two things to be noted about this explanation. First, the arrangement reached is contrary to law and the Court cannot condone it. Employees are entitled and indeed must be paid their entitlements and not be asked to forego them, irrespective of the economic climate. Second, ignorance of workplace laws (like other laws) is no excuse.
Compliance with minimum standards
It was submitted for the applicant that for the statutory purpose to which compliance notices are directed to be effective, there must be meaningful consequences for a failure to comply with such notices so as not to undermine the FW Act’s enforcement framework. It was further submitted that in failing to comply with the compliance notice, the respondent prioritised its interests ahead of those of the employee affected who did not receive his minimum entitlements.
There is much force to this submission. Moreover, if compliance notices are to operate as an effective enforcement mechanism with the benefit of avoiding additional costs and delay associated with litigation, a breach of such notices must attract a penalty at a sufficient level to deter other employers from simply ignoring such notices or otherwise failing to comply with them. The respondents accept the premise of this argument but note (as is the case) that any penalty must not impose a crushing burden on the contravenor.
Nature and extent of loss
The amount owed in lieu of notice to the employee was $4,384.61. The applicant submits this is not an insignificant amount for an employee and that the employee was denied the benefit of this payment amount for a period of 13 months after his employment was terminated.
Allied to the purpose of the compliance notice regime, there is a loss that accrues on each occasion that a person fails to comply with a compliance notice. This is an impost on both the regulator and, ultimately, the Court, which is funded by the tax-payer.
Contrition, corrective action and cooperation
There is not any dispute that the contraventions were admitted early, that contrition was demonstrated through rectifying the outstanding amount for notice and that the position taken by the respondents in the litigation has enabled these proceedings to be brought to an end as quickly and efficiently as possible. While those matters point towards the respondents being given a discount in penalty, it is important to weight in the balance of the comments of Stone and Buchanan JJ in Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [74] where it was stated that it is not a sufficient basis for a discount that the plea has saved the cost of a contested hearing.
This is a matter in which a discount for the relevant factors is warranted. The early plea and the preparedness by the respondents to cooperate in the preparation of the SOAF should be seen as a willingness to facilitate the course of justice. I also consider the remorse of the respondents to be genuine. All parties submitted that a discount of 15% should be applied, and that the percentage discount has been reflected in the penalty ranges put before the Court. I accept that submission and regard the discount proposed by the parties as appropriate in the circumstances of this case.
Deterrence
The purpose of civil penalties is to promote public interest in compliance and to attempt to put a price on contraventions that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the same legislation: Civil Penalty Decision at [55].
In this matter, Innovative Aluminium continues to operate its business and employ staff (on last count, ten employees) and Mr Douvitsas remains its sole director and secretary. It is also the case that Mr Douvitsas is a director and secretary of four further companies.[12] Those matters need to be balanced against the unchallenged evidence that Mr Douvitsas made an honest mistake in his approach to the entitlement to statutory notice, neither respondent has a history of non-compliance with workplace laws and that the respondents have always (this matter aside) taken their legal obligations seriously. When these matters are considered together, there remains a need for a penalty to be imposed that has regard to specific deterrence.
[12] Leikvold affidavit at [19], annexure “DL-8”
The applicant submitted that general deterrence was also a factor in this case. Evidence was placed before the Court obtained from the applicant’s industry profiles. Although given the absence of an oral hearing I was not able to query the applicant about certain aspects of the report (for example, what is comprehended by the definition of “dispute”), I accept generally that there is a need to send a message to employers large and small about the importance of meeting obligations owed to employees and the need to comply with compliance notices. There is a need therefore for any penalty to take account of general deterrence.
DISPOSITION
When all of the factors above are considered, I am satisfied that it is appropriate to impose a pecuniary penalty on each of the respondents. I am also satisfied that the penalty range submitted by the parties is appropriate having regard to all of the evidence and the circumstances of this case.
The proposed penalty range in respect of the contravention by Innovative Aluminium is $11,322 - $14,153. Weighing the various competing factors which I have assessed above, I fix the penalty at $12,500 for the contravention by Innovative Aluminium.
The proposed penalty range in respect of the contravention by Mr Douvitsas is $2,264 - $2,831. Weighing the various competing factors which I have assessed above, I fix the penalty at $2,320 in respect of Mr Douvitsas.
I do not consider any further reduction in the penalty is warranted. There is no evidence that the respondents’ current circumstances would produce a result that a penalty in these amounts would be crushing or oppressive.
CONCLUSION
I accordingly make the declarations and orders set out at the commencement of these reasons.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons . Associate:
Dated: 20 June 2022
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