Fair Work Ombudsman v Inverted Mountain Pty Ltd

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FEDERAL CIRCUIT COURT OF AUSTRALIA

Fair Work Ombudsman v Inverted Mountain Pty Ltd [2020] FCCA 3429

File number(s): BRG 1098 of 2019
Judgment of: JUDGE TONKIN
Date of judgment: 16 December 2020
Catchwords: INDUSTRIAL LAW – agreed failure by First Respondent to comply with Compliance Notice issued in accordance with section 716 of the Fair Work Act 2009 (Cth) – Agreed failure by the First Respondent to make and keep records, failure to give payslips and provide information – Agreed involvement by the Second Respondent pursuant to section 550 (2) of the Fair Work Act 2009 (Cth) in the First Respondent’s contraventions – Agreed involvement by the Third Respondent pursuant to section 550 (2) of the Fair Work Act 2009 (Cth) in the First Respondent’s failure to make and keep records and failure to provide information in payslips – Declarations made – Appropriate civil penalties to be paid by the Respondents pursuant to section 546 of the Fair Work Act 2009 (Cth)
Legislation:

Evidence Act 1995 (Cth) s 191

Fair Work Act 2009 (Cth) ss 535 ,536 ,539, 546, 550 ,557, 712, 716

Fair Work Regulations 2009 (Cth) rr 3.32, 3.33, 3.36, 3.37, 3.46

Restaurant Industry Award 2010

Cases cited:

Commonwealth v Fair Work Building Inspectorate [2015] 258 CLR 482

Fair Work Ombudsman v Bundaberg Security Pty Ltd [2014] FCCA 592

Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815

Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557

Fair Work Ombudsman v Han Investments [2017] FCA 623

Fair Work Ombudsman v Jetstar Airways Ltd [1990] FCA 521

Fair Work Ombudsman v Mamak Pty Ltd [2016] FCCA 2104

Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301

Fair Work Ombudsman v Priority Matters Pty Ltd & Anor (No.5) [2020]

Fair Work Ombudsman v Scott Redmond trading as Cleaning Excellence [2019] FCCA 3697

Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor (No 2) [2020] FCCA 2583

Fair Work Ombudsman v Viper Industries Pty Ltd [2015] FCCA 492

Hindu Society of Victoria (Australia) Inc v Fair Work Ombudsman

Jordan v Mornington Inn Pty Ltd [2007] FCA 1384

Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union [2008] FCAFC 170
Number of paragraphs: 90
Date of last submission/s: 23 October 2020
Date of hearing: 19 October 2020
Place: Brisbane
Solicitor for the Applicant: Fair Work Ombudsman
Counsel for the Respondents: Mr Campbell

ORDERS

BRG 1098 of 2019

IN THE MATTER OF FAIR WORK OMBUDSMAN V INVERTED MOUTAIN PTY LTD
BETWEEN:

FAIR WORK OMBUDSMAN

Applicant
AND:

INVERTED MOUNTAIN PTY LTD

First Respondent

ZARDI MANNING

Second Respondent

CHRISTOPHER KRUIZE

Third Respondent

ORDER MADE BY:

JUDGE TONKIN

DATE OF ORDER:

16 DECEMBER 2020

IT IS DECLARED THAT:

1.The First Respondent, Inverted Mountain contravened:

(a)section 716 (5) of the Fair Work Act 2009 (Cth) (“the FW Act”) by failing to comply with the Compliance Notice issued on 13 September 2019;

(b)section 535 (1) of the FW Act by failing to make and keep records in…

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Details
Case
[2020] FCCA 3429
Decision Date

CaseChat Overview and Summary

The Fair Work Ombudsman brought proceedings against Inverted Mountain Pty Ltd, Mr. Manning, and Mr. Kruize. The dispute concerned Inverted Mountain Pty Ltd's failure to comply with a Compliance Notice issued under section 716 of the *Fair Work Act 2009* (Cth), as well as its failure to make and keep employee records and provide payslips. Mr. Manning and Mr. Kruize were alleged to have been knowingly concerned in these contraventions. The matter was heard in the Federal Court of Australia.

The court was required to determine whether Inverted Mountain Pty Ltd had contravened the *Fair Work Act* by failing to comply with the Compliance Notice, failing to make and keep employee records, and failing to provide payslips. It also needed to determine whether Mr. Manning and Mr. Kruize were knowingly concerned in these contraventions, and if so, to impose appropriate civil penalties pursuant to section 546 of the Act.

The court found that Inverted Mountain Pty Ltd had failed to comply with the Compliance Notice, which had been issued over a year prior, and had still not produced the required records regarding employee pay, leave, or superannuation contributions. The respondents conceded that payments were not made in accordance with the *Restaurant Industry Award 2010*. The court accepted the Fair Work Ombudsman's submission that the failure to provide adequate records and payslips was not trivial and that the respondents' conduct was deliberate, noting that timesheets were destroyed and records were not kept. The court also considered the respondents' claims of financial hardship but found them unsupported by evidence, and noted that the capacity to pay is of less relevance than the objective of general deterrence.

The court made declarations that Inverted Mountain Pty Ltd had contravened the *Fair Work Act* and ordered that civil penalties be paid by the respondents. The court also ordered compliance with the Compliance Notice, noting that penalties are imposed for non-compliance, not for the notice itself.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

In Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301 at [36], Bromwich J summarised the approach to be taken when determining an appropriate penalty:(1)Identify the separate contraventions, with each breach of each obligation being a separate contravention, and each breach of a term of the Award being a separate contravention.(2)Consider whether each separate contravention should be dealt with independently or with some degree of aggregation for those contraventions arising out of a course of conduct, noting that s 557 of the FW Act provides that two or more contraventions of a given civil remedy provision are to be taken to be a single contravention if committed by the same person and arising out of a course of conduct by that person.(3)Consider whether there should be further adjustment to ensure that, to the extent of any overlap between groups of separate aggregated contraventions, there is no double penalty imposed, and that the penalty is an appropriate response to what each respondent did.(4)Consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation.(5)Consider the overall penalties arrived at, including by reference to those which may be proposed by the FWO (as permitted by Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (CFMEU Civil Penalties Case) at [64]) and what is proposed by the respondents, and apply the totality principle, to ensure that the penalties for each respondent are appropriate and proportionate to the conduct viewed as a whole, making such adjustments as are necessary: See Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; 165 FCR 560 at [23]. [71] and [102].”AGREED FACTS This matter first came to the attention of the FWO on 17 April 2019 following the receipt of a confidential Request for Assistance (“RFA”) from a former employee Ms Camille Auer alleging underpayment of her base rate of pay, non - payment of weekend and public holiday penalty rates and being paid a flat rate of $16 per hour for all hours worked. Ms Auer claimed that she was owed $1060 in wages based on hours she worked between 21 January 2019 and 7 April 2019. She informed the FWO that all employees were paid $16 per hour and were paid in cash. On 18 April 2019 Ms Auer received $1060 in her bank account satisfying her RFA however this amount did not satisfy the applicable award being the Restaurant Industry Award 2010 (“the Award). On 15 May 2019 FW Inspector (“FWI”) Cox conducted an investigation and made a site visit of the business interviewing two employees Ms Suzuki and Ms Costa. FWI Cox took a photo of the current time sheet attached to a green folder showing the period 14 to 19 May 2019 and listing the start and finish times of 6 employees. Ms Suzuki told the FWI that she was paid $16 per hour in cash and was unsure of the gross or net figures of her pay. She informed the FWI that she was paid by Mr Manning. She said she was in Australia on a working holiday from Japan, she started work at the business in December 2019 and worked as a kitchenhand.

Evidence

Evidence Before The Court

In Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union[3] at [57] per Branson and Lander JJ the Court set out a non-exhaustive list of factors relevant to the imposition of penalty as follows:[3] [2008] FCAFC 170 (a)the nature and extent of the conduct that led to the breach;(b)the circumstances in which the relevant conduct took place;(c)the nature and extent of any loss or damage sustained as a result of the breach;(d)previous contraventions of industrial legislation;(e)whether the breach was distinct or arose out of one course of conduct;(f)the size of the business enterprise involved;(g)whether the breach was deliberate;(h)whether senior management was involved in the breach;(i)whether the party committing the breach exhibited contrition;(j)whether the party committing the breach took corrective action;(k)whether the party committing the breach cooperated with enforcement authorities; and(l)the need for specific and general deterrence.Respondent’s evidence Mr Manning deposed that Govinda’s commenced operating in August 2015 and he and Mr Kruize were directors of Inverted Mountain. He worked full time in the restaurant up to 70 hours per week. Mr Kruize worked full time but worked in the restaurant on week nights and at weekends about 30 hours per week. Govinda’s was open 7 days per week from 11 a.m. to 10 p.m. serving vegan buffet inspired by the desire to create a healthy plant based health conscious alternative to mainstream dining at a low cost budget. The restaurant continued to operate through the COVID – 19 pandemic at limited capacity. Mr Manning deposed that the “business struggled from day one and it was difficult to make ends meet since they were catering for a minority clientele.” He said that neither of the directors had any experience in conducting a business and in 2015 they engaged New Wave Accounting Services to prepare income tax returns and assist in operating the business. He said both directors relied on this advice. He said that the Accounting Service “did not provide us with any advice regarding payslips and wage records.” Wages were paid at the rate of $23.66 per hour which was the casual rate at the time and after tax was $16 per hour net. He said the directors were not made aware of the importance of payslips and the content of payslips. I note that Mr Tupac had advised FWI Cox that he had worked with Mr Manning in another Govinda’s in Burleigh. Mr Manning said he had no assets of any value save for a boat, trailer and motorbike and his liabilities exceeded his assets. He earned no income and relied solely on his wife’s income and “she pays all his expenses.” The financial records provided by Mr Manning with respect to the year ending 2018 indicated drawings were taken from the business. Mr Manning produced no other financial records to support his claim that he was impecunious. Mr Kruize deposed that when the FWO pointed out the business’s errors they immediately changed accountants. He said originally Mr Manning set the wages and he tried to find the relevant Award so he spoke to other industry members and was advised the net rate of pay was $16 per hour. He said “he was unaware this was an introductory rate” and was confused each time he looked at the FW website. He was unable to perform simple tasks such as using Quick books for payroll. He said to this day he did not understand all the regulations and administrative tasks required to be performed on a daily basis.

Decision

Reasons for decision

The FWO submitted that the contraventions of section 535 (1) being a failure to make and keep records pursuant to regulations 3.32, 3.33(1), 3.36 and 3.37 should be grouped together. The FWO conceded that the failure to include multiple types of information on payslips in contravention of section 535 (5) should also be grouped together. I accept those submissions.CONCLUSION ON PENALTY In Fair Work Ombudsman v Jetstar Airways Ltd [1990] FCA 521at [28] Buchanan J said “ultimately the Court’s task is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions have occurred and the need to sustain public confidence in the statutory regime which imposes the obligations.” Mr Manning claims financial hardship. In my view those claims are not supported by relevant evidence. No financial records for the business for the Compliance Notice period were produced. Mr Manning produced no tax returns. No explanation was provided regarding the drawings taken from the business in 2018. Assuming however that Mr Manning may have some difficulty in paying a penalty in Printing & Kindred Industries Union v Vista Paper Products Pty Ltd [1994] IRCA 133; (1994) 127 ALR 673 (Vista Paper Products) Wilcox CJ at page 688:“In relation to Vista, Mr McNamee’s evidence was that a receiver had been appointed … While this evidence suggests that both Vista and Mr McNamee may have difficulty in paying penalties, I do not think I should allow it to deflect me from imposing whatever penalties are otherwise appropriate.” Further in Jordan v Mornington Inn Pty Ltd [2007] FCA 1384; (2007) 166 IR 33 at [99] Heerey J said “as to the respondent’s own financial position, however, in considering the size of a penalty, capacity to pay is of less relevance than the objective of general deterrence”. Judge Driver in Fair Work Ombudsman v Priority Matters Pty Ltd & Anor (No.5) [2020] FCCA 901 at [114] – [118] said:“The Fair Work Ombudsman accepts that there are authorities which recognise that respondents’ financial circumstances and resultant capacity to pay any penalty imposed are a relevant factor for the Court to take into account in assessing penalty. However, the authorities also make clear that this factor should be given limited weight, because the primary consideration is the setting of a penalty which will provide effective deterrence, as is considered further below. So much is evident from the statement of Lander J in Ponzio v B & P Caelli Constructions Pty Ltd[128] at [94].” I note that the respondents have not attempted to further comply with the notice. No further underpayments have been identified or corrected. I intend to make order for Compliance with the Notice. I adopt the comment by Judge Riethmuller in Hindu Society of Victoria (Australia) Inc v Fair Work Ombudsman [2016] FCCA 221 at [30] where he said:“I reject the proposition that the compliance notice is a de facto punishment in that the compliance notice only requires the payments necessary to comply with the relevant statutory provisions. It does not result in a penalty unless the compliance notice is not complied with. In this case, no penalties could be imposed if the compliance notice was complied with.”

Ratio Decidendi

Legal Principle Established

The respondents relied on the decision in Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor (No 2) [2020] FCCA 2583 (“Soma”) regarding any penalty to be imposed. In Soma (supra) at [25] Judge Kendall with reference to the totality principle cited the observations in Mornington Inn[4] at [42] where the Court said “the application of the totality principle …is a final check to be applied to ensure that a final, total or aggregate penalty is not unjust or out of proportion to the circumstances of the case.” I take into account the evidence provided by the second and third respondents and the overall circumstances of the case. [4] Mornington Inn v Jordan [2008] FCAFC 70CONSIDERATION Inverted Mountain failed to comply with the Compliance Notice and is still yet to comply. It is more than a year since the Notice issued. No records have been produced to the FWO with respect to the gross and net amounts of pay for employees, records of leave taken for all employees and records or superannuation contributions. The FWO has been unable to determine to date the extent of the underpayments to employees or what amounts were paid. Further the respondents conceded payments were not made in accordance with the Restaurant Industry Award 2010. Inverted Mountain and Mr Manning knew that non – compliance may result on legal proceedings and the imposition of a pecuniary penalty of up to $31,500 but failed to comply with the Notice. There has been a continued failure to make and keep records, provide evidence of the issuing of pay slips and the information required on pay slips. I accept the submission of the FWO that a failure to provide adequate records and issue adequate pay slips should not be seen as trivial. See Fair Work Ombudsman v Han Investments Pty Ltd per Barker J at [114]. I accept that the respondents conduct was deliberate. Mr Manning advised FWI Cox that he was 2 weeks behind in paying employees. This was also acknowledged in email exchanges between Mr Manning and an employee. He advised he was paying employees in cash and not providing pay slips unless requested. He confirmed Inverted Mountain did not keep any record of the hours worked by employees and at the end of each week timesheets were destroyed. He said as a small business they “did not keep a lot of records.” With respect to the Compliance Notice although Mr Manning confirmed that he had 14 employees he forwarded details of only 4 employees and did not provide any further information. He has to date not provided the schedule of employees and rates of pay as requested. As such the FWO has been unable to determine the extent of loss to individual employees due to the respondents’ failure to comply with the Notice and the absence of records. No rectification has been undertaken for any shortfall with respect to minimum entitlements or superannuation contributions. I accept the submission of the FWO that the Court should consider the loss owed to 14 employees is likely to be significant. The amounts owed to 4 employees (provided by Mr Manning) were significant amounts for employees working in a relatively low paid industry. It is within the respondents control to provide the relevant information quantifying the loss. No adequate information has been provided to date. I am concerned that Mr Kruize indicated he felt he was unable to comply with the FWO’s “demands.”