Fair Work Ombudsman v Inverted Mountain Pty Ltd
[2020] FCCA 3429
•16 December 2020
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 respect of employees as prescribed by regulations 3.32 of the Fair Work Regulations 2009 (Cth) (“the FW Regulations”);
(c)section 535 (1) of the FW Act by failing to make and keep records in respect of employees as prescribed by regulations 3.33 (1) of the the FW Regulations;
(d)section 535 (1) of the FW Act by failing to make and keep records in respect of employees as prescribed by regulations 3.36 of the the FW Regulations;
(e)section 535 (1) of the FW Act by failing to make and keep records in respect of employees as prescribed by regulations 3.37 of the the FW Regulations;
(f)section 536 (1) of the FW Act by failing to give pay slips to Ms Costa;
(g)section 536 (2) of the FW Act by failing to provide pay slips with information prescribed by regulations 3.46 (1) of the FW Regulations; and
(h)section 536 (2) of the FW Act by failing to provide pay slips with information prescribed by regulations 3.46 (5) of the FW Regulations.
2.The Second Respondent, Zardi Manning was involved within the meaning of section 550 (2) of the FW Act in each of the contraventions by Inverted Mountain.
3.The Third Respondent, Christopher Kruize was involved within the meaning of section 550 (2) of the FW Act in the contraventions by Inverted Mountain at paragraphs 1 (b), 1 (c), 1 (d), 1 (e), 1 (g) and 1 (h) above.
THE COURT ORDERS THAT
4.The First Respondent take the steps that were required by the Compliance Notice within 28 days of the date of this order by:
(a)Calculating the outstanding entitlements it was required to pay the Employees including superannuation;
(b)Paying the outstanding entitlements it was required to pay the Employees referred to in Order 4 (a) to the Commonwealth Consolidated Revenue Fund (on behalf of the Employees);
(c)Calculating and paying superannuation into the Employees nominated superannuation fund for additional superannuation contributions it was required to pay on the outstanding entitlements referred to in Order 4 (b) above (as required by clause 30.2 of the Restaurant Industry Award 2010); and
(d)Preparing and producing to the applicant a schedule outlining its calculation of the outstanding entitlements it was required to pay the Employees referred to in the Order 4 (a) above and providing proof that the outstanding entitlements were rectified as set out in orders 4 (b) and 4 (c ).
5.The First Respondent pay interest on the amounts owed to the Employees pursuant to Order 4 (b) above to the Commonwealth Consolidated Revenue Fund within 28 days of the date of this order pursuant to section 547 (2) of the FW Act.
6.The applicant distribute to the Employees the amounts paid pursuant to orders 4 (b) and 5 within 180 days of the payment being made or in the event that the Employees cannot be located within this timeframe these amounts be retained by the Commonwealth of Australia pursuant to section 559 of the FW Act.
7.The First Respondent pay penalties of $45,675 pursuant to section 546 (1) of the FW Act for committing the contraventions.
8.The Second Respondent pay penalties of $9135 pursuant to section 546 (1) of the FW Act for his involvement in the contraventions.
9.The Third Respondent pay penalties of $5670 pursuant to section 546 (1) of the FW Act for his involvement in the contraventions of sections 535 (1) and 536 (2) of the FW Act.
10.Pursuant to section 546 (1) of the FW Act all pecuniary penalties imposed be paid into the Commonwealth Consolidated Revenue Fund within 60 days of the date of these orders.
11.The applicant has liberty to apply on seven days’ notice in the event that there is a failure to comply with any of the preceding orders.
REASONS FOR JUDGMENT
JUDGE TONKIN:
INTRODUCTION
The First Respondent Inverted Mountain Pty Ltd is the operator of a vegetarian restaurant located at 3120A Surfers Paradise Boulevard Surfers Paradise in Queensland trading as Govinda’s Surfer’s Paradise. Zardi Manning the Second Respondent and Christopher Kruize the Third Respondent are directors of the company.
A Compliance Notice was issued to Inverted Mountain on 13 September 2019 pursuant to subsection 716 (2) of the Fair Work Act 2009 (Cth) (“the FW Act”) in relation to underpayment of entitlements to Employees inter alia. Inverted Mountain failed to comply with the Notice by the specified date 21 October 2019.
On 3 September 2020 the parties filed a Statement of Agreed Facts pursuant to section 191 of the Evidence Act 1995 (Cth) the Respondents admitting the contraventions as alleged. Declarations sought by the FWO were not opposed.
The matter was heard via audio – link on 19 October 2020.[1] On the basis of the evidence contained in the agreed statement of facts I made declarations as sought by the FWO. The remaining matter for determination was the issue of the appropriate pecuniary penalties to be imposed.
[1] The matter proceeded electronically via audio link pursuant to sections 66 to 69 of the Federal Circuit Court of Australia Act 1999 (Cth) and Joint Practice Direction 2 of 2020 – Special Measures in Response to COVID-19
Documents relied on
The Fair Work Ombudsman (“FWO”) relied on the Agreed Statement of Facts filed on 3 September 2020 and the affidavit of Fair Work Inspector (“FWI”) Cox filed on 7 September 2020. The respondents relied on the affidavit of Zardi Manning filed on 4 September 2020 and the affidavit of Christopher Kruize filed on the same date.
Approach to penalty
Civil remedies may be sought in relation to a contravention of a civil remedy provision. Sections 535 (1), 536 (1), 536 (2) and 716 (5) of the FW Act are civil remedy provisions.
The primary purpose of civil penalties is to promote the public interest in compliance and to attempt to impose a price on a contravention that is sufficiently high to deter repetition by the contravener and by others who are in a position to contravene legislation.[2]
[2] Commonwealth v Fair Work Building Inspectorate [2015] 258 CLR 482 at [55] and [110]
The Court has a broad discretion to assess the appropriate penalty. In Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557 (24 May 2017) Katzmann J at [387] said:
“[387] Civil penalties, like sentences for criminal offences, are fixed by a process of “instinctive synthesis”, that is to say, after taking “due account” of all the relevant factors (which may pull in opposite directions), a court will conclude that a particular penalty should be imposed: See Wong v The Queen [2001] HCA 64; (2001) 207 CLR 584 at [76]; Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 at 374; TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190; (2012) 210 FCR 277 at [145]. Relevant factors …. include: the nature and extent of the contravening conduct and the circumstances in which it took place, whether the conduct was deliberate, whether senior management was involved, whether the contraventions are truly distinct or arose out of the one course of conduct, the nature and extent of loss or damage, whether the contravener has previously engaged in similar conduct, the size of the business enterprise, and the existence and extent of any contrition, corrective action, and cooperation with the regulator: See, for example, Kelly v Fitzpatrick [2007] FCA 1080 (Tracey J) at [14].
[388] In contrast to the criminal law, however, where, in sentencing, retribution and rehabilitation are also relevant, the primary, if not the only, purpose of a civil penalty is to promote the public interest in compliance with the law. This is achieved by imposing penalties that are sufficiently high to deter the wrongdoer from engaging in similar conduct in the future (specific deterrence) and to deter others who might be tempted to contravene (general deterrence). The penalty for each contravention or course of conduct is to be no more and no less than is necessary for that purpose: See Commonwealth v Director, Fair Work Building Industry Inspectorate; Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46, (2015) 90 ALJR 113, 255 IR 87, 326 ALR 476 (Commonwealth v FWBII) at [55] (French CJ, Kiefel, Bell, Nettle and Gordon JJ).”
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.
Ms Costa told the FWI Cox that she began working at the business in October 2018 and was paid $16 per hour as a flat rate including for weekend work. She said she was not paid personal or annual leave and thought she was a casual. She said she was paid $24 an hour when she worked public holidays. She was paid cash in hand by Mr Manning and was not provided with a pay slip and was never asked to provide a tax file number.
FWI Cox also spoke with an employee Mr Tupac who did not wish to be interviewed as it was his first day of employment. He said he did not know what amount he would be paid. He was a friend of Mr Manning and had worked at Mr Manning’s “Hari Krishna run Govinda’s in Burleigh.”
INFORMATION PROVIDED BY THE RESPONDENTS
The Second Respondent Zardi Manning was one of two directors of Inverted Mountain operating Govinda’s restaurant. Mr Manning together with the Third Respondent was responsible for the overall operation, management and control of Inverted Mountain and responsible for ensuring that Inverted Mountain complied with its legal obligations under FW Act and the Restaurant Industry Award 2010. Mr Manning was responsible for hiring and paying employees. He was also responsible for maintaining and keeping records as required by the FW Act.
On 15 May 2019 FWI Cox interviewed Mr Manning who told FWI Cox that the business was 2 weeks in arrears in employee payments. He said he understood that it was an offence to pay employees late and confirmed that employees were paid $16 net per hour in cash. He informed FWI Cox that pay slips were only issued if requested by the employees and that he did not know which Award was relevant to the employees. He told FWI Cox that money was placed in an envelope with the employees name on the front of the envelope and the total amount of payment was written under the envelope flap on the inside. He was unsure of the gross rate of pay and that while he paid more for public holidays he was not sure what rate was paid for public holidays. He told FWI Cox that rosters were issued via WhatsApp messages and that time sheets were completed by employees and recorded on the green folder kept under the counter. He informed FWI Cox that the restaurant was open 7 days a week between 11 am and 10 pm.
On 24 June 2019 FWI Cox issued Inverted Mountain a Notice to Produce (“NTP”) under section 712 of the FW Act requesting payment records, pay slips and a record of hours and days worked by employees. The due date for compliance was 10 July 2019.
On 10 July 2019 Mr Manning attended the FWO’s office and provided a number of documents to the FWO one of which showed that 14 employees worked in the business between 31 December 2018 and 28 April 2019. The documents produced did not satisfy the NTP request. On 11 July 2019 Inverted Mountain was notified regarding its failure to comply with the NTP.
On 17 July 2019 FWI Mackie received a letter from Mr Kruize. The Third Respondent Christopher Kruize is also a director of Inverted Mountain and together with Mr Manning was responsible for the overall operation, management and control of Inverted Mountain and responsible for ensuring that Inverted Mountain complied with its legal obligations under FW Act and the Award. Mr Kruize disclosed that Inverted Mountain did not keep rosters and records of hours worked by staff as these were discarded at the end of each week and staff did not receive a pay slip but rather the money was placed in an envelope with a strip of paper “detailing the money.”
COMPLIANCE NOTICE
On 13 September 2019 FWI Cox issued Inverted Mountain with a Compliance Notice with respect to the contraventions pursuant to section 716 (2) of the FW Act and required Inverted Mountain to take action by 14 October 2019 to remedy the alleged contraventions as follows:
(a)Identify the hours worked by and amounts paid to the employees;
(b)Calculate and rectify outstanding amounts owing to employees and the superannuation payable to employees in respect of those amounts;
(c)prepare a schedule of calculations and amounts paid to the employees to remedy any underpayment identified; and
(d)produce reasonable evidence to the FWO of its compliance with the Compliance Notice by 21 October 2019 producing a copy of the schedule of calculations and payments and evidence that the amounts owed had been paid to employees.
On 14 October 2019 Mr Manning phoned FWI Cox seeking an extension of time to comply with the Compliance Notice claiming he did not have enough money to pay. The request was refused and Mr Manning advised that Inverted Mountain was supposed to have rectified the underpayments by the end of the day and provide proof by 21 October 2019.
On 17 October 2019 FWI Cox received two emails from Mr Manning identifying the weekends and public holidays worked by 4 employees during the Compliance Notice period and indicating the amounts owing to those employees.
On the same day FWI Cox informed Mr Manning and Mr Kruize that the records provided did not meet the requirements of the Compliance Notice and that “they needed to identify all employees engaged by Inverted Mountain at the business during the Compliance Notice period.” FWI Cox referred to the documents provided by the directors themselves on 10 July 2019 identifying 14 employees working at the business during the Compliance Notice period.
Further FWI Cox referred to Ms Costa and Mr Tupac who informed her on 15 May 2019 that they were persons working at the business during the site visit and their names did not appear on any of the documents provided. FWI Cox advised Mr Manning and Mr Kruize that the FWO required that the calculations showed all employees not just 4 employees.
On 30 October 2019 FWI Cox received an email from Mr Manning claiming that they were not able to complete the audit within the allocated time frame “because it was a bigger task than they had anticipated.” FWI Cox was informed that Inverted Mountain had changed accountants and new accountants were slowly getting on top of the situation.
On 6 November 2019 Inverted Mountain received an email from the FWO notifying the company that the FWO had not received any evidence of compliance with the Notice nor a reasonable excuse for their compliance failure and the matter may be litigated for non –compliance. Despite this warning no action was taken by any of the Respondents.
On 20 December 2019 the FWO commenced proceedings.
The Compliance Notice issued on 13 September 2019 alleged that Inverted Mountain between 1 January and 31 May 2019 contravened the clauses of the Restaurant Industry Award 2010 as follows:
(a)clause 20.1 – minimum wages for employees;
(b)clause 13.1– casual loading for casual employees;
(c)clause 34.1 – Saturday, Sunday and Public holiday penalty rates for casual employees;
(d)clause 34.1 – Saturday, Sunday and Public holiday penalty rates for part time employees; and
(e)clause 34.1 – Saturday, Sunday and Public holiday penalty rates for full time employees.
Between 1 January and 31 May 2019 a number of employees were employed by Inverted Mountain in the restaurant Govinda’s Surfer’s Paradise operated by Inverted Mountain. The Restaurant Industry Award 2010 (“the Award”) a modern award under the FW Act covered and applied to Inverted Mountain in respect of those employees.
The employees were engaged by Inverted Mountain as either full time, part time or casual employees. All employees were paid flat rates for all hours worked.
The casual employees were not paid casual loading for all hours worked and employees who worked on public holidays were not paid public holiday penalty rates nor were employees that worked on weekends paid Saturday or Sunday penalty rates.
ADMITTED CONTRAVENTIONS
Inverted Mountain admitted contravening section 716 (5) of the FW Act by failing to comply with the Compliance Notice issued on 13 September 2019 by failing to identify by14 October 2019 the hours worked, the amounts paid to all employees and failing to calculate and rectify any underpayments. No schedule of calculations and amounts paid to any employee has been prepared by Inverted Mountain.
Inverted Mountain identified only the days worked by 4 employees during the Compliance Notice period. Those amounts were significant. Over a 6 month period each of the 4 employees identified was underpaid $2413.32, $1632.54, $1632.54 and $2839.20 respectively each being owed that amount. Further each of the 4 employees identified were owed the following in superannuation entitlements $229.27, $155.09, $155.09 and $269.72. No attempt has been made by the Respondents to rectify those amounts and/or ensure payments were made to individual employees. Those amounts have now been outstanding for at least 15 months.
Inverted Mountain failed to provide FWI Cox with any evidence of actions taken in satisfaction of the Compliance Notice in relation to the remainder of the employees and still has not complied with the Compliance Notice or provided any further records or proof of compliance.
The FWO has been unable to determine whether the calculations made by Inverted Mountain were made in accordance with the Award based on the information provided.
Inverted Mountain failed to make and keep any records in relation to Ms Costa whether Ms Costa’s employment was full time or part time, whether Ms Costa’s employment was temporary, permanent or casual and the date on which Ms Costa’s employment began in accordance with regulation 3.32 of the FW Regulations.
Inverted Mountain failed to make and keep any records which specified Ms Costa’s rate of pay, the gross and net amounts paid to Ms Costa and any deduction made from Ms Costa’s pay in accordance with regulation 3.33 (1) of the FW Regulations.
Inverted Mountain failed to make and keep any records of any leave taken by any employee and the balance (if any) of any employee entitlements to leave from time to time in accordance with regulation 3.36 of the FW Regulations.
Inverted Mountain failed to make and keep any records relating to superannuation contributions made on behalf of any of the employees in accordance with regulation 3.37 of the FW Regulations.
Inverted Mountain did not produce any of the above categories of documents in response to the Notice to Produce Records or documents pursuant to section 712 of the FW Act issued by FWI Cox on 24 June 2019.
Inverted Mountain was required to give each employee a pay slip within one working day of paying an amount to the employee in relation to performance of work. Inverted Mountain failed to give any pay slips to Ms Costa either within one day of paying an amount to her in relation to her performance at work or at all.
Inverted Mountain was required to provide pay slips to employees which recorded Inverted Mountain’s name and Australian Business Number, the employee’s full name, the period to which the pay slip related and the date on which payment was made.
In addition Inverted Mountain was required to provide pay slips to employees which recorded the name or the name and number of any superannuation fund to which superannuation contributions were made for the benefit of the employee. Inverted Mountain admitted contravening section 536 (2) of the FW Act by failing to provide the prescribed information in accordance with the FW Regulations.
Mr Manning
Mr Manning was the operational manager for the business and was responsible for hiring and paying employees. He was aware there was an Award but claimed he was not aware which Award applied to employees. There is no evidence that Mr Manning made any enquiry to ascertain information regarding the Award that applied to employees. Rather he implemented a system of payment at a rate and method other than that required by the Restaurant Industry Award 2010. Employees were paid at a flat rate with cash. Mr Manning failed to pay minimum rates in accordance with the Award. He failed to pay casual rates and penalty rates and failed to pay superannuation entitlements. As the operational manager and controlling mind of Inverted Mountain Mr Manning was responsible for ensuring that Inverted Mountain complied with its legal obligations. Mr Manning admitted that Inverted Mountain was “2 weeks behind in paying employees” and understood that this was an offence.
Mr Manning was responsible for ensuring that Inverted Mountain complied with the Compliance Notice within the specified time. He had actual knowledge of the Compliance Notice issued to Inverted Mountain, the Notice being served on him by FWI Cox. He had actual knowledge that Inverted Mountain failed to comply with that Notice as admitted by him when he sought an extension of time from compliance. He was an intentional participant in Inverted Mountain’s failure to comply the Notice which is yet to be complied with.
Further Mr Manning was responsible for and had knowledge of what employee records were made and kept by Inverted Mountain in relation to employees and the pay slips Inverted Mountain gave to employees and the content of those pay slips.
Mr Manning had actual knowledge that Inverted Mountain failed to make and keep records in relation to content, pay, leave entitlements and superannuation contributions. He had actual knowledge that Inverted Mountain did not give pay slips to Ms Costa and had actual knowledge that Inverted Mountain did not include certain content on pay slips given to other employees and was an intentional participant in Inverted Mountain’s contraventions. Mr Manning admitted he was involved within the meaning of section 550 (2) of the FW Act in all of the contraventions admitted to by Inverted Mountain.
Mr Kruize
Mr Kruize had knowledge of the kinds of records that were made or kept by Inverted Mountain in relation to employees and the content of pay slips that Inverted Mountain provided to employees.
Further Mr Kruize had actual knowledge that Inverted Mountain failed to make and keep records in relation to content, pay, leave entitlements and superannuation contributions. He had actual knowledge that Inverted Mountain did not include certain content on pay slips given to other employees and was an intentional participant in Inverted Mountain’s contraventions with respect to its failure to make and keep records and its failure to include information prescribed by the FW Regulations on pay slips. Mr Kruize admitted he was involved within the meaning of section 550 (2) of the FW Act in contravening section 535 (1) and 536 (2) of the FW Act.
Contraventions
I made declarations in accordance with Orders 1 (a) to (h), 2 and 3.
DETERMINING THE APPROPRIATE PENALTY
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.
He said when they advised the FWO regarding the information requested only 4 employees were affected and required remediation. He said when this was rejected he felt useless. Mr Kruize said he and Mr Manning did not “submit the latest attempt to make sense of the situation.” He said “I don’t feel that I am able to comply with its demands.”
He set out his assets and liabilities. He owns a residence worth $323,900 secured by a mortgage of $264,000. He deposed to income of “$3987” however he did not identify whether this related to a weekly, fortnightly or monthly income. His expenditure is $3348.
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 70
CONSIDERATION
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.”
The FWO submitted that the Court should take into account the failure to comply with statutory obligations citing Fair Work Ombudsman v Viper Industries Pty Ltd [2015] FCCA 492 where Emmet J observed at [42]:
“The respondents intentional failure to comply with a mandatory notice issued by the workplace regulator is ‘conduct (which) undermines the utility and effectiveness of a fundamental object’ the FW Act. The failure to comply undermines and frustrates the powers conferred on Fair Work inspectors which are conferred for the purposes of providing an effective means of enforcing compliance with lawful minimum entitlements. There is a significant cost to the public by reason of the need to bring this matter before the court to enforce compliance.”
I accept that submission.
Inverted Mountain is a small business. The Respondent’s submitted that they were not financially successful in the venture “which will not survive COVID -19 and may well be insolvent”. They submitted that “none of the respondents have any real capacity to pay fines and any fines imposed will have to be paid periodically”. The Respondents provided limited evidence of their financial circumstances annexing to Mr Manning’s affidavit documents titled “Trust – SPFR (trading)” 30 June 2018. No financial documents were produced with respect to the relevant Compliance Notice period. I note that in 2018 drawings of between $27,000 and $29,000 were taken from the business. Regardless of the size of the business or its financial position an employer cannot be absolved of its obligations to comply with workplace laws. See Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815 at [10].
Senior management were involved throughout the investigation by the FWO. Both Mr Manning and Mr Kruize were directors of Inverted Mountain and were required to ensure that Inverted Mountain complied with its legal obligations under the FW Act. Mr Manning was served with the Compliance Notice and sought an extension. He failed to comply with the Notice. Both directors failed to make and keep records and both were involved in contraventions regarding the failure to provide pay slips and relevant information.
I accept the submission of the FWO that the respondents admitted the contraventions at an early opportunity saving the expense of proceeding to a defended hearing. However those admissions need to be considered against the respondents continued failure to comply with the Compliance Notice and to rectify any loss to employees. I adopt the comment by Perram J in ACE Insurance Limited v Trifunovski (No 2) [2012] FCA 793 at [114] that “for civil penalty cases involving corporations it would be more coherent to ask only whether the corporation has changed its behaviour. Nothing more can be expected…” No evidence was adduced that the respondents conduct has changed.
I accept the submission of the FWO that the Courts have recognised Compliance Notices provide a mechanism for the efficient and cost effective rectification of identified contraventions of the FW Act including underpayments to employees. The substantial penalties set by the legislature for contraventions of the FW Act demonstrate the importance Parliament placed on employers complying with their obligations.
I accept further the submission by the FWO that the failure to make and keep records robs employees of contemporaneous documentation and renders an employee vulnerable to exploitation. See Fair Work Ombudsman v Han Investments Pty Ltd at [114] to [115]. Further the obligation to provide pay slips is a fundamental safeguard against underpayment, overwork and mistreatment of employees. Employers who fail to provide pay slips disempower employees, impede oversight and regulation and intentionally or otherwise create a system within which breaches of industrial laws can be easily perpetrated.[5] The FWO submitted that the FWO’s Industry Profile for the café and restaurant industry for the period July 2017 to December 2019 indicated that 46.3% of FWO disputes involved young workers between 15 and 25 years and 19% of the contraventions involved underpayment of employees. See Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301
[5] GPS at [548] citing with approval Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd [2012] FMCA 258 at [66] to [67]
at [199] regarding acceptance by the Court of FWO’s industry profiles.
The purpose of imposing civil penalties is to promote the public interest in complying with minimum standards. There is a prevalence of employee underpayments in lower paid industries. There is a need to send a message to others that a significant pecuniary penalty will be imposed for non – compliance. In his affidavit Mr Kruize said “I tried to find the Award on the Fair Work website but could not find the correct one so we talked to others in the industry and they advised us the net rate of $16 per hour. I took this as gospel.” In Fair Work Ombudsman v Mamak Pty Ltd [2016] FCCA 2104 at [64] Smith J found there was a strong need for deterrence when a business model was adopted that used ‘research’ into the conduct of other restaurants. I adopt the FWO’s submission that “the appropriate penalty to be fixed should not be regarded by others as an acceptable cost of business.[6]
[6] ACCC v TPG at [66]
There is a need for specific deterrence in this case. The Second and Third Respondents as directors of Inverted Mountain are the individuals responsible for the ongoing management and operation of the business including ensuring employees are paid in accordance with their proper entitlements under the FW Act and the Award. There is a proper basis for the Court to be concerned whether the Respondents will in future continue to ignore the legal requirement for minimum rates of pay under the FW Act and the Award. No action has been taken nor is there any evidence before me to demonstrate that the Respondents have taken any steps to make recompense and /or avoid such contraventions in the future.
Maximum penalty
The maximum penalties applicable for the various breaches of the FW Act and FW regulations are as follows:
Inverted Mountain Pty Ltd
(a)Contravening 716 (1) of the FW Act for failure to comply with Compliance Notice: $31,500;
(b)Contravening 535 (1) of the FW Act and FW regs 3.32, 3.33 (1), 3.36 and 3.37; 536 (1), 536 (2): $63,000
Zardi Manning
(a)Contravening 716 (1) of the FW Act for failure to comply with Compliance Notice: $6,300;
(b)Contravening 535 (1) of the FW Act and FW regs 3.32, 3.33 (1), 3.36 and 3.37; 536 (1), 536 (2): $12,600;
Christopher Kruize
(a)Contravening 535 (1) reg 3.32, 3.33 (1), 3.36 and 3.37; 536 (1), 536 (2): $12,600;
The FWO submitted that each contravention is an obligation under the FW Act and FW Regulations and therefore a separate breach of a civil remedy provision pursuant to section 539 (2) of the FW Act.[7] However section 557 (1) of the FW Act provides that two or more contraventions of the same civil remedy provision are taken to constitute a single contravention if the contraventions are committed by the same person and arise out of a single course of conduct by the person. In those circumstances the Court is required to impose one penalty for multiple contraventions.[8]
[7] Gibbs v The Mayor, Councillors and Citizens of Altona (1992) 37 FCR 216 at 223; McIver v Healey [2008] FCA 425 at [14]
[8] Rocky Holdings v Fair Work Ombudsman [2014] 221 FCR 153 at [10] to [18]
The FWO submitted that the respondents were entitled to the benefit of section 557 (1) of the FW Act where repeated contraventions over time of distinct obligations under sections 535 (1) and 536 (2) of the FW Act affected multiple employees and which would otherwise result in multiple separate contraventions of those sections. I accept that with respect to all respondents the contraventions with respect to the failure to give pay slips (reg 3.46 (1)) and the failure to provide information on pay slips (reg 3.46 (5)) should be grouped together.
Further the FWO submitted that multiple contraventions of different obligations may be treated as arising out of a single course of conduct if they have a common element in the decision or action which led to the contravention.[9] In contrast to section 557 of the FW Act under the common element principle the Court is not bound to impose only one penalty. Instead the Court is required to ensure that the wrongdoing is adequately punished and the objects for fixing a penalty have been adequately met. In Fair Work Ombudsman v Bundaberg Security Pty Ltd [2014] FCCA 592 at [12] Judge Jarrett said:
[12] Where contraventions are grouped together in such a way the contraventions remain (unlike a grouping under section 557 (1) where the grouped contraventions are treated as one contravention alone) but different penalties might be fixed for different contraventions within the group so that any overlap or commonality is taken into account. Accordingly a penalty might be imposed for one contravention and no penalty or different penalties (usually lesser in amount) imposed for others.”
[9] Fair Work Ombudsman v Offshore Marine Services Pty Ltd [2012] FCA 498 at [7] and [23] to [26] per Gilmour J
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.”
With respect to the pecuniary penalties I impose a penalty of 55% on both Inverted Mountain and Mr Manning for contravening section 716 of the FW Act being the amounts of $17,325 and $3465 respectively.
With regard to the contravention of section 535 (1) of the FW Act in failing to make and keep any record relating to Ms Costa contrary to regulations 3.32, 3.33(1), 3.36 and 3,37 and failing to record leave taken by any employee or the balance of any leave or any record of superannuation contributions I regard that contravention as significant. I impose a pecuniary penalty of 25% on Inverted Mountain and Mr Manning being the amounts of $15,750 and $3150 respectively.
With respect to the contravention of section 536 (1) of the FW Act in failing to give pay slips I impose a pecuniary penalty of 10% on Inverted Mountain and Mr Manning being the amounts of $6,300 and $1260 respectively.
With respect to the contravention of section 536 (2) of the FW Act in failing to give information on pay slips in breach of regulations 3.46 (1) and 3.46 (5) I impose a pecuniary penalty of 10% on Inverted Mountain and Mr Manning being the amounts of $6,300 and $1260 respectively.
The respondents relied on the decision in Fair Work Ombudsman v Scott Redmond trading as Cleaning Excellence [2019] FCCA 3697. At [34] of that judgment Judge Obradovic said with respect to penalty “while the penalty imposed must not be crushing or oppressive it must be proportionate to the conduct engaged in by the respondents and not have the effect of exonerating the conduct.”[10] I am satisfied that the aggregate amount payable by Inverted Mountain of $45,675 is appropriate having regard to the whole of the circumstances. I am also satisfied the total amount payable by Mr Manning of $9135 is also appropriate and is proportionate to the conduct engaged in.
[10] Kelly v Fitzpatrick [2007] FCA 1080 at [30]
Regarding Mr Kruize’s contravention of section 535 (1) of the FW Act in breaching the FW regulations 3.32, 3.33 (1), 3.36 and 3.37 I accept that he is less culpable and impose a pecuniary penalty of 35% being the amount of $4410.
With respect to the contravention of section 536 (2) of the FW Act in failing to give information on pay slips in breach of regulations 3.46 (1) and 3.46 (5) I impose a pecuniary penalty of 10% Mr Kruize being the amounts of $1260. I am satisfied that the aggregate amount payable by Mr Kruize of $5670 is proportionate to the conduct engaged in.
I make orders accordingly.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Tonkin. Dated: 16 December 2020
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