Fair Work Ombudsman v JS Top Pty Ltd & Anor
[2017] FCCA 1689
•21 July 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v JS TOP PTY LTD & ANOR | [2017] FCCA 1689 |
| Catchwords: INDUSTRIAL LAW – Application for imposition of pecuniary penalties – contravention of Fair Work Act – underpayment of entitlements – failing to make employee records – failing to ensure records are not false and misleading – making use of employee records that are false and misleading. |
| Legislation: Fair Work Act 2009, ss.45(1), 550(1), 535(1), 557(1), 557(2), 712 Fair Work Regulations 2009, regs.3.33, 3.44(1), 3.44(6) |
| Cases cited: Fair Work Ombudsman v Hiyi Pty Ltd & Ors [2016] FCCA 1634 Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153 |
| Applicant: | Fair Work Ombudsman |
| First Respondent: | Js Top Pty Ltd |
| Second Respondent: | Jim Chien Ching Chang |
| File Number: | BRG 296 of 2016 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 13 September 2016 |
| Date of Last Submission: | 13 September 2016 |
| Delivered at: | Brisbane |
| Delivered on: | 21 July 2017 |
REPRESENTATION
| Counsel for the Applicant: | Ms Gall |
| Solicitors for the Applicant: | Officer of the Fair Work Ombudsman |
| Solicitors for the First and Second Respondents: | Tonio Lawyers |
ORDERS
THE COURT DECLARES THAT:
The First Respondent contravened:
(a)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.17 of the General Retail Industry Award 2010 by failing to pay 8 of its employees the minimum hourly wage prescribed by that Award;
(b)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.13.2 of the General Retail Industry Award 2010 and cl.A.5.4 of Schedule A of the General Retail Industry Award 2010 by failing to pay 8 of its employees the casual loading prescribed by that Award;
(c)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.29.4(b) of the General Retail Industry Award 2010 and cl.A.7.3 of Schedule A of the General Retail Industry Award 2010 by failing to pay the Saturday loading prescribed by that Award;
(d)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.29.4(c) of the General Retail Industry Award 2010 and cl.A.7.3 of Schedule A of the General Retail Industry Award 2010 by failing to pay the Sunday loading prescribed by that Award;
(e)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.30.3(a) of the General Retail Industry Award 2010 and cl.A.7.3 of Schedule A of the General Retail Industry Award 2010 by failing to pay the weekday shiftwork rates prescribed by that Award;
(f)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.30.3(b) of the General Retail Industry Award 2010 and cl.A.7.3 of Schedule A of the General Retail Industry Award 2010 by failing to pay the Saturday shiftwork rates prescribed by that Award;
(g)s.45 of the Fair Work Act 2009 (Cth) by virtue of a contravention of cl.30.3(c) of the General Retail Industry Award 2010 and cl.A.7.3 of Schedule A of the General Retail Industry Award 2010 by failing to pay the Sunday shiftwork rates prescribed by that Award;
(h)s.535(1) of the Fair Work Act 2009 (Cth) by failing to make employee records specifying the rate of remuneration paid to its employees as prescribed by reg.3.33(1)(a) of the Fair Work Regulations 2009 (Cth);
(i)s.535(1) of the Fair Work Act 2009 (Cth) by failing to make employee records of the hours worked by its employees as prescribed by reg.3.33(2) of the Fair Work Regulations 2009 (Cth);
(j)s.535(1) of the Fair Work Act 2009 (Cth) by failing to make employee records specifying the casual loading and other applicable allowances to its employees as prescribed by reg.3.33(3) of the Fair Work Regulations 2009 (Cth);
(k)reg.3.44(1) of the Fair Work Regulations 2009 (Cth) by failing to ensure that records recording the rates of pay paid to its employees were not knowingly false or misleading;
(l)reg.3.44(1) of the Fair Work Regulations 2009 (Cth) by failing to ensure that records recording the hours worked by its employees were not knowingly false or misleading;
(m)reg.3.44(6) of the Fair Work Regulations 2009 (Cth) by making use of records wrongly recording the rates of pay paid to its employees through the 7-Eleven Payroll System despite knowing them to be false or misleading;
(n)reg.3.44(6) of the Fair Work Regulations 2009 (Cth) by making use of records wrongly recording the hours of work of its employees through the 7-Eleven Payroll System despite knowing them to be false or misleading;
(o)reg.3.44(6) of the Fair Work Regulations 2009 (Cth) by making use of entries in the first respondent’s books and records by producing them in response to a Notice to Produce given by the applicant, knowing them to be false or misleading.
The Second Respondent was involved in each of the contraventions committed by the First Respondent as set out in paragraph 1 above.
THE COURT ORDERS THAT:
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) the First Respondent pay pecuniary penalties in respect of the contraventions set out at declaration (1) fixed in the sum of $140,000.
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) the Second Respondent pay pecuniary penalties in respect of the contraventions set out at declaration (1) fixed in the sum of $28,000.
Pursuant to s.546(3)(a) of the Fair Work Act 2009 (Cth), within 28 days of the date of these orders the pecuniary penalties ordered to be paid by the First Respondent and the Second Respondent be paid to the Commonwealth.
BY CONSENT THE COURT FURTHER ORDERS THAT:
Pursuant to s.545(1) of the Fair Work Act the First Respondent, at its own expense, engage a lawyer with expertise in workplace relations to undertake an audit of the First Respondent’s compliance with the Fair Work Act and the Award on the following terms:
(a)the audit period will be from 1 July 2017 to 30 September 2017;
(b)the audit is to be completed within 60 days of the end of the audit period;
(c)the audit will apply to all employees employed by the First Respondent at any time during the audit period in any classification of work under the Award;
(d)the audit will assess the First Respondent’s compliance with the following obligations according to each employee’s classification of work, category of employment and hours worked during the audit period:
(i)wages and work-related entitlements under the Award;
(ii)accrual and payment of entitlements under the National Employment Standards in Part 2-2 of the Fair Work Act; and
(iii)record keeping and payslip obligations in Division 3 of Part 3-6 of the Fair Work Act and Part 3-6 of the Fair Work Regulations.
(e)within 30 days of the audit being completed, the First Respondent will provide to the Applicant:
(i)a copy of the audit report which will include a statement of the Methodology used in the audit;
(ii)a copy of the source materials used to audit the times worked by employees, inducting but not limited to rosters, time sheets and CCTV footage; and
(iii)written details of any contraventions identified in the audit, the steps the First Respondent will take to rectify any identified contravention(s), and the date by when the rectification will occur.
Pursuant to s.545(1) of the Fair Work Act that, if notified by the Applicant of a complaint from a former or current employee, the First Respondent will:
(a)within 28 days of the notification of the complaint by the Applicant, attempt to resolve the matter, and
(b)within a further 7 days, provide to the Applicant:
(i)an outline of the findings made in respect of the complaint, including the outcome;
(ii)copies of the evidence relied on in making any findings; and
(iii)evidence of rectification of any identified underpayments or a proposal for rectification of identified underpayments.
Pursuant to s.545(1) of the Fair Work Act that the First Respondent will, within 30 days of the date of this order, display a notice in the 7-Eleven that can be easily viewed by all employees (Workplace Notice) on the following terms:
(a)the Workplace Notice must contain:
(i)information on the minimum rates of pay, casual loading and penalty rates under the Award;
(ii)information on how to contact the Fair Work Ombudsman.
(b)the Workplace Notice must be in a form approved by the Applicant at least 7 days prior to the First Respondent displaying the Workplace Notice;
(c)the First Respondent will provide proof of the display of the Workplace Notice to the Applicant within 14 days of the Workplace Notice being approved by the Applicant; and
(d)the Workplace Notice must be displayed continuously for a period of one year.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT Brisbane |
BRG 296 of 2016
| Fair Work Ombudsman |
Applicant
And
| Js Top Pty Ltd |
First Respondent
| Jim Chien Ching Chang |
Second Respondent
REASONS FOR JUDGMENT
JS Top Pty Ltd is the operator of a 7-Eleven franchise business located at 80 Vulture Street, West End, Brisbane. Mr Chang is the sole director and shareholder of JS Top. He is the store manager of the 7-Eleven at 80 Vulture Street, West End.
By these proceedings, the applicant seeks the imposition of pecuniary penalties on JS Top and Mr Chang arising from certain contraventions of the Fair Work Act 2009 (Cth) and the Fair Work Regulations2009. The contraventions alleged against JS Top relate to the:
a)underpayment of entitlements to employees, totalling $19,397.15 under the General Industry Retail Award 2010;
b)failing to make employee records;
c)failing to ensure that employee records were not false or misleading; and
d)making use of employee records, despite knowing them to be false and misleading.
The proceedings were commenced on 1 April, 2016 when the applicant filed an application and a statement of claim. The respondents very quickly agreed that the first respondent had contravened the Act in the ways alleged in the proceedings. They also admitted that the second respondent was, for the purposes of s.550(1) of the Act, involved in those contraventions. The parties filed a statement of agreed facts on 20 June, 2016.
These reasons relate to the penalty that is to be imposed upon the respondents for the contraventions detailed in these reasons.
Background
The evidence reveals that on the night of 13 September, 2014 Fair Work Inspectors visited the West End store as part of an audit campaign then being conducted by the the applicant into 7-Eleven stores more generally. As a result of information gathered on that visit, the applicant commenced an investigation into the employment practices of JS Top in respect of two periods, namely:
a)1 July, 2013 to 10 August, 2014; and
b)22 June, 2015 to 19 July, 2015.
The first period related to the employment of a particular employee, Mr Ashish Singh. During that period JS Top paid Mr Singh either $13 or $14 per hour as a flat rate for his work. The decision to pay Mr Singh that rate was made by Mr Chang on behalf of JS Top. Mr Singh was entitled to be paid as a Retail Employee Level 1 pursuant to the General Retail Industry Award. The flat rates paid to him over the relevant period were below his Award based entitlements.
During the second period, JS Top employed seven other employees namely, Aqeel Majeed, Quianyu Yang, Rakesh Kumar, Asad Bajwa, Asad Ijaz, Shih Chun Lin and Faiyaz Jivani. JS Top paid those employees either $19 or $20 per hour as a flat rate. Again, those rates were determined by Mr Chang on behalf of JS Top and they were below the employees’ entitlements under the General Retail Industry Award.
The employees were paid mostly via the 7-Eleven payroll system. By that system, the 7-Eleven Head Office would process employees’ wages and pay them. Sometimes JS Top and Mr Chang would pay the employees in cash or partly in cash.
The payroll system that was made available to JS Top by the franchisor, 7-Eleven Stores Pty Ltd, required JS Top to enter data into a computerised system. The data to be entered included:
a)the hours worked by the employees;
b)the rate of remuneration paid to the employees; and
c)all hours worked by employees as ordinary time.
The payroll system, having regard to the data entered into it by Mr Chang, would calculate the employees’ wages. However, to disguise the fact that JS Top was paying the employees less than the amount prescribed by the Award, Mr Chang adopted a methodology whereby:
a)he multiplied the employee’s actual hours by the hourly rates JS Top paid them and thereby derived a gross weekly amount to be paid to the employee;
b)in weeks where a cash payment had been made to that employee, he deducted that cash payment from the gross weekly amount;
c)he then divided the remaining amount owed by 25 for the employee (Ms Yang) or 30 for all of the other employees so as to derive a reduced number of hours purportedly worked at a higher rate of pay;
d)he then entered the recalculated hours worked by the employee into the 7-Eleven payroll system as the employee’s ordinary hours of work for that week, which was less than the hours actually worked by that employee;
e)he thereby created a record of the hours worked by the employee and the rate of hourly pay received, albeit it false; and
f)7-Eleven Head Office processed the payments to the employee’s bank accounts (except for Mr Ijaz who was not paid into his bank account) on the basis of the data entered into the payroll system.
JS Top did not create any records at all for Mr Ijaz using the 7-Eleven payroll system. He was paid in cash for all work that he undertook.
JS Top kept time books which record the hours worked by Mr Singh during the time that he worked for JS Top. Otherwise JS Top used the 7-Eleven payroll system to make employee records and process payments to each of them.
A notice to produce records and documents pursuant to s.712 of the Fair Work Act was issued by the applicant to JS Top on 10 November, 2014. The notice requested employment records in respect of all employees of JS Top for the periods that I have earlier particularised in these reasons.
In response to the notice to produce, Mr Chang, on behalf of JS Top produced to the applicant on 28 November, 2014:
a)employee time books of shifts worked by employees for the first period specified above; and
b)payroll reports from the 7-Eleven payroll system for that period purporting to record hours worked, hourly rates of pay, and total amounts paid to the employees of JS Top. Those records were false because they did not accurately record the hours of work for the employees.
By reg.3.44(1) of the Regulations, JS Top was required to ensure that a record it was required to keep under the Fair Work Act or the Regulations was not false or misleading to its knowledge. JS Top clearly contravened that regulation. The records kept by it and generated through the 7-Eleven payroll system were, to the knowledge of JS Top and Mr Chang, false and misleading.
Further, by reg.3.44(6) of the Regulations, JS Top was not to make use of an entry in an employee record made and kept for the purposes of the Regulations if it did so knowing that the entry was false or misleading. JS Top, however, made use of the entries it made in the various records that it knew were false by submitting them to the 7-Eleven payroll system, not advising 7-Eleven Head Office that they were inaccurate and allowing them to be used in accordance with the 7-Eleven payroll system to process payments to the employees and generate payroll reports.
The purpose of the payment methodology I have just explained was to disguise the fact that JS Top was not paying the employees their Award based entitlements. JS Top’s conduct, through Mr Chang, deceived the 7-Eleven Head Office payroll system into recording that the employees were paid the correct hourly rates.
On 22 October, 2015 Fair Work Inspector Jackson issued JS Top with a “Findings of Contraventions” letter. In that letter Fair Work Inspector Jackson set out the underpayments that the applicant’s investigation had uncovered. The letter requested that the amounts underpaid to the employees be rectified by 23 October, 2015. JS Top rectified the underpayments identified in the letter by the date required.
On 11 February, 2016 Fair Work Inspector Jackson wrote again to Mr Chang and advised him that additional payments were owing to the employees. JS Top rectified those additional amounts as required by that letter.
Mr Chang
Mr Chang was the person responsible for business and financial management of JS Top. He is its only director and shareholder. He was responsible for ensuring JS Top complied with its legal obligations under the Fair Work Act and he was responsible for the engagement of employees and the rostering of them for their work. He was responsible for setting the rates of pay paid to the employees, entering data into the payroll system to which I have earlier referred and preparing employees weekly rosters.
Mr Chang had access to all of the books and records of JS Top including the books in which the time spent by the employees at work was recorded. As I have indicated earlier he applied the payment methodology to calculate the amounts to be paid to the employees and directed one of JS Top’s employees to fill out certain records with inaccurate hours of work reflecting Mr Chang’s deceptive payment methodology. He entered both the hours of work and the hourly rates into the 7-Eleven payroll system for all of the employees knowing that they did not reflect their actual times spent at work or the amount actually paid to them.
Moreover, Mr Chang knew that the Award applied to the employee’s employment. He knew that there were minimal Award rates of pay applicable for the employees and that the Award contained different rates such as penalties which applied at various times depending upon when the employees carried out their work. He knew that when each employee was engaged that the new employment form he signed on behalf of JS Top set out an above Award rate of pay which was not actually paid or intended to be paid to the employee.
The Contraventions
The amounts underpaid by JS Top comprise amounts for ordinary hours of work, casual loading prescribed by the Award, weekday casual shift work rates, Saturday casual shift work rates and Sunday casual shift work rates. A summary of the relevant underpayments in respect of each employee is as follows:
| Employee | Nature of Underpayment | Totals | ||||||
| Minimum Hourly Rate | Casual Loading | Saturday Casual Loading | Sunday Casual Loading | Casual Shift work loading Monday to Friday Casual | Casual Shift work loading Saturday | Casual Shift work loading Sunday | ||
| Ashish Singh | $7,021.14 | $6,941.00 | $13,962.14 | |||||
| Aqeel Hassan Majeed | $648.78 | $586.16 | $100.52 | $1,335.46 | ||||
| Qianyu Yang (Daisy) | $203.10 | $203.10 | ||||||
| Rakesh Kumar | $707.09 | $259.76 | $300.48 | $568.56 | $1,835.89 | |||
| Asad Ali Bajwa | $477.62 | $26.60 | $504.22 | |||||
| Asad Ijaz | $102.02 | $107.88 | $32.64 | $68.16 | $310.70 | |||
| Shih Chun Lin | $137.88 | $241.38 | $379.26 | |||||
| Faiyaz Jivani | $272.02 | $594.36 | $866.38 | |||||
| Totals | $7,021.14 | $9,489.51 | $26.60 | $943.62 | $878.56 | $300.48 | $737.24 | $19,397.15 |
The failure to pay the employees their remuneration entitlements under the Award are contraventions of s.45(1) of the Fair Work Act. There was a contravention each time JS Top failed to make a relevant payment to an employee. The contraventions of s.45 of the Act are numerous. The exact number of contraventions has not been calculated.
Two or more contraventions of the Fair Work Act may, depending upon the particular circumstances of the case, attract the operation of s.557(1) of the Act. By that subsection the Court must treat multiple contraventions of certain civil penalty provisions specified in s.557(2) of the Act as a single contravention if the contraventions are committed by the same person and they arose out of a course of conduct by that person.
Section 557(1) is engaged in this case. The contraventions I have identified represent multiple contraventions of s.45 of the Fair Work Act, a section specified in s.557(2) of the Act. The contraventions were committed by the same entity – JS Top. If they arose out of the same course of conduct, they must be taken to constitute a single contravention.
However, as the decision in Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153 directs, s.557(1) operates on contraventions which occur when a term of a modern award is contravened through the operation of s.45 of the Act. The effect of s.557(1) is that two or more contraventions of a term of a modern award are taken to constitute a single contravention provided the contraventions are committed by the same person and the contraventions occurred within a course of conduct by the contravener. Two or more contraventions of separate terms of a modern award are not taken to constitute a single contravention of s.45 of the Act for the purposes of s.557(1) even though they each represent a contravention of s.45 of the Act.
The declarations agreed upon by the parties in this case treat the multiple contraventions of various aspects of the Award as single contraventions of each identifiable, but separate term of the Award. That approach is consistent with Rocky Holdings (above). I am content to adopt the parties’ agreed position concerning the contraventions of s.45 of the Act and the General Retail Industry Award. Thus, after the application of s.557(1) of the Act, there are seven separate contraventions of s.45 of the Act.
By entering the data into the 7-Eleven payroll system in the way that I have explained above, JS Top made employee records which:
a)inaccurately specified the hours worked by the employees;
b)inaccurately specified that the employees were paid $25, or $30 per hour (as the case might be) for each hour worked, when they were actually paid much lower amounts of $18 and $19 per hour, or in respect of Mr Singh, $13 or $14 per hour;
c)inaccurately specified all hours worked by the employees as ordinary hours; and
d)by specifying all hours as ordinary hours, omitted to record the employees’ entitlements to penalty rates or loadings payable to them for casual work, weekend work and shift work.
By entering inaccurate data into the payroll system JS Top caused the records produced by the 7-Eleven payroll system to contain and maintain inaccurate information about the relevant employees’ hours of work, rates of remuneration and entitlements. Consequently, the weekly timesheet reports produced by that system, the employees’ payslips and the detailed payroll reports produced by JS Top and the 7-Eleven payroll system were all inaccurate and falsely reported employees hours of work and remuneration.
JS Top was required by s.535(1) of the Fair Work Act and reg.3.33(1)(a) of the Fair Work Regulations 2009 (Cth) to make a record that specified the rate of remuneration paid to each of its employees. It was required to make records that set out the hours of work by its employees (reg.3.33(2)) and it was required to make records that set out the:
a)casual loading that its employees were entitled to be paid;
b)the rates any employees who worked shift work (as that term is defined in the Award) were entitled to be paid for shift work; and
c)the loadings its employees were entitled to be paid for hours worked on weekends and public holidays.
The parties agree that JS Top did not make any records:
a)specifying the rate of remuneration paid to the employees the subject of these proceedings as required by reg.3.33(1)(a) of the Regulations and therefore contravened s.535(1) of the Fair Work Act;
b)specifying the hours worked by the employees the subject of these proceedings as required by reg.3.33(2) of the Fair Work Regulations and therefore contravened s.535(1) of the Fair Work Act;
c)specifying the casual loading the employees were entitled to be paid, as required by reg.3.33(3) of the Fair Work Regulations and therefore contravened s.535(1) of the Fair Work Act;
d)specifying the shift work rates its employees who worked shift work were entitled to be paid, as required by reg.3.33(3) of the Fair Work Regulations and thereby contravened s.535(1) of the Fair Work Act; and
e)specifying the loadings its employees were entitled to be paid for work performed on Saturdays, Sundays and/or public holidays, as required by reg.3.33(3) of the Fair Work Regulations, and thereby contravened s.535(1) of the Fair Work Act.
The applicant submits and the respondents accept that these contraventions should be seen as three separate contraventions of s.535(1) of the Fair Work Act. Presumably that approach is taken as it is analogous to the way in which multiple contraventions of s.45 of the Act arising from contraventions of separate terms of an award are dealt with. I accept that proposition. Thus, after the application of s.557(1) of the Act, there are three separate contraventions of s.535(1) of the Act.
Regulation 3.44(1) requires an employer to ensure that a record that the employer is required to keep under the Fair Work Act or the Fair Work Regulations is not false or misleading to the employer’s knowledge. The parties agree that the records that JS Top kept (via the 7-Eleven payroll system) were false and that Mr Chang knew they were false. The parties agree that there are two separate contraventions of reg.3.44(1) of the Act.
Further, reg.3.44(6) requires that a person must not make use of an entry in an employee record if the person does so knowing that the entry is false or misleading. The parties agree that the provision by JS Top of the inaccurate payroll reports and other employee records to the applicant in response to a notice to produce records or documents given to it by the applicant contravened this regulation The parties agree that there are three separate contraventions of reg.3.44(6) revealed by the evidence.
Consideration of penalty
JS Top’s 7-Eleven store is open 24 hours a day, 7 days a week. It needs to be staffed continuously. The operation of the business clearly required employees who worked shift work. Of the eight identified employees, many worked night shifts, usually beginning at 10:00pm and ending anywhere between 2:00am and 10:00am. Some worked on weekends or public holidays.
The Award prescribes a minimum hourly rate of pay for ordinary hours worked. Various other rates and loadings are prescribed for time worked during periods designated as shift work periods, for weekend work and work on public holidays. Despite that JS Top paid the same rate to the employees regardless of when they worked. None of the employees I have earlier identified were paid the correct rates of pay for any of the time that they worked. They were always underpaid. They were all casual employees, but none were paid a casual loading as required by the Award.
When each of the employees commenced their employment, a “New Employee Form” was completed with relevant information and passed to the 7-Eleven Head Office. In those documents, JS Top, through Mr Chang, specified the pay rate for each relevant employee. With one exception, the rate specified for each of the employees concerned with this application was $30 per hour. Ijaz’s specified rate recorded on his New Employee Form was $19 per hour.
That information was given to 7-Eleven Head Office to be utilised in the payroll system. However, to facilitate JS Top paying the employees less than the rate set out in each of the New Employee Forms, JS Top and Mr Chang adopted the methodology I have set out above. By those means Mr Chang, and derivatively JS Top, deliberately manipulated the data which he entered into the 7-Eleven payroll system to give the appearance of paying the correct minimum entitlements and thereby obscuring the underpayments from 7-Eleven Head Office or anyone else who used the payroll records to check the employees’ payments.
Of the cases dealt with in this Court that concern underpayment of employees of 7-Eleven franchisees, each franchisee has adopted the same methodology to obscure the true picture of their employees’ payments: Fair Work Ombudsman v Amritsaria Four Pty Ltd & Anor [2016] FCCA 968; Fair Work Ombudsman v Mai Pty Ltd & Anor [2016] FCCA 1481; Fair Work Ombudsman v Hiyi Pty Ltd & Ors [2016] FCCA 1634.
This case, like the other cases in this Court involving 7-Eleven franchisee employees, concerns serious and systematic contraventions of the most basic of the employees’ workplace rights. The facts reveal that the first respondent established a business model that relied upon a deliberate disregard of the employees’ workplace entitlements and a course of conduct designed to conceal that deliberate disregard.
There can be no doubt that the conduct of JS Top and Mr Chang was deliberate. The evidence demonstrates that Mr Chang knew about the Award and its requirements. Mr Chang had received training from 7-Eleven Head Office when he commenced operating the franchise, which included training about employment matters including wages, Award and employee entitlements, how to fill out timesheets and payroll activities including rostering and how to use a time book. His training and the information given to him was ongoing. He was provided with annual updates of the Award rate of pay, including penalty rates and shiftwork rates. He was provided with advisory updates in relation to wage and payroll matters on a regular basis which outlined the consequences of non-compliance with the Award and other obligations.
Not only did JS Top fail to keep the records it was obliged to keep, it knowingly produced false or misleading records to the applicant and also sought to rely on those records on multiple occasions over an extended period. The applicant submits that Mr Chang’s conduct in making and keeping false records and then providing them to the applicant without disclosing their inaccuracy has the following serious consequences:
a)it frustrates the ability for employees to know and hold an employer accountable for their minimum entitlements;
b)it frustrates the ability of the regulator to investigate the employees’ entitlements, requiring significant public monies to be expended on Fair Work Inspectors undertaking extensive investigations, including in this case analysing several sets of records provided by the respondents and 7-Eleven Head Office;
c)such time and resources expended by the regulator would not have been necessary if the respondents had kept accurate records as required by law; and
d)the lack of accurate recording stifles the ability of the regulator to assess and claim for entitlements.
I accept those submissions.
Mr Chang has given evidence in these proceedings by way of affidavit. He was also cross-examined. His evidence is that he has been working with 7-Eleven and implemented a new record keeping system which commenced in August, 2016 “to ensure future compliance with record keeping obligations and to ensure that all employees are paid correctly”. However, in circumstances where the offending conduct in this case was the result of deliberate actions taken on the part of Mr Chang to falsify records, that evidence is of little value. It is not the systems that have been put in place by 7-Eleven Head Office that are deficient, it is that Mr Chang has deliberately falsified the information he gave to the franchisor for wages purposes.
Mr Chang explains in his evidence that the new system put in place by 7-Eleven Head Office requires employees to sign in and sign off their shifts using a finger print scanner. The rostering of employees, data collection required to calculate employees’ wages, the calculation of those wages and the payment of those wages is, as I understand the evidence, handled exclusively by 7-Eleven Head Office. That the franchisor has moved to ensure the wage security of the franchisee’s employees is praiseworthy. That it has had to do so is immeasurably depressing.
The total underpayment of $19,397.15 is not insignificant, particularly as it accrued over a limited period of time. The first period which concerns Mr Singh was approximately 13.5 months and the underpayment for him was $13,962.14.
However, the second period relating to the other employees was only a four week period and resulted in seven employees being underpaid $5,435.01.
The underpaid amounts have now been rectified and were rectified promptly in accordance with the demands of the applicant. Nonetheless, Mr Singh had to wait for more than a year to be paid properly for the work performed for JS Top. And while waiting to be properly paid, JS Top had the use of the employees’ funds.
There is no evidence before the Court about the JS Top’s financial position at the time that the contraventions occurred, but in August, 2016 Mr Chang swore that the business was trading well and able to cover its trading expenses. Mr Chang did not submit that JS Top’s failure to pay appropriate wages was driven by poor cash flow or an inability to meet the expenses of the business. Rather, it seems, the company’s profit has been enhanced by the underpayments concerned.
As the applicant points out, this is not a 7-Eleven store that does not make a profit. JS Top’s income and expense statement for the financial year ending 30 June, 2016 appears to evidence a net income of $61,345 for that period.
There is also no evidence before the Court about Mr Chang’s financial position at the time that the contraventions occurred. However, his current income is solely derived from the West End store. He says that if there is a profit then he gets paid $250 per week and if there is no profit then he does not get paid. He says that his wages depend on the sales for each week. He has given evidence, supported by payslips, that, for the financial year ending June 2016, his wages for work performed at the West End store totalled $10,341.35. In addition to that Mr Chang has been able to draw on the company’s resources such that between 23 February, 2016 and 17 May, 2016 $13,996.43 was deposited to Mr Chang’s personal bank account and not otherwise accounted for as wages.
Apart from his interest in JS Top, Mr Chang’s only other major asset is his home. He appears to have an equity of more than $500,000 in that home.
Objectively, the contraventions in this case are serious. The systematic underpayment of employees and the subsequent manufacture of records to conceal that underpayment cannot be seen as anything other than serious. It is compounded by the use of those false records by the provision of them to the applicant when the underpayments were investigated.
Just as I remarked in another case involving a 7-Eleven franchisee at West End, it is difficult to resist the conclusion that the business model for the operation of the 80 Vulture Street West End 7-Eleven implemented by JS Top under Mr Chang’s direction was deliberately designed around underpaying JS Top’s employees and concealing that practice.
As another judge of this Court has recently remarked, this type of conduct is serious. In Fair Work Ombudsman v Amritsaria Four Pty Ltd & Anor [2016] FCCA 968 Judge Smith observed:
[67] As I have already noted, the contraventions were not accidental but, rather, part of a deliberate scheme aimed at maximising financial benefit to the respondents. In other words, this was part of the respondents’ business model. In my view, this approaches the worst type of each type of contravention.
There are some matters that militate the penalties to be imposed in this case. JS Top and Mr Chang have made full admissions in relation to the contraventions. They indicated they would do so very early in the proceedings and stood by that indication. They agreed upon a statement of facts to be used by the Court. By taking these steps and attending promptly to the rectification of the underpayments when required to do so by the applicant, the respondents, I accept have demonstrated contrition and have facilitated the efficient conduct of these proceedings.
Whilst Mr Chang argues that he cooperated with the applicant’s investigation and, specifically, that he:
a)cooperated with the applicant to ensure that his records were correct;
b)took positive steps to cooperate with the applicant’s enquiries; and
c)provided all of the records he could provide;
those matters are tempered by the provision of false records without disclosing their falsity.
I accept the applicant’s submission that ensuring compliance with minimum standards is an important consideration in the present case. The maintenance of an effective safety net of employer obligations and effective enforcement mechanisms is a legislated purpose of the Fair Work Act.
Compliance with minimum standards assists to maintain a level playing field for all employers in an industry, with respect to wage costs. Those employers who fail to comply with minimum obligations gain an unfair advantage over those employers who do comply with their obligations. Here, JS Top sought to reduce the costs of its business and put itself at such an advantage.
I also accept the applicant’s submission that this is of particular importance in the context of a business which is offered for sale as Mr Chang has said of JS Top’s business. The failure of a business owner to comply with minimum employment standards and recording practices places them at direct commercial advantage to owners of similar businesses, in a franchise context or otherwise. The concealment of the true cost of employing staff, through underpayment and false recording, has a real potential to lead to the failure of the business in the hands of a new owner who take compliance with the law seriously.
General deterrence is of considerable importance in this case. It is necessary to reinforce the message that employers must comply with minimum standards. The imposition of a penalty in this matter will assist in ensuring other employers in the retail sector, and particularly within 7-Eleven, are compliant with their obligations.
Penalties and conclusions
Where the offending conduct overlaps or has exhibited common elements, the Court is able to adopt a course which will take that into account. A person should not be punished twice for the same, or substantially the same contravening conduct. To avoid that result, the Court may group contraventions together for the purposes of assessing and imposing penalties. I propose to adopt that course here in respect of some of the contraventions.
The applicant submits that it is appropriate for the Court to aggregate the contraventions as set out in Annexure A to these reasons. I accept that submission.
It is appropriate to group the seven separate contraventions of s.45 of the Act relating to the underpayment or non-payment of entitlements because they all arose out of the same course of conduct – the payment by JS Top of a flat rate to its employees. I intend to impose higher penalties for some of those contraventions and lower penalties for others to account for the common elements in those contraventions.
It is also appropriate to group the three contraventions of s.535(1) of the Act with the two contraventions of reg.3.44(1) of the Regulations that resulted from JS Top’s failure to make accurate employee records because the contravening conduct was largely the same for both sets of contraventions. That is, the failure to make employee records (specifying, among other things, the rate of remuneration and hours worked) was the result of the records that were made by JS Top being inaccurate. This conduct gave rise to both the contraventions concerning not making accurate records and the contraventions constituted by knowingly creating false records.
However, this group of contraventions contains contraventions that attract different maximum penalties. Section 535(1) of the Fair Work Act attracts a maximum of 30 penalty units (for an individual) whereas reg.3.44(1) of the Fair Work Regulations attracts a maximum penalty of 20 penalty units (for an individual). Notwithstanding that, I might properly treat the group as attracting the maximum penalty of 30 penalty units. The Court may take into account the fact that some of the included contraventions attract the lower penalty.
It is also appropriate to aggregate two of the three separate contraventions of reg.3.44(6) of the Fair Work Regulations because the two of them relate to the use of the relevant records through submitting them to the 7-Eleven payroll system. That involved substantially similar conduct and decision making by JS Top and Mr Chang. However, the provision of the records to the applicant for the purposes of its investigation does not contain an element in common with the other contraventions of this regulation.
As I said at the commencement of these reasons, the contraventions in this case are serious. They call for significant penalties. However, there are some features that serve to distinguish it. First, the underpayments were promptly rectified. Second, the respondents accepted liability and indicated that to the applicant and the Court on the first occasion the matter was before the Court. There is a comprehensive statement of agreed facts. Third, there is no suggestion, as there was for example in the Mai case that the respondents have pursued a course of action to obtain repayment of the money paid to rectify the underpayments.
I have determined to impose the penalties set out in Annexure A to these reasons. They are largely in line with those recommended by the applicant and accepted by the respondents’ solicitor as appropriate. In each case, I have discounted the maximum penalty by 20% to take account of JS Top’s and Mr Chang’s cooperation in these proceedings. Otherwise I have adopted the figures set out in the annexure.
The resulting penalties are:
a)for JS Top: $167,960; and
b)for Mr Chang: $33,593.
I need to consider whether penalties on the above amounts are an appropriate response to the conduct concerned. This was particularly serious conduct and the penalties as I have calculated them represent somewhere between two-thirds and three-quarters of the maximum penalties available. However, whilst the penalty must bear relativity to the seriousness of the conduct, it is, as the applicant submits, also relevant to consider the multifaceted nature of conduct concerned and the fact that it arose over time. This case involves a significant number of total contraventions, and therefore a very substantial maximum penalty. The Fair Work Ombudsman submits and I accept, that the very significant aggregate penalty is not necessarily an appropriate response to the conduct.
I also need to consider whether the penalties are likely to be oppressive or crushing. I have taken into account Mr Chang’s evidence concerning his financial situation.
In my view, it is appropriate to reduce the total penalties to take account of the matters to which I have just referred. A reduction is appropriate which would see the penalties imposed upon JS Top of $140,000 and on Mr Chang of $28,000 are appropriate.
In my view, in all of the circumstances of the case, those penalties are an appropriate response to the offending conduct in this case.
I make the declarations and orders set out at the commencement of these reasons.
I certify that the preceding seventy-six (76) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Date: 21 July 2017
Annexure A
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