Fair Work Ombudsman v Klinsic Constructions Pty Limited (No 2)
[2023] FedCFamC2G 283
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Klinsic Constructions Pty Limited (No 2) [2023] FedCFamC2G 283
File number(s): SYG 273 of 2022 Judgment of: JUDGE GIVEN Date of judgment: 20 April 2023 Catchwords: INDUSTRIAL LAW – Imposition of penalty for failure to comply with notice – underpayment of wage and redundancy entitlements – antagonistic approach by respondents to statutory regulator and employee – where remorse directed more to being penalised than to subject of contraventions Legislation: Corporations Act 2001 (Cth)
Crimes Act 1914 (Cth) s 4AA
Crimes Amendment (Penalty Unit) Act2022 (Cth)
Fair Work Act 2009 (Cth) ss 117, 546, 550, 557, 716
Cases cited: Australian Building and Construction Commissioner v Pattinson (2022) 399 ALR 599
Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith 165 FCR 560
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor (2015) 258 CLR 482
Fair Work Ombudsman v ACN 146 435 118 Pty Ltd (No 2) [2013] FCCA 1270
Fair Work Ombudsman v ASGBRIS Pty Ltd [2020] FCCA 553
Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150
Fair Work Ombudsman v Chia Tung Development Corp Ltd [2016] FCCA 3457
Fair Work Ombudsman v Jaycee Trading Pty Ltd (No. 2) [2013] FCCA 2128
Fair Work Ombudsman v Klinsic Constructions Pty Limited [2022] FedCFamC2G 622
Fair Work Ombudsman v Nobrace Centre Pty Ltd (No 2) [2019] FCCA 2144
Fair Work Ombudsman v NSH North Pty Ltd (t/as New Shanghai Charlestown) (2017) 275 IR 148
Kelly v Atanaskovic Hartnell Corporate Services Pty Ltd (No 3) [2023] FedCFamC2G
Kelly v Fitzpatrick 166 IR 14
Molina v Galloway [2022] FedCFamC2G 904
Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543
Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 38
Division: Division 2 General Federal Law Number of paragraphs: 71 Date of hearing: 28 October 2022 Place: Sydney Solicitor for the Applicant: Mr A Morris of the Fair Work Ombudsman The First Respondent: Mr J Klinsic (second respondent) The Second Respondent: In person ORDERS
SYG 273 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: KLINSIC CONSTRUCTIONS PTY LIMITED
First Respondent
JOHN KLINSIC
Second Respondent
order made by:
JUDGE GIVEN
DATE OF ORDER:
20 April2023
THE COURT ORDERS THAT:
(1)
Pursuant to s 546(1) of the Fair Work Act 2009 (Cth) (Act), the first respondent must pay a pecuniary penalty of $18,981 to the Consolidated Revenue Fund of the Commonwealth of Australia, within 60 days of this order for its contravention of
s 716(5) of the Act, as declared by the Court on 20 July 2022.
(2)Pursuant to s 546(1) of the Act, the second respondent must pay a pecuniary penalty of $3,762 to the Consolidated Revenue Fund of the Commonwealth of Australia within 60 days of this order for his involvement, within the meaning of s 550 of the Act, in the first respondent’s contravention of s 716(5) of the Act, as declared by the Court on 20 July 2022.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE GIVEN:
On 20 July 2022 at the conclusion of a hearing seeking default judgment, this Court made orders (July Orders), entering default judgment in favour of the applicant, the Fair Work Ombudsman (FWO) and declarations in respect of contraventions by the first and second respondents: see Fair Work Ombudsman v Klinsic Constructions Pty Limited [2022] FedCFamC2G 622 (default judgment). At the conclusion of the default judgment hearing, the Court listed the proceedings for a separate hearing in respect of penalty (penalty hearing) with ancillary orders made for its preparation.
The applicant seeks the imposition of pecuniary penalties on each of the respondents as follows:
(a)in respect of Klinsic Constructions Pty Limited (ACN 056 962 255) (Company), for its contravention of s 716(5) of the Fair Work Act 2009 (Cth) (Act) by failing to comply with a compliance notice given to it on 9 December 2021 (Compliance Notice); and
(b)in respect of Mr John Klinsic for his involvement, within the meaning of s 550(2) of the Act, in the Company’s contravention of s 716(5) of the Act.
The applicant contends that the appropriate penalties should be in the range of 60 to 70% of the maximum penalty payable by the respondents, with an additional 10% discount for corrective action. The contraventions in this matter, being of s 716(5) of the Act took place after 1 July 2020.[1] Accordingly, the relevant value of a penalty unit in this matter is $222 pursuant to s 4AA of the Crimes Act 1914 (Cth) (Crimes Act).
[1] Also (obviously) before 1 January 2023, being the date of the commencement of the Crimes Amendment (Penalty Unit) Act2022 (Cth) which had the effect of amending s 4AA of the Crimes Act to increase the value of penalty units
Pursuant to ss 539 and 546(2) of the Act, the maximum penalties are therefore:
(a)150 penalty units for the Company, being $33,300; and
(b)30 penalty units for Mr Klinsic, being $6,660.
The proposed range and discount would result in the imposition of penalties in the range of:
(a)$17,982 to $20,979 on the Company; and
(b)$3,596.40 to $4,195.80 on Mr Klinsic.
The applicant says the range referred to in the preceding paragraph is appropriate because:
(a)the Company’s failure to comply with a statutory notice, namely the Compliance Notice is serious, and required the applicant to commence proceedings in circumstances where litigation could have been avoided;
(b)the respondents failed to meaningfully engage with the proceedings and, as at the date of the penalty hearing, had still not complied with the remaining steps outlined in the Compliance Notice (and as ordered by the Court on 20 July 2022);
(c)there is a need for general deterrence in relation to non-compliance with compliance notices in order to maintain the integrity of the applicant’s statutory enforcement mechanisms, as well as to send a clear message to employers in the building and construction industry; and
(d)there is a need for specific deterrence because, as at the date of the penalty hearing, the Company remained registered and Mr Klinsic remained its director.
Background
At all relevant times, the Company:
(a)is, and was, incorporated under the Corporations Act 2001 (Cth) and has been registered since 28 July 1992; and
(b)operated in the building and construction industry building residential homes.
Mr Klinsic is, and was at all relevant times, a director of the Company and responsible for its overall operation, management and control.
Between the period of 6 January 2019 to 14 July 2021 (relevant period) the Company employed Mr Blake Sims (employee).
In or around July 2021, Fair Work Inspector Tara Schebella (FWI) commenced an investigation into the respondents’ compliance with Commonwealth workplace laws. On
9 December 2021, the FWI issued the Compliance Notice after forming a reasonable belief that the Company had contravened provisions of the relevant Awards relating to payment of the ordinary time hourly rate and industry specific redundancy pay, as well as s 117(2)(b) of the Act, by failing to pay the employee in lieu of notice of his termination.
The Compliance Notice required that the Company take specified action by 14 January 2022 to remedy the contraventions outlined in the Compliance Notice by:
(a)calculating and paying the employee any outstanding entitlement with respect to the ordinary time hourly rate of pay based on his hours of work throughout the relevant period;
(b)calculating and paying the employee the amount that should have been paid to him in respect of industry specific redundancy;
(c)calculating and paying the employee the amount that should have been paid to him in respect of payment in lieu of notice;
(d)calculating and paying the employee any additional superannuation contributions in respect of the amounts required to be paid set out in paragraphs (a) to (c) above; and
(e)thereafter, producing reasonable evidence of the Company’s compliance, by 21 January 2022.
The Company did not take the action specified in the Compliance Notice by 14 January 2022, and therefore also did not provide evidence of same by 21 January 2022. Accordingly, on
25 February 2022, the applicant commenced these proceedings. The chronology of the events in the proceedings leading to the entry of default judgment are set out in the reasons for the default judgment at [14] to [33].
While not actively engaging in the proceedings, between 13 May 2022 and 6 June 2022, the Company made payments to the employee totalling $18,053.44, and provided evidence of same to the applicant. The applicant concedes that this had the effect of remedying the contraventions pertaining to payments to the employee.
Penalty hearing
As noted above, the penalty hearing was listed before me on 28 October 2022, the preparation for which was prescribed by the July Orders. By those orders:
(a)the Company was required to appoint a legal representative pursuant to rr 6.01 and 9.04 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (Rules) by 17 August 2022 (something which had again not been done and which failure formed part of the relevant defaults resulting in the default judgment);
(b)Mr Klinsic was required to file a Notice of Address for Service (something which he had not done at all in the proceedings and which failure formed part of the relevant defaults resulting in the default judgment) by 17 August 2022; and
(c)the respondents were required to file and serve evidence and submissions on the issue of penalty by no later than 14 days prior to the penalty hearing, namely on or by 14 October 2022.
In the absence of filing any Notice of Address for Service, the Court continued a substituted service regime which had been ordered early in the proceedings.
The respondents did not comply with any of the orders referred to in [14] above, nor was an application made by any person seeking leave to dispense with the need to comply with r 9.04 of the Rules. On 17 October 2022 an email was sent to the Court (without the applicant being copied) attaching an Excel Spreadsheet document. That document contained a written submission which (from its footer) appears to pertain to both respondents. As a result, the Court has treated the Excel document as being a written submission advanced for both the respondents and that submission has been taken into account (respondents’ written submission). While not formally filed with the Court, it is prudent that the respondents’ written submissions be marked for identification. Accordingly, a copy of the respondents’ written submission will be marked “MFI-1” and placed on the Court’s file.
The content of the respondents’ written submission reflects a number of assertions which have been ventilated by the respondents in their email correspondence with the applicant (as annexed to the first and second Hayes’ Affidavits) (see [19(a) and (b)] below) and which can be summarised as follows:
(a)the employee was paid above award wage. The Company’s average working hours were between 30 to 36 hours per week. The Company did not maintain standard or regular hours of work per week to the effect that, if work finished earlier staff would also finish early and go home. The employee’s pay slips were based on a 40 hour week, which he gave to the applicant “without telling them real facts”;
(b)the employee was on sick leave at a certain juncture, which leave was the subject of a worker’s compensation claim involving the Company. During that period the employee “did not perform his employee responsibilities towards [the Company by keeping it] informed of his medical condition. During his compensation leave he was also working with other employer”;
(c)in his last year of employment the employed “did not show any loyalty towards” the Company;
(d)the Company was placed under pressure by reason of:
(i)supply chain issues;
(ii)delays in development application approvals by local Councils during the COVID-19 pandemic;
(iii)financial strain;
(iv)difficulty in finding employees who “want to work and loyalty towards” the Company; and
(v)COVID-19 pandemic restrictions.
(e)the Compliance Notice was based on the applicant’s own views and assumptions;
(f)the applicant “shamed” the Company and as a result Mr Klinsic “lost all drive and company leadership to go forward.” The respondents felt humiliated;
(g)despite taking the view that the Compliance Notice was inaccurate, the second respondent “decided To make payment to their (FWO ) requirements only to satisfy their EGO.!”. The Company did not agree with the applicant’s assessment or calculations and the payment was made “to minimise heart ache and further financial strain” on the Company; and
(h)the Company had briefly obtained legal representation in the proceedings and paid a retainer of $5,000 “in order to have the matter resolved”, but terminated the services of the lawyer shortly thereafter having taken the view that the lawyer “favoured” the applicant rather than the respondents’ own interests.
At the penalty hearing, Mr Klinsic appeared in person. There was no appearance for the Company. The applicant was represented by a solicitor. After several rather circuitous exchanges, and given that Mr Klinsic expressed a desire for the penalty hearing to proceed and so the proceedings could be heard, determined and concluded, I ultimately granted leave for him to represent the Company also.
Having not filed any material in the matter (other than the written submissions which form “MFI-1”), the respondents did not seek to rely on any additional documents. For the applicant, the following Affidavits were read, without objection:
(a)Affidavit of Eirinn Johanna O’Meara Hayes affirmed 8 July 2022 (first Hayes Affidavit); and
(b)Affidavit of Eirinn Johanna O’Meara Hayes affirmed 7 October 2022 (second Hayes Affidavit).
A Court Book prepared by the applicant’s solicitor was utilised at the penalty hearing, which was comprised of sealed documents from the Court’s file for ease of reference.
Approach to penalty
The Court may impose penalties pursuant to s 546 of the Act if it is satisfied that a person has contravened a civil remedy provision (including s 716(5)). By reference to ss 716(5) and 539(2) of the Act, failing to comply with a compliance notice is a contravention of a civil remedy provision.
The primary purpose of civil penalties is to promote the public interest in compliance and to attempt to put 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: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor (2015) 258 CLR 482 (Commonwealth v FBII) at [55] citing Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 (TPC v CSR) at [40] and Australian Building and Construction Commissioner v Pattinson (2022) 399 ALR 599 (Pattinson) at [15] to [17]. To which end, the Court should fix penalties that “it considers fairly and reasonably to be appropriate to protect the public interest from future contraventions”: see Pattinson at [71]. The approach of the Court in determining penalties is well established and the Court has a broad discretion to assess the appropriate penalty.
The approach to assessing penalties is helpfully summarised in Fair Work Ombudsman v NSH North Pty Ltd (t/as New Shanghai Charlestown) (2017) 275 IR 148 (New Shanghai) per Bromwich J at [36] as involving the following five step process:
(a)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;
(b)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 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;
(c)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;
(d)consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation; and
(e)consider the overall penalties arrived at, including by reference to those which may be proposed by the applicant (as permitted by Commonwealth v FBII 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 166 IR 14 at [30] and Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith 165 FCR 560 at [23], [71] and [102].
In the present case there is a single contravention of s 716(5) of the Act by each of the respondents, attracting a civil penalty. Accordingly, aggregation does not arise for determination.
The maximum penalties are set out above at [4]. While the maximum penalty is a relevant consideration it does not constrain the exercise of the discretion under s 546 beyond requiring “some reasonable relationship between the theoretical maximum and the final penalty imposed”: see Pattinson at [55] citing Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25 at [155] to [156]. That “reasonable relationship” is considered by reference to the need for deterrence: see Pattinson at [55].
As has often been observed, most recently in Pattinson, the Court’s discretion as to penalty is not exercised by reference to any mandatory checklist. However, it is uncontroversial to observe that a number of factors commonly arise for consideration. In the present case, the following factors are relevant:
(a)the nature, circumstances and deliberateness of the conduct;
(b)the nature and extent of the loss and whether there had been similar previous conduct by the respondents;
(c)the size and nature of the business and involvement of senior management;
(d)whether the contravenor has taken corrective action and/or exhibited contrition; and
(e)the need for specific and general deterrence.
Nature and circumstances and deliberateness of conduct
The power of a FWI to issue a compliance notice was introduced into the Act to provide a mechanism for dealing with non-compliance with minimum entitlements in the Act, as an alternative to commencing litigation for each underlying contravention: Fair Work Bill 2008, Explanatory Memorandum at [2673].
The Courts have recognised that compliance notices provide a mechanism for the efficient and cost-effective rectification of identified contraventions of the Act, including underpayments to employees: see Fair Work Ombudsman v Nobrace Centre Pty Ltd (No 2) [2019] FCCA 2144 (Nobrace) at [19] per Judge Blake and Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150 (Blu Hornsby) at [29] per Judge Smith.
The applicant says that had the Company complied with the Compliance Notice then, pursuant to s 716(4A) of the Act, the applicant would have been prevented from bringing civil remedy proceedings against it in respect of the underlying contraventions pursuant to s 716(4A) of the Act. By so complying, the Company would not have been taken to admit to the contravention,[2] however the need for proceedings would have been obviated, and the Company would not have been exposed to civil pecuniary penalties.
[2] see 716(4B) of the Act
There is nothing before the Court to demonstrate that the respondents were unaware of the Compliance Notice and the Company’s obligation to comply with it. The respondents were on notice that failure to comply with the Compliance Notice may lead to the applicant commencing the instant proceedings seeking civil penalties and orders for compliance.[3] Despite this, the Company did not comply.
[3] Statement of Claim filed 25 February 2022 (SOC) at [8] to [11]
It appears (from much of the correspondence annexed to the first Hayes Affidavit) that the reason for the Company’s non-compliance was that the second respondent took the view that because the Company had been paying the Employee above Award wage, this somehow off-set or neutralised any contraventions.[4] Without any specific calculations being provided, the respondents variously said that the employee had been overpaid $10,000[5] to $18,000.[6]
[4] See for Example first Hayes Affidavit at 94 and 174 and [17(a)] above
[5] Email from Mr Klinsic to Ms Hayes dated 25 June 2022 at 1:31pm (Annexure EH-14 to first Hayes Affidavit at page 174)
[6] Email from Mr Klinsic to Ms Hayes dated 25 May 2022 at 5:22pm (Annexure EH-4 to first Hayes Affidavit at page 63)
In this regard, I find that Mr Klinsic, who is a director and appears to be the Company’s operative and controlling mind, received the Compliance Notice by email on 9 December 2021, and communicated with the applicant in relation to it. Despite this, the Company did not comply with the Compliance Notice.
I have taken into account that the Company has ultimately made payment to the employee in full. The applicant submits that the respondents “have expressed a resistant approach to the FWO’s role as the regulator and have failed to meaningfully or constructively engage in the proceedings”. I agree with this assessment, which is also relevant to the consideration of corrective action and contrition (see [52] to [58] below).
In Fair Work Ombudsman v ACN 146 435 118 Pty Ltd (No 2) [2013] FCCA 1270 at [79], Judge Lucev said:
In this case the court’s view is that there was no contrition or corrective action by the Corporation or Ms Paino-Povey. This is highlighted by the submissions on penalty provided by the Corporation and Ms Paino-Povey in which the Corporation and Ms Paino-Povey suggested that this case is simply one of disgruntled employees extracting unfair demands on their employer, and that the FW Ombudsman ought to have negotiated with them, rather than antagonise them. This conduct is similar to that of the respondent in Liquor, Hospitality and Miscellaneous Union v Cuddles Management Pty Ltd (No 2) where, inconsistent with any notion of contrition, a bullying and resistant approach to the regulator and the court was adopted. In doing so the respondent tried to justify its contravention by casting blame on the employee concerned, and failed to participate meaningfully in the court proceedings including, as in this case, failing to attend the penalty hearing.
While, unlike the case cited in the preceding paragraph, I accept that the respondents have attended the penalty hearing, there are similarities to the conduct just described and the instant case. In the present case the Company (and Mr Klinsic) appears to have taken an antagonistic approach to those involved in this matter.
That approach has included:
(a)the employee being variously cast as overpaid, a poor worker and disloyal;[7]
(b)the Company’s own legal representative, on the basis that Mr Klinsic was not content with the advice being proffered;[8]
(c)the solicitor for the applicant, to whom most of the unpleasant correspondence[9] was directed, including by including several emails with the sign-off “Do whatever you want!”[10] and two occasions telling the solicitor to “Grow up!”;[11] and
(d)the applicant itself.[12]
[7] Respondents’ written submissions, calculations of respondents (Annexure EH-5 to first Hayes Affidavit), email from Mr Klinsic to Ms Hayes dated 17 May 2022 at 5:05pm (Annexure EH-3 to first Hayes Affidavit at page 47), email from Mr Klinsic to Ms Hayes dated 25 June 2022 at 1:31pm (Annexure EH-14 to first Hayes Affidavit at page 174), email from Mr Klinsic to Ms Hayes dated 27 May 2022 at 5:23pm (Annexure EH-4 to first Hayes Affidavit at page 74)
[8] Email from Leonard Titow to Ms Hayes dated 13 May 2022 at 1:31pm (Annexure EH-2 to first Hayes Affidavit at page 41) and email from Mr Klinsic to Ms Hayes dated 13 May 2022 at 4:pm (Annexure EH-3 to first Hayes Affidavit at page 43)
[9] Email from Mr Klinsic to Ms Hayes dated 25 May 2022 at 5:22pm (Annexure EH-4 to first Hayes Affidavit at page 63), email from Mr Klinsic to Ms Hayes dated 29 June 2022 at 5:24pm (Annexure EH-14 to first Hayes Affidavit at page 184)
[10] Email from Mr Klinsic to Ms Hayes dated 25 May 2022 at 5:22pm (Annexure EH-4 to first Hayes Affidavit at page 63)
[11] Email from Mr Klinsic to Ms Hayes dated 29 June 2022 at 5:24pm (Annexure EH-14 to first Hayes Affidavit at page 184), email from Mr Klinsic to Ms Hayes dated 5 July 2022 at 6:05pm (Annexure EH-15 to first Hayes Affidavit at page 196)
[12] For example: email from Mr Klinsic to Ms Hayes dated 17 May 2022 at 5:05pm (Annexure EH-3 to first Hayes Affidavit at page 47), email from Mr Klinsic to Ms Hayes dated 25 May 2022 at 5:22pm (Annexure EH-4 to first Hayes Affidavit at page 63), email from Mr Klinsic to Ms Hayes dated 27 May 2022 at 5:23pm (Annexure EH-4 to first Hayes Affidavit at page 74), email from to Ms Hayes dated 11 June 2022 at 9:35am (Annexure EH-12 to first Hayes Affidavit at page 160), email from Mr Klinsic to Ms Hayes dated 25 June 2022 at 1:31pm (Annexure EH-14 to first Hayes Affidavit at page 174), email from Mr Klinsic to Ms Hayes dated 29 June 2022 at 5:24pm (Annexure EH-14 to first Hayes Affidavit at page 184)
As part of this conduct, the circumstances in which the corrective action was taken are also relevant. A full and contextual reading of the correspondence which is annexed to the first Hayes Affidavit makes clear that the corrective action undertaken by the respondents (which was constituted by the payment to the employee of his entitlements) was not based on any acceptance that those amounts were owing. Rather, and as is demonstrated by a number of statements in emails from Mr Klinsic, the payments were made in an effort to have these proceedings conclude. By the email from Mr Klinsic to the solicitor for the applicant on 17 May 2022, the second respondent stated that the payments were made to the employee “To finalise we have made the payment in good will gesture only”.[13]
[13] Email from Mr Klinsic to Ms Hayes dated 17 May 2022 at 5:05pm (Annexure EH-2 to first Hayes Affidavit at page 47)
On 25 May 2022,[14] Mr Klinsic wrote to the solicitor for the applicant, saying (errors in original):
1. The payment made to Mr Sim , as a good will gesture to finalise this chapter. Unfortunately, this is hard to come by under your so called law, and tactics you are using to belittle people.
[14] Email from Mr Klinsic to Ms Hayes dated 25 May 2022 at 5:22pm (Annexure EH-4 to first Hayes Affidavit at page 63)
On 28 May 2022,[15] Mr Klinsic again wrote to the solicitor for the applicant, saying:
We disagreed with your calculations, but made payments to satisfy FWO and close this chapter.
[15] Email from Mr Klinsic to Ms Hayes dated 28 May 2022 at 1:33pm (Annexure EH-5 to first Hayes Affidavit at page 84)
This conduct is a relevant consideration in relation to the factor of the deliberateness of the conduct, as well as consideration of corrective action and contrition. If this “good will” was intended to be towards the employee, it misunderstands the nature of the Company’s obligations as an employer, and the nature of the corrective action required. The payments required were not a favour or gift to the employee.
If the good will was intended to be directed to the applicant, it also misunderstands the nature of it as a statutory regulator. As was explained by the solicitor for the applicant to the respondents, the applicant’s Compliance and Enforcement Policy (a copy of which the respondents were given electronically) was such that payments made after proceedings are commenced would not usually justify the discontinuance of proceedings but corrective action was a factor relevant to penalty.
I find that the contravention itself was wilful, and that conclusion is reinforced by the fact that any corrective action was taken in order to bring the proceedings to a close, but not because the respondents accept or acknowledge the contravention or the employee’s entitlements. The contravention demonstrated a deliberate disregard for the Company’s obligations under the Act and also the authority of the applicant as a regulator of Commonwealth workplace laws. The foregoing matters weigh in favour of a meaningful penalty being imposed.
Nature and extent of loss
The failure of the respondents to comply with the Company’s legislative obligations denied the Employee the benefit of his entitlements under the 2010 Award, 2020 Award and the Act and these amounts were not received by him until the respondents took the corrective action referred to at [13] above (which spanned several weeks and three separate payments, the last of which was made on 6 June 2022), being 5 months after compliance with the Compliance Notice was required, and 11 months after the termination of his employment.
In addition, the Company has failed to calculate and pay any additional superannuation contributions to the employee’s nominated superannuation fund or provide the applicant with evidence of payment as required by order 3 of the July Orders. As at the date of the penalty hearing, those superannuation entitlements remained outstanding.
The legislature sets penalties for non-compliance with the Act because such a failure to comply also causes (as it has done in the present case) the applicant and the Court to spend time, public funds and resources dealing with civil remedy proceedings which would otherwise not have been required had compliance occurred and obviated that need: see Nobrace (supra) at [19]; Fair Work Ombudsman v ASGBRIS Pty Ltd [2020] FCCA 553 at [36], and Fair Work Ombudsman v Jaycee Trading Pty Ltd (No. 2) [2013] FCCA 2128 at [19].
The respondents ultimately complied with a view to obviating the need for the proceedings, by which stage it was too late. It is perverse that they could have avoided the proceedings by simply complying with the Compliance Notice which, as noted above would have had the effect of there being no deemed admission of contravention pursuant to s 716(4B). While it is apparent from Mr Klinsic’s correspondence with the applicant’s solicitor that he holds the applicant responsible for the plight of the respondents in relation to these proceedings, the respondents could have easily prevented these proceedings.
While there is no specific evidence as to the hardship caused to the employee, the amount owed to the employee was not inconsiderable, particularly by reference to his role as an apprentice in the building industry and it is reasonable to infer that some difficulty would have been caused to him being without the amount of more than $18,000 which he was owed for almost a year.
Size of the business and involvement of senior management
The Court also has no specific evidence as to the size of the Company and its operations, or the financial circumstances of the respondents. By correspondence in relation to Court appearances and statements made by Mr Klinsic to the Court at the penalty hearing about his losing a day of work by attending Court, I am prepared to infer the business is not especially large. In this regard, the Court indicated to Mr Klinsic that the delivery of these reasons for judgment would be facilitated by Microsoft Teams in order to ensure that the earning capacity of he and the Company was not impacted further by these proceedings and his need to attend Court. I am also prepared to accept the matters referred to at [17(d)] above from the respondent’s written submissions that building and construction, like so many other industries, has been adversely impacted as a result of the COVID-19 pandemic including supply chain and staffing issues.
In Fair Work Ombudsman v Extrados Solutions Pty Ltd [2014] FCCA 815 at [10], Judge Jarrett (as his Honour then was) observed that:
The obligation to comply with the Fair Work Act and, in particular, s.716 falls just as heavily on small corporations and small businesses – and individuals, for that matter – as it does on large employers or businesses. Put shortly, one cannot shirk one’s responsibilities imposed by law simply because one might be described as a “small business” or because the business has a particular size. It is incumbent on all employers to comply with the requirements of the Fair Work Act.
Even accepting that the business of the respondents is not sizeable, it is well established that the size and financial circumstances of an employer do not exculpate breaches of workplace laws, and that capacity to pay a penalty will be of less relevance than the objective of general deterrence. The same can be said about the impact of COVID-19. Regrettable though the impacts on Company’s business were as a result, this did not absolve the Company of its obligations under the Act.
As noted above, Mr Klinsic was at all material times a director of the Company and responsible for ensuring its compliance with legal obligations under, inter alia, the Act. I find that Mr Klinsic was actively (if not solely) directing the operations of the Company in respect of the employee, matters pertaining to the Compliance Notice, corrective action and these proceedings. Being at the highest level of management in respect of the Company, he was (as I have already declared) involved in the declared contravention of s 716(5) of the Act.
I am of the view that this warrants imposition of a penalty at a level which reflects his involvement in the contravention. Further, and as will be considered in respect of deterrence, there is nothing to indicate that there will be other management or control of the Company in future. As such, there is a need to ensure that the senior management of the Company, and Mr Klinsic in particular are deterred from repeating the conduct the subject of the contravention in the instant case.
Corrective action
The applicant submits that where a corporate respondent is involved, an expression of contrition is most clearly seen by the way the corporation takes steps to correct its wrongdoing and change its behaviour. The applicant submits that the corrective action undertaken by the respondents shows a level of contrition. While in many cases that may logically lead to an inference of the other, in the present matter, I disagree. Based on the matters set out at [37] to [39] above, the corrective action stemmed from a desire to conclude these proceedings, not a realisation by the respondents as to the contravention or the improper nature of their conduct.
In terms of any express statement of contrition, the applicant submits that while the Company has remedied the direct effects of the contraventions contained in the Compliance Notice in respect of payments to the employee, this was not accompanied by any admission of liability or expression of regret or remorse on its part and that the applicant was ultimately required to file the application for default judgment because of how the respondents conducted themselves in these proceedings. I accept those matters as being factually accurate.
At hearing, Mr Klinsic said the following in conclusion of his oral submissions (emphasis added):
…I’m questioning why am I being penalised for that? Is it because, like, I didn’t reply? The reason why I didn’t reply is because I didn’t agree. And, like, I’ve been put under so much stress. Like, it’s just – like, you know, I just – I’ve got no desire to go any further with the company. I’m – like, in actual fact, I’m ashamed. I’m ashamed. I had the company for 30 years, and I promised myself when I started it that I will never – you know, never let the company down.
I always looked after my employees. So many times, I – look, you know, to make sure that the employees got paid and everything else, I cancelled my holidays. I cancelled everything else. So I just don’t know. I really don’t know why this – when he was paid above the award. I don’t understand that. That’s the part that I’m frustrated about, and this is – that’s the reason why the emails were – that were going backwards and forwards. They were the frustrations, like, on my part because the simple fact – as I said, when I’ve received an order to work out how – what he’s required, you know, like, you either say, “Okay, this is what you’ve got to pay him or not.” I don’t even know how that Fair Work Ombudsman got to these figure.
The respondents do not accept the subject matter of the contraventions. There has been no contrition expressed in terms of any hardship which may have been caused to the employee. Rather, he has been besmirched in correspondence. At most, the contrition extends to the position in which the Company now finds itself. Mr Klinsic says that the emails he sent to the applicant were the result of his frustrations. That was patent. I accept that Mr Klinsic expressed feeling “shame”, and from his demeanour before the Court at the penalty hearing, that he finds the situation in which he and the company find themselves, to be regrettable. However the impression with which the Court is left is one of regret from being exposed to penalty, not contrition for the subject matter giving rise to that penalty.
That the corrective action has been taken, such that the employee has received payment of the amounts outstanding to him should weigh favourably in relation to penalty. As the Court found in Molina v Galloway [2022] FedCFamC2G 904 and Kelly v Atanaskovic Hartnell Corporate Services Pty Ltd (No 3) [2023] FedCFamC2G 1 if corrective action taken did not weigh on penalty there would be a correlative disincentive to ever rectify conduct.
However, the Company has remained in breach of the July Orders, namely that it calculate and pay the appropriate additional superannuation contributions to the employee’s nominated superannuation fund and provide the applicant with evidence of same. The applicant says that the respondents have also not engaged with them in any capacity since default judgment was entered on 20 July 2022.
The applicant says that the corrective action which, while not complete, warrants a discount of 10% to be applied to the proposed penalties for each of the respondents. I disagree. I am prepared to apply a 5% discount for corrective action but in the absence of the respondents having fully complied with the July Orders, and the employee’s superannuation amounts remaining unpaid.
Deterrence
The penalties imposed by the Court should accurately and appropriately reflect the need for both general and specific deterrence.
General deterrence
As was found in Pattinson (supra) at [9], the primary purpose of imposing civil penalties under the Act:
is primarily, if not solely, the promotion of the public interest” in compliance with the provisions of the FW Act and by the deterrence of further contraventions of the FW Act.
The penalties to be imposed in this matter should be sufficiently high to impress upon other employers the importance of complying with the legal obligations owed to their employees. As was observed in Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290 per Flick J at [27]:
Albeit only one of the considerations to be taken into account in fixing the quantum of penalties, the relevance of both specific and general deterrence assumes some considerable importance on the facts of the present case. The importance of general deterrence includes the need to ensure that any penalty that may be imposed is not seen as “the cost of doing business”.
In order to be useful as a general deterrent, a penalty “should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like-minded persons or organisations”: see Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 per Lander J at [93].
In terms of general deterrence the applicant submits that it is particular importance in the present case involving as it does the building and construction industry, which is a field in which young workers are often engaged: see Fair Work Ombudsman v Chia Tung Development Corp Ltd [2016] FCCA 3457 at [57] to [58] and Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 38 at [48], citing Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412.
I agree that the matter calls for a meaningful penalty to be set in pursuance of general deterrence to employers, and specifically to those in the building and construction industry. To the extent that certain matters which the respondents in this matter pointed to, a degree of working flexibility or the fact that the employee was paid at an amount over the Award rate might be common features of the building and construction industry, employers should be made aware that these will not counterbalance strict compliance with the Act.
Specific deterrence
In relation to specific deterrence, there are counterbalancing considerations in respect of these respondents.
I accept from a number of statements made by Mr Klinsic to the Court at the penalty hearing, including that “he” no longer has any employees and is also thinking of concluding the business of the Company, that specific deterrence may not be a weighty consideration because the respondents may not be employers going forward. However, I accept the applicant’s submissions that as a matter of fact, the Company presently remains registered and with Mr Klinsic as a director.
Despite the degree of belligerence shown by some of the frustrated correspondence sent by Mr Klinsic to the applicant throughout these proceedings, I would be of the view that the respondents are unlikely to contravene the Act again and may be more likely to cooperate with the applicant in future if required, were it not for the fact that there remains non-compliance with order 3 of the July Orders, in relation to superannuation amounts due to the employee.
Accordingly, I am of the view that the penalty fixed must be at a level which specifically deters the Respondents from engaging in further contravening conduct.
Award of penalty
I have had regard to the penalties sought by the applicants (see [3] to [6] above). Having regard to the foregoing factors I am of the view that the appropriate range of penalty is 60% of the maximum, to which I would apply a discount of 5% for corrective action.
Accordingly I am of the view that the following is an appropriate award of penalty in the instant matter:
Respondent Contravention Maximum Penalty Percentage of Maximum
60%Discount for corrective action Total Company Section 716(5) – failure to comply with the Compliance Notice $33,300 $19,980 5% $18,981 Mr Klinsic Section 716(5) – failure to comply with the Compliance Notice $6,660 $3,960 5% $3,762
I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Given. Associate:
Dated: 20 April 2023
2
19
0