Fair Work Ombudsman v Konsulteq Pty Ltd

[2015] FCCA 182

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v KONSULTEQ PTY LTD & ORS [2015] FCCA 182

Catchwords:
INDUSTRIAL LAW – Fair Work – Awarding penalties under the Fair Work Act 2009 – Consideration of factors relevant to the amount of penalty.

Legislation:  

Fair Work Act 2009 (Cth), ss.44, 45, 90, 116, 117, 323, 340, 357, 550, 535, 536, 545, 546
Clerks Private Sector Award 2010

Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 154
Fair Work Ombudsman v Aussie Little Auction Houses Pty Ltd [2010] FMCA 806
Mason v Harrington Corporation Pty Ltd (trading as Pangaea Restaurant and Bar) [2007] FMCA 7
Fair Work Ombudsman v Promoting U Pty Ltd & Anor [2012] FMCA 58
Fair Work Ombudsman and Foure Mile Pty Ltd and Another [2013] FCCA 682

Applicant: FAIR WORK OMBUDSMAN

First Respondent: KONSULTEQ PTY LTD (ACN 137 752 697)

Second Respondent: KONSULTEQ UPSKILLING & TRAINING SERVICES PTY LTD (ACN 139 670 312)

Third Respondent: PRADEEP GAUR

File Number: MLG 1531 of 2012

Judgment of: Judge Riethmuller

Hearing date: 30 June 2014

Date of Last Submission: 30 June 2014

Delivered at: Melbourne

Delivered on: 30 January 2015

REPRESENTATION

Counsel for the Applicant: Ms Dowsett of Counsel

Solicitors for the Applicant: Office of the Fair Work Ombudsman

Counsel for the Respondents: Ms Bowen

Solicitors for the Respondents: Le Brun Glezakos Lawyers

THE COURT DECLARES THAT:

1. The First Respondent breached:

   (a)Section 323(1) of Fair Work Act 2009 (Cth) by failing to pay Ms V in relation to work performed by her as an employee of the First Respondent between April 2010 and November 2010.

   (b)Section 357(1) of the Fair Work Act 2009 (Cth), by misrepresenting to Ms V that she was engaged pursuant to a contract for services under which she provided services to the First Respondent; and

   (c)Section 535(1) of the Fair Work Act 2009 (Cth), by failing to make or keep records in relation to Ms V’s employment that included her rate of remuneration and net amounts paid to her.

2. The Second Respondent breached:

   (a)Section 44(1) of the Fair Work Act 2009 (Cth):

   (i)By failing to pay Ms L her accrued untaken annual leave on termination of her employment, in contravention of section 90(2) of the Fair Work Act 2009 (Cth);

   (ii)By failing to pay Ms L for public holidays, in contravention of section 116 of the Fair Work Act 2009 (Cth); and

   (iii)By failing to give Ms L two weeks’ notice of the termination of her employment, or making payment in lieu of notice, in contravention of section 117(2) of the Fair Work Act 2009 (Cth).

   (b)Section 45 of the Fair Work Act 2009 (Cth) by failing to pay Ms L annual leave loading and the minimum hourly rates of pay for her classification, in contravention of clause 29.3(a) and clauses A.2.3, A.2.5 and A.5.2 of Schedule A of the Clerks Private Sector Award 2010.

   (c)Section 340(1) of the Fair Work Act 2009 (Cth), by dismissing Ms L because she has exercised a workplace right, namely asking to be paid outstanding wages that she was entitled to be paid.

   (d)Section 357(1) of the Fair Work Act 2009 (Cth), by misrepresenting to Ms L that she was engaged pursuant to a contract for services under which she provided services to the Second Respondent.

   (e)Section 535(1) of the Fair Work Act 2009 (Cth), by failing to make or keep records in relation to Ms L’s employment that included her rate of remuneration and net amounts paid to her; and

   (f)Section 536(1) of the Fair Work Act 2009 (Cth), by failing to issues payslips to Ms L.

3. The Third Respondent was involved in each of the contraventions of the First and Second Respondents and, pursuant to section 550 of the Fair Work Act 2009 (Cth), is thereby taken to have contravened the provisions himself.

THE COURT ORDERS THAT:

1. Pursuant to section 545(2)(b) of the Fair Work Act 2009 (Cth), the First Respondent pay compensation to Ms Venkataramanan for loss she suffered because of the above declared contraventions, in the amount of $717.93.

2. Pursuant to section 545(2)(b) of the Fair Work Act 2009 (Cth), the Second Respondent pay compensation to Ms Laeeq, for loss she suffered because of the above declared contraventions, in the amount of $16,571.57.

3. The First Respondent and Second Respondent pay any superannuation entitlements not yet paid to Ms Venkataramanan and Ms Laeeq respectively within 3 months of the date of these Orders.

4. Pursuant to section 547(2) of the Fair Work Act 2009, the First and Second Respondent pay interest at the applicable pre-judgment rate on the amounts ordered to be paid in Orders 1 to 3 above within 3 months of the date of these Orders.

5. Pursuant to section 546(1) of the Fair Work Act 2009 (Cth), the First Respondent pay to the Commonwealth an aggregate penalty of $40,000.00 for breaching the Fair Work Act 2009 (Cth).

6. Pursuant to section 546(1) of the Fair Work Act 2009 (Cth), the Second Respondent pay to the Commonwealth an aggregate penalty of $120,000.00 for breaching the Fair Work Act 2009 (Cth).

7. Pursuant to section 546(1) of the Fair Work Act 2009 (Cth), the Third Respondent pay to the Commonwealth an aggregate penalty of $35,000.00 for breaching for the Fair Work Act 2009 (Cth).

8. In the event that the First and Second Respondents comply with Orders 1 to  4 herein, payment of the pecuniary penalties referred to in Orders 5 to 7 herein be made within 2 years of the date of these Orders, in the following manner by each respondent:

   (a)one third of each respondent’s total penalty to be paid within 1      year of the date of these orders;

   (b)the remaining two thirds of each respondent’s total penalty to be   paid within 2 years of the date of these orders.

9. In the alternative to Order 8 herein, in the event that the First or Second Respondents do not  make the payments pursuant to Orders 1 to 4 herein, the pecuniary penalties referred to in Order 7 are to be paid in the following manner by the Third Respondent:

   (a)within 6 months of the date of these orders, to Ms  Venkataramanan  and Ms Laeeq up to the total amounts owed to them pursuant to Orders 1 to 4 herein (or proportionately should the total amounts exceed $35,000);

   (b)the balance of the penalty, if any, to be paid to the Commonwealth within 12 months of the date of these orders.

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT MELBOURNE

MLG 1531 of 2012

FAIR WORK OMBUDSMAN

Applicant

And

KONSULTEQ PTY LTD (ACN 137 752 697)

First Respondent

KONSULTEQ UPSKILLING & TRAINING SERVICES PTY LTD (ACN 139 670 312)

Second Respondent

PRADEEP GAUR

Third Respondent

REASONS FOR JUDGMENT

1. The First Respondent in this matter operates a business with the principle functions of information technology consulting and software development, support and maintenance (the IT Business). The Second Respondent operates a business with the principle functions of provision of training in technical skills associated with the IT Business (the Training Business).  The Third Respondent, Pradeep Gaur, was the relevant company director and shareholder responsible for the day-to-day management, direction and control of the First and Second Respondents.

2. On 3 March 2014, declarations were made that the Respondents had contravened various provisions of the Fair Work Act 2009 (Cth) and the Clerks Private Sector Award 2010.  The Court also ordered that the First and Second Respondent pay compensation to Ms [V] and Ms [L], employees of the First and Second Respondents, with respect to outstanding wage entitlements, including interest.

3. The contraventions relate to underpayments, adverse action, sham contracting, failing to make and keep records and failing to issue pay slips during the Employees’ employment with the First and Second Respondents.  The declarations are as follows:

   a)The First Respondent contravened three provisions of the Fair Work Act 2009 (Cth);

   b)The Second Respondent contravened eleven provisions of the Fair Work Act 2009 (Cth); and

   c)The Third Respondent contravened fourteen provisions of the Fair Work Act 2009 (Cth).

4. Ms [V] was employed by the First Respondent on a casual basis from April 2010 to November 2010.

5. Ms [L] was employed by the Second Respondent from about March 2010 to about July 2011 on a:

   a)Casual basis between about 25 March 2010 to 22 June 2010;

   b)Part time basis from about 22 June 2010 to 26 September 2010; and

   c)Full time basis from about 27 September 2010 to about 11 July 2011.

6. The amount of underpayments of Ms [V’s] entitlements is $717.93 and the total amount of underpayments of Ms [L’s] entitlement is $16,571.57, totalling $17,289.50.  At the date of the last submission these payments remained outstanding.

7. In relation to the First and Second Respondents, the maximum penalties with respect to each of the contraventions of ss.44(1), 45, 323(1), 340(1) and 357(1) of the Fair Work Act 2009 (Cth) are $33,000. 00. With respect to the contraventions of ss.535(1) and 536(1) of the Fair Work Act 2009 (Cth) the maximum penalties are $16,500.00.

8. In relation to the Third Respondent, the maximum penalties with respect to contraventions of ss.44(1), 45, 323(1), 340(1) and 357(1) of the Fair Work Act 2009 (Cth) are $6,600.00. With respect to the contraventions of sections 535(1) and 536(1) of the Fair Work Act 2009 (Cth) the maximum penalties are $3,300.00.

9. I accept the submissions with respect to the maximum aggregate penalty the Court may impose on each of the Respondents after one takes into account s.557 is;

   a)First Respondent - $82,500.00, being: 

   i)$33,000.00 in relation to the breach of s.323(1);

   ii)$33,000.00 in relation to the breach of s.357(1); and

   iii)$16,500.00 in relation to the breach of s.535(1)

   b)Second Respondent - $330,000.00, being:

   i)$33,000.00 in relation to the breach of s.90(2);

   ii)$33,000.00 in relation to the breach of clause 29.3(a) of the Modern Award;

   iii)$33,000.00 in relation to the breach of s.116;

   iv)$33,000.00 in relation to the breach of s.117(2);

   v)$33,000.00 in relation to the breach of clause A.2.3 of the Modern Award

   vi)$33,000.00 in relation to the breach of clause A.2.5 of the Modern Award;

   vii)$33,000.00 in relation to the breach of clause A.5.2 of the Modern Award;

   viii)$33,000.00 in relation to the breach of s.340(1);

   ix)$33,000.00 in relation to the breach of s.537(1);

   x)$16,500.00 in relation to the breach of s.535(1); and

   xi)$16,500.00 in relation to the breach of s.536(1).

   c)Third Respondent - $82,500, being:

   i)$6,600.00 in relation to the breach of s.323;

   ii)$6,600.00 in relation to the breach of clause A.2.3 of the Modern Award;

   iii)$6,600.00 in relation to the breach of clause A.2.5 of the Modern Award;

   iv)$6,600.00 in relation to the breach of clause A.5.2 of the Modern Award;

   v)$6,600.00 in relation to the breach of s.90(2);

   vi)$6,600.00 in relation to the breach of clause 29.3(a) of the Modern Award;

   vii)$6,600.00 in relation to the breach of s.116;

   viii)$6,600.00 in relation to the breach of s.117(2);

   ix)$6,600.00 in relation to the breach of s.357(1);

   x)$6,600.00 in relation to the breach of s.357(1);

   xi)$6,600.00 in relation to the breach of s.340(1);

   xii)$3,300.00 in relation to the breach of s.535(1);

   xiii)$3,300.00 in relation to the breach of s.535(1);

   xiv)$3,300.00 in relation to the breach of s.536(1).

Evidence

1. The Third Respondent gave evidence before me, and he was a most unimpressive witness.  He had no real explanation as to why he would incorporate two companies when one was sufficient given what he said was the very small revenue of the business.

2. There was a consistent failure to pay superannuation over a number of years, initially claiming it had been paid for 2012/2013 then admitting it was not in the profit and loss statement and in some cases not paid.  The Third Respondent admitted that the Companies were not able to pay their debts when they fall due, however the books were not consistent with his evidence.  He has, despite his claimed lack of funds, three credit cards and monies which were moved around family bank accounts.

3. Most significantly, the Third Respondent said in early conversations that he was ready to rectify underpayments but never did, later claiming he only meant he wanted to rectify the underpayments but didn’t have the money to do so.  He admitted contraventions in conversations but not when filing his documents.  Worse still, he attempted to de-register the companies during the proceedings (stating that there were no proceedings pending); hoping this would resolve his problems.

4. I am not able to rely upon anything stated by the Third Respondent in evidence and I reject his evidence entirely in these proceedings.

5. Whilst the factors that are relevant to the imposition of a penalty will vary from case to case, the list of relevant factors identified by Mowbray FM in Mason v Harrington Corporation Pty Ltd (trading as Pangaea Restaurant and Bar) [2007] FMCA 7 at 26 to 59 is a useful checklist. I note that it does not prescribe or restrict the matters to be taken into account in the exercise of the Court’s discretion. In this case both parties have presented their submissions under the headings contained within that checklist. No party suggested that there are further factors which are not within the ambit of the headings identified by Mowbray FM.

The Nature and Extent of the Conduct which led to the Breaches

1. In this case the employees, to whom the underpayments relate, are both Indian nationals who had a limited understanding of Australian employment laws and their employment entitlements.  The employees entered into agreements with the Respondents to participate in training, on the understanding that they would receive training and perform paid work, which did not eventuate.

2. A failure to correctly categorise Ms [V] and Ms [L] as employees, rather they being classified as voluntarily working to get local work experience and as an independent contractor, lead to the contraventions.  It is clear however that the contraventions were not due to inadvertence, rather, as alluded to by the Third Respondent in his Response dated 11 February 2014, the reason for agreeing to pay Ms [V] was made as it would be beneficial to the First Respondent in obtaining greater income via training fees.

The Circumstances in which the Conduct Took Place

1. There are a number of circumstances that are significant in this case. Due to an audit by the Fair Work Ombudsman into Konsulteq in February 2011, it is said that the Respondents were on notice as to their obligations owed to their employees, including Ms [V] and Ms [L], from this period of time.   

2. A clear intention to engage Ms [L] as an employee, can be deduced from the document provided to Ms [L] entitled “Contract to work as a casual”, signed by the Third Respondent on the Second Respondents’ behalf. Despite the contract highlighting a knowledge of basic employment law terms and conditions, the Respondents continued to contravene the Fair Work Act 2009 (Cth) by underpaying Ms [L].

3. Ms [L’s] employment with the Respondent was terminated in the context of Ms [L] seeking payment of unpaid wages.  In an attempt to recover monies owed to her by the Respondent, Ms [L] wrote to the Respondents on several occasions.  In response, it is admitted by the Third Respondent that he sent an email to Ms [L] describing financial hardship as the reason for the underpayments.

4. In Fair Work Ombudsman v Promoting U Pty Ltd & Anor [2012] FMCA 58, the Court rejected a small business’s ability to rely upon, or use as an excuse, cash flow issues. To allow such an excuse would amount to allowing an employer to use wages to finance the business. As I said in Fair Work Ombudsman and Foure Mile Pty Ltd and Another [2013] FCCA 682 at 22 and 23:

   22.    … The Second Respondent was concerned that the business was not very profitable, and operated at a marginal level.  He appeared to hold the view that he was providing a benefit by way of a job to the employee and that this should be borne in mind.  It appears to me that this wholly misconceives the nature of the difference between employment and joint venture. Many persons choose to undertake work for a level of reward less than would be set as the minimum in the various awards, on conditions set out under the legislative scheme for employees in the hope of achieving business growth or the establishment of a business that will be significantly more profitable, or valuable, to them in the long term.  It remains every person’s right to operate their own business or trading venture and live off the profits that they can generate as they see fit.  In this regard, it is common for persons to join together in partnerships or form companies or joint ventures.  Significantly, when a person is not a joint venturer or partner, but working simply as an employee, they have no prospects of sharing in the wealth of the business venture in the future (if this comes to pass). It is for those operating a new or marginal business to make an election as to whether or not to seek partners or joint venturers who may be prepared to work for less than the award in a business operation in the hope of making a significant gain in the future. Alternatively, if workers are to be employed, regardless of the state of the business, the minimum terms and conditions must be remunerated on at least the minimum terms and conditions provided for in the legislation and the awards.  For the law to be otherwise would simply create a category of underpaid workers who were being exploited to subsidise inefficient or otherwise unprofitable business operations, or business start-up periods.

   23. For this reason, it is no answer to these breaches to say that a job was being provided which could not be provided if award wages were paid.

The nature and extent of the loss

1. The underpayments to Ms [V] and Ms [L] amounted to $717.93 and $16,517.57 respectively.  The amount not paid to Ms [L] is a significant amount; taking into account the underpayments represented 54 per cent of her entitlements over a period of 15 months.

Similar previous conduct

1. The Respondents acknowledge that the First Respondent was subject to an audit undertaken by the Fair Work Ombudsman which resulted in the need for the Respondents to make payment to eight employees so to rectify underpayments.  The Respondents however highlight they have not been the subject of proceedings by the Applicant or its predecessors for contraventions of workplace law, prior to the current proceedings.

Size and financial circumstances

1. As noted above, and also discussed in Workplace Ombudsman v Saya Cleaning Pty Ltd [2009] FMCA 38, a financial burden upon a small business does not excuse the contraventions.

2. Despite the claims by the Respondents to feeling under enormous financial pressure, no reliable evidence has been provided to the Court as to the financial circumstances of the Third Respondents.  I am not persuaded that any reliable financial records are kept with respect to the First and Second Respondent; however it is clearly quite a small business.

Whether or not the breaches were deliberate

1. In this case the breaches by the Respondents must be, in my view, considered to be deliberate.  The Third Respondent was aware of his obligations having been put on notice by reason of the Fair Work Ombudsman’s audit in 2011.

2. The terms of the contract entered into by the Respondents and Ms [L] gives further weight to the Applicant’s claim that the Respondents were aware of the status of their employees (as opposed to contractors), the requirements for record keeping and pay slip obligations.

Corrective action and cooperation

1. The Respondents have failed to make formal admissions as to the declared contraventions, notwithstanding the Third Respondent’s earlier email on behalf of the First and Second Respondents indicating a willingness to cooperate and rectify the underpayments.  The monies owing to the employees remain outstanding despite claims by the Third Respondent he was ‘ready’ to rectify these deficiencies.

2. The attempt to deregister the companies exhibits a desire to avoid having to take corrective action.

3. The conduct of the Respondents shows there is no remorse or contrition in this case.  There can be no discount on this basis.  However a discount for the ultimate plea should be granted as a trial was avoided.

Deterrence

1. There is a clear need for specific deterrence is this case, given the conduct of the Respondents.  There is also a need to consider general deterrence particularly with respect to the Third Respondent attempting to use the corporate veil to avoid responsibility for work place obligations where they have been the operating mind of the companies when conducting the breach.

Considering penalties as a whole

1. With respect to the penalty range, I have regard to the submissions with respect to the penalty range and consider that that is appropriate.

2. Having regard to the totality of the circumstances in the particular case, and, importantly, the failure of the Respondents to take effective corrective action, I find that the appropriate penalty in this case is to be a total of $40,000.00 as against the First Respondent and $120,000.00 as against the Second Respondent.

3. The companies in this case were nothing more than the Third Respondent’s alter egos. The conduct of the Third Respondent was such as to attempt to simply use the companies as a shield for his own conduct.  Having regard to all of the circumstances, it is appropriate his penalty be a total of $35,000. .00

4. Given the failure of the Respondents to take corrective action, it appears appropriate to me that if payments are not made to the employees within the given time frame, monies shall be recoverable from the penalty amounts paid to the Commonwealth to ensure enforcement of the orders. 

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller

Associate: 

Date:  30 January 2015