Fair Work Ombudsman v KRC Pty Ltd

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FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Fair Work Ombudsman v KRC Pty Ltd [2025] FedCFamC2G 153

File number: MLG 2238 of 2023
Judgment of: JUDGE FORBES
Date of judgment: 14 February 2025
Catchwords: INDUSTRIAL LAW – Fair Work – failure to comply with compliance notice – where default judgment entered – application for pecuniary penalties against employer and manager – penalties ordered
Legislation: Fair Work Act 2009 (Cth) s 550; 539; 546; 716
Cases cited:

Australian Building and Construction Commissioner v J Hutchinson Pty Ltd T/A Hutchinson Builders [2019] FCA 667

Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450

Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150

Fair Work Ombudsman v Blue Sky Kids Land Pty Ltd (in liq) (No 4) [2024] FCA 1475

Fair Work Ombudsman v Gothic Downs Pty Ltd (No 2) [2023] FedCFamC2G 359

Fair Work Ombudsman v Nobrace Centre Pty Ltd & Anor (No. 2) [2019] FCCA 2144

Fair Work Ombudsman v Syndicate Group Pty Ltd [2015] FCCA 2847

Fair Work Ombudsman v Australian Saes & Promotions Pty Ltd [2016] FCCA 2804

Kelly v Fitzpatrick [2007] FCA 1080
Division: Division 2 General Federal Law
Number of paragraphs: 62
Date of hearing: 28 January 2025
Place: Melbourne
Solicitor for the Applicant: Ms Hewitt; Fair Work Ombudsman
Respondents: No appearance

ORDERS

MLG 2238 of 2023

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN:

FAIR WORK OMBUDSMAN

Applicant
AND:

KRC PTY LTD
First Respondent

RISHI CHAUDHARI

Second Respondent

ORDER MADE BY:

JUDGE FORBES

DATE OF ORDER:

14 FEBRUARY 2025

THE COURT ORDERS THAT:

1.Pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (FW Act) the First Respondent pay a pecuniary penalty of $23,475 for its contravention of section 716(5) of the FW Act.

2.Pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (FW Act) the Second Respondent pay a pecuniary penalty of $4,696 by reason of his involvement in the First Respondent’s contravention of section 716(5) of the FW Act.

3.The penalties ordered in Orders 1 and 2 be paid to the Consolidated Revenue of the Commonwealth within 28 days of these orders.

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 FORBES

INTRODUCTION

  1. The applicant in this matter, the Fair Work Ombudsman, seeks the imposition of pecuniary penalties against the respondents for contravening the following civil penalty provisions:

    (a)KRC Pty Ltd, the First Respondent, for contravening s 716(5) the Fair Work Act 2009 (Cth) (FW Act) by failing to comply with the compliance notice…

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Details
Case
[2025] FedCFamC2G 153
Decision Date

CaseChat Overview and Summary

The case of Fair Work Ombudsman v KRC Pty Ltd, [2025] FCA 123, involves proceedings against KRC Pty Ltd (the first respondent) and its manager (the second respondent) for failing to comply with a Compliance Notice issued under the Fair Work Act 2009 (FW Act). The first respondent operated a café known as "The Colonel's Son" in Black Rock, Victoria, and the second respondent was responsible for the café's operation and management. The dispute arose when the Fair Work Inspector issued a Compliance Notice on 7 August 2023, requiring the first respondent to rectify the non-payment of accrued annual leave to a former employee, Ms Chunu Rai. Despite multiple opportunities, the first respondent failed to comply with the notice, leading to the Ombudsman filing an originating application seeking penalties. The primary legal issue before the Court was to determine the appropriate penalty for the contravention of section 716(5) of the FW Act by both respondents.

In deciding the appropriate penalty, the Court considered several factors, including the nature, gravity, and extent of the contravening conduct, the need for general and specific deterrence, and the lack of cooperation from the respondents. The Court noted that the respondents had not filed any defence or made submissions regarding their financial circumstances, and they had only rectified the issue after litigation was commenced. The Court found that the respondents' conduct demonstrated a disregard for their obligations under the FW Act and an indifference towards the situation, necessitating a significant penalty to ensure compliance and deterrence. Accordingly, the Court ordered the first respondent to pay a penalty of 50% of the maximum amount, totaling $23,475, and the second respondent to pay a penalty of 50% of the maximum for his involvement, totaling $4,695. These penalties aim to ensure compliance with the FW Act and deter similar contraventions by other employers and individuals.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

For the reasons set out below, I have decided that the first respondent should be ordered to pay a total penalty of $23,475 for its contravention of s 716(5) of the FW Act. Further, I have ordered the second respondent to pay a total penalty of $4,696 for its involvement in the first respondent’s contravention of s 716(5) of the FW Act. These penalties represent 50% of the maximum for each respondent.BACKGROUND The first respondent owned and operated a café known as “The Colonel’s Son” in Black Rock, Victoria. The second respondent was the manager of the first respondent. He was responsible for the operation, management and control of the cafe. There was evidence that he was the person who communicated with the Ombudsman by email and mobile phone in relation to the compliance notice and these proceedings. In June 2022, Fair Work Inspector (FWI) Stafford commenced an investigation into the first respondent’s employment of Ms Chunu Rai, a former employee who worked as a cook at the café for about 12 months. Following the investigation, FWI Stafford formed a reasonable belief that the first respondent had contravened s 90(2) of the FW Act by failing to pay to Ms Rai her accrued but untaken annual leave (and loading) when she ceased employment on 13 February 2022. On 7 August 2023, FWI Stafford issued a Compliance Notice to the first respondent pursuant to s 716(2) of the FW Act. Under the Compliance Notice, the first respondent was directed to take certain specified actions by 4 September 2023 including by calculating and paying any outstanding amounts in respect of the alleged contravention and by providing evidence of this rectification by 11 September 2023. The first respondent did not comply with this notice. Subsequently, on 19 September 2023, the Ombudsman sent a letter to the first respondent notifying it of its failure to comply. The first respondent was provided with a further opportunity to either take the specified actions outlined in the Compliance Notice or alternatively, to provide a reasonable excuse for its failure to comply. No response was received. On 4 December 2023, a further letter was sent to the email addresses of the first and second respondent notifying them that litigation would be commenced for the failure to comply with the Compliance Notice, unless the steps outlined in the Compliance Notice were fulfilled by 11 December 2023. Once again, no response was received. On 13 December 2023, the applicant filed an originating application and statement of claim in this Court, seeking penalties in relation to the respondents’ contraventions of the FW Act. On 15 December 2023, the applicant sent sealed copies of these initiating documents to the first respondent’s registered office. On 20 December 2023, the second respondent was personally served by a process server. The first return date for the proceedings was listed for 30 January 2024. On 29 January 2024, the day before the first directions hearing, the employee, Ms Rai, received a payment of $3,410.25 from the first respondent. The Ombudsman was notified of this payment. The Ombudsman accepts that this payment to the former employee was rectification for the alleged contravention of the Act and was the specified action required by the Compliance Notice, albeit well out of time.

Evidence

Evidence Before The Court

The applicant seeks the imposition of penalties in the range of $23,475 and $28,170 against the first respondent and $4,695 and $5,634 against the second respondent. This amounts to an overall penalty range of 50-60% of the maximum penalties against each respondent. Evidence relied upon At the penalty hearing on 28 January 2025 the Ombudsman was represented by Ms Hewitt of counsel. There was no appearance by either respondent. The respondents were called outside Court but there was no response. I am satisfied the respondents were on notice of the hearing and that they had been served with the materials on which the Ombudsman intended to rely. In support of its application for penalties, the Ombudsman relied upon the following:(a)Statement of Claim filed 13 December 2023 (SOC); (b)Affidavit of Helen Steele sworn on 4 January 2024 and filed 9 January 2024;(c)Affidavit of Alyson Mitchell affirmed on 11 January 2024;(d)Affidavit of Alyson Mitchell affirmed on 5 June 2024; (e)Affidavit of Alyson Mitchell affirmed on 15 July 2024; and (f)Affidavit of Fair Work Inspector (FWI) Kathy Stafford affirmed on 18 November 2024 (FWI Affidavit). The Ombudsman also filed a comprehensive and helpful Outline of Submissions, and these were developed further by Ms Hewitt at the hearing.Applicable legal principles The legal principles relevant to the determination of penalties for contraventions of the FW Act are well-established and often cited. The Court has a broad discretion to assess the appropriate pecuniary penalty, but ultimately the principal objective of penalties is to ensure compliance with the provisions of the FW Act by deterring further contraventions[2]. [2] Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450 (Pattinson) Most recently in Fair Work Ombudsman v Blue Sky Kids Land Pty Ltd (in liq) (No 4) [2024] FCA 1475 (FWO v Blue Sky), her Honour Justice Katzman at [12] – [18] distilled the relevant principles and approach to penalties as follows: 12.First, as the primary, if not sole, purpose of imposing a civil penalty is to deter further contraventions, a civil penalty must be fixed with a view to ensuring that the amount is not regarded by the contravener or others as an acceptable cost of doing business.13. Second, there must be a reasonable relationship between the theoretical maximum and the amount imposed and that relationship is established where the amount imposed does not exceed the amount reasonably necessary to achieve the deterrent purpose.14. Third, a civil penalty should be fixed at a level that strikes a reasonable balance between deterrence and oppressive severity.15. Fourth, in determining an appropriate penalty, a number of factors will generally be relevant. Those factors include: the nature, gravity and extent of the contravening conduct and the circumstances in which it took place; the nature and extent of loss or damage; whether the conduct was deliberate rather than accidental or inadvertent; the period over which the conduct extended; whether senior management was involved; whether the contraventions are truly distinct or arose out of a single course of conduct; whether the contravener has previously engaged in similar conduct; the size of the contravening company; the existence and extent of any contrition and corrective action; whether the company has a corporate culture conducive to compliance; whether the contravener cooperated with enforcement authorities; and the need to ensure compliance with minimum standards by provision of an effective means for investigating and enforcing employee entitlements.16. Fifth, concepts familiar to criminal sentencing such as totality, parity and course of conduct principles may assist in determining the amount of a civil penalty that is reasonably necessary to achieve the statutory purpose.17. Like the determination of a sentence in a criminal case, an appropriate figure is determined by a process known as “instinctive synthesis” in which, through an evaluative exercise, due account is taken of all the relevant factors: Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) (2018) 260 FCR 68 at [55] (Allsop CJ, Davies and Wigney JJ).18. Informed by those principles, a court is required to identify the separate contraventions; consider whether some of the contraventions constitute a single course of conduct; if there is an overlap between two or more contraventions, consider whether there should be an adjustment to ensure that the contravener is not being penalised twice for the same conduct; fix penalties for each contravention and, if relevant, each group of contraventions; and finally assess whether the overall penalty is an appropriate response to the contravening conduct: Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown [2017] FCA 1301; 275 IR 148 at [36] (Bromwich J)…

Decision

Reasons for decision

There is no evidence before the Court regarding the financial circumstances of the respondents. One might infer that the business is relatively small, as most suburban cafes are. But the Ombudsman’s evidence reveals that the first respondent continues to trade, and I infer that it has not buckled under the rectification payment it made to the former employee. I see no basis for extending leniency to the respondents by reason only of the fact the business might be small.Conclusion on penalties The first respondent has not filed any defence to the Ombudsman’s application and is taken to have admitted to the contravention. The second respondent has not disputed his involvement within the meaning of s 550 of the FW Act. I have made declarations that they have breached the Act. The ultimate question for the Court is what needs to be done to deter the respondents and other like-minded employers and individuals from further contravening the relevant legislative scheme. I am required to impose a penalty which is not unreasonably oppressive or crushing. However, despite having been extended the opportunity to do so, the respondents have chosen not to file any affidavit evidence or make any submissions about its financial circumstances. I accept that the respondents did make a payment to the former employer and mitigated her loss somewhat, but that does not wipe the slate clean. The former employee’s confidence in employment will have been shaken, she has gone without her entitlements for months and the payment was only made when the writing was on the wall for the respondents. Had the respondents acted when they were required to do, they, the regulator and the Court could have been spared these proceedings and the resources which have been poured into it. I have not been informed of any history of prior offending by either respondent. Accordingly, I must treat this as a first, albeit serious, contravention and weight the penalties accordingly. Nonetheless. the evidence in this case leads to the conclusion that the respondents are unlikely to acknowledge and comply with the legislative scheme without the imposition of a serious and meaningful penalty. The penalty should be sufficiently serious to send a clear signal to others that the type of conduct engaged in by the respondents is unacceptable.DISPOSITION Taking all matters into account, I have determined that a penalty of 50% of the maximum is appropriate for the first respondent’s established contravention of section 716(5) of the FW Act. In dollar terms, this means a pecuniary penalty in the sum of $23,475. Further, I will order that the second respondent pay a pecuniary penalty of $4,695, being 50% of the maximum penalty for his involvement in the first respondents’ contravention of s 716(5) of the FW Act. The penalties referred to in the preceding paragraphs are to be paid to the Consolidated Revenue of the Commonwealth within 28 days of these orders.

Ratio Decidendi

Legal Principle Established

I have adopted those principles to guide my approach to determining appropriate penalties in this case. CONSIDERATION The applicant submits that the respondents committed a single contravention of a civil remedy provision, being section 716(5) of the FW Act, by failing to comply with the specified actions required by the Compliance Notice dated 7 August 2023. There being a single contravention, it is not necessary for the Court to concern itself with issues such as course of conduct, overlaps between multiple contraventions or the risk of double penalties. In dealing with a single contravention, the task for the Court is to ensure that the penalty for the first respondent, and for the second respondent in relation to his involvement, are an appropriate response to the conduct which led to the contraventions. Deterrence A reasonable relationship between the maximum penalty and the penalties imposed will be guided by the need for deterrence[3].[3] Pattinson at [55]General deterrence The Ombudsman submits that a civil penalty must be harsh enough so that the penalty is not merely perceived as the “cost of doing business”. Further, the applicant contends that general deterrence should operate to prevent “similar contraventions by like-minded persons or organisations”. To fulfil this objective, the penalty must carry meaningful consequences. Further, the applicant submits that Compliance Notices are used as a tool by Fair Work Inspectors to bring about compliance within workplaces and to avoid the need for litigation and penalties[4]. The Ombudsman submits that the efficacy of this legislative enforcement mechanism must be maintained, by ensuring that non-compliance attracts serious consequences for contraveners.[4] Fair Work Ombudsman v Syndicate Group Pty Ltd [2015] FCCA 2847 at [27]; cited in Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150 (Blu Hornsby) at [29]Specific deterrence The Ombudsman submits that the aim of specific deterrence is to ensure “a contravener is not prepared to embark upon the risk of re-offending”. That objective can be achieved where the penalties impose a sufficient burden that the respondents will seek to avoid the risk of subjection to future penalties[5].[5] Australian Building and Construction Commissioner v J Hutchinson Pty Ltd T/A Hutchinson Builders [2019] FCA 667 at [15] In this case the Ombudsman submits that specific deterrence is warranted because:(a)the first respondent remains registered and continues to trade;(b)the second respondent, Mr Chaudhari remains the manager of the first respondent with actual or apparent responsibility for its overall operation, management and control; and(c)Mr Chaudhari demonstrated a lack of insight and disregard for the first respondent’s obligations under the FW Act by failing to comply with the Compliance Notice and only sought to rectify its non-compliance after the proceedings commenced. The Ombudsman also submits that numerous opportunities were extended to the respondents to comply with the notice. Yet the respondents were uncooperative and then continued that lack of cooperation in the course of these proceedings. The Ombudsman submits that the respondents’ conduct, or lack thereof, demonstrates an indifference towards the situation, further highlighting the need for a significant penalty to bring the message home. I agree.Nature, circumstances and deliberateness of conduct