Fair Work Ombudsman v LU'S Healthcare Pty Ltd
[2016] FCCA 506
•10 March 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v LU'S HEALTHCARE PTY LTD & ANOR | [2016] FCCA 506 |
| Catchwords: INDUSTRIAL LAW – Application for pecuniary penalties – admitted contraventions of Fair Work Act 2009 (Cth) – course of conduct – grouping – appropriate penalty. |
| Legislation: Fair Work Act 2009 (Cth), ss. 12, 45, 323, 535, 536, 539(2), 557 |
| Fair Work Ombudsman v Lu’s Healthcare Pty Ltd & Anor [2015] FCCA 482 Mason v Harrington Corporation Pty Ltd [2007] FMCA 7 Kelly v Fitzpatrick (2007) 166 IR 14 Australian Ophthalmic Supplies Pty Ltd v Mc Alary-Smith [2008] FCAFC 8 Gibbs v City of Altona (1992) 37 FCR 216 Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408 Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3) [2011] FCA 579 Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd & Anor [2012] FMCA 258 Finance Sector Union v Commonwealth Bank of Australia (2005) 147 IR 462 Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357 Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557 Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | LU'S HEALTHCARE PTY LTD |
| Second Respondent: | KUN WANG |
| File Number: | MLG 2246 of 2014 |
| Judgment of: | Judge O'Sullivan |
| Hearing date: | 19 February 2016 |
| Date of Last Submission: | 19 February 2016 |
| Delivered at: | Melbourne |
| Delivered on: | 10 March 2016 |
REPRESENTATION
| Solicitors for the Applicant: | Mr Harris, Fair Work Ombudsman |
| Counsel for the Respondents: | Ms Symons |
| Solicitors for the Respondents: | Sparke Helmore |
THE COURT DECLARES THAT:
The first respondent contravened:
(a)section 45 of the Fair Work Act 2009 (Cth) (“the FW Act”) (by contravening Schedule A.2.5 and A.3.5 of the Health Professionals and Support Services Award 2010 (“the Modern Award”) by failing to pay to Mr Chao Liu and Ms Dianna Zhou (“the Employees”) at least the applicable minimum hourly rate of pay;
(b)section 45 of the FW Act (by contravening clause 10.4(b) of the Modern Award) by failing to pay to the Employees their casual loading;
(c)section 45 of the FW Act (by contravening Schedule A.7.3 of the Modern Award) by failing to pay to the Employees their weekend loading;
(d)section 45 of the FW Act (by contravening Schedule A.7.3 of the Modern Award) by failing to pay to the Employees their shift loading;
(e)section 45 of the FW Act (by contravening clause 28 of the Modern Award) by failing to pay to the Employees their applicable overtime rate of pay;
(f)section 45 of the FW Act (by contravening Schedule A.7.3 of the Modern Award) by failing to pay to the Employees the public holiday penalty rate;
(g)section 45 of the FW Act (by contravening clause 18.3 of the Modern Award) by failing to pay to the Employees the laundry allowance;
(h)subsection 323(1) by making deductions from the amounts payable to the Employees which were not authorised by section 324 of the FW Act;
(i)section 535 of the FW Act by not making and keeping records with the prescribed overtime content in relation to the Employees;
(j)subsection 536(1) of the FW Act by not providing payslips to the Employees within one day of making a payment in respect of work performed by the Employees; and
(k)subsection 536(2) of the FW Act by not including the prescribed payslips content in payslips provided to the Employees.
The second respondent was, within the meaning of section 550(2) of the FW Act, involved in the first respondent’s contraventions as set out at paragraphs (h), (i), (j) and (k) in order 1 above.
THE COURT ORDERS THAT:
Pursuant to subsection 546(1) of the FW Act that the first respondent pay the pecuniary penalty of $112,860 in respect of the contraventions set out at order 1 above;
Pursuant to subsection 546(1) of the FW Act that the second respondent pay the pecuniary penalty of $5,940 in respect of the contraventions set out at order 2 above;
Pursuant to subsection 546(3)(a) of the FW Act that the pecuniary penalties ordered to be paid by:
(a)the first respondent in order 3; and
(b)the second respondent in order 4,
be paid to the Commonwealth, unless agreed otherwise, within 28 days;
The Applicant have liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2246 of 2014
| FAIR WORK OMBUDSMAN |
Applicant
And
| LU'S HEALTHCARE PTY LTD |
First Respondent
| KUN WANG |
Second Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court are proceedings commenced by the Fair Work Ombudsman (“the applicant”) on 7 November 2014. By statement of claim filed the same day the applicant alleged Lu’s Healthcare Pty Ltd (ACN 119 143 556) (“the first respondent”) contravened the Fair Work Act 2009 (Cth) (“the FW Act”) by inter alia engaging in sham contracting in relation to work done for it by two Chinese massage therapists between 2011 and 2013. It was also alleged that Kun Wang (“the second respondent”) was involved in those contraventions and as a result is separately liable for breaches of the FW Act.
Background
The first respondent operated a business providing massage services at inter alia stores located at the Victoria Gardens Shopping Centre in Richmond and the Queen Victoria Shopping Centre in Melbourne. The applicant alleged the first respondent employed Mr Chao Liu and Ms Dianna Zhou from December 2011 to December 2013 and February 2014 respectively. The applicant alleged the second respondent as business manager of the first respondent was involved in inter alia engaging those workers and making payments to them.
As noted earlier the applicant also alleged each of the respondents contravened those provisions of the FW Act that prohibit sham contracting, that the former employees had been unpaid and had from what money they did receive unlawful deductions by the first respondent.
The applicant sought various relief including declarations of contraventions of the FW Act by each of the respondents, orders for payment of outstanding wages, interest and the imposition of pecuniary penalties for the alleged contraventions.
The application and statement of claim were served on each of the respondents in December 2014. The proceedings had a first Court date of 19 February 2015. However on 13 February 2015, and before the respondents filed a notice of address for service or a response, the applicant provided the Court with a minute of proposed consent orders. The Court made the following orders by consent on 16 February 2015:
“1.The directions hearing listed for 10:00am on 19 February 2015 be vacated.
2.The Respondents file and serve their Defences to the Applicant’s Statement of Claim filed 7 November 2014 by no later than 26 February 2015.
3.The Applicant file and serve its Reply (if any) to the Respondents’ Defences by 5 March 2015.
4.The parties are to file a Statement of Agreed Facts by no later than 26 March 2015.
5.The Respondents are to file and serve any evidence on which they seek to rely on the issue of penalty by 16 April 2015.
6.The Applicant is to file and serve any evidence on which it seeks to rely on the issue of penalty by 7 May 2015.
7.The Respondents are to file and serve any evidence in reply by 28 May 2015.
8.The Applicant is to file and serve any submissions in respect of penalty by 18 May 2015.
9.The Respondents are to file and serve any submissions in respect of penalty by 8 June 2015.
10.The Applicant is to file and serve any submissions in reply to the Respondent’s penalty submissions by 29 June 2015.
11.The proceeding be adjourned for a penalty hearing on 23 July 2015 at the Federal Circuit Court of Australia at Melbourne commencing at 10.00 am.
12.The parties have liberty to apply.
AND THE COURT NOTES:
A.Once the above Court documents have been filed, copies of the parties material to be sent by email in word format to the Associate to Judge O’Sullivan at associate.judgeo’[email protected]”
After the matter was first fixed for a penalty hearing Employsure Pty Ltd (“Employsure”) with the consent of the applicant, wrote to the Court referring to the above mentioned orders and advised they had “acted as a paid agent” of the respondents. Employsure referred to Rule 9.04 of the Federal Circuit Court Rules 2001 (“the Rules”) which requires a corporation to be represented by a lawyer. Employsure indicated in that correspondence on behalf of the respondents it wished to make an application to seek leave to appear as “[R]epresentative” of the respondents.
Accordingly, there were further orders made on 26 February 2015, by consent, to facilitate that application as follows:
“1.The Respondent has leave to file an application in a case and affidavit in support this day seeking to be represented by an industrial advocate.
2.The parties consent to the Respondent’s application in a case being dealt with on the papers in Chambers.
AND THE COURT NOTES:
A.The Applicant neither consents or opposes the Respondent’s application in a case.”
The respondents sought leave to be represented by a non-lawyer and made application for an order to that effect. In Fair Work Ombudsman v Lu’s Healthcare Pty Ltd & Anor [2015] FCCA 482 the Court refused that application for the reasons set out therein.
The respondents subsequently obtained legal representation, the parties agreed to vacate the penalty hearing fixed for 23 July 2015 and the matter was adjourned to 21 August 2015 for directions. Prior to the matter returning to Court the parties entered into interim consent orders which were as follows:
“1.The directions hearing listed for 10 am on Friday 21 August 2015 be vacated.
2.The parties are to file a Statement of Agreed Facts by no later than 28 August 2015.
3.The Applicant is to file and serve any submissions and evidence on the issue of penalty by 9 October 2015.
4.The Respondents are to file and serve any submissions and evidence on the issue of penalty by 20 November 2015.
5.The applicant is to file and serve any evidence in reply to the Respondents’ submissions and evidence by 18 December 2015.
6.The matter is to be set down for penalty hearing on 19 February 2016 (for half a day) commencing at 10:00 am at the Federal Circuit Court of Australia at Melbourne.
7.The parties have liberty to apply.”
Agreed Facts
The applicant subsequently abandoned prosecution of the allegations of sham contracting. On 31 August 2015 the parties filed a Statement of Agreed Facts (S.O.A.F.) which relevantly for present purposes (and omitting formalities) set out the background of the two former employees[1] and the investigation by the applicant into the complaints made by them.[2]
[1] See paragraph [10] to [23].
[2] See paragraphs [24] to [55].
The S.O.A.F. then set out the facts grounding what are now the admitted contraventions of the FW Act by the first and second respondents[3] before recording the formal admissions by each of the respondents of each of the contraventions.[4]
[3] See paragraph [56] to [73].
[4] See paragraphs [76] to [154] and note s.191 Evidence Act 1995.
As set out in the S.O.A.F. the first respondent admits:
a)contravening s.45 of the FW Act by failing to pay the employees the correct hourly rate;
b)contravening s.45 of the FW Act by failing to pay the employees casual loadings;
c)contravening s.45 of the FW Act by failing to pay the employees weekend loading;
d)contravening s.45 of the FW Act by failing to pay the employees shift loading;
e)contravening s.45 of the FW Act by failing to pay the employees overtime;
f)contravening s.45 of the FW Act by failing to pay the employees public holiday rates;
g)contravening s.45 of the FW Act by failing to pay the employees laundry allowance;
h)contravening s.323 of the FW Act by failing to pay the employees in full for the performance of work;
i)contravening s.535 of the FW Act by not making and keeping records recording overtime; and
j)contravening s.536 of the FW Act by failing to provide pay slips and not including the required content.[5]
[5] Ibid.
In addition (and also as set out in the S.O.A.F.), the second respondent admits she had actual knowledge of and was an intentional participant in the factual matters which compromised the above mentioned contraventions at subparagraphs 12(h)-(j).[6]
[6] Ibid.
As set out in the S.O.A.F. it is agreed that the contraventions by the first respondent which resulted in underpayments to the employees of $54,336.48 were “rectified” in December 2014.
Penalty hearing
The matter returned to Court on 19 February 2016 for a penalty hearing. The applicant was represented by Mr Harris, Solicitor and the respondents were represented by Ms Symons of Counsel.
The applicant relied on:
a)application filed 7 November 2014;
b)statement of claim filed 7 November 2014;
c)outline of submissions filed on 9 October 2015;
d)outline of submissions in reply filed on 18 December 2015;
e)S.O.A.F. filed on 31 August 2015; and
f)exhibit A1.
The respondents relied on:
a)S.O.A.F. filed on 31 August 2015;
b)outline of submissions filed 20 November 2015;
c)affidavit of K. Wang filed 20 November 2015;
d)affidavit of K. Wang filed 9 December 2015; and
e)exhibits R1 to R3.
Approach to penalty proceedings
The applicant’s standing to commence these proceedings was not in dispute. The power for the Court to order the imposition of penalties arises under s.546 of the FW Act.[7]
[7] Item 16 of Schedule 16 to the Transitional Act; section 546(1) of the FW Act.
Section 12 of the FW Act provides that “penalty unit” has the same meaning as in the Crimes Act 1914 (Cth). In this matter given when the admitted contraventions began it was agreed that for the purposes of section 4AA of the Crimes Act a “penalty unit” should be $110.[8]
[8] This increased to $170 on and from 28 December 2012, and $180 from 31 July 2015.
The appropriate penalties for the contravening conduct by the respondents are to be determined as follows. The first step for the Court is to identify the separate contraventions. Each contravention of each separate obligation found in the FW Act and FW Regulations is a separate contravention of a civil remedy provision for the purposes of section 539(2) of the FW Act[9]. This involves consideration of whether the contraventions constitute a single course of conduct, such that multiple contraventions should be treated as a single contravention.
[9] Gibbs v The Mayor, Councillors and Citizens of City of Altona [1992] FCA 374 at [24]; McIver v Healey [2008] FCA 425 at [16].
Second, to the extent that two or more contraventions have common elements, this should be taken into account in considering an appropriate penalty. The respondents should not be penalised more than once for the same conduct. The penalties imposed by the Court should be an appropriate response to what the respondents did.[10] This task is distinct from and in addition to the final application of the “totality principle”.[11]
[10] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 at 571 [46] (Graham J) (Merringtons).
[11] Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 838 at [41]-[46] (Stone and Buchanan JJ) (Mornington Inn).
Third, the Court will consider an appropriate penalty to impose in respect of each contravention, whether a single contravention, a course of conduct or group of contraventions, having regard to all the circumstances of the case.
Finally, having fixed an appropriate penalty for each contravention, the Court should take a final look at the aggregate penalty, to determine whether it is an appropriate response to the contravening conduct.[12]
The Court should apply an “instinctive synthesis” in making this assessment.[13] This is known as the “totality principle”.
[12] See Kelly v Fitzpatrick (2007) 166 IR 14 at [30] (Tracey J) (Kelly); Merringtons, supra at [23] (Gray J), [71] (Graham J) and [102] (Buchanan J)
[13] Merringtons, supra at [27] (Gray J) and [55] and [78] (Graham J)
The factors which may be taken into account in the assessment of penalty are well established and weren’t controversial. The factors relevant to the imposition of a penalty were summarised by Mowbray FM in Mason v Harrington Corporation Pty Ltd [2007] FMCA
7 [26]-[59], as follows:“a.the nature and extent of the conduct which led to the breaches;
b.the circumstances in which that conduct took place;
c.the nature and extent of any loss or damage sustained as a result of the breaches;
d.whether there had been similar previous conduct by the respondent;
e.whether the breaches were properly distinct or arose out of the one course of conduct;
f.the size of the business enterprise involved;
g.whether or not the breaches were deliberate;
h.whether senior management was involved in the breaches;
i.whether the party committing the breach had exhibited contrition;
j.whether the party committing the breach had taken corrective action;
k.whether the party committing the breach had cooperated with the enforcement authorities;
l.the need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
m.the need for specific and general deterrence.”
This summary was adopted by Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14. In Australian Ophthalmic Supplies Pty Ltd v Mc Alary-Smith [2008] FCAFC 8 Buchanan J after referring to the decision in Kelly v Fitzpatrick (supra) said at [9]:
“9. Checklists of this kind can be useful providing they do not become transformed into a rigid catalogue of matters for attention. At the end of the day the task of the Court is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions have occurred and the need to sustain public confidence in the statutory regime which imposes the obligations…”
Contraventions
As identified in the S.O.A.F. the contraventions referred to at paragraphs 12 and 13 above were admitted by the first and second respondents.[14]
[14] See S.O.A.F. at paragraph 9-13.
Course of conduct and grouping of contraventions
How the admitted contraventions should be grouped was controversial. Subsection 557(1) of the FW Act and the predecessor provide that where two or more contraventions of a civil remedy provision are committed by the same person, and arise out of a course of conduct by the person, the contraventions shall be taken to be a single contravention of the provision.
The applicant’s position in written submissions was the Court should find there were:
“28.In the present case, there were repeated contraventions of the provisions of the FW Act set out in paragraph 9 above the over period of the Employees’ employment (December 2011 to 30 June 2013 – see paragraph 8 above).
29.The First Respondent is entitled to the benefit of the course of conduct provision in relation to those repeated contraventions of each relevant provision in respect of each employee. For instance, the multiple contraventions by failing to pay Mr Liu and Ms Zhou the minimum hourly rate of pay (paragraph 9(a) above) should be treated as a single contravention.
30.Contraventions in respect of multiple employees may be grouped together under section 557 of the FW Act if the Court is satisfied that the course of conduct constituting the contraventions stemmed from a single decision of the employer: Fair Work Ombudsmen v VS Investment Group Pty Ltd & Anor [2013] FCCA 208 at [19]. In the present case, the Court can be satisfied that there was a single decision of the First Respondent resulting in the course of conduct leading to the contraventions. It was a single decision of the First Respondent to pay Mr Liu and Ms Zhou 45% of the fee earned by the First Respondent for each massage the employees performed. The flow on effect of the underpayments and failure to maintain proper records or provide payslips was a result of this single decision.
31.It is open to the Court to group separate contraventions together where the contraventions may be said to overlap with each other to involve the potential punishment of the Respondents for the same or substantially conduct.
32.The particular circumstances of this case does not warrant any further grouping in that the contraventions do not have sufficient similarity or overlap in the factual circumstances to be appropriately grouped together.”
The applicant’s submissions were that in accordance with the authorities referred to in written submissions the contraventions should be grouped as follows:
a)for the first respondent
i)failing to pay minimum rate of pay;
ii)failing to pay casual loading;
iii)failing to pay weekend loading;
iv)failing to pay shift loading;
v)failing to pay overtime;
vi)failing to pay public holiday penalty rate;
vii)failing to pay laundry allowance;
viii)making deductions not authorised by s.324(1);
ix)failing to make and keep records;
x)failing to provide pay slips; and
xi)failing to include prescribed content in payslips.
b)for the second respondent
i)making deductions not authorised by s.324;
ii)failing to make and keep records;
iii)failing to provide pay slips; and
iv)failing to include prescribed content in payslips.
The respondents’ written submissions took issue with the applicant’s submissions on the approach to course of conduct and grouping of the various contraventions. In written submissions the respondents’ position was:
“14.In the present case, it is open to the Court to find that the single decision of the First Respondent to pay Mr Liu and Ms Zhou a percentage of massage fees earnt (single decision), had resonance beyond s 557(1) of the FW Act and also supplied the connection between the various transactions that flowed, such that it would be an appropriate exercise of the Court’s discretion to allow a further aggregation of penalties that formed part of the ‘same transaction’.
15.Whilst regard must properly be had for the separate legal quality of the obligations breached by the First Respondent, it would nonetheless maintain the integrity and character of these obligations if the Court were to group the eleven contraventions as follows:
(a)underpayment contraventions (being the contraventions listed at subparagraphs 9(a)-9(g) of the FWO Submissions) – these contraventions all emanated from the single decision and have in common that they involve an underpayment to Mr Liu and Ms Zhou that is a consequence of the failure to apply provisions of the Health Professionals and Support Services Award (Modern Award) provisions relating to underpayment of hourly rate of pay, loadings, overtime, public holiday penalty rate and laundry allowance. It can be said that there is an interrelationship between the legal and factual elements of the seven contraventions;
(b)unauthorised deduction contravention (being the contravention listed at sub-paragraphs 9(h) of the FWO Submissions) – this contravention is of a different character to the underpayment contraventions. The Respondents accept that it should properly be regarded as distinct;
(c)administrative contraventions (being the contraventions listed at sub-paragraphs 9(i)-9(k) of the FWO Submissions) – these contraventions have in common that they involve the failure of the First Respondent to comply with FW Act derived administrative arrangements in respect of Mr Liu and Ms Zhou. It can be said that there is an interrelationship between the legal and factual elements of the three contraventions.
16.If the Court was to adopt the grouping identified above in respect of the First Respondent, this would have the following consequences (and compare paragraph [34] of the FWO Submissions):
For the First Respondent:
(a)The total number of contraventions of sections 45 would reduce to 1 (from 7);
(b)The total number of contraventions of sub-section 323(1) would remain as 1; and
(c)The total number of contraventions of sections 535, 536(1) and 536(2) would reduce to 1 (from 3);
For the Second Respondent:
(a)The total number of contraventions of s 323(1) would remain at 1; and
(b)The total number of contraventions of sections 535, 536(1) and 536(2) would reduce to 1(from 3).”
In submissions in reply the applicant rejected the basis on which the respondents contended the contraventions should be grouped and submitted that:
“4. Contraventions of the same term of the FW Act or an award in relation to multiple employees may be grouped together under section 557 of the FW Act provided there is course of conduct with one single decision. The Applicant accepts that such grouping is appropriate in the present case.
5.However, there is no course of conduct where there is a contravention of different obligations.
6.In Gibbs v Mayor, Councillors and Citizens of the City of Altona [1992] FCA 374 (Gibbs) at [24] the Court held that:
“If such a party has pursued a course of conduct which gives rise to breaches of several different obligations, there is no reason why it should be treated as immune in respect of its breach of one obligation, merely because it has acted in breach of another”.
[emphasis added]
7. In Blandy v Coverdale NT Pty Ltd ACN 102 611 423 [2008] FCA 1533 at 56, the Court adopted the decision of Gibbs in finding that each separate obligation found in an award is to be regarded as a separate “term” unless, of course, the terms impose cumulative obligations or obligations that substantially overlap or have common elements.
8.To determine whether there is one course of conduct, it is a matter of “evaluating the differences and similarities in the acts to determine whether, ultimately, they are or are not a manifestation of a singular criminality”.[15]
[15] Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 at [7] per Moore J.
9.In Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1, Middleton and Gordon JJ described the course of conduct principle and its potential application in this way:
“The principle recognises that where there is an interrelation between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is ‘the same criminality’ and that is necessarily a factually specific enquiry.”
10.Accordingly, multiple contraventions will be seen as arising out of a single course of conduct only if they have ‘common elements’[16] in relation to the acts or omissions which led to the contraventions, such that the Court is required to ‘recognise the existence of a course of conduct and of inter-related or overlapping elements’.[17]
[16] Fair Work Ombudsman v Offshore Marine Services Pty Ltd [2011] FCA 498 at [7] and [23] to [26] per Gilmour J.
[17] Fair Work Ombudsman v Australian Shooting Academy Pty Ltd [2011] FCA 1064 at [23] per Logan J.
11.In Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408, Buchanan J said, at paragraph 2:
“On one view, the failure to make any of the required payments arose from a single course of conduct. They all arose from a determination by the respondents that no payment would be made upon the termination of employment of any of the employees, or the employees as a group. However, this approach gives insufficient attention to the separate legal character of the three forms of obligation earlier identified. I am satisfied that each of those forms of obligation requires separate recognition. I am not, however, satisfied that each individual example of defiance of an obligation is permitted separate recognition. In my view the individual examples, constituted by the failure to make payments to particular individual employees, arise out of a course of conduct in each of the three instances. Any penalty must be assessed taking that into account”.
[emphasis added]
12.In the recent matter of Fair Work Ombudsman v Liquid Fuel Pty Ltd & Ors [2015] FCCA 3139 at [30], his Honour Judge O’Sullivan rejected the argument of the Respondents that there should only be two groups of contraventions, one for ‘pay related’ contraventions and one for all of the ‘record and pay slip’ contraventions. His Honour stated that the Court is “required to give recognition to the distinct legal nature of each breach arising under the [different legislation]... section 557 of the FW Act (and its predecessor) operates to allow groupings of contraventions of the same obligation or term of an industrial instrument, not the entire range of terms breached under that one instrument.”
13.The application of section 557 of the FW Act in relation to the grouping of contraventions was settled in Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62. In that matter, the Full Court of the Federal Court rejected the Respondent’s submissions that where there are two or more contraventions of section 44(1) and two or more contraventions of section 45 by each respondent, section 557(1) operated so that each contravention of section 44(1) by each respondent was taken to constitute a single contravention and each contravention of section 45 by each respondent was taken to constitute a single contravention.
14.Accordingly, there is no basis upon which the Court might group the ‘underpayment contraventions[18]’ in the manner submitted by the Respondents. There are seven discrete legal obligations that have been contravened:
(a) A failure to pay the minimum hourly rate of pay;
(b) A failure to pay casual loading;
(c) A failure to pay weekend loading;
(d) A failure to pay shift loading;
(e) A failure to pay overtime;
(f) A failure to pay public holiday penalty rates; and
[18] Respondents’ Submissions, at [15(a)].
(g) A failure to pay laundry allowances.
15.Accordingly, the identification of a common single decision to pay Mr Liu and Ms Zhou a percentage of massage fees earnt cannot have the effect that one course of conduct exists so as to group the ‘underpayment contraventions’ as a single contravention.
16.Clearly, the contravention of section 323(1) of the FW Act is of a different character to the ‘underpayment contraventions’ and stands alone.[19]
17.Similarly to the ‘underpayment contraventions’[20], the Applicant denies that the ‘administrative contraventions’ can be grouped in the manner submitted by the Respondents. There are two discrete legal obligations that have been contravened:
(a)Making deductions from the amounts payable to the employees; and
(b)A failure to make and keep records with the prescribed overtime content.”
[19] Respondents ‘submissions, at [15(b)].
[20] Respondents’ submissions, at [15(c)].
In Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2)[21] Buchanan J considered the application of section 719(2) of the WR Act, the legislative predecessor of section 557. He said as follows:
“On one view, the failure to make any of the required payments arose from a single course of conduct. They all arose from a determination by the respondents that no payment would be made upon the termination of employment of any of the employees, or the employees as a group. However, this approach gives insufficient attention to the separate legal character of the three forms of obligation earlier identified. I am satisfied that each of those forms of obligation requires separate recognition. I am not, however, satisfied that each individual example of defiance of an obligation is permitted separate recognition. In my view the individual examples, constituted by the failure to make payments to particular individual employees, arise out of a course of conduct in each of the three instances. Any penalty must be assessed taking that into account.”[22]
[21] Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408.
[22] Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408 at [2] The passage was approved by the Full Court in Rocky Holdings Pty Limited v Fair Work Ombudsman [2014] FCAFC 62 at [18].
In Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62 the Full Court rejected the respondents submissions in that case, that where there were two or more contraventions of s.44 and two or more contraventions of s.45 by each respondent, s.557 should be applied so that each contravention of s.44 and s.45 was taken to constitute a single contravention.
Given the approach in the authorities referred to above, in the circumstances of this matter and given the separate legal character of the obligations that were the subject of the admitted contraventions, they should be grouped as follows:
a)first respondent:
Contravention Maximum penalty failing to pay minimum rate of pay $33,000 failing to pay casual loading $33,000 failing to pay weekend loading $33,000 failing to pay shift loading $33,000 failing to pay overtime $33,000 failing to pay public holiday penalty rate $33,000 failing to pay laundry allowance $33,000 making deductions not authorised by s.324 $33,000 failing to make and keep records $16,500 failing to provide pay slips $16,500 failing to include prescribed content in payslips $16,500 Total $313,500 b)second respondent:
Contravention Maximum penalty making deductions not authorised by s.324 $6,600 failing to make and keep records $3,300 failing to provide pay slips $3,300 failing to include prescribed content in payslips $3,300 Total $16,500
This would result in a possible maximum penalty for the first respondent of $313,500 and $16,500 for the second respondent. It was the applicant’s position that an appropriate penalty in this case was between 60% and 70% of the maximum.
The respondents’ position on penalty varied depending on how the Court exercised its discretion to group the admitted contraventions.[23] Given the findings referred to above on the appropriate grouping the respondents’ position was the penalties should only be between around 14% and 20% of the maximum.[24]
[23] See exhibit R2 and R3.
[24] See exhibit R3.
Considerations relevant to appropriate penalty
In submissions upon which it relied the applicant addressed the Court on the relevant considerations. It was submitted in this case that they include:
a)the nature, extent and circumstances of the contravening conduct;
b)the size of the business;
c)similar previous conduct;
d)ensuring compliance with minimum standards;
e)co-operation, contrition and corrective action;
f)deliberateness of contraventions; and
g)specific and general deterrence.
The respondents didn’t take issue with this. I accept that in this case those are relevant considerations to take into account in arriving at an appropriate penalty.
Nature, extent and circumstances of the contravening conduct
The applicant submitted:
“38.One of the principal objects of the FW Act is to provide a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions for all employees.[25] The conduct underpinning the admitted contraventions of sections 45 and 323 deprived the Employees of that protection of that minimum safety net.
[25] FW Act, subsection 3(b).
39.As a consequence of the admitted contraventions, the Employees were significantly underpaid over a period of approximately 18 months:
(a)Mr Liu was paid $41,660.10[26] and underpaid $33,144.91[27] (representing an underpayment of 44% of the total amounts that were payable to Mr Liu); and
(b)Ms Zhou was paid $35,051.85[28] and underpaid $21,191.57[29] (representing an underpayment of 38% of the total amounts that were payable to Ms Zhou).
40.The First Respondent did not rectify the underpayments until 5 December 2014[30], after the Applicant instituted these proceedings and almost 18 months after the end of periods in which the underpayments had occurred (see paragraph 8 above). The First Respondent had the benefit of the underpayment for a cumulative period of almost three years. Further, the underpayment, as a proportion of the total amount due to be paid, is substantial.
41.In the matter of Fair Work Ombudsman v Lycamobile Pty Ltd [2013] FCCA 2132 at [16], Judge Burnett specifically considered the issue of depriving employees the financial benefit of their employment. His Honour stated:
“It does not escape my attention that, in terms of cash flow, the delay in paying basic remuneration to employees engaged in what can only be described as basic employment leads to a very strong inference that the hardship occasioned to those employees would have been greater than might otherwise be expected for higher paid employees, who one would expect to be better financially resourced.”
42.The admitted contraventions of sections 536 and 536 concern the First and Second Respondents’ failure to make and keep records in relation to overtime worked by the Employees, and to provide them with payslips (containing prescribed information) within one day of payment for work performed.
43.Failure to make and keep proper employment records and failure to make timely provision of accurate payslips to employees undermines the objectives of the FW Act.[31]
44.Accurate records facilitate the calculation of employees’ entitlements and enable employees to determine the makeup of the pay over a pay period. Failure by employers to keep accurate records undermines the Applicant’s ability to investigate and ensure compliance with minimum standards.”
[26] SOAF, at paragraph [77(d)].
[27] SOAF, at paragraphs [72], [77(3)], [86], [93], [102], [112], [120], [129] and [132].
[28] SOAF, at paragraph [78(d)].
[29] SOAF, at paragraphs [73], [78(e)], [86], [93], [102], [112], [120], 129] and [132].
[30] SOAF, at paragraph [144].
[31] Secretary, Department of Health and Ageing v Pagasa Australia Pty Ltd [2008] FCA 1545 at [56]; Olsen v Sterling Crown Pty Ltd [2008] FMCA 1392 at [51]; Fair Work Ombudsman v Ultra Tune Australia Pty Ltd [2012] FMCA 560 at [11]; Fair Work Ombudsman v MMP Management Services Pty Ltd [2012] FMCA 207 at [14].
The respondent submitted:
“19.While Mr Liu and Ms Zhou undoubtedly have been deprived of the benefit of the underpaid amounts, there is no evidence before the Court as to the effect of the contraventions on them. The Court simply cannot know what, if any, particular hardship was entailed in the respondent’s failure to pay the employees correctly.”
The applicant submitted in reply:
“19.As to paragraph 19 of the Respondents’ Submissions, it is clear that, on any view, employees who are deprived of 44% and 38% respectively of their rightful entitlements within a six month assessment period would likely suffer financial hardship as a result. This is particularly so in circumstances where the quantum of the underpayments is significant, totalling $54,336.48.”
The conduct engaged in by the respondents undermines an important purpose for the existence of the FW Act which is to provide a minimum level of entitlements for all employees.
The size of the business
The applicant submitted:
“47.At this time, there is no evidence before the Court relating to the size of the business and its financial circumstances.
48.In Workplace Ombudsman v Saya Cleaning Pty Ltd[32] Federal Magistrate Simpson (as he then was) provided a summary of the case law in this respect:
‘the First Respondent is a small company and, I infer, has very few assets. However as Justice Tracey said in Kelly v Fitzpatrick:
No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction must be imposed at a meaningful level.’
49.An employer's financial position at the time of the contraventions is not relevant to the question of penalty. Employers, be they small, medium or large, have an obligation to meet minimum standards in relation to their employees; they cannot overcome financial difficulties by underpaying their employees.”
[32] [2009] FMCA 38 at [26]-[30].
The respondents submitted:
“23.The first Respondent is properly characterised as a small private business. It does not benefit from dedicated human resources personnel or related expertise. At times relevant to this proceeding, the First Respondent operated out of three locations (Victoria Gardens in Richmond, Queen Victoria in the Melbourne CBD and Frankston) and employed ten staff, including three family members.
24.Whilst it may generally be accepted that the financial circumstances of a business at the time at which a contravention takes place, is not an exculpatory factor, the Court must nonetheless be satisfied that the penalties ultimately applied are meaningful (and not oppressive) in the context of the particular financial situation of the Respondents.
25. The First Respondent operated in a competitive business environment and this is reflected in its financial statements, which demonstrate that despite reasonable (although diminishing) sales over the last four years, large overheads related particularly to the cost of obtaining leases in retail precincts, inhibit profitability. In the three most recent financial years, the First Respondent has recorded a loss. The accumulated losses at the end of the 2015 year were $160,968. Further, whilst the First Respondent has some assets, the most recent balance sheet (for the 2015 financial year) records a negative asset position. In these circumstances, it follows that the imposition of even a modest penalty will have a substantial and meaningful impact of the financial position of the First Respondent.”
Counsel for the respondents made much of the material filed by her clients about the first respondents’ financial position. I accept the criticism of that material made by Counsel for the applicant in his submissions before the Court. Therefore and absent audited accounts I am not satisfied that material paints a ‘true’ picture of the financial circumstances of the business.
Similar previous conduct
The applicant submitted:
“45.The Respondents have not previously been the subject of legal proceedings by the Applicant for contraventions of workplace laws. This should be regarded as a neutral factor in determining the pecuniary penalties to be imposed upon the Respondents.”
The respondents submitted:
“20.The FWO acknowledges that the respondents have not previously been the subject of legal proceedings for contraventions of workplace laws but submit that this should be a neutral factor in determining the penalties to be imposed upon the Respondents.”
21.The position however is that the Court may take into account as a matter going to the credit of the Respondents, the fact that they have not previously been found by a court to have contravened any workplace laws to which they are bound[33].”
[33] National Tertiary Education Industry Union v Swinburne University of Technology [2013] FCA 1128 at [26]
This factor was relied on by the respondents as one which ought to result in mitigation of any penalty to be imposed. Counsel for the respondents was correct to point that out and it will be weighed along with other relevant factors in determining an appropriate penalty.
Ensuring compliance with minimum standards
The applicant submitted:
“50.Ensuring compliance with minimum standards is a very important consideration in this case. The objects of the FW Act include the maintenance of an effective safety net of minimum terms and conditions, and provision of effective enforcement mechanisms. The substantial penalties set by Parliament and awarded by the Courts for failing to comply with minimum award obligations and statutory notices reinforce the importance placed on compliance with minimum standards and an effective enforcement framework.
51.In Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2)[34] Marshall J observed:
It is important to ensure that the protections provided by the Act to employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected. [35]
52.It is also vital to recognise the importance of maintaining 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 competitive advantage over those employers who do comply with their workplace obligations.
53.Ordering penalties at a meaningful level allows the Court to show that there are serious consequences for failing to comply with workplace laws. Failing to impose a substantial penalty will remove the incentive for this employer and other employers to change their practices.”
[34] [2012] FCA 557.
[35] Ibid at [29].
The respondents submitted:
“26.The respondents acknowledge the importance of compliance with minimum standards. In that regard, the respondents have taken action to rectify the contraventions and have repaid the underpayments in full.”
A number of decisions including the Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3),[36] the matter of Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd[37] and Finance Sector Union v Commonwealth Bank of Australia[38] are relevant. The matters discussed in those authorities which deal with the importance of maintaining effective minimum terms and conditions of employment and the enforcement of industrial instruments are also relevant in the context of this case and will be taken into account when arriving at an appropriate penalty.
[36] Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3) [2011] FCA 579.
[37] Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant Pty Ltd & Anor [2012] FMCA 258.
[38] Finance Sector Union v Commonwealth Bank of Australia (2005) 147 IR 462.
The respondent’s co-operation, contrition and corrective action
The applicant submitted:
“56.The Respondents’ agreement to the Statement of Agreed Facts demonstrates a degree of co-operation with the Applicant. However, that co-operation must be weighed in the context of the Respondents’ conduct during the investigation.
57.The Applicant’s investigation into the complaints made by Mr Liu and Ms Zhou spanned from May 2013 to October 2014[39]. The investigation was protracted due to the conduct of the Respondents and their former legal representatives.
[39] SOAF, at paragraph [24] to [55].
58.The Respondents (through the Second Respondent or through their former legal representatives):
(a)on 31 July 2013, disputed culpability, suggesting that there was ambiguity as to whether the Employees should be correctly characterised as independent contractors (a position that was later abandoned);[40]
(b)demonstrated a pattern of repeatedly requesting extensions of time to respond to the Applicant’s correspondence, often on the date in which the responses were due.[41] In this regard, the Respondents requested six separate extensions, and on two occasions the requests were made on the due date and on two other occasions the requests were made after the due date. This conduct unnecessarily protracted the investigation and burdened the resources of the Applicant. Importantly, Mr Liu and Ms Zhou were deprived of their entitlements over the life of the investigation and beyond;[42]
(c)having been notified of the investigation on 14 June 2013 and invited to participate in a record of interview[43], asked (on 14 June 2013) to provide documents[44] and issued with Notices to Produce on 1 July 2013[45] and 22 January 2014[46], only provided further information and documentation to the Applicant relating to the Employees on 1 July 2014[47].
59.There is no evidence of contrition on the part of the Respondents. The Applicant is not aware of any statement of apology, regret or remorse by the Respondents to Mr Liu and/or Ms Zhou.
60.The First and Second Respondents rectified the underpayment to Mr Liu and Ms Zhou on 4 December 2014.[48]
61.There is presently no evidence before the Court to demonstrate that the First Respondent has altered its business model to ensure that similar contraventions of this nature are not repeated.”
[40] SOAF, at paragraph [33]
[41] SOAF, at paragraphs [28], [35], [40], [45], [46], [50].
[42] SOAF, at paragraphs [24] to [55].
[43] SOAF, at parapraph [25].
[44] SOAF, at paragraph [27].
[45] SOAF, at paragraph [29].
[46] SOAF, at paragraph [37].
[47] SOAF, at paragraph [47].
[48] SOAF, at paragraph [144].
The respondents’ submissions were:
“29.The Applicant’s account of the investigation process is incomplete and highly selective. The proper context in which to assess the degree of cooperation provided by the Respondents throughout the investigation process, is by reference to the Statement of Agreed Facts, this being a balanced and agreed representation of the various steps and events that occurred throughout that process[49].
[49] SOAF at parapgraph [24]-[55].
30.The FWO Submissions, and in particular the submission that the investigation was protracted due to the conduct of the Respondents and their former legal representatives[50] is unsupportable on the evidence contained in the Statement of Agreed Facts, and should be withdrawn. In particular, the submission fails to acknowledge that in many cases, the decisions taken by the Respondents throughout the investigation process were motivated by a desire to properly understand the case against them and to query matters about which they had some concerns or about which there existed a level of disagreement. Whilst the Respondents have engaged in conduct that contravened the FW Act, they are nonetheless entitled to protect their own interests and to satisfy themselves as to the integrity of the process in which they participated.
[50] FWO Submissions at [57].
31.In particular, in respect of the investigation process, the Respondents:
(a)produced documents in response to a Notice to Produce (first NTP) within the timeframe for production (first NTP)[51];
(b)complied with a second Notice to Produce (second NTP)[52], which Notice had sought documents of a different character to those identified in the First NTP[53]. The delay in response was attributable to the closure over the Christmas period of the offices of the Respondents lawyer[54];
(c)queried the calculation of underpayments on two occasions[55]. As a result of these queries and submissions, the Applicant on two occasions revised the quantum of the underpayment so that by the time a final amount was fixed, the underpayment had reduced by an amount of $5,102.89 (from $59,439.37[56] to $54,336.48)[57]
32.The ability and preparedness of the Respondents to express contrition needs to be understood in the context of an investigation and proceeding that maintained allegations against the respondents that they had engaged in sham contracting. These allegations were ultimately not pressed by the Applicant but the Respondents maintained an objection to these allegations (including formally in the amended defence) that impacted on the ability to provide an apology in absolute terms.
33.The Respondents are nonetheless deeply apologetic for the conduct that resulted in the underpayment to Mr Liu and Ms Zhou. This attitude is reflected in the affidavit of Ms Wang[58].
34.The Respondents have made admissions to all of the contraventions alleged in the Applicants statement of claim (with the exception of the s 537 allegation, which was not ultimately pursued), and have cooperated with the applicant in the production of the SOAF so as to narrow the issues before the Court. The drafting of the SOAF has also saved the costs associated with the prosecution of a civil penalty proceeding and has avoided the need to disrupt the lives of those who might otherwise be called to give evidence in these proceedings. Such matters are said to constitute evidence of ‘significant cooperation’[59].
35.The Respondents have taken corrective action and made efforts to educate themselves as to their obligations under the industrial legislation. In particular, the First Respondent has sought advice from its lawyers and Employsure (a workplace relations advisor) in relation to matters such as the payment and calculations of wages, record keeping and the management of absenteeism.
36.The First Respondent engaged Employsure to conduct a review of its employment practices. As a result of this view, Employsure provided advice and a comprehensive suite of documents, including an Employee Handbook, a Management Handbook and pro forma contracts, including a model contract of employment.”
[51] SOAF, at [29], [32].
[52] SOAF at [41].
[53] SOAF at [37].
[54] SOAF at [39]-[40]
[55] SOAF at [42], [47].
[56] SOAF AT [38].
[57] SOAF at [143].
[58] Wang affidavit at [9].
[59] Fair Work Ombudsman v MMP Management Services Pty Ltd & Anor [2012] FMCA 207 at [61].
The applicant in reply submitted:
“24.As to paragraph 30 of the Respondents’ Submissions, the Respondents have not filed any evidence that supports the submission that “the decisions taken by the Respondents throughout the investigation process were motivated by a desire to properly understand the case against them and to query matters about which they had some concerns or about which there existed a level of disagreement”. The Respondents demonstrated a frequent tendency to either reply to requests for information on, or after, the date of compliance[60]. The Applicant otherwise repeats and relies upon its submissions at paragraphs 56 to 59 (inclusive).
[60] See, for example, SOAF at paragraphs [34] to [36], [40], [42], [44] to [47], [49] to [52].
25.As to paragraph 31(c) of the Respondents’ Submissions, the Applicant submits that the variation to the quantum of the calculations was as a result of:
(a)documents provided by the Respondents’ former legal representatives on 20 January 2014 in response to the Applicant’s Notice to Produce dated 6 January 2014[61]; and
(b)documents provided by the Respondents’ former legal representative under the cover of an email on 1 July 2014[62].
26.It is an agreed fact that the second contravention letter issued to the Respondents was as a result of material provided by the First Respondent in relation to earlier Notice to Produce[63]. It was completely proper for the Applicant, as a Regulator, to amend the contravention letter to take into account the new information provided by the Respondents.
27.As to paragraphs 32 and 33 of the Respondents’ Submissions, the Applicant notes that contrition was only expressed upon the filing of the Second Respondent’s affidavit on 20 November 2015, some 3 months after the sham contracting allegations were discontinued by the Applicant, 11 months after proceedings were instituted and over two years since the employees left the employ of the First Respondent.
28.As to paragraph 34 of the Respondents’ Submissions, the Applicant submits that little weight in mitigation should be placed on the Respondents entering into a Statement of Agreed Facts with the Applicant in circumstances where this did not occur until some 8 months after proceedings were instituted and after a protracted investigation. The Applicant rejects the Respondents’ submissions that the act of entering into a Statement of Agreed Facts amounts to “significant cooperation”. The decision to enter into a Statement of Agreed Facts is an admission by the Respondents of their wrongdoing.
29.As to paragraphs 35 and 36 of the Respondents’ Submissions, there is no evidence that the Respondents have sought advice in relation to the engagement of independent subcontractors and employees. This is particularly relevant in circumstances where this distinction was a critical aspect of these proceedings and the first respondent continues to engage employees and independent subcontractors.”
[61] SOAF, at [41].
[62] SOAF, at [47] and [48]
[63] SOAF, at [44].
On this issue it is timely to remember what the Full Court said in Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [74] – [76]:
“…a discount should not be available simply because a respondent has spared the community the cost of a contested trial. Rather, the benefit of such a discount should be reserved for cases where it can be fairly should that an admission of liability:
(a) has indicated an acceptance of wrongdoing and suitable and credible expression of regret; and/or
b) has indicated a willingness to facilitate the course of justice.”
I accept the applicant’s submissions that little weight can be placed on the apology (given its timing). However given the history of the proceedings there should be some discount for the respondents’ co-operation.
Deliberateness of contraventions
The applicant in submissions stated:
“54. The issue of whether a breach is deliberate was considered by Federal Magistrate Driver in Cotis v McPherson [2007] FMCA 2060 at para [17]:
“In issue in this matter is whether the identified breaches were deliberate. I do not think that they were deliberate in the sense of Mr Macpherson setting out with an intention to breach the Workplace Relations Act. However, the facts compel the conclusion that Mr Macpherson was at least reckless in relation to the responsibilities of his company and himself as an employer. Mr Macpherson was made aware of some of the breaches by employees whilst the business was still in operation. He also acknowledged the breaches to the inspector following the closure of the business. Mr Macpherson has no contest with the evidence provided by Ms Cotis.”
55.The First Respondent’s actions were, at the very least, reckless and show a disregard for its obligations. This should be regarded as an aggravating factor in determining the pecuniary penalty to be imposed upon the Respondents.”
The respondent in submissions stated:
“27.There is an absence of any evidence to support the finding of deliberate contravention by the Respondents. The Court should therefore proceed on the basis that contraventions arose through inadvertence, this involving a lesser degree of culpability than recklessness. The respondents did not then, and do not now, have any strategy in place to avoid the obligation to pay minimum entitlements to employees.
28.In particular, there is no evidence that the Respondents avoided their obligations through the misclassification of Mr Liu and Ms Zhou as independent contractors (cf paragraph [67] of the FWO Submissions). The submission is liable to mislead and should be rejected. This is especially so in circumstances where the Applicant no longer presses the sham contracting allegation, an element of which is that the First Respondent knew the true character of its relationship with Mr Liu and Ms Zhou.”
The applicant in reply submitted:
“22.As to paragraph 27 of the Respondents’ Submissions, the Applicant submits that there is no evidence to support a finding of inadvertence on the part of the Respondents. In the absence of deliberateness, it is the Applicant’s submission that it is open to the Court to find that the Respondents’ conduct was, at least, reckless. The First Respondent should have been aware of its legal obligations as an employer. The submission that its conduct was of mere inadvertence should be soundly rejected in circumstances where the employees were engaged for the employer’s benefit, but ultimately at the employees’ prejudice. The Applicant otherwise repeats and relies upon its submissions at paragraphs 54 and 55.
23.As to paragraph 28 of the Respondents’ Submissions, the Applicant submits the Respondents could only have avoided their obligations through the misclassification of Mr Liu and Ms Zhou as independent subcontractors in circumstances where the arrangements resulted in the employees not receiving their rightful entitlements in accordance with the modern award. By considering the employees to be independent contractors, the First Respondent clearly avoided its obligations under Commonwealth workplace laws.”
Whilst there is no evidence such as to enable a finding that the respondents engaged in a deliberate attempt to avoid their obligations the conduct that was admitted cannot be categorised as mere “inadvertence”. The S.O.A.F. reveals a conscious business strategy which given the adverse consequences for the affected employees should not go unpunished.
Specific Deterrence
The applicant submitted:
“70.There is no evidence of any change in circumstances in relation to the Respondents. It is open to the Court to infer that the First Respondent continues to operate a business providing massage services through stores in Richmond, Melbourne and Frankston and via home and office services,[64] and that the Second Respondent continues to be the manager of the First Respondent.[65]
71.The need for specific deterrence is high in light of the reckless nature of the conduct, and the absence of any demonstration of contrition, remorse or general corrective action by the First and Second Respondents.[66]
72.The First Respondent treated Mr Liu and Ms Zhou as independent subcontractors in circumstances where they should have been properly considered to be employees.[67] Arising from such misclassification of their employment status, Mr Liu and Ms Zhou were deprived of their significant and rightful entitlements under the Modern Award over a six month assessment period. There is a need to send a serious message to the Respondents that the Court will not countenance attempts to disguise employment relationships and thus deny employees their required minimum entitlements.”
[64] SOAF, at paragraph [8(e)].
[65] SOAF, at paragraph [9].
[66] Workplace Ombudsman v Saya Cleaning Pty Ltd & Anor [2009] FMCA 38 citing Australian Opthalmic Supplies Pty Ltd. [17]; Fryer v Yoga Tandoori House Pty Limited [2008] FMCA 288 [35].
[67] SOAF, at paragraph [60], for example.
The respondents submitted:
“37.The circumstances of the first respondent have changed materially since the period over which the contraventions took place. In particular, due to difficult operating conditions, the First Respondent has rationalised its business so that it now operates out of only two locations (rather than the previously three) and has reduced its headcount by approximately one third (from ten staff down to the current seven).
38.The First Respondent has learnt from the experience of this proceeding and has taken steps to educate itself about its obligations as an employer (see paragraphs [35]-[36] above). The Second Respondent, who remains the manager of the First Respondent, has made changes to the pay slips supplied to staff and has obtained advice about the correct calculation of employee wages.
39.In these circumstances, there is little need for penalties to be directed at achieving specific deterrence. As against the submissions of the Applicant (see paragraph [71] of the FWO Submissions):
(a)There is no evidence that the Respondents conducted themselves recklessly;
(b)The Respondents have demonstrated contrition; and
(c)The Respondents have taken corrective action in response to these proceedings and the related contraventions.
40.Further, whilst the Applicant persists, in the absence of evidence, with the submission that the Respondents made attempts to disguise the employment relationship of Mr Liu and Ms Zhou[68], this submission should be soundly rejected. There is no evidence that the Applicant refers to in support of this assertion, and the contraventions which have been admitted by the Respondents in no way support the point the Applicant is attempting to make.”
[68] See, for example, the assertions to this effect not supported by evidence made by the Applicant in paragraphs [65]. [71] and [72] in its submissions.
Gray J observed in Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357; (2008) 177 IR 243; [2008] FCAFC 170 at [37] that:
“Specific deterrence focuses on the party on whom the penalty is to be imposed and the likelihood of that party being involved in a similar breach in the future. Much will depend on the attitude expressed by that party as to things like remorse and steps taken to ensure that no future breach will occur.”
In relation to this factor I accept the point made by Counsel for the applicant in submissions before the Court that (given the matters referred to earlier) and as the respondents are still operating a business there is a need for a measure of specific deterrence.
General Deterrence
The applicant submitted:
“62.It is well established that the need for specific and general deterrence is a factor that is relevant to the imposition of a civil penalty.[69]
63.The role of general deterrence in determining the appropriate penalty is illustrated by the comments of Lander J in Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543, [93]:
In regard to general deterrence, it is assumed that an appropriate penalty will act as a deterrent to others who might be likely to offend: Yardley v Betts (1979) 22 SASR 108. The penalty therefore 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. If the penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor in fixing the penalty: R v Thompson (1975) 11 SASR 217.
64.The penalties in this case should be imposed on a meaningful level so as to deter other employers from committing similar contraventions.
65.It is submitted that when imposing penalties, the Court should have regard to the “message sent” in the imposition of penalties, to employers and the community generally, to make it clear that obligations to workers cannot be avoided by misclassifying employees as independent subcontractors.
66.Employers should be in no doubt that they have a positive obligation to ensure compliance with the obligations they owe to their employees under the law. There should also be no doubt as to the importance of mechanisms to enforce these employee entitlements. As observed by Marshall J in Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2):
“It is important to ensure that the protections provided by the Act to employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected.”[70]
67.The Respondents’ conduct in this matter was objectively serious, in that being misclassified as independent subcontractors effectively excluded Mr Liu and Ms Zhou from the benefits of workplace laws, and resulted in them performing significant amounts of work for little or no payment.
68.The Applicant submits that the Court should consider sending a message to the industry in which the Respondent operates.[71] In a competitive service industry such as massage therapy, there can be a pressure to reduce labour costs. Employers must understand that compliance with workplace laws is not optional, and active compliance is particularly important where employers engage workers who may not understand their workplace rights and, as a consequence, may be more susceptible to contraventions.
69.Such conduct is not easily detected or enforced, and it is certainly not possible for the regulator to detect and enforce every breach. The vital role of general deterrence is therefore to educate workplace participants to comply with their workplace obligations to ensure that employees have the full protection and benefit of their workplace rights.”
[69] See for example, Pangaea, supra at [26]-[59] and Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65; (2007) 158 FCR 543 at 559-60 (Lander J).
[70] [2012] FCA 557 at [29].
[71] Flattery v Zefferelli's Pizza Restaurant [2007] FMCA 9, [63]-[66]. See also Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union (2008) 171 FCR 357 at [37].
The respondents submitted:
“41.The Respondents have agreed to the making of declarations in this matter. Such an agreement should be taken into account by the Court when it determines the quantum of penalties to be paid by the Respondents, and the need for those penalties to operate as a general deterrent to other employers.
42.There will be utility in making the declarations sought because they clearly identify the contravening conduct. There is a public interest to be served in making the declarations, in that they will help to educate other employers about their obligations to pay statutory entitlements and to follow the terms set out in an industrial agreement. Making the declarations sought would also mark the Court’s disapproval of the contravening conduct[72]. It would also involve an element of specific deterrence, given that the making of such declarations would have an adverse effect on the personal and professional reputations of the Respondents, such as to deter them from engaging in similar conduct in the future.
43.There is nothing otherwise in the particular circumstances of this case that identify it as an appropriate vehicle to ‘send a message to the industry in which the First Respondent operates’ (cf FWO Submissions at paragraph [68]). As a starting point, there is no evidence that the massage industry is one that suffers disproportionately from poor employment practises. Further, to the extent that it is implicit in the FWO Submissions that the people employed by the First Respondent particular vulnerabilities, there is again no evidence of such matters[73]. There is no evidence that the employees were unfamiliar with Australia’s labour practices or had other features that made them vulnerable to exploitation. Such a conclusion is purely speculative.”
[72] Australian Competition and Consumer Commision v Yellow Page Marketing BV (No 2) [2011] FCA 352 at [66]-[69].
[73] Fair Work Ombudsman v Ultra Tune Australia Pty Ltd [2012] FMCA 560 at [14]
As Counsel for the applicant submitted general deterrence requires an appropriate penalty to act as a deterrent to others who might be likely to offend, I accept there is a need for general deterrence because as Marshall J said in Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557 at [29]:
“It is important to ensure that the protections provided by the Act to employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected.”
Totality principle
In submissions on this issue the applicant noted that having fixed an appropriate penalty for each course of conduct, the Court should take a final look at the aggregate penalty, to determine whether it is an appropriate response to the conduct and is not oppressive or crushing. The applicant submitted that whilst not oppressive or crushing any penalty must bear relativity to the seriousness of the conduct engaged in by the respondents.
In written submissions the respondents’ position was:
“45.In the application of the totality principle, the Court should take into account the following matters:
(a)the various contraventions were the result of the ‘single decision’;
(b)there is no evidence of deliberateness or design in the conduct of the Respondents that led to or occasioned the contraventions;
(c)the lack of similar previous conduct on the part of the Respondents;
(d)the size of the First Respondent’s business, being a modest private business that is in a phase of consolidation, rather than expansion; and
(e)the poor financial circumstances of the First Respondent.
46.It is also the case, given the interrelationship between the First and Second Respondent, that the imposition of a penalty on one entity, will have a corresponding impact on the other.”
The respondents’ submissions above have been dealt with earlier in these reasons. In relation to the admitted contraventions, each one is objectively serious but not at the high range. In light of the submissions on the above mentioned factors, there should be a discount of 25% for the respondents’ cooperation and the other mitigating factors. In the circumstances of this case, it is not appropriate in arriving at a total penalty for the whole of the contravening conduct to impose a penalty in respect of each contravention as if it was the only contravention. I will give effect to this by for the first respondent imposing lower or no penalties for the third, fourth, seventh, tenth and eleventh grouped contraventions. For the second respondent there will be no penalty for the fourth grouped contravention.
Consideration of appropriate penalty
In light of the submissions referred to above and on the material before the Court the factors that are most relevant to the determination of an appropriate penalty for each of the respondents in this matter are:
a)the nature of the conduct, which included contraventions of and failure to comply with minimum conditions and basic obligations central to the enforcement of employee rights under the FW Act;
b)the significant quantum of the underpayments for the affected employees;
c)the level of co-operation;
d)the failure of the respondents to demonstrate genuine remorse; and
e)the need for specific and general deterrence.
Therefore the appropriate penalty for each respondent is:
a)in relation to the first respondent it is appropriate to impose a total penalty for the contraventions of $112,860 (which is 36% of the maximum) made up as follows:
Grouping Penalty failing to pay minimum rate of pay $14,850 failing to pay casual loading $14,850 failing to pay weekend loading $10,000 failing to pay shift loading $10,000 failing to pay overtime $14,850 failing to pay public holiday penalty rate $14,850 failing to pay laundry allowance $5,000 making deductions not authorised by s.324(1) $14,850 failing to make and keep records $7,425 failing to provide pay slips $6,185 failing to include prescribed content in payslips $0 Total $112,860 b)in relation to the second respondent, given the particular involvement of the second respondent it is appropriate to impose a total penalty for the contraventions of $5,940 (which is 36% of the maximum) made up as follows:
Grouping Penalty making deductions not authorised by s.324 $2,970 failing to make and keep records $1,485 failing to provide pay slips $1,485 failing to include prescribed content in payslips $0 Total $5,940
The application of the totality principle does not mean the penalties arrived at before its application must be reduced. Given the maximum possible penalty applicable to the contraventions for each of the respondents and subject to the comments referred to above, the total penalties for each of the respondents is I am satisfied a proper reflection of the totality of the wrong doing and is not oppressive or crushing.
Accordingly, as the Court:
·is directed by the relevant authorities to consider what is appropriate in all the circumstances of this case;[74] and
[74] See Construction Forestry Mining & Energy Union v Coal & Allied Operations Pty Ltd (No.2) (1999) 94 IR 231.
·in its discretion in relation to penalty is not fettered by a checklist of mandatory criteria;[75] and
[75] See Australian Ophthalmic Supplies Pty Limited v McAlary-Smith [2008] FCAFC 8.
·is satisfied the penalty for the whole of the contravening conduct is appropriate; and as the parties chose not make submissions on the time for the payment of any penalty
I make the orders as set out at the beginning of these reasons.
I certify that the preceding seventy four (74) paragraphs are a true copy of the reasons for judgment of Judge O'Sullivan
Date: 10 March 2016
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