Fair Work Ombudsman v Melbourne Digital Pty Ltd
[2024] FedCFamC2G 342
•19 April 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Melbourne Digital Pty Ltd [2024] FedCFamC2G 342
File number: MLG 2430 of 2022 Judgment of: JUDGE FORBES Date of judgment: 19 April 2024 Catchwords: FAIR WORK – failure to comply with compliance notice - penalty proceedings – consideration of factors relevant to penalty – where parties have made statement of agreed facts – admissions made by respondents - whether two compliance notices should be grouped for purposes of penalty – whether there has been cooperation – penalties imposed Legislation: Crimes Act 2009 (Cth) s 4AA
Fair Work Act 2009 (Cth) s 12, 14, 539, 546, 550, 557, 568, 716, 717
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 141
Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (CFMEU) (2018) 262 CLR 157
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128
Fair Work Ombudsman v Ansa Finance Pty Ltd (No 2) [2024] FedCFam
Fair Work Ombudsman v HSCC Pty Ltd [2020] FCA 655
Fair Work Ombudsman v Mai Pty Ltd [2016] FCCA 1481
Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 1323
Fair Work Ombudsman v Pioneer Personnel Pty Ltd [2017] FCCA 3223
Fair Work Ombudsman v Viper Industries Pty Ltd & Anor [2015] FCCA 492
Fair Work Ombudsman v Yogurberry World Square [2016] FCA 1290
Jordan v Mornington Inn Pty Ltd [2007] FCA 1384
Kelly v Fitzpatrick [2007] FCA 1080
Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65
Trade Practices Commission v CSR Ltd [1990] FCA 521
Division: Division 2 General Federal Law Number of paragraphs: 103 Date of hearing: 21 March 2024 Place: Melbourne Solicitor for the Applicant: HWL Ebsworth Lawyers Respondents: In person ORDERS
MLG 2430 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: MELBOURNE DIGITAL PTY LTD
First Respondent
JULIAN SMITH
Second Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
19 APRIL 2024
THE COURT DECLARES BY CONSENT THAT:
1.Melbourne Digital contravened s 716(5) of the Fair Work Act 2009 (Cth) (FW Act), by failing to comply with the Compliance Notices.
2.Mr Smith was involved, within the meaning of s 550(2) of the FW Act, in the contravention by Melbourne Digital, and is taken by s 550(1) to have contravened s 716(5) of the FW Act.
AND THE COURT ORDERS BY CONSENT THAT:
3.Pursuant to s 545(1) of the FW Act, Melbourne Digital take the steps that were required by the Compliance Notices dated 1 October 2021 and 16 November 2021 within 28 days from the date of this order, by:
(a)calculating and paying to the Applicant the outstanding amounts it was required to pay to Mr Aravindan, Mr Shoaib, Mr Evans and Ms Xin pursuant to the Compliance Notices;
(b)calculating and paying to Mr Aravindan, Mr Shoaib, Mr Evans and Ms Xin's nominated superannuation funds any additional superannuation contributions required by clause 17.2 of the Professional Employees Award 2020 or clause 18.1 of the Miscellaneous Award 2020 in respect of their outstanding entitlements;
(c)preparing and producing to the Applicant a schedule outlining its calculations of the outstanding entitlements and additional superannuation contributions required to be paid to Mr Aravindan, Mr Shoaib, Mr Evans and Ms Xin; and
(d)providing proof that the additional superannuation contributions were paid to Mr Aravindan, Mr Shoaib, Mr Evans and Ms Xin.
4.Pursuant to s 547(2) of the FW Act, Melbourne Digital pay to the Applicant interest on the amounts owed within 28 days of the date of this order (such interest to be calculated at the Federal Court of Australia’s pre-judgment interest rate applying at the date of this order).
AND THE COURT ORDERS THAT:
5.Pursuant to s 546(1) of the FW Act:
(a)Melbourne Digital pay a pecuniary penalty of $17,982.00 for its contraventions of s 716(5) of the FW Act; and
(b)Mr Smith pay a pecuniary penalty of $3,596.00 for his involvement in the contraventions by Melbourne Digital of s 716(5) of the FW Act.
6.Pursuant to s 546(3)(a) of the FW Act any pecuniary penalties ordered to be paid by the Respondents be paid to the Consolidated Revenue Fund of the Commonwealth within 28 days.
7.The Fair Work Ombudsman has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
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
In this matter, the Fair Work Ombudsman (the Ombudsman) seeks the imposition of pecuniary penalties pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (FW Act) against the first respondent, Melbourne Digital Pty Ltd (Melbourne Digital), and the second respondent, Mr Julian Smith.
By way of a Statement of Agreed Facts (SOAF) filed on 1 May 2023, Melbourne Digital admitted to contravening section 716(5) of the FW Act by failing to comply with two compliance notices issued by Fair Work Inspector Elizabeth Gillot (FWI Gillot) on 1 October 2021 and 16 November 2021 respectively (the Compliance Notices). The two Compliance Notices relate to alleged underpayments to four separate employees of Melbourne Digital.
Further, Mr Smith admitted that he was involved in Melbourne Digital’s contravention of s 716(5) within the meaning of section 550(2)(c) of the FW Act and, by virtue of that provision, he is also taken to have contravened s 716(5).
On the face of those admissions and the accompanying evidence in support, the Court is satisfied that the respondents are liable for the contravening conduct.
The Ombudsman now seeks declarations which record the company’s contravention of s 716(5) of the FW Act and Mr Smith’s involvement in that contravention pursuant to section 141 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (the FCFCOA Act).
The Ombudsman also seeks the imposition of pecuniary penalties pursuant to section 546(1) FW Act in respect of the respondents’ admitted contraventions.
The matter came before me for a penalty hearing on 21 March 2024. Ms Dempster, solicitor, appeared on behalf of the Ombudsman. Mr Smith appeared on behalf of Melbourne Digital and represented himself.
The Ombudsman relied on the following material in support of its application for penalties and other relief:
(1)the Originating Application and Statement of Claim filed on 3 November 2022;
(2)the SOAF;
(3)the affidavit of Fair Work Inspector Danielle Ruth Partridge (FWI Partridge) affirmed on 1 September 2023; and
(4)the affidavit of Emily Dempster affirmed on 21 March 2024.
The Ombudsman also relied on its written outline of submission on penalties which Ms Dempster developed orally at the hearing.
Mr Smith did not file any evidence or written submission in relation to penalty. He did however make oral submissions and tendered a document which was read into evidence. I will discuss this in more detail later in these reasons.
BACKGROUND
Unless otherwise stated the following background is based on the admissions contained in the SOAF, the pleaded statement of claim and other uncontested evidence derived from affidavits filed by the applicant.
The business and employees
At all relevant times, Melbourne Digital was the operator of an IT business that was involved in software development in Melbourne, Victora. The company has been registered since 18 February 2021 and has its registered office in Little Collins Street, Melbourne, Victoria.
The company is a “constitutional corporation” within the meaning of section 12 of the FW Act and a “national system employer” pursuant to s 14 of the FW Act.
Mr Smith has been the director and secretary of the company since its inception.
In the first half of 2021, Melbourne Digital employed four employees, Ms Aileen Xin, Mr Shareef Evans, Mr Asad Shoaib and Mr Kumar Aravindan (the Employees).
Mr Aravindan and Mr Shoaib were covered by the Professional Employees Award 2020 (Professional Award) and were employed as full-time Software Engineers (Level 1 Graduate professional – Pay point 1.1 (4 or 5 year degree)). Mr Evan and Ms Xin were covered by the Miscellaneous Award 2020 (Miscellaneous Award) and were employed as full-time User Interface/User Experience Designer Level 1.
The Employees were employed by the respondent for varying periods of time (between one and four months respectively). In or around June 2021, the Employees were terminated at or about the same time.
Each of the employees subsequently claimed that during their respective employment periods, the company failed to pay them:
(1)the minimum annual rate of pay under the awards which applied to their employment; and
(2)accrued annual leave and annual leave loading on termination of employment as required by the awards and the FW Act.
Compliance Notices under s 716 FW Act
Between June and September 2021, Ms Xin, Mr Shoaib and Mr Evans each made a request for assistance to the Ombudsman[1].
[1] Affidavit of Fair Work Inspector Danielle Ruth Partridge (FWI Partridge) affirmed on 1 September 2023 at [5]-[7]
In or around August 2021, the Ombudsman commenced an investigation into Melbourne Digital’s compliance with Commonwealth workplace laws (the Investigation).
As a result of the Investigation, FWI Gillott formed a reasonable belief that the company had contravened various provisions of the Miscellaneous Award, the Professional Award and the FW Act.
On 1 October 2021, FWI Gillott issued Melbourne Digital with a compliance notice in respect of the three former employees (First Compliance Notice). The First Compliance Notice required the first respondent to undertake various steps, including by undertaking calculations and rectifying underpayments, by no later than 2 November 2021. The first respondent was also required to produce evidence of compliance to the Ombudsman by 9 November 2021.
It is evident from the affidavit of FWI Partridge that following the issuing of the First Compliance Notice, there was a series of phone conversations and email correspondence between Mr Smith and the Ombudsman. Throughout these conversations, Mr Smith made representations that he was or would be in a position to pay the three former employees[2], however this did not occur.
[2] Affidavit of FWI Partridge affirmed on 1 September 2023 at [19]
It is also evident from the exchange of correspondence that the Ombudsman put Mr Smith on notice that failing to comply with the compliance notice may result in the regulator instigating legal proceedings[3].
[3] Affidavit of FWI Partridge affirmed on 1 September 2023 at [21]
On 19 October 2021, after the Investigation had commenced and the first compliance notice had been served, the Ombudsman received a further request for assistance, this time from Mr Aravindan.
On 16 November 2021, having formed a reasonable belief that the company had breached its obligations to Mr Aravindan, FWI Gillott issued an additional compliance notice to Melbourne Digital in respect of Mr Aravindan’s employment (Second Compliance Notice). The Second Compliance Notice similarly required the Company to perform calculations and to rectify any underpayments. The first respondent was required to comply with the Second Compliance Notice by no later than 16 December 2021 and to produce evidence of compliance by 23 December 2021.
The parties agree that the First and Second Compliance Notices met the formal requirements of s 716(3) FW Act.
By an admission contained in the SOAF, Melbourne Digital acknowledges that it failed to take the specified action prescribed in the Compliance Notices by the respective dates of compliance, or at all, and failed to produce any evidence of compliance by the requisite time, or at all. By reason of these admissions, Melbourne Digital accepts that it contravened s 716(5) of the FW Act[4].
[4] Statement of Agreed Facts (SOAF) at [17]
Litigation background
The Ombudsman instigated these proceedings on 3 November 2022 against the first and second respondents.
On 6 December 2022, the matter first came before me for a first return. Ms Karakinos, a solicitor, appeared on behalf of the Ombudsman and Mr Smith appeared in person. The respondents were ordered to file a response and defence and the matter was otherwise adjourned to a further directions hearing.
The matter returned before me for a further directions hearing on 9 February 2023 where I made further case management orders.
At the next court event, on 3 April 2023, orders were made by consent vacating earlier case management orders, following an indication from the parties that they intended filing a SOAF by the end of April 2023. With the expectation that liability was to be admitted, it was agreed that the matter should be listed for a penalty hearing and the parties were each ordered to file and serve affidavits and written submissions in respect of the imposition of penalties.
On 1 May 2023, the parties filed the SOAF which was signed by all parties. As mentioned, the SOAF recorded that Melbourne Digital admitted to contravening section 716(5) of the FW Act by failing to take specific steps stipulated within the Compliance Notices and for failing to produce reasonable evidence of its compliance. Mr Smith also admitted that he was involved in Melbourne Digital’s contravention of section 716(5).
Pursuant to the SOAF, the respondents have consented to the Court making declarations of the contraventions and orders requiring compliance with the Compliance Notices.
Penalty Hearing
The matter was listed before me for a penalty hearing on 8 December 2023. Prior to that day, and in accordance with my orders, the Ombudsman filed a court book, a number of affidavits and an outline of submissions.
On the morning of the hearing, just prior to its commencement, Mr Smith emailed my chambers indicating that he sought an adjournment of the penalty hearing, as well as a request to attend via video link to make oral submissions.
When the hearing convened, Ms Karakinos appeared on behalf of the Ombudsman and Mr Smith appeared via video conference. Mr Smith made an oral application for an adjournment of the penalty hearing, on the premise that he needed time to get across the large volume of material filed by the Ombudsman and further time to obtain legal representation. The Ombudsman opposed this adjournment on the basis that the respondents had had ample opportunity to consider the Ombudsman’s evidence and submissions.
Ultimately, I allowed the respondents’ adjournment application, re-listing the penalty hearing to 21 March 2024.
After the December 2023 adjournment, the Commonwealth Courts Portal reveals that the respondents were briefly represented by a legal practitioner, however the solicitors withdrew their representation prior to the penalty hearing.
On 21 March 2024, the parties returned before me for a penalty hearing.
Ms Dempster, a solicitor, appeared on behalf of the Ombudsman. At the hearing, Ms Dempster sought to rely upon an additional affidavit which was not contained within the court book. That affidavit deposed to correspondence between the Ombudsman and the second respondent from the December 2023 adjournment to the March penalty hearing.
Mr Smith appeared on behalf of the respondents. Mr Smith did not file any written submission or evidence prior to the hearing, but he made oral submissions. Mr Smith also tendered a letter from an accounting firm dated 1 March 2024 confirming terms of engagement for professional services[5].
[5] Exhibit R1
ORDERS SOUGHT
In accordance with the SOAF made between the FWO and the Respondents, the FWO asks the Court to make:
(a)declarations that Melbourne Digital and Mr Smith contravened the FW Act, pursuant to section 141 of the Federal Circuit and Family Court of Australia Act 2021 (Cth), and sections 567 and 568 of the FW Act;
(b)orders that Melbourne Digital take the steps required by the two Compliance Notices, including making payment to Ms Xin, Mr Evans, Mr Shoaib and Mr Aravindan (collectively, the Employees) of any unpaid wages and superannuation after necessary calculations have been performed;
(c)orders relating to payment of interest; and
(d)orders imposing civil penalties.
STATUTORY FRAMEWORK
If a person fails to comply with a compliance notice, subsection 539(2) of the FW Act allows a Fair Work Inspector to bring civil remedy proceedings against that person and to seek orders to remedy the contravention and orders requiring the payment of pecuniary penalties under section 546 of the FW Act.
The Court has power under section 546(1) of the FW Act to order that a person pay a pecuniary penalty in circumstances where is it satisfied that the person has contravened a civil remedy provision. Section 716(5) is a civil remedy provision.
At the relevant time a contravention of sub-section 716(5) attracted a maximum penalty of 30 penalty units for an individual. For breaches occurring between 1 July 2020 and 1 July 2023, the value of a penalty unit is $222[6]. The maximum penalty for contraventions of sub-section 716(5) is $6,660.00 for an individual and $33,300.00 for a corporate respondent.
[6] Crimes Act 2009 (Cth) s 4AA
The Ombudsman submits that the respondents’ failure to comply with the two Compliance Notices should be treated as two separate contraventions of section 716(5) FW Act for which the aggregate maximum penalty is $13,320 for the individual respondent and $66,600 for the corporate respondent (Aggregate Maximum Penalty Amount). The regulator asserts that subsection 557(1), which provides that certain contraventions can be treated as a single contravention where they arise out of a single “course of conduct”, does not apply to the contraventions of subsection 716(5). I will discuss the Ombudsman’s submission in relation to this issue later in these reasons.
The Ombudsman submits that Melbourne Digital and Mr Smith should pay a headline penalty in the range of 60% of the Aggregate Maximum Penalty Amount, subject to a 10% discount for cooperation and a further 10% totality adjustment. In dollar terms, the penalties sought as are follows[7]:
[7] Amended Appendix A to the Ombudsman’s written submissions
Respondent Aggregate Maximum Penalty Amount Recommended penalty range 60% 10% cooperation discount 10% totality discount Melbourne Digital $66,600 $39,960 $35,964 $32,367.60 Mr Smith $13,320 $7,992 $7,192.90 $6,473.52 CONSIDERATION
In its written submission on penalty, the Ombudsman set out the well-known principles which guide the Court in determining an appropriate penalty amount. Those principles are well- established and have been rehearsed in numerous decisions of this court. I do not propose to repeat them at length here.
Suffice to say, the Court has a broad discretion to assess the appropriate penalty and deterrence is the “principal object of an order that a person pay a pecuniary penalty under s 546”[8].
[8] Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (CFMEU) (2018) 262 CLR 157; Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 (Pattinson)
Fundamental to the Court’s task is an assessment of the gravity and seriousness of the offending which it is called upon to penalise, having regard to all relevant factual circumstances. The considerations deemed relevant to this task include[9]:
[9] Trade Practices Commission v CSR Ltd [1990] FCA 521 at [42]; see also Pattinson at [18]; Kelly v Fitzpatrick [2007] FCA 1080 at [14]
·the nature and extent of the conduct which led to the breach;
·the circumstances in which the conduct took place;
·the nature and extent of any loss or damage sustained as a result of the breach;
·whether there has been similar previous conduct by the respondent;
·whether the breach was properly distinct or arose out of one course of conduct;
·the size of the business enterprise involved;
·whether or not the breach was deliberate;
·the involvement of senior management in the breach;
·whether the party committing the breach has shown contrition;
·whether the party committing the breach has taken corrective action;
·whether the party committing the breach has cooperated with enforcement authorities;
·the need to ensure compliance with minimum standard by provision of an effective means for investigation and enforcement of employee entitlements; and
·the need for specific and general deterrence.
In Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 (Pattinson), the High Court reiterated that this list of possible relevant considerations ought not to be treated as a checklist. There is no specific order in which these matters should be considered. The Court may take into consideration matters relevant to both the character of the contravening conduct and of the contravener[10]. The Court's task is and remains the determination of the most appropriate penalty given all of the relevant circumstances of the case[11].
[10] Pattinson at [19]
[11] Pattinson at [68]
General deterrence
The public interest in compliance with provisions of the FW Act is promoted by way of deterrence of further contraventions[12].
[12] Pattinson at [71]
A penalty must not be seen as the “cost of doing business”[13]. Compliance with the law should be encouraged by ensuring that contraventions are viewed, by contraveners and others, as an economically irrational choice[14].
[13] Fair Work Ombudsman v Yogurberry World Square [2016] FCA 1290 at [27]
[14] Pattinson at [66]
Attaching a meaningful consequence for contravention of the compliance notice scheme is necessary in preserving the overall efficacy of the statutory notice scheme. The penalty “should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by likeminded persons or organisations”[15]
[15] Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65 at [93] (Lander J)
Specific deterrence
Specific deterrence is aimed at ensuring that a specific contravenor does not engage in the same contravening conduct in the future[16].
[16] Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128 at [50]
The Ombudsman identified that there is particular need to deter Melbourne Digital from engaging in the same contravening conduct for the following reasons:
(1)the company is still registered; and
(2)the respondents, by their admitted conduct, have collectively demonstrated a disregard for the company’s obligations under the FW Act to comply with the Notices.
Furthermore, the Ombudsman also says there is a particular need to deter Mr Smith from being involved in similar contravening conduct in the future, as he currently runs another business, Main Street Ventures Pty Ltd (ACN 641 563 466) as well as maintaining his interest as principal of the first respondent.
In his oral submission, Mr Smith acknowledged that his former employees have been underpaid. He has not wavered from that admission and states that it has always been his intention to rectify these underpayments.
Mr Smith informed the Court that after taking some legal advice he has recently taken steps to engage a firm of accountants to perform the necessary calculations to ensure compliance with the Compliance Notice and to perform ongoing payroll administration into the future. In support of that submission he tendered a letter from Moore Australia dated 1 March 2024[17] which confirmed the engagement of the accountants. He submitted that this step should be taken into account as demonstrating his commitment to complying with the outstanding Compliance Notices and his commitment to ongoing compliance with Commonwealth workplace laws.
[17] Exhibit R1
Mr Smith also submitted, albeit without evidence, that the Respondents were now, or shortly will be, in a financial position to address the Compliance Notices, including by rectifying any underpayments to the former employees. He acknowledged that the Court should set a penalty informed by deterrence, but urged the court to accept that all along he had the intention to see the former employees set right.
Notwithstanding Mr Smith’s submissions, the Ombudsman submits that little weight should be attached to the engagement of the accountants (Exhibit R1), noting that more than two years had passed without any rectification. The Ombudsman submits that the respondents have only recently taken steps toward compliance, implying that their actions are self-serving and aimed at reducing penalty. The Court also notes that there have been a number of previous representations in correspondence with the Ombudsman that rectification of underpayments was imminent, however each was a false dawn.
Nature, circumstances and deliberateness of the contravening conduct
The Ombudsman submits that the relevant circumstances of the respondents’ non-compliance are as follows:
(1)the respondents were on notice from as early as 1 October 2021 in relation to the First Compliance Notice (and again on 16 November 2021 for the Second Compliance Notice) that failure to comply with the Notice may result in the Ombudsman commencing proceedings in which civil penalties would be sought;
(2)the company did not take steps to comply with the Compliance Notices by the time specified for compliance, or at all;
(3)the company has admitted it did not have a reasonable excuse for non-compliance with the Notices; and
(4)the company has still not taken the steps to comply with the Compliance Notices.
The Ombudsman contends that the respondents’ conduct is serious. Their failure of compliance is asserted to demonstrate a deliberate disregard for the company’s obligations under the FW Act and profound disrespect for the role of the Ombudsman as a regulator of Commonwealth workplace laws. The Ombudsman submits that the company’s failure to comply with the Compliance Notices necessitated this present litigation.
The Ombudsman submitted that before the commencement of these proceedings, multiple opportunities had been extended to the respondents to comply with the Notices. Nonetheless, the regulator states that since the Notices were issued there has been a complete failure to comply.
At the penalty hearing, the Ombudsman did concede that some calculations had been performed and recorded in a spreadsheet by the second respondent (being one of the steps required by the Compliance Notices). However, it was submitted that these efforts should be afforded little weight, even as evidence of an attempt to comply, as they failed to address any of the particulars required by the Notices.
The Ombudsman submits that insofar as the respondents have had means available to them to rectify underpayments, they have made a conscious decision to deploy funds to other priorities. That decision should be taken to evidence their deliberate disregard for Compliance Notices. As I have discussed in previous judgments, in the absence of a reasonable excuse, failing to comply with compliance notices portrays the “prioritisation of the respondents’ own interests at the expense of the minimum entitlements of the former employees”[18]
[18] Fair Work Ombudsman v Ansa Finance Pty Ltd (No 2) [2024] FedCFamC2G at [90]
The second respondent made numerous representations about the respondents’ financial circumstances and their intention to rectify the underpayments. However, the Court was never provided any evidence of those financial circumstances. The simple fact is that earlier promises to pay the employees have not materialised.
Mr Smith submitted that any underpayments were the product of oversight or mistakes, rather than being deliberate. He gave oral evidence that when setting up the nascent Melbourne Digital business he intended that employees should be paid at least 15% above applicable award rates. He said that there was no incentive to pay uncompetitive rates in the IT industry, as staff were difficult to hire and retain.
He also submitted, again without any evidence, that the fledgling business had engaged a young university graduate to perform payroll and other related functions and that the underpayments arose from unspecified errors made by that person. Mr Smith argued that the underpayments were caused by inexperience in the back-office function – an issue which would now be rectified by the engagement of professional accountants.
Nature and extent of loss
The Ombudsman submits that the four employees have incurred substantial losses stemming from the respondents’ failure to comply with the Notices. The Ombudsman estimates that the amount owed is approximately $35,468.95. The employees have still not been paid. The Ombudsman asserts that the delay in the employees receiving these entitlements is a loss flowing from the respondent’s failure to comply with the Notices.
The Ombudsman contends that the respondents’ failure to comply with the compliance notices also occasions a more public loss[19]. The Ombudsman submits that the failure to comply erodes and undermines the overall utility and efficacy of the statutory scheme as a cost-effective process to rectify identified contraventions of the FW Act.
[19] Fair Work Ombudsman v Viper Industries Pty Ltd & anor [2015] FCCA 492 at [42]
As mentioned earlier, the Ombudsman conceded that the second respondent had provided the regulator with a spreadsheet of calculations in November 2021 which purported to show the quantity of the underpayments. However, the Ombudsman submitted that there were deficiencies within this document and that it should not be taken as a serious attempt by the respondents to do what was required by the notices.
Vulnerable workers
The Federal Court has said that it may be inferred that visa workers are less likely to have familiarity with rates of pay[20] and that this is a factor relevant to the seriousness of the respondents’ conduct and penalty. The Ombudsman submits that two of the employees, Mr Aravindan and Mr Shoaib were vulnerable, as they were foreign nationals working in Australia pursuant to a subclass 485 visa (temporary graduate visa).
[20] Fair Work Ombudsman v HSCC Pty Ltd [2020] FCA 655 at [48]
At the hearing, the Court drew the attention of the Ombudsman to the fact the employees were actually on different visas (Mr Aravindan had been granted a Training (subclass 407) visa and Mr Shoaib held a Skilled – Independent (subclass 189) visa). Notwithstanding, Ms Dempster maintained the submission that both employees should be treated as vulnerable, and that even a person on a skilled visa should be taken to have little familiarity with local laws.
In oral submission, Mr Smith refuted any imputation that he sought to exploit his employees, specifically those who had been granted working visas. To the contrary, he submitted that Melbourne Digital had a strong commitment to cultural diversity and employee equity. Mr Smith said that he deliberately made an attempt to employ people who were on working visas, in order to provide them an opportunity for career growth. He also said that all employees of Melbourne Digital, including foreign workers, had the opportunity to qualify and participate in an employee share scheme. Singling out one of the employees who was on a working visa (Mr Aravindan), Mr Smith said that he had recently been contacted by him seeking a reference. Mr Smith said he bore no animosity and was delighted to assist Mr Aravindan.
Compliance with minimum standards
The Ombudsman submitted that the purpose of the FW Act is to provide a guaranteed safety net of fair, relevant and enforceable minimum standards to all employees. To be able to enforce these terms, the Ombudsman submits that inspectors must be able to exercise their compliance powers effectively. It asserts that the company’s failure to comply with Notices undermines this enforcement framework and the safety net of entitlements.
The failure to comply with a statutory notice properly issued by the Ombudsman should be regarded as serious. The efficacy of statutory notices such as compliance notices, indeed the whole compliance framework, will be significantly diminished if recipients perceive that a failure to comply carries no meaningful consequences.
Size of business
It is well-established that the size and financial circumstances of an employer do not exculpate contraventions of workplace laws, and that capacity to pay a penalty will be of less relevance than the objective of general deterrence. Regardless of the size of the business or its financial position, an employer cannot be absolved of its obligations to comply with Commonwealth workplace laws.
When looking to the extent that the financial circumstances of a contravener are taken into the Court’s consideration when determining penalty, his Honour Justice Heerey in Jordan v Mornington Inn Pty Ltd [2007] FCA 1384, stated at [99] that:
“In any event, to the extent that financial hardship might mitigate what would otherwise be an appropriate penalty, such an argument would need to be based on evidence.”
The Ombudsman submits that throughout the investigation, the respondents contended that they were unable to comply with the Notices because they “had no funds”. However, the Ombudsman submits that this refrain sits uncomfortably with the company’s recent purchase of a property in Box Hill, Victoria using funds secured by Mr Smith’s person loan[21].
[21] FWI Partridge’s Affidavit at [16]-[17] and [33] and annexures DP-22, DP-26, DP-27
At paragraphs [6] and [7] of Mr Smith’s affidavit sworn on 22 December 2023, he alluded to the impact of the COVID-19 pandemic which presented “operational challenges” over the previous years. Otherwise, at the penalty hearing, the respondents provided no tangible evidence to the Court regarding the financial circumstances of Melbourne Digital from around the time that the relevant compliance notices were issued up to the present day.
The respondents were afforded the opportunity to file evidence and make submissions as to penalty, however, they did not avail themselves of that opportunity. Accordingly, there was nothing that could satisfy the Court that the financial state of the business was a mitigating factor.
Corrective action, cooperation with the Ombudsman and contrition
The Ombudsman submits that a 10% discount should be given to the respondents to reflect the admissions they made in the statement of agreed facts, which of course, obviated the need for a liability hearing.
However, the Ombudsman otherwise submits that there has been an absence of any real contrition or cooperation on the part of the respondents. For example, the respondents are yet to undertake any corrective action including undertaking any of the pecuniary and non-pecuniary steps specified in the Compliance Notices.
The Court will always place greater weight on cooperation which is “meaningful, active or early”[22]. In that context, the Ombudsman submits that limited weight should be placed on the respondents’ cooperation in the present case because they only engaged with the Ombudsman when left with little option but to concede liability. Implicit in the Ombudsman’s submission was the suggestion that the SOAF was self-serving and, like the recent engagement of accountants, was window dressing aimed at minimising penalty.
[22] Fair Work Ombudsman v Pioneer Personnel Pty Ltd [2017] FCCA 3223 at [47]; Fair Work Ombudsman v Mai Pty Ltd [2016] FCCA 1481 at [145]; Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 1323 at [43]
Grouping
The Ombudsman submits that the respondents’ failure to comply with the two Compliance Notices are two separate and distinct contraventions of the FW Act and that they should be treated as such, asserting that section 557 of the FW Act does not apply and the contraventions should not be grouped.
The Ombudsman submits that in this case there was not an “interrelationship between the legal and factual elements of two to more offences for which an offender has been charged” such as to present a risk that a contravener would be punished twice for the same crime. The Ombudsman asserted that the legal and factual elements of the respondents’ contraventions were distinct for the following reasons:
(1)the compliance notices were issued 6 weeks apart;
(2)the compliance notices concerned different employees of the first respondent; and
(3)there was a separate and distinct obligation for the first respondent to comply with them, in circumstances where the respondents did not seek to challenge the validity of the notice under s 717 FW Act.
At the hearing, the question of whether the two contraventions should be grouped and treated as one was raised by the Court. Notwithstanding the non-application of s 557, it remains open to the court to exercise its discretion to group contraventions when they share a common fact substratum or other common elements or themes.
The Ombudsman maintained that the two contraventions did not arise from a single “course of conduct” and that they should not be grouped.
Mr Smith made oral submissions that the two compliance notices should be treated as one as the four employees identified in the two Notices were each part of the same cohort. He confirmed that they were in fact the only employees of Melbourne Digital at the relevant time and that they all performed similar work. They were all involved in user interface design, with Mr Aravindan and Mr Shoaib being employed as software engineers and Mr Evans and Ms Xin employed as user experience and interface designers.
Mr Smith stated that the four employees left at the same time, in or around June 2021, and that the underpayments were caused by the same administrative oversight. He submitted that the only reason two Compliance Notices were issued was because one employee has raised a complaint with the Ombudsman several weeks after the other three employees had made complaints.
As a fallback, the respondents contended that if the two contraventions are regarded as separate courses of conduct, that an appropriate penalty for each of the respondents would be 40% of the Aggregate Maximum Penalty Amount, less a 20% discount for cooperation and a further 10% discount for totality, calculated as follows:
Respondent Aggregate Maximum Penalty Amount Recommended penalty range 40% 20% cooperation discount 10% totality discount Melbourne Digital $66,600 $26,640 $21,312 $19,180.80 Mr Smith $13,320 $5,328 $4,262.40 $3,836.16
In my view, the two Compliance Notices should be grouped and treated as a single contravention of s 716(5). The two Notices were issued only weeks apart. Ms Dempster conceded that the reason for the two Notices was a function of the timing of employee complaints to the Ombudsman. The two Notices covered all of the employees of the company. All the employees were terminated at or about the same time. In so far as the claims for annual leave are concerned, those claims all crystalised at the time the employees left. Amongst the employee group, two were covered by one award and two were covered by another, yet the two Notices were not split along those or any other rational lines. The evidence suggests that there was one investigation which gave rise to two Compliance Notices.
Save for the timing of the complaints, the Ombudsman has not offered any explanation as to why there were two Notices. Further, the Ombudsman elected to prosecute contraventions of the two Notices in the one proceeding and presumably saw efficiencies in doing so. The evidence adduced by the Ombudsman is common to the four employees and the two notices.
While all cases turn on their own facts, I am of the view that there is a commonality with the two Notices and ultimately that they arose out of a single “course of conduct”. For that reason the two contraventions should be grouped as one, and the penalty assessed on that basis.
The Court did ask the Ombudsman whether the penalty it sought would differ if the Court were to group the two contraventions as one. The Ombudsman submitted that if that were to occur, the regulator would seek 70-80% of the maximum penalty amount with a 10% discount for cooperation and that there should be no totality allowance given. In dollar terms, the Ombudsman would seek a penalty of between $20,979 and $23,976 for Melbourne Digital and $4,264.80 and $4,975.20 for Mr Smith.
CONCLUSION
As mentioned above, I am satisfied that these contraventions arose from a single course of conduct and that they should be grouped and treated as one.
The Ombudsman has not advanced any evidence that either of the respondents has contravened a Commonwealth workplace law in the past. Accordingly, the respondents should be treated as first time contraveners and the assessment of penalty should take that into account.
Having regard to all of the factors discussed above, I have decided that a penalty of 60% of the maximum is appropriate for each respondent. I consider the contravention to be serious and deserving of a significant penalty to ensure the objectives of general and specific deterrence are advanced.
I do propose to allow a discount of 10% of the penalty amount for cooperation, contrition and corrective action. Notwithstanding the Ombudsman’s submission that I should give this consideration limited weight, I am satisfied that the making of the SOAF avoided considerable costs and that the engagement of professional accountants to assist with current and future compliance is a meaningful positive step. The penalties shall be calculated as follows:
Respondent Maximum Penalty Amount Penalty of 60% After 10% cooperation discount Melbourne Digital $33,300 $19,980.00 $17,982.00 Mr Smith $6,660 $3,996.00 $3,596.00
In treating the alleged contraventions as one for penalty purposes, there is no requirement for any further totality adjustment. I am satisfied that the penalties strike a reasonable balance between deterrence and oppressive severity, in circumstances where there is no evidence to suggest that the penalties would be either crushing or oppressive.
Save for the quantum of penalty, I will otherwise make the declarations and orders proposed in Annexure A to the Ombudsman’s written outline of submissions. I note those declarations and orders are sought by consent.
I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 19 April 2024
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