Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd
[2013] FCCA 1323
•15 August 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v METRO NORTHERN ENTERPRISES PTY LTD | [2013] FCCA 1323 |
| Catchwords: INDUSTRIAL LAW – Penalties – sham-contracting – underpayment of award entitlements and accrued annual leave – no appearance by respondent. |
| Legislation: Fair Work Act 2009, ss.44, 45, 57, 90, 92, 357, 539, 546, 557 Federal Circuit Court Rules 2001, r.9.4 |
| Australian Building & Construction Commissioner v Inner Strength Steel Fixing Proprietary Limited [2012] FCA 499 Workplace Ombudsman vSaya Cleaning Pty Ltd (2009) 61 AILR 101-000 |
| Applicant: | FAIR WORK OMBUDSMAN |
| Respondent: | METRO NORTHERN ENTERPRISES PTY LTD ABN 75 106 277 383 |
| File Number: | SYG 1361 of 2011 |
| Judgment of: | Judge Barnes |
| Hearing date: | 15 August 2013 |
| Delivered at: | Sydney |
| Delivered on: | 15 August 2013 |
REPRESENTATION
| Solicitors for the Applicant: | Fair Work Ombudsman |
| Respondent: | No appearance |
ORDERS
The Respondent pay penalties pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (the FW Act) in the total amount of $161,700 in respect of the respondent's contraventions of the FW Act as follows:
(a)A penalty of $23,100 be imposed on the Respondent, in respect of its contravention of s.357(1) of the FW Act by representing to Dion Carroll that the contract of employment under which he was or would be employed by the Respondent was a contract for services under which he would perform work as an independent contractor;
(b)A penalty of $23,100 to be imposed on the Respondent, in respect of its contravention of s.357(1) of the FW Act by representing to Kathleen Coulton that the contract of employment under which she was or would be employed by the Respondent was a contract for services under which she would perform work as an independent contractor;
(c)A penalty of $23,100 be imposed on the Respondent, in respect of its contravention of s.357(1) of the FW Act by representing to Leah Swan that the contract of employment under which she was or would be employed by the Respondent was a contract for services under which she would perform work as an independent contractor;
(d)A penalty of $23,100 be imposed on the Respondent, in respect of its contravention of s.357(1) of the FW Act by representing to Stephanie Morgan that the contract of employment under which she was or would be employed by the Respondent was a contract for services under which she would perform work as an independent contractor;
(e)A penalty of $19,800 be imposed on the Respondent, in respect of its contravention of s.45 of the FW Act by failing to pay an hourly rate to Dion Carroll, Kathleen Coulton, Leah Swan and Stephanie Morgan (the Employees) in accordance with subclause A.3.3 of Schedule A to the Commercial Sales Award 2010 (the Modern Award);
(f)A penalty of $16,500 be imposed on the Respondent, in respect of its contravention of s.45 of the FW Act by failing to pay the Employees overtime in accordance with subclause A.3.3 of Schedule A to the Modern Award;
(g)A penalty of $16,500 be imposed on the Respondent, in respect of its contravention of s.45 of the FW Act by failing to pay a vehicle allowance to Leah Swan in accordance with subclause 16.8(a) of the Modern Award;
(h)A penalty of $16,500 be imposed on the Respondent, in respect of its contravention of s.44 of the FW Act by failing to pay the Employees accrued annual leave on termination in accordance with s.90(2) of the FW Act;
The Respondent is to pay the penalty to the Consolidated Revenue Fund of the Commonwealth pursuant to s.546(3)(a) of the FW Act within twenty-eight days of today’s date.
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 SYDNEY |
SYG1361 of 2011
| FAIR WORK OMBUDSMAN |
Applicant
And
| METRO NORTHERN ENTERPRISES PTY LTD ABN 75 106 277 383 |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
On 29 June 2011 the Fair Work Ombudsman (FWO) commenced proceedings alleging that the Respondent, Metro Northern Enterprises Pty Ltd (Metro), contravened s.357(1) of the Fair Work Act2009 (Cth) (the Act) by representing to Dion Carroll, Kathleen Coulton, Leah Swan and Stephanie Morgan (the complainants) that the contracts of employment under which they were or would be employed were contracts for services under which they performed or would perform work as independent contractors. In addition, the FWO alleged that the complainants were underpaid their lawful entitlements under the Commercial Sales Award 2010 and the National Employment Standards as found in the Act.
After a contested hearing, on 7 May 2013 I made declarations that Metro had contravened ss.357(1), 44 and 45 of the Act in various respects (see Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 216 (the liability judgment)).
Orders were made by consent on 29 May 2013 quantifying the amounts to be paid by Metro to the four complainants and directing the parties to file and serve affidavits in relation to penalty. The hearing on penalty was listed for 15 August 2013.
FWO filed and relies on affidavits of Claudia Mayo affirmed on 12 July 2013 and Mais Bwadi affirmed on 14 August 2013. However, Metro did not file any affidavits or submissions in relation to penalties
The solicitors for Metro notified the solicitors for the Fair Work Ombudsman by letter of 14 June 2013 that their instructions had been withdrawn and that they were further instructed that the respondent had ceased to trade on 30 April 2013. The respondent’s solicitors filed a notice of intention to withdraw on 18 June 2013 and a notice of withdrawal of lawyer on 2 July 2013. After Metro’s solicitors ceased to act, the Applicant’s solicitors communicated directly with Metro by mail, serving documents on it, advising it of its obligations, the need to attend the penalty hearing and the likelihood of pecuniary penalties.
Ms Bwadi gave affidavit evidence of attempts to contact Metro by telephone calls to the telephone number provided in the notice of intention to withdraw and of a voicemail response: “This is Clinton – leave a message”. Clinton Bizimovski is the son of the only director of Metro and was a witness in these proceedings. Ms Bwadi left a voicemail message but was not contacted (apart from a phone call from the number in question in which the caller terminated the call after Ms Bwadi identified herself as from the Fair Work Ombudsman’s office).
In addition, on 14 August 2013 Ms Bwadi conducted an Australian Securities and Investment Commission (ASIC) search for the respondent which indicated that it was currently registered with ASIC. There is no evidence before the Court to suggest that Metro is in administration, being wound up or in liquidation.
The penalties sought were explained in detail in the FWO’s written submissions. These submissions and the FWO’s substantive affidavit evidence were served on Metro. It appears that Metro is no longer legally represented. There was no appearance today for Metro. No explanation was provided for this non-appearance. Nor did anyone seek leave to appear on behalf of the respondent in accordance with r.9.4 of the Federal Circuit Court Rules 2001 (Cth).
I was satisfied that the respondent was on notice of the proceedings today and that it was appropriate to proceed with the penalty hearing in its absence.
Metro’s failure to participate in any way in the penalty proceedings meant that it did not take the opportunity to put any submissions or evidence before the Court relevant to the penalties sought by the FWO. As discussed below, Metro’s conduct is also relevant to penalty, insofar as it reflects its attitude, cooperation and contrition.
Turning to the circumstances of these proceedings, Metro operated a homeware sales business trading as Nutrimax International. It engaged the four complainants for short periods of time between January or February to March 2010. Relevantly, I found that the complainants were employees and not independent contractors. They were engaged by Metro to generate sales of Metro’s cookware and homeware products by a specified process which involved approaching members of the public in public places such as shopping centres and offering them an opportunity to enter and to win a competition determined and set by Metro. Metro thus obtained contact details. The complainants used these details to contact such individuals and make arrangements to attend their homes to demonstrate Metro’s products and to attempt to make sales of kitchenware packages costing some $5,000.
As discussed at some length in the liability judgment, during this process Metro maintained effective control over the working conditions and work of the complainants. Despite this, they were told that they were independent contractors and they were paid only on a commission basis. The circumstances in which this occurred, the training the complainants undertook and the contractual documents they signed are discussed in detail in the liability judgment.
I found that Metro breached s.357(1) of the Act in that it misrepresented to the four employees that their contracts of employment were contracts for service under which they would perform work as independent contractors. I also found that the complainants, as employees, were covered by the Commercial Sales Award 2010 (the Modern Award) which had been contravened by Metro in that it had underpaid minimum rates of pay, failed to make any payments of overtime and failed to pay a vehicle allowance to one of the employees on multiple occasions. In addition, Metro contravened a provision of the National Employment Standards (s.90(2) of the Act) in that it failed to pay accrued annual leave on termination of employment.
The complainants worked for Metro for differing numbers of hours. It is difficult to be accurate in relation to the amount of time worked. Metro did not keep records and the employees’ records were not entirely accurate. However it is clear that they received only very limited commission payments.
On 29 May 2013 I made orders by consent that Metro make payments to each of the complainants amounting to $10,071.52 in total. The net individual amounts owed (including interest) ranged from a little over $1,880 to over $3,130. These amounts were to be paid by 26 June 2013. No such payments have been made. The FWO has calculated that the amounts that the four complainants were in fact paid by Metro represented payment at rates of something between 88 cents to $6.37 per hour.
Section 357(1) of the Act was contravened in relation to each of the four employees. Metro also contravened s.45 of the Act in relation to the minimum rates of pay for each of the employees, the failure to pay overtime to each employee and the failure to pay a vehicle allowance to Leah Swan. It contravened s.44 of the Act by the failure to pay annual leave to each complainant on termination. Each contravention of the Act was subject to a maximum penalty of $33,000 at the time of contravention (see s.539 of the Act in effect at the relevant time).
The Court was assisted by detailed written and oral submissions from the FWO. It was submitted that significant penalties were appropriate in all the circumstances because of a range of factors, having particular regard to what was said to be the significant amount of the underpayment in the context of the short period of time in question, the serious nature of sham-contracting contraventions, the need for specific and general deterrence, (particularly in the commercial sales industry), Metro’s lack of cooperation and contrition and its failure to rectify the contraventions by paying the money owed to the employees pursuant to the consent orders of 29 May 2013.
In oral submissions the FWO emphasised that one director of the respondent company, referred to in these proceedings as Mr Danny Bizimovski, was the directing mind and will of Metro and that Metro had not established that it was not reckless in the sense provided for in s.357(2) of the Act. It was also submitted that, having regard to Metro’s conduct prior to, during and after the proceedings, in an overall sense it could be said to have engaged in deliberate conduct. The FWO contended that Metro had not only deliberately attempted to limit its liability to those who sold its cookware, but that it had also demonstrated a lack of contrition and cooperation and a very high level of recklessness in relation to its obligations under the law. The manner in which Metro had failed to cooperate or even participate in relation to the penalty proceedings was also said to be relevant in relation to the appropriate penalty to be imposed.
The FWO highlighted the impact of the contraventions on the employees of Metro. As well as the evidence of the complainants, there is evidence before the court of a complaint to the FWO by another person who worked for Metro, who was not included as a complainant in these proceedings, but to whom money was said to be owed on a similar basis.
It was also submitted that Metro had reaped the positive benefit of not having to pay monetary entitlements to employees compared to other businesses observing the law and meeting their full obligations to employees. In the context of the present case the need for general deterrence was said to be of particular significance.
It is clear that the court has power pursuant to s.546 of the Act to impose pecuniary penalties in respect of contraventions of the Act if satisfied that a person has contravened a civil remedy provision. Sections 357, 44 and 45 of the Act are civil remedy provisions (also see s.539 of the Act).
It is necessary to identify the separate contraventions committed by Metro. The starting point is that each breach of each separate obligation under the Act is to be regarded as a separate contravention (Gibbs v The Mayor, Councillors and Citizens of the City of Altona (1992) 37 FCR 216 per McIver and Healey JJ), as is each breach of a workplace instrument such as the Modern Award. However it was acknowledged by the FWO that the Court is to consider whether breaches of a particular civil remedy provision are to be taken to constitute a single course of conduct in accordance with s.557 of the Act. In addition, to the extent that two or more contraventions have common elements, this is to be taken into account in determining the appropriate penalty in all the circumstances. This is in recognition that a respondent should not be penalised more than once for the same conduct and that penalties should be an appropriate response to the conduct of the respondent (see Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 (“Merringtons”)). This initial task is distinct from and in addition to the final application of the totality principle (see Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383) and the ultimate need to consider whether the total penalty is an appropriate response to the conduct which led to breaches, applying an instinctive synthesis in making that assessment (also see Kelly v Fitzpatrick (2007) 166 IR 14).
In identifying the contraventions it is appropriate to have regard first to s.557 insofar as it is applicable. Section 557(1) is as follows:
For the purposes of this Part, 2 or more contraventions of a civil remedy provision referred to in subsection (2) are, subject to subsection (3), taken to constitute a single contravention if:
(a) the contraventions are committed by the same person; and
(b) the contraventions arose out of a course of conduct by the person.
Contraventions of s.44(1) and s.45 of the Act are specifically included in s 557(2) of the Act (see s.557(2(a) and (b)). However s.357(1) of the Act (the sham-contracting contravention) is not included in the specific list of contraventions in s.557(2) to which the provisions of s.557(1) apply. This must be seen as reflecting a deliberate decision by the legislature that the course of conduct provisions in s.557(1) are not to apply to sham-contracting contraventions.
It was conceded that Metro has the benefit of s.557 of the Act in relation to the repeated underpayment contraventions, notwithstanding that they related to multiple employees on multiple occasions. That concession is properly made, as such contraventions arose out of a course of conduct by Metro. The FWO seeks only single penalties in relation to each category of contravention apart from the contraventions of s.357(1) of the Act.
In relation to the contraventions of s.357(1) of the Act, while the nature of the multiple misrepresentations to the individual employees have common elements and occurred in training (which in some cases was common training), these contraventions do not represent one transaction. Notwithstanding some commonality in the circumstances in which the contraventions occurred, the complainants made individual responses to employment advertisements and misrepresentations in training. Metro has not made any submission to the effect that there was a single course of conduct from which all of the contraventions of s.357(1) of the Act flowed. The clear policy of the legislature to exclude s.357 contraventions from s.557 is relevant to whether or not the contraventions should be regarded as one contravention or four separate contraventions. On balance, having regard to the particular circumstances in this case, including the circumstances of the misrepresentations to each of the complainants detailed in the liability judgment, I consider that it is appropriate to set separate penalties for each of the four sham-contracting contraventions.
There is no justification in the material before the Court to further reduce the number of penalties beyond those which I have outlined. It is appropriate that penalties be imposed for eight contraventions, each of which would be subject to a maximum penalty of $33,000.
As the FWO contended, this means the potential maximum penalty to be imposed would be $264,000. It was submitted that in the particular circumstances of this case a total penalty in the order of $161,700 was appropriate.
It is necessary to consider the appropriate penalty for single breaches and, if relevant, each group of contraventions taking into account all of the relevant circumstances. In fixing the penalties in relation to each of the contraventions I have borne in mind the commonality in the conduct involved (see Fair Work Ombudsman v Happy Cabby Pty Ltd [2013] FCCA 397).
Otherwise, the factors relevant to the determination of penalties are well-known. There is a useful summary in Mason v Harrington Corporation [2007] FMCA 7 listing a number of factors that have been subsequently adopted by the Federal Court in Kelly and in other cases. I bear in mind that this is a convenient checklist. It does not restrict the matters which may be taken into account in the exercise of the court’s discretion (as was pointed out in Merringtons at [91].) The FWO addressed each of these factors in submissions and also referred to the effect of Metro’s conduct on the employees, the employer and on other employers. I have considered all of the circumstances of this particular case.
Relevant to the circumstances in which the conduct took place and the nature and extent of the conduct, the contraventions involve sham-contracting and underpayment of entitlements. They all arose out of the fact that the four complainants were treated as independent contractors and hence not paid their entitlements as employees. In other words, as a consequence of the respondent’s misrepresentations that the employment relationships were contracts under which they performed work as independent contractors they did not receive minimum employee entitlements under the Act (either under the National Employment Standards or under the Modern Award)
As discussed in the liability judgment, Metro set up and operated its business and lured persons into responding and participating in the business in a manner which meant that the complainants understood that their entitlements to payment were limited to an entitlement to commission. This was presented to them in such a manner that they clearly thought that it was to their advantage to be paid on this basis. They did not understand the precise legal nature of their contracts with Metro.
This is not a case in which there was a simple underpayment of employees. Rather, having previously operated a similar business, Mr Bizimovski set up a business in 2003 which used job advertisements expressed in the language of employment which were intended to lure people, including young people and unskilled people, to believe they were employees. The persons who responded to such advertisements did not need a high level of skill to perform the tasks.
Mr Bizimovski admitted in cross-examination that the advertisements to which the four complainants responded related to positions for employees. There was no reference in those advertisements to Metro’s name or even to the business Nutrimax International. Nor was there any reference to an independent contractor running his or her own business or to anything comparable. While such advertisements were evidence of Metro’s intention to lure the complainants into thinking they were employees, at the end of the training each complainant was manoeuvred into signing an agreement described as an “Independent Agent Agreement”. I was prepared to infer that all of the evidence demonstrated that Metro (through Mr Bizimovski) wanted the complainants to act as employees so as to derive a benefit from their commitment, obedience to his direction and their labour.
Further, the job descriptions for the tasks performed by the complainants were also expressed in the language of employment. The training materials were detailed and specific. There was a 16 step prescribed presentation format. Again, it was crafted in the language of employment. The complainants were trained to be representatives of Metro, not to set up their own businesses. The “test” that they completed before electing a payment plan used the language of employment. They were then confronted with documents which even Mr Bizimovski admitted were complicated. The pay structure presented to them provided for two plans. Plan A provided payment by commission. Plan B provided for payment by demonstration. They were not presented with an ability to negotiate their payment. They were enticed to believe they were employees, but then lured into signing documents which provided for payment by commission. The documents they signed were complicated and confusing and did not clarify that, from the perspective of Metro they were intended to be independent contractors. The complainants, not surprisingly, did not understand the documents. While they were able to read them, they were not given copies at the time of their training.
The sales method was prescribed by Metro in a manner which led the complainants to believe that they were required to follow it, at least in substance. Metro specified each aspect of the manner in which the employees were to carry out their work.
All of these circumstances demonstrate that Metro deliberately structured the manner in which it took on persons to sell its products, trained them in a way that had the result that they did not clearly understand the nature of their relationship with Metro, notwithstanding that it could have been made very clear to them if it was intended to employ them as independent contractors. I found that Metro wanted consultants to choose the payment by commission plan on the basis that if they did so Metro would avoid owing obligations to them that it owed to employees because they would enter an independent agent agreement that stated they were not employees. However, as explained in the liability judgment, the relationship between each complainant and Metro was in fact one of employee and employer.
Metro did not establish the defence to sham-contracting in s.357(2) of the Act. It was not able to establish an absence of recklessness. While Mr Bizimovski (who was the directing mind and will of Metro) did not “know” that the real relationship was one of employer and employee, he disregarded the risk that the complainants were employees in reliance on the label of “independent agent” applied in the Metro contractual documents. He did so in circumstances where the contractual documents were confusing and unclear. Moreover in practice he treated the complainants as employees, despite being aware of the need to make a clear distinction between employees (such as his son Clinton Bizimovski) and independent contractors. Metro acted in a manner that was careless or incautious as to whether the contracts with the complainants were contracts of employment or not.
Insofar as it initially appeared that the FWO intended to contend that there had been deliberate contraventions of s.357 of the Act by Metro, it was clarified in oral submissions that the Applicant’s submission was that the level of recklessness involved and the manner in which Metro proceeded prior to and during the time that the four employees were employed were relevant to a determination of the appropriate penalty as part of all the circumstances. I agree. Here there was also direct and intimate involvement of senior management. Mr Danny Bizimovski was the director and manager and the active mind of the respondent. He was not a credible witness. His evidence was inconsistent, evasive and confusing in matters of significance to the central issue in this case. Aspects of his evidence, in particular in relation to legal advice Metro may have received about the distinction between independent contractors and employees and the drafting of the contractual documents the complainants signed, were unreliable. He was not able to demonstrate that he took all reasonable steps to ensure that Metro was not reckless in the representation that it made. Rather, he disregarded the risk that they were misclassified. His direct involvement in the conduct and contraventions by Metro is of significance.
Other relevant circumstances include the fact that before the events involving the complainants, there had been an ACCC investigation of conduct by another Nutrimax distributor (China Bay Pty Ltd) which used the same training materials as Metro. This was brought to the attention of Mr Bizimovski by the ACCC. Mr Bizimovski did not thereafter alter Metro training or recruitment methods, provide different documentation or bring to the attention of his trainers the need to avoid misleading trainees.
It is also relevant that the work the complainants performed for Metro was relatively low-skilled sales work. They appeared to have been drawn to the positions because of the offer of good pay and flexible hours. Based on their evidence, as well as the submissions of the FWO, I accept that the complainants lived in an area in which it was difficult to obtain work. They were given a very limited opportunity to read and/or obtain legal advice on the documents they signed. They were at a clear disadvantage when negotiating terms of their employment. There was a significant inequality in bargaining position between Metro and each complainant. As indicated, Metro hoped and intended to avoid financial liability to the complainants by characterising them as independent contractors so that they would only be paid per sale. The consequence was that the employees failed to receive basic conditions to which they were entitled under an Act that is intended to provide a safety net ensuring minimum entitlements to employees, particularly those who are vulnerable and in low income situations and to ensure that all employers are on what the FWO described as an “even playing field” in relation to employment costs.
While the individual underpayment amounts may not appear to be large, they are quite significant when regard is had to the short time the employees worked for the respondent, the nature of their employment and their skills. The quantum of the underpayment may well have been greater if a complete record of the hours worked had been kept by Metro if the employment of the complainants had continued for a longer period of time. Had it not been for the FWO’s intervention after the complainants complained, the contravening conduct may well have continued for a much more significant period of time.
In addition, what occurred thereafter and Metro’s lack of contrition or meaningful cooperation is of particular relevance. It throws further light on the circumstances in which the conduct took place and the nature and extent of the conduct.
The nature and extent of the loss was significant. It involved contravention of minimum standards under the Act relating to wages and entitlements. This occurred because of a significant misrepresentation to the employees.
As indicated, not only were the employees disadvantaged, but also Metro was able to profit from the fact that it did not meet the range of entitlements owed during this period of time. This can be contrasted with the position of employers properly meeting their obligations. As discussed in DarlastonvRisetop Construction Pty Ltd & Ors [2011] FMCA 220 at [48], a consequence of sham-contracting and misclassification of employees as independent contractors means that they are deprived of the basic protections provided for ordinary Australian employees, such as superannuation and deduction of taxation payments. There are also consequences that “cannot be measured in monetary terms”, reflecting for example the fact that “a contractor does not have recourse to sick leave and may be more likely to work when not well” [at 48].
Moreover, importantly in this case the employees have continued to suffer because Metro has failed to make any payment to them in accordance with the consent orders of 29 May 2013. In addition, there is evidence of a complaint made by another person who worked for Metro. Metro’s former solicitors advised the FWO that it was anticipated that it was likely that such person would be treated in the same way as the other complainants. It was in those circumstances that this person did not give evidence in the primary proceedings. However there has been no payment to her, notwithstanding that the FWO sought such payment from Metro.
I have already discussed the issue of whether the breaches arose out of the one course of conduct.
Metro has not produced any evidence for the purpose of the penalty proceedings in relation to its size and financial circumstances. There is evidence that at the time the complainants were engaged, Metro employed at least one other employee, Clinton Bizimovski. As indicated, after the consent orders on 29 May 2013 Metro’s former solicitors advised the FWO that they had been instructed that the respondent ceased to trade on 30 April 2013, but the evidence before the Court is that Metro remains registered with ASIC
It is of concern that Metro has failed to participate in the penalty proceedings or provide an explanation for its failure and that it has not taken any steps to rectify the underpayments in accordance with the consent orders.
The Applicant has put evidence before the Court that the FWO office has become aware that the “1800 number” that Metro used as the contact telephone number for its business is still being used by Clinton Bizimovski. Online searches have revealed that this number is being used for a business called Moda Commercial, which appears from the evidence of its website to be a company involved in the manufacture of kitchen cabinetry, vanities, wardrobes and office furniture. Of more direct concern are copies of job search advertisements placed in a newspaper in Launceston, Tasmania in the same terms as job advertisements to which complainants in these proceedings responded. These contain the same contact telephone number as in the original job advertisements. These advertisements, like the original advertisements, are expressed in employment terms. There is also evidence of advertisements, published under the name of Nutrimax, requiring “independent contractor consultants” in New South Wales.
As these circumstances were attested to in an affidavit served on Metro, it can be taken to be aware of these issues. One can only assume that Metro has chosen not to participate in the penalty proceedings. Hence there is no clarification of the circumstances in which such advertisements appeared or as to whether Metro continues to use the same advertisements as those to which the complainants responded. In the absence of any explanation such issues raise considerable concern about the possibility that Metro, or those responsible for Metro, may be continuing to operate in a way that may raise further issues about compliance with the Act.
Insofar as there is a suggestion that Metro is no longer trading, I have borne in mind that sanctions should be imposed at a meaningful level even where a company is small or in financial difficulties (see Workplace Ombudsman vSaya Cleaning Pty Ltd [2009] FMCA 38 at [27]–[28] and the authorities referred to therein). Moreover in circumstances such as the present the Court should set a penalty which serves as a warning to others, particularly where the industry involved is a highly mobile industry involving sales representatives (see Kelly at [28]).
Metro’s subsequent conduct is relevant to the issues of contrition, corrective action and cooperation with the authorities. It is the case that Metro responded to notices to produce issued by the FWO. However that was, in effect, the total extent of its cooperation. It chose not to participate in a record of interview during the investigation. While such a procedure is not mandatory, Metro’s approach is relevant to the level of cooperation.
The liability hearing was relatively lengthy, extending over six days. Metro has failed to abide by consent orders in relation to rectifying the underpayments to the complainants. It has also failed to rectify the underpayment acknowledged by its solicitors in relation to another person. The failure to make such payments demonstrates not only an absence of corrective action but also a complete absence of contrition.
Consistent with a lack of contrition, Metro has failed to appear today to participate in the penalty hearing or to provide any explanation for its failure to participate. There is no agreed statement of facts in relation to penalty.
It is also relevant to have regard to the need to ensure compliance with minimum standards. That is of particular importance in the present case having regard to the objects of the Act. The substantial maximum penalties set by the Act reinforce the importance placed by the legislature on compliance with minimum standards. Metro’s high level of recklessness can be seen as a disregard for its statutory obligations.
As indicated, the FWO drew the Court’s attention to the negative effect of Metro’s conduct on its employees and the fact that it was able to make profits, or at least earnings, that were not affected by the usual payments that have to be made to employees. This is in contrast to the position of other employers meeting their obligations. The need to ensure compliance with minimum standards reflects the need for a level playing field. There was no level playing field in this instance.
Both specific and general deterrence are relevant to the imposition of a penalty. Lander J in Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 at [93] explained the need for general deterrence. It is particularly important in a case such as the present that the penalty act as a deterrent to prevent similar contraventions by other organisations. Thus the penalty should “demonstrate an appropriate assessment of the seriousness of the offending”, albeit it should not be such as to make the offender “a scapegoat” (as suggested in Ponzio at [93]).
As discussed, the contraventions are serious, involving sham contracting arrangements and a consequential failure to provide key employment entitlements. Such factors support the view that the penalties should be imposed at a meaningful and significant level in the interest of deterring other employers from committing similar contraventions. It is also relevant to have regard to the nature of the commercial sales industry, insofar as possible on the evidence before the Court. The industry in which Metro operated involves unskilled labour. This can be seen from the tasks carried out by the complainants. It is likely to attract vulnerable workers, such as the very young. Ms Morgan was only 20 when she worked for the Respondent. The vulnerability of employees is relevant to the determination of penalty (see Saya at [20]).
I have also borne in mind that as Gilmour J stated in Australian Building & Construction CommissionervInner Strength Steel Fixing Proprietary Limited [2012] FCA 499 at [30]:
The establishment of unlawful sham contracting arrangements is objectively serious. Sham contracting, by its nature, provides a company with an unfair advantage over its competitors in that the company’s operating expenses are unlawfully reduced, making it more competitive against its rivals and providing increased company revenue. Accordingly, penalties must reflect the objective seriousness of this type of conduct to act as a deterrent to others who might be likely to engage in contraventions.
Specific deterrence is also of relevance and significance in this case. Notwithstanding that the solicitors for Metro indicated to the FWO that they were instructed that Metro had ceased trading, it remains registered with ASIC. Mr Bizimovski, the directing mind and will of the company is a director of two other entities. It is not clear on the evidence before the Court whether such entities trade or employ staff. The penalty should leave no doubt in the mind of Mr Bizimovski (as directing mind and will of Metro) that failing to comply with minimum obligations will not be tolerated. As indicated, the evidence also raises concern about the possibility that those involved in Metro are now involved in new businesses in which issues about the basis on which persons work for such entities may arise. Of particular concern are the recent “employment” job advertisements that use the same format and contact details. Metro has failed to rectify the underpayments or show any form of contrition. This raises a concern that the likelihood of reoffending may be high. There is a need for strong specific deterrence.
Having regard to all of these matters I am of the view that in the particular circumstances of this case the penalties suggested by the FWO are within the appropriate range of penalties for the contraventions in issue. The contraventions of s.357(1) are of particular significance. Appropriate penalties for each of those four contraventions are, as suggested by the FWO, $23,100 in each case. When one turns to the resulting failures to comply with the Award and the National Employment Standards, it is appropriate to regard the significant and central failure to pay minimum rates of pay as of somewhat more significance than the other consequential breaches. It warrants a penalty of $19,800. The other contraventions warrant penalties of $16,500 each.
The aggregate penalty amounts to $161,700. I have considered whether this is an appropriate response to the conduct that led to the breaches using the instinctive synthesis approach required by the totality principle, and ensuring that it is not oppressive or crushing, insofar as it is possible to address such issues on the material before the Court. This is not a case in which there have been admissions by Metro or any corrective action or rectification of the underpayments. These factors are of significance. Having regard to the totality principle I am of the view that this aggregate penalty is an appropriate response to the conduct which led to the breaches.
It is appropriate to order that the penalties be paid to the Consolidated Revenue Fund of the Commonwealth within 28 days of the date of the order. The Applicant should have liberty to apply on seven days’ notice in the event of non-compliance by the Respondent.
I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Associate:
Date: 16 September 2013
Key Legal Topics
Areas of Law
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Employment Law
Legal Concepts
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Breach
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Penalty
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Remedies
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