Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown
[2017] FCA 1301
•10 November 2017
FEDERAL COURT OF AUSTRALIA
Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301
File number: NSD 470 of 2016 Judge: BROMWICH J Date of judgment: 10 November 2017 Catchwords: INDUSTRIAL LAW – penalty determination – admitted contraventions of ss 45, 92, 535 and 536(1) of the Fair Work Act 2009 (Cth) and reg 3.44(1) and (6) of the Fair Work Regulations 2009 (Cth) – failure to pay minimum rates and accord other entitlements in accordance with the Fair Work Act and the Restaurant Industry Award 2010 – where conduct deliberate and systematic – creation and production to the Fair Work Ombudsman of false employment records to conceal primary breaches – accessorial liability – consideration of principles governing the imposition of civil penalties – effect of grouping under s 557 of the Fair Work Act on the objective seriousness of aggregated contraventions – consideration of principles concerning civil penalty maximums – consideration of principles concerning double counting where an individual contravener is an owner of a corporate contravener Legislation: Competition and Consumer Act 2010 (Cth), s 155
Corporations Act 2001 (Cth), s 79
Criminal Code (Cth) (Schedule to the Criminal Code Act 1995 (Cth), ss 11.2, 137.1
Environmental Protection and Biodiversity Conservation Act 1999 (Cth)
Evidence Act 1995 (Cth), s 191
Fair Work Act 2009 (Cth), ss 3, 14, 44(1), 45, 92, 535, 536, 539, 545(1), 546, 550, 557, 557A, 712
Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth)
Fair Work Regulations 2009 (Cth), reg 3.44
Restaurant Industry Award 2010 (Cth)
Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113
Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; 190 ALR 169
Australian Competition and Consumer Commissionv Cement Australia Pty Ltd [2017] FCAFC 159
Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) [2002] FCA 1349
Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [1999] FCA 1175
Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2000] FCA 997
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) [2005] FCA 254; 215 ALR 281
Australian Competition and Consumer Commission v Oobi Baby Pty Ltd [2008] FCA 1488
Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25
Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640
Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617; 244 ALR 673
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; 165 FCR 560
Cameron v The Queen [2002] HCA 6; 209 CLR 339
Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482
Commonwealth v Verwayen (1990) 170 CLR 394
Construction, Forestry, Mining and Energy Union v Australian Building and Construction Commissioner [2016] FCAFC 184; 247 FCR 339
Fair Work Ombudsman v Amritsaria Four Pty Ltd [2016] FCCA 968
Fair Work Ombudsman v Civic National Pty Ltd [2016] FCCA 2459
Fair Work Ombudsman v ECFF Pty Ltd [2014] FCCA 2996
Fair Work Ombudsman v EJ Group International Pty Ltd [2017] FCCA 997
Fair Work Ombudsman v Food Republic Pty Ltd [2017] FCCA 263
Fair Work Ombudsman v Go Yo Trading Pty Ltd [2012] FMCA 865
Fair Work Ombudsman v Golden Vision Food and Beverage Services Pty Ltd [2017] FCCA 534
Fair Work Ombudsman v Han Investments Pty Ltd [2017] FCA 623
Fair Work Ombudsman v Java Spice Australia Pty Ltd [2015] FCCA 2930
Fair Work Ombudsman v Kang [2017] FCCA 1010
Fair Work Ombudsman v Little Vienna Pty Ltd [2017] FCCA 916
Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2) [2012] FCA 557
Fair Work Ombudsman v Mai Pty Ltd [2016] FCCA 1481
Fair Work Ombudsman v Mamak Pty Ltd [2016] FCCA 2104
Fair Work Ombudsman v Oz Staff Career Services Pty Ltd [2016] FCCA 105
Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408
Fair Work Ombudsman v Rubee Enterprises Pty Ltd [2016] FCCA 3456
Fair Work Ombudsman v Shaik [2016] FCCA 2345
Fair Work Ombudsman v Singh [2016] FCCA 1335
Fair Work Ombudsman v South Jin Pty Ltd (No 2) [2016] FCA 832
Fair Work Ombudsman v Wongtas Pty Ltd (No 2) [2012] FCA 30
Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290;
Fair Work Ombudsman v Zillion Zenith International Pty Ltd [2014] FCCA 433
Finance Sector Union v Commonwealth Bank of Australia [2005] FCA 1847; 147 IR 462; 224 ALR 467
Greentree v Minister for the Environment and Heritage [2005] FCAFC 128; 144 FCR 388
Hamilton v Whitehead (1988) 166 CLR 121
Leichhardt Council v Geitonia Pty Ltd (No 7) [2015] NSWLEC 79
Jordan v Mornington Inn Pty Ltd [2007] FCA 1384; 166 IR 33
Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14
Markarian v The Queen [2005] HCA 25; 228 CLR 357
Minister for Immigration and Border Protection v Choong Enterprises Pty Ltd [2015] FCA 390; 234 FCR 478
Minister for Sustainability, Environment, Water, Population and Communities v Woodley [2012] FCA 957; 194 LGERA 290
Minister for the Environment and Heritage v Greentree (No 3) [2004] FCA 1317; 136 LGERA 89
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70; 168 FCR 383
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union [2008] FCAFC 170; 171 FCR 357
Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65; 158 FCR 543
R v Kilic [2016] HCA 48; 259 CLR 256
R v Glynatsis [2013] NSWCCA 131; 230 A Crim R 99
Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62; 221 FCR 153
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249
The Queen v Hoar (1981) 148 CLR 32
Trade Practices Commission v Cue Design Pty Ltd [1996] FCA 192
Date of hearing: 19, 20 July 2017 Registry: New South Wales Division: Fair Work Division National Practice Area: Employment & Industrial Relations Category: Catchwords Number of paragraphs: 229 Counsel for the Applicant: Ms E Raper Solicitor for the Applicant: Office of the Fair Work Ombudsman Counsel for the First and Second Respondents: Mr N Furlan Solicitor for the First and Second Respondents: Harmers Workplace Lawyers Counsel for the Third Respondent: Ms K Nomchong SC Solicitor for the Third Respondent: Toomey Pegg Lawyers Counsel for the Fourth Respondent: Mr R Alkadamani Solicitor for the Fourth Respondent: Haywards Solicitors ORDERS
NSD 470 of 2016 BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: NSH NORTH PTY LTD T/AS NEW SHANGHAI CHARLESTOWN (ACN 142 477 307)
First Respondent
ZHONG YUAN CHEN
Second Respondent
TING ZHU
Third Respondent
JIN XU
Fourth Respondent
JUDGE:
BROMWICH J
DATE OF ORDER:
10 NOVEMBER 2017
In the declarations and orders below, the following definitions apply:
Award means the Restaurant Industry Award 2010.
FW Act means the Fair Work Act 2009 (Cth).
FW Regulations means the Fair Work Regulations 2009 (Cth).
The following terms have the meaning given in the statement of facts and admissions agreed between the applicant and the first, second and fourth respondents on 8 September 2016:· Adult Employees means the persons identified at [49].
· Casual Employees means the persons identified at [64].
· Employees means the persons identified at [16].
· Full Time Employees means the persons identified at [87].
· Junior Floor Staff Employees means the persons identified at [35].
· Public Holiday Employees means the persons identified at [82].
· Saturday Employees means the persons identified at [70].
· Sunday Employees means the persons identified at [76].
· Superannuation Employees means the persons identified at [94].
·Superannuation Contributions means the minimum required superannuation contributions identified at [92].
THE COURT DECLARES THAT:
1.In the period between 6 July 2013 and 20 November 2014, the first respondent contravened the following civil remedy provisions:
(a)section 45 of the FW Act, by failing to pay each of the Adult Employees the minimum rates of pay prescribed by clauses A.2.5 of Schedule A and 20.1 of the Award;
(b)section 45 of the FW Act, by failing to pay the Junior Floor Staff Employees the required minimum junior rates of pay prescribed by clauses A.2.5 of Schedule A and 20.3 of the Award;
(c)section 45 of the FW Act, by failing to pay the Casual Employees the required casual loading prescribed by clauses A.5.4 of Schedule A and 13.1 of the Award;
(d)section 45 of the FW Act, by failing to pay each of the Saturday Employees the Saturday penalty rates prescribed by clauses A.7.3 of Schedule A and 34.1 of the Award;
(e)section 45 of the FW Act, by failing to pay each of the Sunday Employees the Sunday penalty rates prescribed by clauses A.7.3 of Schedule A and 34.1 of the Award;
(f)section 45 of the FW Act, by failing to pay each of the Public Holiday Employees the public holiday penalty rates prescribed by clauses A.7.3 of Schedule A and 34.1 of the Award;
(g)section 45 of the FW Act, by failing to pay the Full Time Employees overtime rates prescribed by clause 33.1 of the Award;
(h)section 45 of the FW Act, by failing to pay the Superannuation Contributions to the Superannuation Employees under clause 30.2 of the Award;
(i)section 92 of the FW Act, by cashing out annual leave owed to some of the Full Time Employees;
(j)section 45 of the FW Act, by failing to provide an arrangement for ordinary hours of work under clause 31.2 of the Award;
(k)section 535 of the FW Act, by failing to keep records with information prescribed by the FW Regulations;
(l)regulation 3.44(1) of the FW Regulations, by making and keeping employee records which it knew to be false or misleading;
(m)regulation 3.44(6) of the FW Regulations, by making use of entries in employee records for each of the Employees, knowing that those records were false or misleading; and
(n)section 536(1) of the FW Act, by failing to give the Employees a pay slip within one working day of paying an amount to that Employee in relation to the performance of work.
2.The aggregate sum of the above underpayments of employee entitlements to 85 employees by the first respondent was $583,688.68 during the period from 6 July 2013 to 20 November 2014.
3.The second respondent was involved in each of the contraventions of the first respondent set out in paragraph 1(a), (b), (c), (d), (e), (f), (g), (i), (j), (k), (l), (m) and (n) above, pursuant to section 550(1) of the FW Act.
4.The third respondent was involved in each of the contraventions of the first respondent set out in paragraph 1(a), (b), (c), (d), (e), (f), (g) and (l) above, pursuant to section 550(1) of the FW Act.
5.The fourth respondent:
(a)from September 2014, was involved in each of the contraventions of the first respondent set out in paragraph 1(a), (b), (c), (d), (e), (f), (g), (j), and (n) above, pursuant to section 550(1) of the FW Act; and
(b)was involved in the contravention of the first respondent set out in paragraph 1(m) above, pursuant to section 550(1) of the FW Act.
THE COURT ORDERS THAT:
6.Under section 545(1) of the FW Act, the first respondent pay $128,309.95 (less any amounts already rectified by the first respondent as at the date of this order), plus interest, to the applicant within 60 days of these orders and:
(a)the applicant, within 60 days of receipt, pay the applicable amounts due to the relevant Employees;
(b)in the event that the applicant receives a partial payment of the outstanding underpayment amount, the applicant distribute the money to the Employees in accordance with each Employee’s percentage share of the total underpayment amount; and
(c)in the event that the applicant cannot locate any of the Employees, the applicant pay the applicable amount due to each Employee that cannot be located to the Commonwealth within a further 14 days.
7.The first respondent pay penalties pursuant to section 546(1) of the FW Act for the contraventions set out in paragraph 1 above in the sum of $301,920.
8.The second respondent pay penalties pursuant to section 546(1) of the FW Act for his involvement in the contraventions set out in paragraph 3 above in the sum of $54,672.
9.The third respondent pay penalties pursuant to section 546(1) of the FW Act for her involvement in the contraventions set out in paragraph 4 above in the sum of $21,760.
10.The fourth respondent pay penalties pursuant to section 546(1) of the FW Act for the contraventions set out in paragraph 5 above in the sum of $18,496.
11.Pursuant to section 546(3)(a) of the FW Act, each respondent pay their respective penalty amounts to the Commonwealth within 60 days of the making of these orders, being by or before 11 January 2018, or such later date as may be ordered by the Court upon the furnishing of affidavit evidence and submissions providing a proper basis for additional time being allowed, the determination being either on the papers or following a further hearing if sought and ordered.
12.The applicant have liberty to apply on seven days’ notice if the above orders are not complied with.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BROMWICH J:
Introduction – overview of case and parties
[1] Case as pleaded and relief sought
[10]
Admitted contraventions by New Shanghai Charlestown, Mr Chen and Ms Jenna Xu
[12]
Admitted contraventions by Ms Sarah Zhu
[13]
Agreed facts
[14]
The required approach to imposing civil penalties
[36]
The first two steps: identification and grouping of contraventions under s 557(1) of the FW Act and adjusting for any overlap
[38]
The third, fourth and fifth steps
[41]
Penalties sought by the FWO and the alternative penalties sought by the respondents
[42]
Affidavit and oral evidence of Mr Chen (second respondent)
[49]
Mr Chen’s business experience
[50]
Mr Chen’s evidence as to Ms Sarah Zhu’s responsibilities
[52]
Understanding of the seriousness of Mr Chen’s conduct
[53]
Mr Chen’s contrition
[55]
Rectification by New Shanghai Charlestown and Mr Chen
[56]
Affidavit and oral evidence of Ms Sarah Zhu (third respondent)
[59]
Circumstances surrounding Ms Sarah Zhu’s involvement in the contraventions
[60]
Ms Sarah Zhu’s involvement in the creation of false records, including a prior telephone conversation
[67]
Ms Sarah Zhu’s contrition
[70]
Affidavit and oral evidence of Ms Jenna Xu (fourth respondent)
[71]
Potential inconsistencies between Ms Jenna Xu’s evidence and the combined statement of agreed facts
[72]
Ms Jenna Xu’s involvement in the creation of false records
[80]
The effect of s 191 of the Evidence Act on Ms Jenna Xu’s additional evidence
[83]
Ms Jenna Xu’s contrition
[88]
Civil penalty assessment principles
[89]
Oral and written submissions for the parties
[92]
Overall characterisation of the conduct by the FWO
[92]
The principal contraventions by New Shanghai Charlestown
[93]
Submissions on the record keeping contraventions
[99]
Overall circumstances
[100]
Size and financial position of New Shanghai Charlestown
[105]
Deliberateness of contravention, involvement of senior management and the need to ensure compliance with minimum standards
[109]
Contrition and cooperation
[114]
Specific deterrence
[123]
General deterrence
[128]
Totality
[138]
Mitigation
[139]
Separate submissions in relation to the three natural person respondents
[143]
Submissions in relation to Mr Chen
[144]
Submissions in relation to Ms Sarah Zhu
[167]
Submissions in relation to Ms Jenna Xu
[187]
Steps four and five: determination of appropriate penalties in isolation and consideration of adjustment for totality
[195]
Penalty to be imposed on New Shanghai Charlestown
[209]
Penalty to be imposed on Mr Chen
[212]
Penalty to be imposed on Ms Sarah Zhu
[215]
Penalty to be imposed on Ms Jenna Xu
[217]
Totality
[220]
Declarations and orders
[221]
Postscript – observations about the laws proscribing the creation and production of false employee records
[223]
Introduction – overview of case and parties
This is a penalty determination arising out of civil penalty proceedings brought by the Fair Work Ombudsman (FWO) for breaches of employment law obligations under the Fair Work Act 2009 (Cth) (FW Act). The primary breaches involved systematic failures to pay or accord employees their proper entitlements, including the underpayment of almost $600,000 to 85 employees during a period of over 16 months. Those primary breaches were committed by a company that owns and operates a restaurant located in the suburb of Charlestown, Newcastle, New South Wales, trading under the name New Shanghai Charlestown.
The proceedings also encompass related contraventions concerning false employment records that were created and produced on behalf of New Shanghai Charlestown in response to a FWO notice to produce. The unavoidable inference is that the creation and production of the false employment records was designed to conceal the primary breaches and thereby thwart the FWO investigation.
Three natural persons, being the sole shareholder and director of the company and two employees involved in the management of the business, are variously liable for accessorial responsibility for specific primary breaches by New Shanghai Charlestown and for its creation and production to the FWO of the false employment records.
The respondents are as follows:
(1)The first respondent, NSH North Pty Ltd, is the company that owns and operates the restaurant, apparently as its sole business activity. It will also be referred to in these reasons by its trading name, New Shanghai Charlestown.
(2)The second respondent, Mr Zhong Yuan (John) Chen was (and still is) New Shanghai Charlestown’s sole shareholder and sole director.
(3)The third respondent, Ms Ting (Sarah) Zhu, was (and still is) the human resources manager for New Shanghai Charlestown (and for other associated companies).
(4)The fourth respondent, Ms Jin (Jenna) Xu, was (and still is) the store manager for New Shanghai Charlestown.
The principal and accessorial contraventions asserted were ultimately admitted to a sufficient extent to be accepted in full satisfaction of the case brought by the FWO. The penalty hearing proceeded upon the basis of two statements of agreed facts and admissions, including annexed documents, as follows:
(1)a statement of facts and admissions agreed between the FWO and New Shanghai Charlestown, Mr Chen and Ms Jenna Xu on 8 September 2016 (combined statement of agreed facts); and
(2)a second statement of facts and admissions agreed between the FWO and Ms Sarah Zhu on 10 March 2017.
The key facts to emerge from both statements of agreed facts were as follows:
(1)The admitted contraventions engaged in by New Shanghai Charlestown included the underpayment of entitlements totalling $583,688.68 to 85 employees during a period of just over 16 months between 6 July 2013 and 20 November 2014, referred to as the Assessment Period. The affected employees comprised 40 floor staff, 40 kitchen staff and five cooks. The underpayment of entitlements included failure to pay prescribed minimum adult and junior rates of pay, casual loadings, Saturday, Sunday and public holiday penalty rates, overtime rates, and superannuation contributions.
(2)In response to a notice to produce records and documents issued by an inspector of the FWO on 11 September 2014, under s 712 of the FW Act, that requested, among other things, time and wage records for all employees at New Shanghai Charlestown for the period from 1 August 2014 to 11 September 2014, such records were not produced. Instead, Mr Chen, on behalf of New Shanghai Charlestown:
(a)directed Ms Sarah Zhu to create various documents, including purported time and wage records and pay slips for 28 employees;
(b)directed Ms Jenna Xu to assist in the creation of those records by providing any necessary information to Ms Sarah Zhu; and
(c)directed Ms Jenna Xu to provide those records to the FWO. (Ms Jenna Xu departed from the combined statement of agreed facts in her evidence to an extent, and gave evidence, subject to leave, that this direction to provide the false records to the FWO also came from Ms Sarah Zhu. In these reasons, I decline to grant that leave, as addressed below).
The records that were produced on 29 September 2014 to the FWO in response to the notice to produce not just misleading, but also false. That is because they made a fictitious representation of the gross or net amounts paid to, the rate of remuneration paid to, the number of ordinary hours worked by and, in some cases, the number of overtime hours worked by the employees to which those records related.
There was further evidence by way of affidavit and related oral evidence at the penalty hearing. That evidence is considered in some detail below.
There was no agreement as to the quantum of the penalties that should be imposed. The FWO provided schedules with reasoning and calculations as to the range of penalties said to be appropriate for each respondent. New Shanghai Charlestown, Mr Chen and Ms Jenna Xu agreed that the declarations sought should be made. New Shanghai Charlestown agreed that it should be ordered to pay the total outstanding underpayment owed to employees as at the date that orders are made, but that it should be ordered to pay penalties at the lower end of the FWO’s proposed range. Mr Chen asserted that he should not have to pay any penalties at all, effectively upon the basis that he should be regarded as the ultimate owner and thus alter ego of New Shanghai Charlestown, and thus to penalise him as well would constitute double punishment, or double penalty. Ms Jenna Xu and Ms Sarah Zhu each accepted that they should be ordered to pay some penalties, but below the bottom of the FWO’s proposed range. Each of those competing submissions is addressed in greater detail below.
Case as pleaded and relief sought
The penalty hearing proceeded upon the basis of:
(1)an amended originating application (amended OA) that was handed up in Court on the first day of the penalty hearing without objection and electronically filed the next day; and
(2)a further amended statement of claim (FASOC).
The amended OA sought:
(1)declarations as to contravention of:
(a)s 45 of the FW Act, by failing to pay, as required under the Restaurant Industry Award 2010 (Cth) (Award), minimum prescribed adult and junior rates of pay, casual loadings, Saturday, Sunday and public holiday penalty rates, overtime rates, and superannuation contributions;
(b)s 45 of the FW Act, by failing to provide an arrangement for ordinary hours of work;
(c)s 92 of the FW Act, by cashing out annual leave owed to some full time employees;
(d)s 535 of the FW Act, by failing to keep records with the prescribed information;
(e)s 536(1) of the FW Act, by failing to give employees payslips within a working day of payment in relation to the work performed;
(f)reg 344(1) and (6) of the FW Regulations, by knowingly making and keeping, and knowingly making use of, false or misleading employee records;
(g)involvement in various of the above contraventions by Mr Chen and Ms Sarah Zhu, and to a lesser extent by Ms Jenna Xu, as proscribed by s 550(1) of the FW Act – the contraventions that they admitted to being involved in, and the precise nature and scope of that accessorial involvement are addressed in more detail below;
(2)an order under s 545(1) of the FW Act that New Shanghai Charlestown pay outstanding sums not already paid to employees by reason of the contraventions to the FWO, plus interest, within 60 days of the Court’s final orders, with the FWO to pay those sums to the relevant employees who can be located and the balance to the Commonwealth – the outstanding sum involved at the time the amended OA was signed on 20 July 2017 was $126,876.57 out of the total underpayment of entitlements referred to above of $583,688.68;
(3)orders that all four respondents pay penalties under s 546(1) of the FW Act for the pleaded contraventions, and to pay those sums to the Commonwealth by a date to be fixed by the Court; and
(4)an order that the FWO have liberty to apply on seven days’ notice if any of the orders made are not complied with.
Admitted contraventions by New Shanghai Charlestown, Mr Chen and Ms Jenna Xu
While no defence was filed by New Shanghai Charlestown, Mr Chen or Ms Jenna Xu, the following key admissions were made in the combined statement of agreed facts:
(1)New Shanghai Charlestown admitted to all of the contraventions summarised above.
(2)Mr Chen admitted to having been involved in all of the contraventions by New Shanghai Charlestown, except for the failure to make superannuation contributions. By reason of s 550 of the FW Act, he is taken to have contravened:
(a)s 45 of the FW Act, by failing to pay, as required under the Award, minimum prescribed adult and junior rates of pay, casual loadings, Saturday, Sunday and public holiday penalty rates and overtime rates;
(b)s 45 of the FW Act, by failing to provide an arrangement for ordinary hours of work;
(c)s 92 of the FW Act, by cashing out annual leave owed to some full time employees;
(d)s 535 of the FW Act, by failing to keep records with the prescribed information;
(e)s 536(1) of the FW Act, by failing to give employees payslips within a working day of payment in relation to work; and
(f)reg 344(1) and (6) of the FW Regulations, by knowingly making and keeping, and knowingly making use of, false or misleading employee records.
(3)Ms Jenna Xu admitted to having been involved in all of the contraventions by New Shanghai Charlestown, except for the contraventions concerning superannuation contributions, cashing out of annual leave, failing to keep records and knowingly making and keeping employee records that were false or misleading. By reason of s 550 of the FW Act, she is therefore taken to have contravened:
(a)s 45 of the FW Act, by failing to pay, as required under the Award, minimum prescribed adult and junior rates of pay, casual loadings, Saturday, Sunday and public holiday penalty rates and overtime rates – with the important qualification of only having the necessary knowledge that New Shanghai Charlestown was required to comply with the Award for just over the last five weeks of the Assessment Period, from 12 September 2014 to 20 November 2014;
(b)s 45 of the FW Act, by failing to provide an arrangement for ordinary hours of work;
(c)s 536 of the FW Act, by failing to give employees payslips within a working day of payment in relation to work; and
(d)reg 344(6) of the FW Regulations, by knowingly making use of false or misleading employee records.
Admitted contraventions by Ms Sarah Zhu
By the defence that was filed on behalf of Ms Sarah Zhu, and by her statement of agreed facts with the FWO, she admitted to having been involved in the following contraventions by New Shanghai Charlestown and, by the operation of s 550(1) of the FW Act, thereby to having contravened:
(1)s 45 of the FW Act, by failing to pay, as required under the Award, minimum prescribed adult and junior rates of pay, casual loadings, Saturday, Sunday and public holiday penalty rates and overtime rates; and
(2)reg 3.44(1) of the FW Regulations, by knowingly making and keeping false or misleading employee records.
Agreed facts
The following is substantially drawn from the two statements of agreed facts and other documents in evidence. The affidavit evidence and cross-examination at the penalty hearing are addressed separately below.
New Shanghai Charlestown was at all material times a “national system employer” within the meaning of s 14 of the FW Act. Its employees were entitled to be paid in accordance with the classifications provided in the Award.
For all three natural persons, it was agreed that the conduct by each of them described in the two statements of agreed facts was engaged in on behalf of New Shanghai Charlestown, within the scope of their actual or apparent authority, and with their state of mind taken to be the state of mind of New Shanghai Charlestown. The agreed role of each of the natural person respondents in this context is to be understood in that context, as follows:
(1)Mr Chen was the sole director and shareholder of New Shanghai Charlestown. He was responsible for the overall direction, control, management and supervision of New Shanghai Charlestown’s operations in relation to the restaurant, including in relation to setting and adjusting the employees’ rates of pay and determining wages and conditions of employment.
(2)Ms Sarah Zhu was employed by New Shanghai Charlestown as a “human resources manager” with that title. Her duties included payroll and some human resources tasks for the employees at the restaurant. While she held the title of human resources manager in respect of the business conducted by New Shanghai Charlestown, she primarily worked in an office in Chatswood, and was the holder of a 457 Visa sponsored by NSH Restaurant Pty Limited, a related company. She was subject to the direction of, and acted in accordance with the instructions of, Mr Chen and/or Ms Jenna Xu in respect of the hourly rates of pay to be paid to the employees. Her duties included processing payroll and arranging for the payment of wages in respect of the employees, keeping and maintaining records in respect of the employees, and performing, from time-to-time, other human resource functions in respect of New Shanghai Charlestown’s business, including preparing some employment contracts and/or position descriptions, drafting some job advertisements for positions, responding to employee enquiries in respect of leave entitlements and advising New Shanghai Charlestown and/or Mr Chen on compliance with industrial obligations, including employee entitlements under the Award. Her admissions to agreed facts did not include any admission as to her state of knowledge other than where that was specifically stated.
(3)Ms Jenna Xu was employed by New Shanghai Charlestown in the position of store manager of the restaurant and was responsible for the day-to-day management and day-to-day supervision of the employees during the Assessment Period. She was responsible for setting the hours and days of work for the employees and making certain of the decisions regarding the employment of staff. She did not set pay rates or have authority to do so.
During the Assessment Period, namely between 6 July 2013 and 20 November 2014, New Shanghai Charlestown employed 85 staff at the restaurant, consisting of:
(1)40 floor staff;
(2)40 kitchen staff; and
(3)five cooks,
each of whom were listed in appendices to both statements of agreed facts with reference to relevant details, such as their Award classification, the hourly rates of pay they were in fact paid and the basis upon which they were employed, namely full-time or part-time. The duties of the employees in each of these roles were set out in both statements of agreed facts in some detail, but do not need to be repeated here.
New Shanghai Charlestown paid floor staff, kitchen staff and cooks hourly rates that were below the appropriate rate for both adult and junior employees, and failed to pay casual loadings, Saturday penalty rates, Sunday penalty rates and public holiday penalty rates to which employees were entitled. There was a similar failure to pay certain full-time employees overtime rates for each hour worked outside of the spread of hours set out in the Award. The details of all of these breaches were set out in considerable detail in both of the statements of agreed facts, leading to the calculated total underpayment of $583,688.68.
New Shanghai Charlestown made and kept records in respect of the employment of its employees which included, in particular, two types of pay and time worked records. The first type of records consisted of what was conveniently referred to as Employer Time Records, a sample of which was annexed to each statement of agreed facts. Those records set out the employee number, employee first name or nickname, and the hours worked on each day of the week. Those time records were created by Ms Jenna Xu at the direction of Mr Chen, based on rosters referred to as “Charlestown staff work time tables”. Those rosters, which showed the hours worked by each of the employees, were prepared by Ms Jenna Xu and were not retained by New Shanghai Charlestown.
The second type of records consisted of weekly spreadsheets recording the wages paid to staff. These records set out information in columns, including the employee number, employee first name or nickname, the hourly rate, the total weekly hours worked, the gross weekly wages, the amounts paid, the public holiday hours worked and the amounts paid by bank transfer. Those spreadsheets were referred to as Employer Wage Records. A sample of the Employer Wage Records was annexed to each of the statements of agreed facts. The Employer Wage Records were created by Ms Sarah Zhu at the direction of Mr Chen by populating a spreadsheet in electronic form (initially created by Mr Chen) with data supplied by Ms Jenna Xu in the form of the Employer Time Records. In order for New Shanghai Charlestown’s payroll to be processed, Ms Jenna Xu sent a copy of the Employer Time Records by email to Ms Sarah Zhu each week during the Assessment Period. That email was copied to Mr Chen.
Employee wages were usually paid in cash. Weekly wages were calculated by Ms Sarah Zhu using data from the Employer Time Records to determine the days and hours worked, and thereby the wage for each employee. Ms Sarah Zhu did the calculations using flat hourly rates of pay provided to her by Mr Chen and/or Ms Jenna Xu. Ms Sarah Zhu would place the weekly wage stated in the Employer Wage Records (that is, the spreadsheet populated with data supplied by Ms Jenna Xu in the form of the Employer Time Records) to be paid to each of the employees into an envelope with their name on the front and would provide these envelopes to Mr Chen. Mr Chen would then provide the pay envelopes to Ms Jenna Xu to distribute to the employees. From time-to-time, amounts were paid to some of the employees by bank transfer. Those electronic payments were recorded on the Employer Wage Records.
Throughout the Assessment Period, Ms Sarah Zhu knew that the Award applied to the employees. She knew the hourly rates of pay that were paid to each of the employees, the hours that were worked by them during the Assessment Period (because she was informed of this by Ms Jenna Xu) and the days of the week worked by the employees (again, she was informed of this by Ms Jenna Xu).
Ms Sarah Zhu also arranged for the advertisement of staff positions at the restaurant, and prepared a contract of employment dated 11 February 2014 and job description on behalf of New Shanghai Charlestown for one employee (and as such, knew the contractual terms that were being used). She advised Mr Chen of the day on which employees were to be paid their wages and was a person responsible for responding to inquiries made by employees about their employment with New Shanghai Charlestown and their conditions of employment.
As noted above, during the Assessment Period, Ms Sarah Zhu would receive an email with the Employer Time Records attached and use those records to calculate the weekly pay. She created the Employer Wage Records by entering data into the spreadsheet templates and she placed the cash amounts into the envelopes marked with the employees’ names. While processing payroll in that way, she did not take any steps to pay, or ensure that New Shanghai Charlestown paid to any of the employees, amounts sufficient to meet the correct hourly rates, casual loading, Saturday penalty rates, Sunday penalty rates, public holiday penalty rates or overtime rates.
In or about July 2013, Ms Sarah Zhu provided advice to New Shanghai Charlestown when she informed Mr Chen that the hourly rates were below those prescribed by the Award. Yet she continued to process payments using the wrong hourly rates and did not take any further steps to ensure that employees were paid in accordance with New Shanghai Charlestown’s obligations under the FW Act.
In or around April 2014, Ms Sarah Zhu became aware of a complaint made by an employee of New Shanghai Charlestown in respect of wages paid to her by the company. The complaint had not been made to Ms Sarah Zhu. After becoming aware of the complaint, Ms Sarah Zhu did not take any steps to ensure that New Shanghai Charlestown was complying with its obligations under the FW Act and/or the Award in respect of the payment of wages to its employees.
At the direction of Mr Chen, Ms Sarah Zhu created the false records, including by conducting online research and obtaining information on the day-to-day duties of individual employees from Ms Jenna Xu. Ms Sarah Zhu knew at the time that the false records were created that they did not accurately record the hours worked or amounts paid to the employees. She admitted that, by way of acts or omissions, she aided and abetted, or was directly or indirectly knowingly concerned or party to, those contraventions of New Shanghai Charlestown referred to at [13] above. She accepted that she was taken to have contravened each of the corresponding provisions that New Shanghai Charlestown had admitted to contravening.
Mr Chen admitted that at all material times, he was a person who made decisions on behalf of New Shanghai Charlestown regarding the basis upon which persons engaged to perform work for New Shanghai Charlestown would be engaged, including whether they would be full‑time, part-time or casual, and the terms and conditions on which they would be engaged. This included the amount that each employee would be paid for each hour worked. He was a person with knowledge of, and experience in, the restaurant industry in Australia, in that he had operated a chain of at least seven restaurants since at least 2010. He was the person to whom Ms Sarah Zhu and Ms Jenna Xu reported and he knew that the Award applied to the employees during the Assessment Period.
Mr Chen knew that the trading hours of the restaurant were from approximately 11.00 am to 9.00 pm seven days per week, including public holidays. He knew the hours worked by the employees and the duties required to be performed by each of them and he knew about New Shanghai Charlestown’s practice of cashing out annual leave for some of the employees. He knew that New Shanghai Charlestown did not provide payslips to the employees and was aware of the basis upon which the employees were engaged by New Shanghai Charlestown. He was aware of the hourly rates of pay paid by New Shanghai Charlestown to each of the employees during their employment periods and, in consultation with Ms Jenna Xu, determined the base hourly rates of pay to be paid to each of them during their employment periods.
Together with Ms Jenna Xu, Mr Chen directed Ms Sarah Zhu as to the hourly rate of pay to be paid to each of the employees during their employment periods, and was aware that New Shanghai Charlestown did not keep employment records which specified, as required, the employer’s name, the employees’ name, whether the employee was full-time or part-time, whether the employee was permanent, temporary or casual, the date on which employment began, the gross and net amounts paid to each employee, the number of overtime hours worked by an employee during each day, when the employee started and ceased working overtime hours and whether a penalty rate or loading was also required to be paid for overtime hours actually worked.
Mr Chen admitted that, by his acts or omissions, he aided and abetted, counselled or procured, or was directly or indirectly knowingly concerned in or party to the contraventions of New Shanghai Charlestown as detailed above. He accepted that, by reason of his involvement, he is taken to having himself contravened each of the provisions of the FW Act that New Shanghai Charlestown contravened (except as to superannuation). Mr Chen also admitted to his role in causing the false or misleading records to be created and provided in response to the FWO notice to produce, accepting that he was relevantly involved in those contraventions and was thereby to be treated as having contravened reg 3.44 (1) and (6) of the FW Regulations.
Ms Jenna Xu was aware of the duties performed by each of the employees and provided direction to them on the nature and scope of those duties. She was aware of the basis upon which the employees were engaged by New Shanghai Charlestown, and she set the hours of work for each of the employees during their employment periods. She created the rosters and Employer Time Records. She sent emails to Mr Chen and Ms Sarah Zhu attaching the Employer Time Records each week to enable weekly wages for the employees to be processed. She knew that the trading hours of the restaurant were from approximately 11.00 am to 9.00 pm, seven days per week, including public holidays. She was aware of the hourly rates paid by New Shanghai Charlestown to each of the employees during their employment periods and assisted and/or was consulted by Mr Chen in the determination of the base hourly rates of pay to be paid to each of the employees.
Together with Mr Chen, from time to time Ms Jenna Xu would inform Ms Sarah Zhu as to the hourly rates of pay to be paid to each of the employees, as agreed to by Mr Chen during their respective employment periods. Ms Jenna Xu was the person who paid the employees amounts in cash for performing work by distributing envelopes with cash amounts inside them that were provided to her by Mr Chen. She was aware that full-time employees did not take periods of annual leave and she did not provide payslips to the employees.
From at least 12 September 2014, being the day after the FWO notice to produce was issued, Ms Jenna Xu knew that New Shanghai Charlestown was required to comply with the Award in relation to the terms and conditions of employment of the employees. She accepted that by her acts or omissions she aided and abetted, and was directly or indirectly knowingly concerned or involved in or party to, each of those contraventions alleged against New Shanghai Charlestown that have been identified at [12(3)] above. She accepted that she was to be treated as having herself contravened each of those provisions.
As to the creation and provision of false or misleading records, Ms Jenna Xu admitted that, at the direction of Mr Chen, she had provided information to Ms Sarah Zhu to assist in the creation of the false records. She was provided with those false records by Mr Chen and was directed by him to produce those records to the FWO, which she did. She knew at the time they were so produced, on about 29 September 2014, that they did not accurately record the hours worked, gross and net amounts paid, and penalty rates paid during the specified period. That is, she knew that the records created and produced were false. She again accepted accessorial liability and her being treated as having committed a contravention of reg 3.44(6) by having made use of the false records.
The required approach to imposing civil penalties
The written submissions in chief for the FWO helpfully outlined the approach that should be taken in determining the appropriate penalty, there being no dissent between the parties at this level of principle. Five steps were described as follows (with some adjustment of expression):
(1)Identify the separate contraventions, with each breach of each obligation being a separate contravention, and each breach of a term of the Award being a separate contravention.
(2)Consider whether each separate contravention should be dealt with independently or with some degree of aggregation for those contraventions arising out of a course of conduct, noting that s 557 of the FW Act provides that two or more contraventions of a given civil remedy provision are to be taken to be a single contravention if committed by the same person and arising out of a course of conduct by that person.
(3)Consider whether there should be further adjustment to ensure that, to the extent of any overlap between groups of separate aggregated contraventions, there is no double penalty imposed, and that the penalty is an appropriate response to what each respondent did.
(4)Consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation.
(5)Consider the overall penalties arrived at, including by reference to those which may be proposed by the FWO (as permitted by Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (CFMEU Civil Penalties Case) at [64]) and what is proposed by the respondents, and apply the totality principle, to ensure that the penalties for each respondent are appropriate and proportionate to the conduct viewed as a whole, making such adjustments as are necessary: see Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; 165 FCR 560 at [23]. [71] and [102].
The FWO’s submissions addressed each of the five steps. In these reasons, the first two steps are addressed immediately below, as there was no dispute about the approach taken by the FWO in relation to each of them. The remaining three steps are addressed in the context of the competing submissions as to the outcome they should produce.
The first two steps: identification and grouping of contraventions under s 557(1) of the FW Act and adjusting for any overlap
Section 557(1) of the FW Act provides 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.
Following Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62; 221 FCR 153, the phrase “civil remedy provision” in s 557 does not refer to ss 44(1) and 45 of the FW Act, but rather to “a provision” of the National Employment Standards or “a term” of a modern award. What is required is a focus on the substance of the particular obligation creating provisions, and “grouping” them accordingly to produce a rational outcome: Rocky Holdings at [23], [26]. This process of grouping is analogous to the criminal law concept of “rolled up” charges and can produce a considerable degree of leniency in the penalty determination process, albeit that the process is mandated by statute: cf R v Glynatsis [2013] NSWCCA 131; 230 A Crim R 99 at [65]-[66].
The FWO’s submissions identified 20 discrete types of contraventions by New Shanghai Charlestown that had been “grouped” by reference to s 557(1). Those 20 types were in turn further reduced to 13 discrete types of contraventions to overcome a degree of overlapping between closely associated but nominally separate contraventions. Each of these contraventions involved multiple acts over time. The final figure of 13 distinct contraventions following grouping, not disputed by the respondents, was arrived at as follows:
(1)There were 12 different types of breaches of s 45 of the FW Act referrable to particular Award payment obligations that had not been observed. Those 12 types of breaches were made up of breaches of two different Award provisions for each of the six categories of underpayment, being adult minimum rates, junior minimum rates, casual loadings, Saturday penalty rates, Sunday penalty rates and public holiday penalty rates. By grouping the two different kinds of Award provisions so as to count as one contravention each, and by further grouping the adult and junior rates to count as a single contravention, there was a single group of contraventions for underpayment in respect of each of the following five categories:
(a)adult and junior minimum rates;
(b)casual loadings;
(c)Saturday penalty rates;
(d)Sunday penalty rates; and
(e)public holiday penalty rates.
The maximum penalty for each those five groups of contraventions was $51,000 for New Shanghai Charlestown and $10,200 for each natural person accessory.
(2)There were a further three different kinds of breaches of s 45 of the FW Act referable to further award obligations that had not been observed. These were breaches of Award provisions for:
(a)the payment of overtime rates;
(b)the payment of superannuation; and
(c)the arrangement of ordinary hours for employees (that is, a minimum of eight full days off work per four week period).
Again, the maximum penalty for each of those three groups of contraventions was $51,000 for New Shanghai Charlestown and $10,200 for each natural person accessory.
(3)There were contraventions of s 44 of the FW Act for illegally cashing out annual leave for full-time workers which were aggregated as a single contravention. Again, the maximum penalty for this contravention as grouped was $51,000 for New Shanghai Charlestown and $10,200 for each natural person accessory.
(4)There were contraventions of s 536(1) of the FW Act, by failing to provide payslips, which were aggregated as a single contravention. The maximum penalty for this contravention as grouped was $25,500 for New Shanghai Charlestown and $5,100 for each natural person accessory.
(5)There was a contravention of reg 3.33 of the FW Regulations for failing to keep records as required. The maximum penalty for this contravention as grouped was $25,500 for New Shanghai Charlestown and $5,100 for each natural person accessory.
(6)There were two types of contraventions of reg 3.44(1) and (6) of the FW Regulations for creating and making use of false records respectively. The maximum penalty for each contravention was $17,000 for New Shanghai Charlestown and $3,400 for each natural person accessory.
The third, fourth and fifth steps
As noted above, the third step of considering any further adjustment to avoid double penalties, and the fourth and fifth steps as to determination of individual penalties and consideration of the totality principle, are addressed below in the context of the evidence and competing submissions.
Penalties sought by the FWO and the alternative penalties sought by the respondents
The written submissions in chief for the FWO annexed a table setting out the maximum penalties for each provision that had been contravened, and a further table setting out the penalties sought for each respondent by reference to the nature of the contravention, a grouping of contraventions, the maximum penalty for each group of contraventions, the maximum penalty after a 20% discount for cooperation, and a range of asserted appropriate penalties as a percentage of the maximum after the cooperation discount. The ranges proposed were as follows:
FWO suggested range: Bottom Top New Shanghai Charlestown $258,400 $301,920 Mr Chen $46,784 $54,672 Ms Sarah Zhu $16,592 $21,760 Ms Jenna Xu $18,224 $23,800 Overall total: $340,000 $402,152
It may be observed that the combined top of the penalty ranges proposed by the FWO of $402,152 is just over two-thirds of the total underpayment of entitlements of $583,688.68. The combined bottom of the penalty ranges proposed by the FWO of $340,000 is below 60% of the total underpayment of entitlements. On that measure at least, the FWO could not be accused of being heavy-handed or over-zealous in the range it proposed.
The Court is not bound by a specific penalty agreed between parties to civil penalty proceedings, but should not depart from it without giving the parties an opportunity to be heard, not least because it may have been a basis for agreement in the first place, including as to the fact and scope of liability: CFMEU Civil Penalties Case at [47], endorsing the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 291B, discussed further below at [118]. Logically, the same reasoning and principles and therefore practice should apply to agreed penalty ranges as does where a single figure penalty has been agreed to, in that the Court should not depart from the range that has been agreed – either by going above or below that agreed range – without giving the parties an opportunity to be heard.
In the case of a penalty proposed only by a regulator, that is, without agreement being reached, as a matter of judicial restraint and overall fairness to respondents in knowing what is sought against them and being able to respond (including deciding whether to respond), the Court generally should not exceed the regulator’s unilaterally proposed maximum penalty, or the top of a proposed penalty range: see Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [178]. There should not necessarily be any corresponding restraint on the Court imposing a penalty below the regulator’s unilaterally proposed penalty or penalty range when that is considered appropriate, even if that has not been specifically sought by a respondent. The minimum, if not agreed, is no more than a bare submission, albeit influential and not to be ignored.
Considered with the FWO’s oral and written submissions, the FWO’s table helpfully elucidated the regulator’s stance. Based on a discounted maximum penalty of 80% of the statutory maximum by reason of the 20% discount for cooperation, the FWO proposed penalty ranges for the different types of conduct by each of the respondents, being as much as 80-90% of the discounted maximum, and as little as 30-40% of the discounted maximum. Corresponding tables were furnished on behalf of each of the respondents in their written submissions and were also of great assistance in clearly understanding the stance taken by each orally and in writing. Those schedules and the corresponding submissions are considered in greater detail below.
The submissions of each of the respondents on the approach that should be taken to deciding upon the quantum of the penalties to be imposed can be summarised as follows:
(1)On behalf of New Shanghai Charlestown, it was submitted that the penalties imposed should be at the lower end of the FWO’s range of $258,400 to $301,920, taking into account the company’s corrective action, the contrition demonstrated by its sole director, and the evidence of further compliance training and monitoring. The suggested 20% discount for cooperation was agreed to. The penalty to be imposed will need to fall within the FWO’s proposed range in the absence of any further submissions being sought.
(2)On behalf of Mr Chen, it was submitted that imposing separate penalties on him in addition to the penalties that New Shanghai Charlestown will be ordered to pay would be to, in effect, penalise Mr Chen twice for the same conduct, having regard to his ownership of New Shanghai Charlestown. He therefore submitted that he should not be directly penalised financially at all, an outcome strongly opposed by the FWO. As there was no agreement on the penalty to be imposed on Mr Chen, this Court’s independent assessment as to whether the proposal of no direct sanction whatsoever on Mr Chen was required by law, or was otherwise appropriate, is constrained only by the maximum penalty sought against Mr Chen by the FWO in the absence of seeking further submissions. With that restraint being exercised, no further submissions are required to be sought.
(3)On behalf of Ms Sarah Zhu, it was submitted that the total penalties imposed on her should be $10,470, compared to the FWO’s proposed range of $16,592 to $21,760, on the basis that the FWO had overstated her involvement in and culpability for the contraventions compared to Mr Chen and Ms Jenna Xu. She submitted that a cooperation discount of 25% was appropriate, as opposed to the 20% discount suggested by the FWO. As with Mr Chen, in the absence of agreement on the penalty to be imposed, this Court’s independent assessment is constrained only by the maximum penalty sought by the FWO in the absence of seeking further submissions. With that restraint being exercised, no further submissions are required to be sought.
(4)On behalf of Ms Jenna Xu, it was submitted that only a very modest penalty should be imposed, reflecting Ms Xu’s limited knowledge of employee entitlements until the time of the 11 September 2014 FWO notice to produce, her language skills and background, her “narrow” role in the conduct, and the small timeframe for which accessorial liability attaches to her. She agreed with the cooperation discount of 20% proposed by the FWO, but submitted that the total penalty imposed on her should be 5% of the discounted maximum, being a total of $4,148, rather than a figure in the range suggested by the FWO of between $18,224 and $23,800, arrived at by the application of a range of 30-40% of the discounted maximum for the underpayments and 70-80% of the discounted maximum for creating the false or misleading records. As with Mr Chen and Ms Sarah Zhu, in the absence of agreement on the penalty to be imposed, this Court’s independent assessment is constrained only by the maximum penalty sought by the FWO in the absence of seeking further submissions. With that restraint being exercised, no further submissions are required to be sought.
If the submissions for the respondents were accepted in full, the total penalty imposed on all four respondents would be $273,018, compared to the FWO’s suggested range of $340,000 to $402,152. The respondents’ combined proposed total penalty would be comfortably less than 50% of the underpayment of entitlements to the 85 employees of $583,688.68 during a period of just over 16 months between 6 July 2013 and 20 November 2014. Given this disparity between the position of the FWO and the respondents, careful consideration of the competing arguments and evidence relied upon for those submissions is required, starting with the additional evidence in the context of the agreed facts outlined above.
Affidavit and oral evidence of Mr Chen (second respondent)
Mr Chen gave both affidavit and oral evidence. His evidence has been set out in general categories below.
Mr Chen’s business experience
Mr Chen holds a Bachelor of Engineering and a Master of Business Industry. He gave evidence that he started working in the restaurant industry in July 2009 to help out his parents, who owned a restaurant.
In cross-examination by counsel for the FWO, Mr Chen gave evidence of his involvement to varying degrees since 2009 in the running of other restaurants that operate under the name “New Shanghai”. In particular, Mr Chen indicated that between June 2009 and 27 October 2011, he had been a director of NSH Restaurant Proprietary Limited, which operates a restaurant in Chatswood Chase. He gave evidence that his wife has replaced him as the director of that company. He accepted that he maintains an active involvement in the running of the business. Mr Chen also indicated that since January 2010, he has been the director and secretary of NSH Food Manufacturing Pty Limited, a company which provides semi-prepared food to the various “New Shanghai” restaurants.
Mr Chen’s evidence as to Ms Sarah Zhu’s responsibilities
Mr Chen was asked a number of questions in cross-examination as to the nature and scope of Ms Sarah Zhu’s responsibilities in the business of New Shanghai Charlestown and other “New Shanghai” businesses. He accepted that he was the sole person giving Ms Sarah Zhu instructions and directions on how to perform her job. He accepted that Ms Sarah Zhu’s position as human resources manager primarily entailed responsibilities as to “payroll”, “super” and “workers’ compensation”, in effect being evidence that her true role was more limited than her title of “human resources manager” might suggest. He indicated that Ms Sarah Zhu provides that assistance to “all the restaurants”, being New Shanghai Charlestown, two restaurants in Chatswood, one restaurant in Ashfield, two restaurants in Brisbane and two restaurants in Melbourne.
Understanding of the seriousness of Mr Chen’s conduct
It was Mr Chen’s evidence that he did not fully appreciate the serious nature of his actions until he engaged specialist employment lawyers in November 2014, which was said to be the first time that he had received specialist employment law advice. In cross-examination, Mr Chen accepted that he had received some legal advice around November 2011 in relation to a complaint received by the FWO from one of his employees. Mr Chen said that this legal advice was brief and not very specialised.
Mr Chen also accepted that New Shanghai Charlestown had been the subject of a complaint by another employee to the FWO in April 2014, which had put him on notice of his failure to pay proper wages, including overtime and penalties, and to provide the employee with pay slips. Mr Chen accepted that he had been informed by the FWO of the seriousness of his conduct in relation to that employee, but had not taken any corrective action to ensure that all current employees thereafter received their minimum entitlements.
Mr Chen’s contrition
Mr Chen made a number of statements accepting responsibility for the contraventions of workplace laws by New Shanghai Charlestown. He said that his actions were very serious and that he regrets what he had done. He said that he apologises unreservedly and publicly to the staff who have been affected by his actions. While acknowledging the seriousness of the contraventions, he said that fear and panic had contributed to his wrongful actions. He believed that trying to deal with the matter himself, without the assistance of lawyers, may have contributed to the serious mistakes he made.
Rectification by New Shanghai Charlestown and Mr Chen
Mr Chen gave evidence that he had taken a number of steps, detailed in his affidavit, to rectify his and New Shanghai Charlestown’s contraventions of the FW Act. He indicated that, after engaging specialist employment lawyers in November 2014, he promptly provided the correct employee records and all documents sought by the FWO. He gave evidence that New Shanghai Charlestown had rectified, as at 3 March 2017, all underpayments that were the subject of these proceedings in respect of all employees it had been able to locate. He gave evidence of the steps he had caused to be taken to locate the 39 or so employees who had not been paid their outstanding entitlements. He gave evidence that to ensure payment of staff at the correct rate, he had adjusted the prices on the restaurant’s menu, ensured a dividend was not declared by the company, and directed that 100% of his wage derived from New Shanghai Charlestown be applied to meet the underpayment obligations, to the effect that he had not received any income from the company between July 2015 and March 2017.
Mr Chen also gave evidence that he had received training from his lawyers on the National Employment Standards, the Award, and employer obligations under the FW Act. He indicated that he planned to undertake further training in the near future on termination of employment, unfair dismissal and general protections.
In cross-examination, Mr Chen accepted that New Shanghai Charlestown had benefitted from the delay in paying the outstanding entitlements to its employees. Mr Chen also accepted that the company had benefited from the contraventions by reason of the fact that $126,000 of entitlements remained outstanding to those employees who could not be located. Mr Chen accepted that his conduct showed a preparedness to create false documents to serve his own interests.
Affidavit and oral evidence of Ms Sarah Zhu (third respondent)
Ms Sarah Zhu gave both affidavit and oral evidence supplementary to her statement of agreed facts. That evidence has been set out under the topic headings below.
Circumstances surrounding Ms Sarah Zhu’s involvement in the contraventions
In large part, Ms Sarah Zhu’s supplementary evidence concerned further detail as to the circumstances surrounding her involvement in the contraventions. She gave evidence that her parents and Mr Chen’s parents-in-law were friends, and that she had been offered the role of human resources manager with NSH Restaurant Pty Limited due to that family connection. She commenced that role on 7 November 2012. She gave evidence that as part of her employment, Mr Chen had offered and agreed for NSH Restaurant Pty Limited to take over the sponsorship of her 457 visa. Mr Chen’s wife was the director of that company.
Ms Sarah Zhu gave evidence that she was obedient to Mr Chen because he was her boss, and that defiance of the boss by a junior employee is not tolerated in the Chinese culture in which she was raised. She suggested that it would bring shame on her family if she was disrespectful to Mr Chen. She said that she was mindful that her residential visa status was dependent on her continuing employment with NSH Restaurant Pty Limited.
Ms Sarah Zhu’s evidence was that she had no role in the operational or day-to-day management of the New Shanghai Charlestown, and carried out her duties from an office in Chatswood. She gave evidence that she had no role in the hiring or firing of employees, the classification of employees or the duties they were assigned at the restaurant. She said that this was done by Ms Jenna Xu. She said that she had no role in setting the rates of pay, this being done by Mr Chen and Ms Jenna Xu.
Consistently with her statements of agreed facts, Ms Sarah Zhu’s evidence was that her payroll functions were undertaken using Excel spreadsheets that had been provided to her by Mr Chen. She gave evidence that Mr Chen had told her that he had inserted all the formulae for calculating wages and holiday entitlements in the spreadsheets, and that she was to enter the data of hours worked each week by the employees, as sent to her by Ms Jenna Xu. She said that during the contravention period, Ms Jenna Xu would provide her with a document each week containing the name, employee number and the hours worked by each employee, which were to be entered into the spreadsheet. She gave evidence that Mr Chen had given her the direction, which she complied with, to issue payslips only if an employee asked for them.
In her affidavit evidence, Ms Sarah Zhu sought to provide further detail of the conversation, identified at [106] of her statement of agreed facts, in which she advised Mr Chen that the hourly rates being paid to the employees were below the prescribed Award. In Ms Sarah Zhu’s account, she said, “You need to pay the proper amount pursuant to the Award. You are legally required to do so”. Her evidence was that Mr Chen said, “I will talk no more about this. You will do the payroll as I have told you”.
In cross-examination by counsel for the FWO, Ms Sarah Zhu accepted that she had been aware of the Award and the correct rates of pay to be paid to employees prior to the contravention period. It was put to her that she could have reported the underpayment and other issues to the FWO herself. She said that she had never thought about it. In further cross-examination by counsel for the FWO, Ms Sarah Zhu accepted the proposition that her conduct showed a preparedness to breach Australian law in circumstances where it suited her own interests.
In cross-examination by counsel for the first and second respondents, Ms Sarah Zhu accepted that her concern about having to leave the country in the event that she were to lose her job was one that she had formed on her own, without Mr Chen having said anything of the kind to her. She accepted that Mr Chen had at no stage threatened her visa status or her sponsorship.
Ms Sarah Zhu’s involvement in the creation of false records, including a prior telephone conversation
Ms Sarah Zhu gave evidence in relation to a phone conversation which was said to have taken place between her and Ms Jenna Xu prior to Ms Xu meeting with the FWO on 12 September 2014. This was not a matter that was detailed in the statements of agreed facts. Undoubtedly, this evidence was responsive to an assertion made by Ms Jenna Xu in her affidavit that Ms Zhu had called her prior to the meeting and suggested answers to questions that might be asked by the Fair Work Inspector.
Ms Sarah Zhu’s evidence was that Ms Jenna Xu had called her and told her about the upcoming interview with the Fair Work Inspector. Ms Sarah Zhu said that she told Ms Jenna Xu to be honest and cooperative. She accepted in cross-examination by counsel for the FWO that after this conversation in September 2014, she was involved in the creation of false records. Ms Zhu said that her conduct in this regard was “stupid”. It is unclear as to whether this reflected regret in having participated, or merely regret in having been caught. Either way, it does not amount to any meaningful mitigation.
Ms Sarah Zhu gave evidence by her affidavit that Mr Chen had directed her to create the false time and wage records for production to the FWO, and that she had said to Mr Chen “I don’t think we should do that”, to which he responded “Just do what I say”. She said that Ms Jenna Xu told her what to put in for the dates and hours worked and that she searched online for the relevant rates of pay.
Ms Sarah Zhu’s contrition
By way of her affidavit evidence, Ms Zhu said that she was truly sorry for her role in the contraventions, accepting that employees had been deprived their correct wages and entitlements. She said that she was under the belief that she had to adhere to the directions given by her boss, Mr Chen. She said that she obeyed Mr Chen because of the connection between their families, her junior role in the company, his position as her boss, and because she wanted to keep her job, as her right to stay in Australia depended on it. She acknowledged that she should not have obeyed his directions.
Affidavit and oral evidence of Ms Jenna Xu (fourth respondent)
Ms Jenna Xu gave affidavit and oral evidence with the assistance of a mandarin interpreter. A summary of her evidence is set out under the headings below.
Potential inconsistencies between Ms Jenna Xu’s evidence and the combined statement of agreed facts
In her affidavit and oral evidence, Ms Jenna Xu made several assertions that appeared to be inconsistent to varying degrees with the events described in the combined statement of agreed facts. When asked in cross-examination why she had agreed to that document in light of her apparently inconsistent evidence, she said that she hadn’t paid attention to the details and now wished to tell “the whole truth”. Three key inconsistencies warrant individual consideration.
First, Ms Jenna Xu denied, at least to some extent, her involvement in setting the rates of pay in the Excel spreadsheet used to create the actual time and wage records for the employees. This was potentially inconsistent with [143(i)] of the combined statement of agreed facts, where it was said that she “assisted, and/or was consulted by the Second Respondent in the determination of the base hourly rates of pay paid to each of the Employees during their respective Employment Periods”. This was also inconsistent with Ms Sarah Zhu’s evidence on affidavit that the rates of pay for employees were set by Mr Chen and Ms Jenna Xu. In cross-examination, Ms Jenna Xu conceded that she had been consulted by Mr Chen and assisted him, but only in setting the rates of pay for a limited number of cooks or chefs. She said that she hadn’t paid attention to the details of the combined statement of agreed facts, and disagreed with it to the extent that it suggested she was involved in setting the rates of pay in respect of each employee.
Second, Ms Jenna Xu denied the accuracy of [147(1)] of the combined statement of agreed facts, where it was stated that she had “provided information in respect of the duties of the [relevant employees] to [Ms Sarah Zhou] to assist in the creation of [the false records]”. By way of affidavit, she said that:
The time and salary records provided by [New Shanghai Charlestown] to the [FWO] in relation to the First Notice to Produce were initially provided by [Ms Sarah Zhu] to me. [Ms Sarah Zhu] provided me with a template and asked me to complete the rest of the records according to that template. I sent the records I completed back to [Ms Sarah Zhu], after which I received a phone call from [Mr Chen], asking me to complete the records in the way [Ms Sarah Zhu] had asked me.
These assertions, which were repeated in cross-examination, were also inconsistent with the affidavit evidence of the third respondent, Ms Sarah Zhu, that Ms Jenna Xu had “told [Ms Sarah Zhu] what to put in for the dates and hours worked” in creating the false records.
Third, Ms Jenna Xu gave evidence both in her affidavit and in cross-examination that she had provided the false time and salary records to the FWO at the direction of Mr Chen and Ms Sarah Zhu. This was inconsistent with the position detailed at [148] of the combined statement of agreed facts and [98] of her statement of agreed facts that the documents were produced at the direction of Mr Chen only.
It should be noted that in an affidavit made on 24 April 2017, which was styled as a “supplement” to the combined statement of agreed facts, Ms Jenna Xu, somewhat inconsistently, made the following statement at [15] as to her involvement in the falsification of records given to the FWO (emphasis added):
I accept that the manipulation of the records which I gave to the Fair Work Ombudsman inspector was wrong. I did it because I thought it would help [New Shanghai Charlestown] pass the inspection and after that [New Shanghai Charlestown] would make the changes necessary to comply with the Law. I did not understand the consequences of my actions. I did this on my own. I was not asked to do it by anybody.
That statement was “clarified” by Ms Jenna Xu by way of a further statement in an affidavit made on 26 June 2017, as follows:
I refer to paragraph 15 of my affidavit of 24 April 2017. [Mr Chen and Ms Sarah Zhu] directed me to deliver the records to the Fair Work Inspector. [Ms Sarah Zhu] printed the documents which she arranged to deliver to me and then asked me to deliver to the Fair Work Inspector. After I delivered the documents, [Mr Chen and Ms Sarah Zhu] called me to check that I had done as they requested.
I refer to the last two sentences of paragraph 15 of my affidavit of my affidavit of 24 April 2017. In those sentences I wanted to convey that I fully accepted my wrongdoing. I was trying to show my unconditional acceptance of my wrongdoing, however, the details in the preceding paragraph of this affidavit are what actually occurred.
Ms Jenna Xu’s oral evidence at the hearing was consistent with the position in her 26 June 2017 affidavit.
Ms Jenna Xu’s involvement in the creation of false records
In her affidavit evidence, Ms Jenna Xu referred to having received a phone call from Ms Sarah Xu prior to the first visit by the Fair Work Inspector. This was a matter that had not been addressed in the statements of agreed facts. In Ms Jenna Xu’s account of the phone conversation, Ms Sarah Zhu had suggested answers to possible questions that might be asked by the inspector. In cross-examination, Ms Zhu said that those suggested answers included advice on “the minimum rates”, and the rates for Saturdays, Sundays and public holidays.
In cross-examination by counsel for the third respondent, Ms Jenna Xu denied the proposition that Ms Sarah Zhu had told her to tell the truth and to give truthful answers to the Fair Work Inspector. Similarly, Ms Jenna Xu did not agree that Ms Sarah Zhu had not suggested answers to give to the Fair Work Inspector. In light of the conclusions reached about Ms Sarah Zhu’s evidence on this topic at [68] above, nothing turns on this disputed evidence and, accordingly, resolution as to who is telling the truth, were that possible, is not required.
In cross-examination by counsel for the FWO, Ms Jenna Xu was asked about the 29 letters of offer to restaurant employees that were among the false documents provided to the FWO in response to the first notice to produce. Ms Jenna Xu accepted that she signed each of those letters knowing that they were not letters that had been previously provided to employees. Ms Jenna Xu denied having signed the documents on behalf of the relevant employees. She said that Ms Sarah Zhu had provided her with printed copies of the documents and asked her to ask the employees to sign them. She said that she had presented the documents to the employees and asked them to sign them, knowing that the information in the documents was false.
The effect of s 191 of the Evidence Act on Ms Jenna Xu’s additional evidence
The Court raised at the penalty hearing the proposition that, to the extent that Ms Jenna Xu’s evidence contradicted or qualified an agreed fact, she would require leave of the Court under s 191 of the Evidence Act 1995 (Cth) to adduce it. No such leave was sought. Instead, it was submitted on Ms Xu’s behalf that her evidence in cross-examination was consistent with the combined statement of agreed facts. For the reasons that follow, I do not accept that certain aspects of that additional evidence were consistent with the combined statement of facts. To that extent, the question of granting leave to rely upon that additional evidence must be determined.
The relevant assertions by Ms Jenna Xu in her additional evidence may be summarised as follows:
(1)First, that Ms Jenna Xu was only involved in the setting of rates of pay during the contravention period in respect of a limited number of employees.
(2)Second, that Ms Jenna Xu did not provide the employee information to Ms Sarah Zhu for Ms Zhu to create the false records, but rather was directed by Ms Zhu to complete the false records using a template that she provided; and
(3)Third, that Ms Jenna Xu was directed by both Mr Chen and Ms Sarah Zhu to provide the false records to the FWO.
As to the first assertion, concerning Ms Jenna Xu’s involvement in the setting of rates of pay for a limited number of employees, this evidence was not necessarily inconsistent with the combined statement of agreed facts on this point. It does, however, entail Ms Jenna Xu downplaying her involvement in the contraventions, as does much of her evidence. In the end result, it does not make a great deal of difference, as it does not in any meaningful way mitigate her involvement in the creation and production of the false records, having regard to her knowledge of the nature of the illegality by the time that she participated in the efforts to cover it up. Leave to adduce that evidence should be and hereby is given, but little weight should be given to it. The real weight comes from the limited scope of her admission in the combined agreed statement of facts as to awareness of the Award obligations until the time of the service of the FWO notice to produce.
As to the second assertion, the mechanics of how precisely the false records were created – undeniably to deceive the FWO – are of much less significance than the combination of efforts on the part of Mr Chen, Ms Jenna Xu and Ms Sarah Zhu to achieve that objective. Plainly, Mr Chen was the primary directing mind, and both women were subordinate to him in this illegal activity. Ms Xu either provided the false information in a document, or put that information herself in the template for provision to the FWO. In both instances, she knew it was for the purpose of creating false records to give to the FWO. Again, leave to adduce that evidence should be and hereby is given, but little weight should be given to it.
It may be accepted that some oversight and training will be provided to New Shanghai Charlestown and Mr Chen by their solicitors, suggesting a commitment to future compliance. This accrues to the benefit of each of the respondents in providing slight comfort that the likelihood of future contraventions and the need for specific deterrence are reduced.
The fact that Mr Chen, Ms Sarah Zhu and Ms Jenna Xu have each expressed remorse and acknowledged the wrongfulness of their actions must be acknowledged and given due weight. However, the sincerity of this contrition is difficult to accept fully and without qualification in all the circumstances, carrying, as it does, the impression of remorse more at having been caught, than genuine regret for their actions, and the consequences for those affected. The weight that should be accorded this factor is slight.
For the foregoing reasons, the conduct of New Shanghai Charlestown, Mr Chen and Ms Sarah Zhu warranted imposition of a penalty at the highest end of the available penalty range applicable, after appropriate credit is given for their cooperation. This requires proper regard to those maximum penalties, not the discounted maximum arrived at by the FWO by the application of the 20% discount for cooperation, being one of the areas in this context in which criminal law principles are appropriately influential, including Markarian v The Queen [2005] HCA 25; 228 CLR 357 at [30]-[31], in relation to the approach to be taken to maximum penalties.
Penalty to be imposed on New Shanghai Charlestown
Weighing up all of the competing considerations, the discount of 20% for cooperation was, as already indicated, generous and somewhat greater than I would have been inclined to arrive at independently, especially as the FWO’s proposed penalties for New Shanghai Charlestown reduce that discounted maximum further. The conduct within the spectrum of possible contraventions was, in the greater part, grave, especially when regard is had to the attitude towards that conduct manifested in creating false records and producing them in purported response to a FWO notice to produce. As in the criminal jurisdiction, it is no longer appropriate to describe conduct such as this as being “in the worst category”: see R v Kilic [2016] HCA 48; 259 CLR 256 at [17]-[20]. However, had this matter proceeded to trial and the contraventions now admitted been found to been proven, it would have been entirely open to have characterised this as being sufficiently grave to warrant imposing the maximum prescribed penalty for most, if not all, of the contraventions. That is especially so having regard to the inherent leniency afforded by the grouping exercise under s 557(1) of the FW Act, at least where that has aggregated a very large number of what would otherwise have been separate contraventions. After such a successful trial, the maximum penalty open to being imposed on New Shanghai Charlestown would have been $544,000.
The Markarian benchmark against which a proposed penalty is to be assessed is not the discounted maximum, but rather the statutory maximum, albeit constrained by the submissions made by the regulator and any agreement reached. Viewed in that way, further reducing the penalty to be imposed on New Shanghai Charlestown to the top of the agreed FWO range of $301,920, a reduction of $242,080 (or about 44%) from the statutory maximum is a very substantial reduction for cooperation and all other available mitigation. It also leaves ample scope to address the concern of a double penalty arising by reason of Mr Chen being the sole natural person standing behind the company, as addressed below.
The individual penalties are set out in the table for New Shanghai Charlestown in the schedule to this judgment.
Penalty to be imposed on Mr Chen
As already indicated, the discount of 20% for cooperation is somewhat greater than I would have been inclined to arrive at, especially as the FWO’s proposed penalties for Mr Chen reduce that discounted maximum further. Mr Chen’s accessorial conduct, as the principal guiding mind of New Shanghai Charlestown, within the spectrum of possible contraventions was, in the greater part, grave. That is especially so when regard is had to the attitude towards that conduct manifested by Mr Chen directing that false records be created and produced to the FWO in an obvious attempt to avoid detection.
Again, had this matter proceeded to trial and the contraventions now admitted been found to have been proven, it would have been entirely open to have characterised the underlying conduct as being sufficiently grave to warrant imposing on Mr Chen the maximum prescribed penalty for most, if not all, of the contraventions, a total of $98,600. The FWO’s proposed upper limit penalty of $54,672, when measured against the maximum penalty benchmark of $98,600, amounts to a discount of about 45% from the statutory maximum. Not only does that amply reward the cooperation and every aspect of mitigation, it also amply addresses the concern of any aspect of double penalty arising from Mr Chen being the alter ego of New Shanghai Charlestown. Even imposing the top of the FWO range on both New Shanghai Charlestown and Mr Chen does not, in combination, amount to any excessive sanction being imposed directly or indirectly on Mr Chen. The top of the range proposed by the FWO remains appropriate overall, when proper regard is had to the overall conduct and the manifest need for both general and specific deterrence.
The individual penalties imposed are set out in the table for Mr Chen in the schedule to this judgment.
Penalty to be imposed on Ms Sarah Zhu
Weighing up all the competing considerations, once again the upper limit of the penalty range proposed by the FWO needs to be benchmarked against the statutory maximum, not the discounted maximum. In the case of Ms Sarah Zhu, $21,760 is to be benchmarked against the overall available maximum of $64,600, albeit recognising that her culpability was considerably greater for her role in creating the false records, than for the involvement in the underpayment of entitlements. Viewed in that way, an overall penalty of just over a third of the available maximum cannot be viewed as anything other than entirely reasonable.
The individual penalties imposed are set out in the table for Ms Sarah Zhu in the schedule to this judgment.
Penalty to be imposed on Ms Jenna Xu
Weighing up all the competing considerations, once again the upper limit of the penalty range proposed by the FWO needs to be benchmarked against the statutory maximum, not the discounted maximum. However, in this case, the top of the range proposed for Ms Jenna Xu deploys the same percentage ranges as for Ms Sarah Zhu. This does not sufficiently recognise Ms Jenna Xu’s much shorter period of participation than Ms Sarah Zhu in relation to the underpayment of entitlements. For parity reasons, it is therefore appropriate to use the lower end of the FWO proposed range, which sufficiently gives account of the material, but still limited, differences in the case against Ms Jenna Xu as compared to the case against Ms Sarah Zhu. On that basis, the underpayment contraventions that Ms Jenna Xu was involved in (that is, excluding her involvement in the making of the false records) produce a lower-range total amount of $16,320, to be benchmarked against a similarly reduced overall maximum of $66,300 (excluding the maximum penalty for the making of the false records). That penalty amount, representing approximately 25% of the reduced maximum, could not be described as other than reasonable, and amply recognises the shorter duration of her participation. It produces an appropriate penalty for this aspect of Ms Jenna Xu’s conduct.
As to Ms Jenna Xu’s involvement in the making of the false records and producing them to the FWO, the top of the FWO range total is $2,176, against a statutory maximum of $3,400, or about 64%. That is an appropriate sanction for this conduct.
The overall penalty for Ms Jenna Xu is therefore $18,496. The individual penalties imposed are set out in the table for Ms Jenna Xu in the schedule to this judgment.
Totality
Application of the totality principle does not call for any reduction of the penalties imposed.
Declarations and orders
The declarations and orders set out prior to these reasons will be made, subject only to any corrections of a linguistic or grammatical kind suggested by any of the parties. The total penalties to be paid by each of the respondents are as follows:
New Shanghai Charlestown
$301,920
Mr Chen
$54,672
Ms Sarah Zhu
$21,760
Ms Jenna Xu
$18,496
Overall total:
$396,848
Each penalty is to be paid within 60 days of the date upon which the orders are made, that is, by 11 January 2018.
Postscript – observations about the laws proscribing the creation and production of false employee records
It should be observed that the conduct of making and producing false employee records in response to a FWO notice to produce was made the subject of only regulatory contraventions for creating and making use of false or misleading records, namely being contrary to reg 3.44(1) and (6) of the FW Regulations. As already observed, the maximum penalty for each contravention was only $17,000 for New Shanghai Charlestown and only $3,400 for each natural person. The conduct could also have been made the subject of a single civil remedy provision for failing to comply with the FWO notice by not producing the true records that were required to be produced (and were in fact produced in response to the second FWO notice to produce). Such a contravention is brought under s 539 of the FW Act (per item 32 of the table to s 539(2) in respect of s 712(3)), with a maximum penalty of 60 penalty units, at that time being $170 per penalty unit, which has since increased to $210 and is to be subject to indexation from 1 July 2020: see s 4AA of the Crimes Act 1914 (Cth). However, alleging such a contravention may not have captured the antecedent conduct of creating the false records, nor of using the false records by producing them in lieu of those sought by the FWO notice to produce.
The collective maximum penalty for all four respondents in respect of the record-based contraventions that were agreed to was only $54,400, yet the underlying conduct was essentially criminal in nature, evidently designed to conceal underpayments to 85 employees of over 10 times that aggregate maximum penalty amount, being $583,688.68, plus a range of other contraventions with other consequences for the employees concerned. On any view, this was a woefully inadequate sanction for such serious and premeditated conduct involving direction and collaboration. In other regulatory settings, such as in relation to compliance with notices under s 155 of the Competition and Consumer Act 2010 (Cth), the maximum penalty is two years’ imprisonment. Even that may be inadequate for conduct as serious and calculated as occurred in this case, which in other settings often has the flavour of perverting the course of justice. The production of the false records to the FWO could have been the subject of a criminal prosecution for the offence of giving false or misleading information to a Commonwealth entity or a person exercising powers or functions in connection with a law of the Commonwealth, contrary to s 137.1 of the Criminal Code (Cth), which carries a maximum penalty of 12 months’ imprisonment and/or a fine of $12,600. However, it should be observed that such proceedings could not be brought in this Court and instead would require parallel proceedings in a State court exercising federal jurisdiction, in keeping with most federal criminal offences.
Had this conduct not been detected, the primary contraventions could well have continued, unabated. Being able to lie to or otherwise deceive a regulator such as the FWO, yet face only minimal financial consequences if caught, has the potential to compromise the effectiveness of enforcement of federal industrial laws. The disparity between a substantial illegal gain and a manifestly inadequate sanction made the equation of cost and benefit one that offered every incentive to lie or deceive, and much less incentive to behave honestly. The existence of real sanctions is therefore necessary to provide a sufficiently powerful incentive to comply.
It appears that the inadequacy of the maximum civil penalties available under the FW Act has been addressed for circumstances such as these by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth), which commenced on 15 September 2017. Under the regime established by those amendments, certain contraventions of the FW Act will now give rise to “serious contraventions” if found to have been deliberate and forming part of a systematic pattern of conduct: see s 557A. Significantly, this includes contraventions relating to record keeping failures and contravention of a modern award under s 45 of the FW Act. Where a serious contravention is established, the maximum penalty available is 600 penalty units for individuals, and 3,000 penalty units for bodies corporate, presently equating to $126,000 and $630,000 respectively per grouped contravention.
Relevantly, the maximum penalties available for an “ordinary” strict liability contravention of the record keeping provisions, contained in regulation 3.44 of the Fair Work Regulations, have also been increased from 20 penalty units to 60 penalty units, and from 100 to 300 penalty units for bodies corporate, presently equating to $12,600 and $63,000 respectively per grouped contravention.
The Explanatory Memorandum to that Act relevantly states as follows:
The increase to these maximum penalties recognises that the current penalty levels for these contraventions are too low compared to other civil penalty provisions within the Act. This also acknowledges the important role employee records and payslips play in determining compliance under the Act; without reliable employee records, employees may be unable to prove their case and recover their minimum entitlements at law. If underpayments cannot be proved, employers may end up with a significant windfall, even if fined for contraventions relating to records under sections 535 and 536. This increase in the penalties is not designed to target those employers who genuinely overlook recordkeeping requirements. Rather, it is aimed at deterring the small minority of employers who deliberately fail to keep records as part of a systematic plan to underpay workers and disguise their wrongdoing.
The importance of ensuring compliance with the record keeping requirements under the FW Act is certainly made clear by this case. The decision of the Parliament to increase penalties for cases such as this appears entirely warranted.
I certify that the preceding two hundred and twenty-nine (229) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich. Associate:
Dated: 10 November 2017
SCHEDULE
Penalties imposed on New Shanghai Charlestown (NSC) – first respondent Nature of contravention of FW Act/FW Regulations
(maximum penalty for company)Total under-payment Maximum corporate penalty after grouping Maximum corporate penalty after cooperation discount of 20% FWO submission on appropriate penalty range for New Shanghai Charlestown (NSC) Penalty sought by NSC Penalty imposed on NSC
Low Range (% of maximum penalty after cooperation discount) High Range (% of maximum penalty after cooperation discount) Minimum rates – adult (s 45)
Clause 20.1 of the Award
($51,000)$136,498.84 $51,000 $40,800 $28,560
(70%)$32,640
(80%)$28,560 $32,640
Clause A.2.5 of Sch A to the Award
($51,000)Minimum rates – junior (s 45)
Clause 20.3 of the Award
($51,000)$2,058.00 Clause A.2.5 of Sch A to the Award
($51,000)Casual loading (s 45)
Clause 13.1 of the Award
($51,000)$116,382.59 $51,000 $40,800 $28,560
(70%)$32,640
(80%)$28,560 $32,640
Clause A.5.4 of Sch A to the Award
($51,000)Saturday penalty rates (s 45)
Clause 34.1 of the Award
($51,000)$112,114.53 $51,000 $40,800 $28,560
(70%)$32,640
(80%)$28,560 $32,640 Clause A.7.3 of the Award
($51,000)Sunday penalty rates (s 45)
Clause 34.1 of the Award
($51,000)$117,663.05 $51,000 $40,800 $28,560
(70%)$32,640
(80%)$28,560 $32,640
Clause A.7.3 of Sch A to the Award
($51,000)Public holiday rates (s 45)
Clause 34.1 of the Award
($51,000)$21,661.17 $51,000 $40,800 $24,480
(60%)$28,560
(70%)$24,480 $28,560 Clause A.7.3 of Sch A to the Award
($51,000)Overtime rates (s 45)
Clause 33.1 of the Award
($51,000)$77,310.50 $51,000 $40,800 $24,480
(60%)$28,560
(70%)$24,480 $28,560 Superannuation (s 45)
Clause 30.2 of the Award
($51,000)No evidence $51,000 $40,800 $24,480
(60%)$28,560
(70%)$24,480 $28,560 Arranging ordinary hours (s 45)
Clause 31.2 of the Award
($51,000)N/A $51,000 $40,800 $12,240
(30%)$16,320
(40%)$12,240 $16,320 Cashing out annual leave (ss 44, 92)
($51,000)N/A $51,000 $40,800 $12,240
(30%)$16,320
(40%)$12,240 $16,320 Record keeping (reg 3.33)
Failing to keep records as required
($17,000)N/A $25,500 $20,400 $12,240
(60%)$14,280
(70%)$12,240 $14,280 Creating false or misleading records (reg 3.44(1))
($17,000)N/A $17,000 $13,600 $10,880
(80%)$12,240
(90%)$10,880 $12,240 Using false or misleading records (reg 3.44(6)
($17,000)N/A $17,000 $13,600 $10,880
(80%)$12,240
(90%)$10,880 $12,240 Not providing pay slips (s 536(1))
($17,000)N/A $25,500 $20,400 $12,240
(60%)$14,280
(70%)$12,240 $14,280 TOTALS: $583,688.68 $544,000 $435,200 $258,400 $301,920 $258,400 $301,920
Penalties imposed on Mr Zhong Yuan Chen – second respondent Nature of contravention of FW Act/FW Regulations
(maximum penalty for individual)Total under-payment Maximum individual penalty after grouping Maximum individual penalty after cooperation discount FWO submission on appropriate penalty range for Mr Chen Penalty sought by Mr Chen Penalty imposed on Mr Chen
Low Range (% of maximum penalty after cooperation discount) High Range (% of maximum penalty after cooperation discount) Minimum rates – adult (s 45)
Clause 20.1 of the Award
($10,200)$136,498.84 $10,200 $8,160 $5,712
(70%)$6,528
(80%)Nil $6,528 Clause A.2.5 of Sch A to the Award
($51,000/$10,200)Minimum rates – junior (s 45)
Clause 20.3 of the Award
($51,000/$10,200)$2,058.00 Clause A.2.5 of Sch A to the Award
($10,200)Casual loading (s 45)
Clause 13.1 of the Award
($51,000/$10,200)$116,382.59 $10,200 $8,160 $5,712
(70%)$6,528
(80%)Nil $6,528 Clause A.5.4 of the Award
($10,200)Saturday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$112,114.53 $10,200 $8,160 $5,712
(70%)$6,528
(80%)Nil $6,528 Clause A.7.3 of the Award
($10,200)Sunday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$117,663.05 $10,200 $8,160 $5,712
(70%)$6,528
(80%)Nil $6,528 Clause A.7.3 of the Award
($10,200)Public holiday rates (s 45)
Clause 34.1 of the Award
($10,200)$21,661.17 $10,200 $8,160 $4,896
(60%)$5,712
(70%)Nil $5,712 Clause A.7.3 of the Award
($10,200)Overtime rates (s 45)
Clause 33.1 of the Award
($10,200)$77,310.50 $10,200 $8,160 $4,896
(60%)$5,712
(70%)Nil $5,712 Arranging ordinary hours (s 45)
Clause 31.2 of the Award
($10,200)N/A $10,200 $8,160 $2,448
(30%)$3,264
(40%)Nil $3,264 Cashing out annual leave (ss 44, 92)
($10,200)N/A $10,200 $8,160 $2,448
(30%)$3,264
(40%)Nil $3,264 Record keeping (reg 3.33)
Failing to keep records as required
($5,100)N/A $5,100 $4,080 $2,448
(60%)$2,856
(70%)Nil $2,856 Creating false or misleading records (reg 3.44(1))
($3,400)N/A $3,400 $2,720 $2,176
(80%)$2,448
(90%)Nil $2,448 Using false or misleading records (reg 3.44(6)
($3,400)N/A $3,400 $2,720 $2,176
(80%)$2,448
(90%)Nil $2,448 Not providing pay slips (s 536(1))
($3,400)N/A $5,100 $4,080 $2,448
(60%)$2,856
(70%)Nil $2,856 TOTALS: $98,600 $78,880 $46,784 $54,672 Nil $54,672
Penalties imposed on Ms Ting (Sarah) Zhu – third respondent Nature of contravention of FW Act/FW Regulations
(maximum penalty for individual)Total under-payment Maximum individual penalty after grouping Maximum individual penalty after cooperation discount FWO submission on appropriate penalty range for Ms Zhu Penalty sought by Ms Zhu Penalty imposed on Ms Zhu
Low Range (% of maximum penalty after cooperation discount) High Range (% of maximum penalty after cooperation discount) Minimum rates – adult (s 45)
Clause 20.1 of the Award
($10,200)$136,498.84 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Clause A.2.5 of Sch A to the Award
($51,000/$10,200)Minimum rates – junior (s 45)
Clause 20.3 of the Award
($51,000/$10,200)$2,058.00 Clause A.2.5 of Sch A to the Award
($10,200)Casual loading (s 45)
Clause 13.1 of the Award
($51,000/$10,200)$116,382.59 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Clause A.5.4 of the Award
($10,200)Saturday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$112,114.53 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Clause A.7.3 of the Award
($10,200)Sunday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$117,663.05 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Clause A.7.3 of the Award
($10,200)Public holiday rates (s 45)
Clause 34.1 of the Award
($10,200)$21,661.17 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Clause 34.1 of the Award
($10,200)Overtime rates (s 45)
Clause 33.1 of the Award
($10,200)$77,310.50 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$2,448
$3,264 Creating false or misleading records (reg 3.44(1))
($3,400)N/A $3,400 $2,720 $1,904
(70%)$2,176
(80%)$1,904 $2,176 TOTALS: $583,688.68 $64,600 $51,680 $16,592 $21,760 $16,592 $21,760
Penalties imposed on Ms Jin (Jenna) Xu – fourth respondent Nature of contravention of FW Act/FW Regulations
(maximum penalty for individual)Total under-payment Maximum individual penalty after grouping Maximum individual penalty after cooperation discount FWO submission on appropriate penalty range for Ms Jenna Xu Penalty sought by Ms Xu Penalty imposed on Ms Xu
Low Range (% of maximum penalty after cooperation discount) High Range (% of maximum penalty after cooperation discount) Minimum rates – adult (s 45)
Clause 20.1 of the Award
($10,200)$136,498.84 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$408 $2,448 Clause A.2.5 of Sch A to the Award
($51,000/$10,200)Minimum rates – junior (s 45)
Clause 20.3 of the Award
($51,000/$10,200)$2,058.00 Clause A.2.5 of Sch A to the Award
($10,200)Casual loading (s 45)
Clause 13.1 of the Award
($51,000/$10,200)$116,382.59 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$408 $2,448 Clause A.5.4 of the Award
($10,200)Saturday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$112,114.53 $10,200 $8,160 $2,448
(30%)$3,264
(40%)Not referred to $2,448 Clause A.7.3 of the Award
($10,200)Sunday penalty rates (s 45)
Clause 3.41 of the Award
($10,200)$117,663.05 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$408 $2,448 Clause A.7.3 of the Award
($10,200)Public holiday rates (s 45)
Clause 34.1 of the Award
($10,200)$21,661.17 $10,200 $8,160 $2,448
(30%)$3,264
(40%)Not referred to
$2,448 Clause A.7.3 of the Award
($10,200)Overtime rates (s 45)
Clause 33.1 of the Award
($10,200)$77,310.50 $10,200 $8,160 $2,448
(30%)$3,264
(40%)$408 $2,448 Using false or misleading records (reg 3.44(6))
($3,400)N/A $3,400 $2,720 $1,904
(70%)$2,176
(80%)$1,904 $2,176 Not providing pay slips (s 536(1))
($3,400)N/A $5,100 $4,080 $1,632
(40%)$2,040
(50%)$204 $1,632 TOTALS: $583,688.68 $69,700 $61,200 $18,224 $23,800 $4,148 $18,496
903
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