Fair Work Ombudsman v Om Shiva Foods Pty Ltd
[2024] FedCFamC2G 857
•9 September 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Om Shiva Foods Pty Ltd [2024] FedCFamC2G 857
File number(s): DNG 24 of 2023 Judgment of: JUDGE LIVERIS Date of judgment: 9 September 2024 Catchwords: FAIR WORK APPEAL – FAILURE TO COMPLY WITH A COMPLIANCE NOTICE – application for imposition of pecuniary penalties and other relief - underpayment – pecuniary penalties ordered Legislation: Fair Work Act 2009 (Cth) ss 536(1), 550, 716(5)
General Retail Industry Award 2010
General Retail Industry Award 2020
Cases cited: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 274 CLR 450
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640
Fair Work Ombudsman v Big Daddy’s Pty Ltd [2022] FedCFamC2G 786
Fair Work Ombudsman v Corporation Sun Pty Ltd & Anor [2020] FCCA
Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557
Fair Work Ombudsman v Hess [2021] FCCA 1883
Fair Work Ombudsman v IE Enterprises Pty Ltd [2021] FCA 60
Fair Work Ombudsman v Lotus Farm Pty Ltd [2024] FedCFamC2G 369
Fair Work Ombudsman v Rum Runner Trading Pty Ltd [2018] FCCA 1129
Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant [2012] FMCA 258
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285
Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543; [2007] FCAFC 65
Division: Division 2 General Federal Law Number of paragraphs: 87 Date of hearing: 29 July 2024 Place: Darwin Solicitor for the Applicant: Mr Robertson of the Fair Work Ombudsman Solicitor for the Respondents: Ms Pescud of Employsure Law Pty Ltd
Table of Corrections 9 September 2024 On the orders page, order 5 has been added. 9 September 2024 Directly following the orders, the notation of amendment has been added. ORDERS
DNG 24 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: OM SHIVA FOODS PTY LTD
First Respondent
VINAY MADASU
Second Respondent
ORDER MADE BY:
JUDGE LIVERIS
DATE OF ORDER:
9 SEPTEMBER 2024
THE COURT DECLARES THAT:
1.The First Respondent contravened section 716(5) of the Fair Work Act 2009 (Cth) by failing to comply with the compliance notice issued on 27 October 2022 pursuant to section 716(2) of the Act;
2.The Second Respondent was involved, within the meaning of section 550(2) of the Act, in the First Respondent’s contravention of section 716(5) of the Act and is taken to have contravened that provision;
3.The First Respondent contravened section 536(1) of the Act by failing to give Sai Ratna Kumar Nannapaneni pay slips within one working day of paying an amount in relation to the performance of work; and
4.The Second Respondent was involved, within the meaning of section 550(2) of the Act, in the First Respondent’s contravention of section 536(1) of the Act and is taken to have contravened that provision.
THE COURT ORDERS THAT:
1.Pursuant to section 545 of the Act, Om Shiva take the following steps to remedy the direct effects of its non-compliance with the Compliance Notice, within 28 days of this order:
(a)paying to Mr Nannapaneni the total amount of $68,970.44 (gross) (Underpayment Amount), less any amounts that have already been paid as at the date of this Order;
(b)paying the additional superannuation contributions to Mr Nannapaneni’s nominated superannuation fund as required by clause 20.2 of the General Retail Industry Award 2020 in respect of the Underpayment Amount;
(c)produce to the Fair Work Ombudsman evidence that the Underpayment Amount and additional superannuation contributions were rectified.
2.Pursuant to s 547(2) of the Act, the First Respondent pay interest to Mr Nannapaneni on the Underpayment Amount within 28 days of this order.
3.Pursuant to s 546(1) of the Act, within 28 days of this order:
(a)the First Respondent pay pecuniary penalties to the Commonwealth for its contravention of s 716(5) of the Act in the sum of $13,320;
(b)the First Respondent pay pecuniary penalties to the Commonwealth for its contravention of s 536(1) of the Act in the sum of $26,640;
(c)the Second Respondent pay pecuniary penalties to the Commonwealth for his contravention of s 716(5) of the Act in the sum of $2,664;
(d)the Second Respondent pay pecuniary penalties to the Commonwealth for his contravention of s 536(1) of the Act in the sum of $5,328;
4.Pursuant to s 546(3)(a) of the Act, the pecuniary penalties imposed on the Respondents be paid to the consolidated revenue fund of the Commonwealth;
5.Orders 1 and 2 be stayed for 3 months from the date of these orders; and
6.The Applicant have liberty to apply.
THE COURT NOTES THAT:
A.These Orders have been amended pursuant to rule 10.13 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE LIVERIS
Om Shiva Foods Pty Ltd operate the Wulagi Supermarket. Vinay Madasu is the sole director and secretary of the company.
The Supermarket began trading in June 2015. It is a small convenience store that sells corner store style and Indian groceries, liquor and tobacco. It is open 12 hours a day, 7 days a week, all year round.
Between 19 February 2020 and 22 August 2021, Sai Ratna Kumar Nannapaneni was employed at the Supermarket as a casual retail employee. He is the only employee that the Supermarket has ever had.
On 17 September 2021, the Office of the Fair Work Ombudsman received a request for assistance from Mr Nannapaneni about unpaid and underpaid wages and the non-provision of pay slips. In October 2021, the Office of the Fair Work Ombudsman commenced an investigation into Mr Nannapaneni’s employment at the Supermarket.
On the basis of information obtained during the investigation, Fair Work Inspector Kim Woodhead formed a reasonable belief that Om Shiva had contravened various provisions of the General Retail Industry Award 2010 and the General Retail Industry Award 2020.
On 27 October 2022, Fair Work Inspector Woodhead gave Om Shiva a Compliance Notice that alleged it had contravened the Award over the period of Mr Nannapaneni’s employment, by not paying him rates and entitlements as a casual employee in accordance with the Award as it applied across the employment period.
The Compliance Notice required Om Shiva to calculate and rectify any underpayments and calculate and pay any additional superannuation contributions by 24 November 2022. Om Shiva was also required to submit reasonable evidence of compliance to the Office of the Fair Work Ombudsman by 1 December 2022.
Om Shiva did not comply with the Compliance Notice.
These proceedings were commenced on 7 September 2023. It is alleged that Om Shiva contravened s 716(5) of the Act by failing to comply with the Compliance Notice, and that it contravened s 536(1) of the Act by failing to give Mr Nannapaneni pay slips within one working day of payment, or at all. It is also alleged that Mr Madasu contravened both of these provisions, as a person who is involved in Om Shiva’s contraventions for the purposes of s 550 of the Act.
In the proceedings, both Om Shiva and Mr Madasu have admitted the contraventions of the Act alleged by the Fair Work Ombudsman.
Om Shiva and Mr Madasu agree that the amount Om Shiva would have paid to Mr Nannapaneni if it had complied with the Compliance Notice is $68,970.44 (gross). On 8 April 2024, Om Shiva started making weekly payments to Mr Nannapaneni. As at 26 July 2024, Om Shiva has paid a total of $9,000 gross ($8,200 net) to Mr Nannapaneni.
The parties have jointly recommended that the court makes declarations and orders to the effect that Om Shiva and Mr Madasu contravened ss 716(5) and 536(1) of the Act, that Om Shiva pay the underpayment amount, superannuation and interest to Mr Nannapaneni and that pecuniary penalties be imposed upon Om Shiva and Mr Madasu.
The central issues in the proceeding are:
(a)What is the appropriate quantification of the pecuniary penalties to be imposed?
(b)Should the orders requiring Om Shiva to repay Mr Nannapaneni be stayed?
WHAT IS THE APPROPRIATE QUANTUM OF THE PECUNIARY PENALTIES TO BE IMPOSED?
The well-established principles that apply to the determination of the pecuniary penalties are not in contention. The purpose of imposing civil penalties is “primarily, if not solely, the promotion of the public interest in compliance with the provisions of the Act, by the deterrence of further contraventions of the Act.”[1]
[1] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 274 CLR 450 at [9].
The penalty should be one that the Court “considers fairly and reasonably to be appropriate to protect the public interest from future contraventions.”[2] The Court is required to assess the gravity and seriousness of the offending having regard to all relevant facts and circumstances.
[2] Pattinson at [71].
The Court is guided by the range of well-settled, non-exhaustive considerations that are relevant to the assessment of the appropriate penalty, so as to determine an outcome that is an instinctive synthesis of the various factors. These considerations include:
(a)the nature and extent of the conduct which led to the breach;
(b)the circumstances in which the conduct took place;
(c)the nature and extent of any loss or damage sustained as a result of the breach;
(d)whether there has been similar previous conduct by the respondent;
(e)whether the breach was properly distinct or arose out of one course of conduct;
(f)the size of the business enterprise involved;
(g)whether or not the breach was deliberate;
(h)the involvement of senior management in the breach;
(i)whether the party committing the breach has shown contrition;
(j)whether the party committing the breach has taken corrective action;
(k)whether the party committing the breach has cooperated with enforcement authorities;
(l)the need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
(m)the need for specific and general deterrence.
The list of possible relevant considerations is not to be regarded “as a “rigid catalogue of matters for attention” as if it were a legal checklist. The court’s task remains to determine what is an “appropriate” penalty in the circumstances of the particular case.”[3]
[3] Pattinson at [19] (citations omitted).
The maximum penalties
The maximum penalty for the contravention of s 716(5) of the Act by Om Shiva and Mr Madasu is $33,300 and $6,660 respectively. The maximum penalty for the contravention of s 536(1) of the Act is $66,600 and $13,320 respectively.
The parties have sought orders by reference to percentages of the maximum prescribed penalties, which is a relevant consideration. The Fair Work Ombudsman seeks the imposition of penalties in the range of between 50 and 60% of the maximum, reduced by 20% to reflect co-operation and admissions. Om Shiva and Mr Madasu seek pecuniary penalties in the range between 40 to 50% of the maximum, reduced by 20%.
In Pattinson, the High Court stated that, “What is required is that there be “some reasonable relationship between the theoretical maximum and the final penalty imposed”. That relationship is established where the maximum penalty does not exceed what is reasonably necessary to achieve the purpose of s 546: the deterrence of future contraventions of a like kind by the contravenor and by others.”[4]
[4] Pattinson at [10] (citations omitted); see also [55].
General deterrence
Failures to comply with compliance notices and failures to comply with record-keeping obligations are serious. The penalties are required to deter against non-compliance as undermining statutory enforcement mechanisms. In Pattinson, the High Court observed “The theory of s 546 is that the financial disincentive involved in the imposition of a pecuniary penalty will encourage compliance with the law by ensuring that contraventions are viewed by the contravenor and others as an economically irrational choice.”[5]
[5] At [18] – [19] and [68].
The failure to comply with a Compliance Notice undermines the utility of the statutory framework as an alternative to litigation where there is a reasonable belief that workplace laws have been contravened, such as by the non-payment and underpayment of employee entitlements. Further, unless employers comply with their record-keeping obligations, an effective safety net for employees is difficult to maintain, and the effectiveness of the regulator’s ability to detect and protect workplace entitlements is frustrated.[6] That is evident in this case, where Mr Nannapaneni’s entitlements over a lengthy period of time have only been able to be calculated because of the records he had kept and retained himself.
[6] Fair Work Ombudsman v Rum Runner Trading Pty Ltd [2018] FCCA 1129 at [96] – [97].
Accordingly, the penalties “should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like-minded persons or organisations.”[7] Om Shiva and Mr Madasu accept the relevance of general deterrence in assessing the appropriate penalty, but dispute that the Supermarket operates in the supermarket and grocery store industry for deterrent purposes. They have submitted that incorrectly classifying the Supermarket as a member of the supermarket and grocery store industry will make a scapegoat of them to the extent that the penalty may be expected to deter national supermarkets or even city-wide operators from engaging in similar conduct.
[7] Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543; [2007] FCAFC 65 at [93].
I find that the Supermarket, as a small convenience store that sells groceries, liquor and tobacco, is a member of the supermarket and grocery store industry. However, I accept that the nature of the Supermarket’s business requires Om Shiva and Mr Madasu to not be unduly punished merely because of their membership in the industry.
The supermarket and grocery store industry is large. The Fair Work Ombudsman’s industry profile for the period July 2020 to December 2023 shows that the industry has 6,406 employing businesses. The retail industry often employs unskilled labour and may involve young workers from overseas in casual labour.[8]
[8] Fair Work Ombudsman v IE Enterprises Pty Ltd [2021] FCA 60 at [69].
During the July 2020 to December 2023 period, the Fair Work Ombudsman classified the overall supermarket and grocery store industry dispute rate as high. 13% of disputes concerned wages and conditions. 10% concerned underpayments of hourly rates, 6% concerned weekend penalty rates and 4% concerned public holiday penalty rates. 21% of industry disputes related to visa holders.
Whilst these are industry-wide figures and build in the size and diversity of the industry, in my opinion these industry specific matters are relevant and should be taken into account. However, I also accept that general deterrence should not overwhelm the particular facts and circumstances of the contravention and of the contravenor, and how the conduct should be judged against community expectations.
Specific deterrence
Om Shiva is still registered with the Australian Securities and Investments Commission. There is a need to ensure that the penalties act to deter Om Shiva from future contraventions. There is also a need to ensure that the penalties specifically deter Mr Madasu from any similar future conduct.
Notwithstanding that Om Shiva remains registered, I consider the need for specific deterrence is low. Mr Madasu may employ staff in the future, but since 2015 Mr Nannapaneni is the only employee that the Supermarket has had.
The Supermarket has significant debts, which have become intertwined with Mr Madasu’s personal financial difficulties. Mr Madasu sold the family home in January 2024 to reduce the Supermarket’s debt. The family received $16,590.87 after the sale of the home. A small amount of money remaining was used to buy some stock. Mr Madasu has taken steps to notify the Supermarket’s landlord that he wants to break the lease early, sell the liquor and tobacco licences and close the Supermarket.
In addition to these matters, the Supermarket has engaged an external employment relations company to provide it with assistance in ensuring that it is operating a safe, fair and compliant workplace should it, or Mr Madasu, ever employ anyone in the future.
Nature, extent, and circumstances of the contravening conduct
On 25 November 2022, Mr Madasu wrote to Fair Work Inspector Woodhead. He stated that he had tried to contact Mr Nannapaneni about the matter but was unable to get through to him. Mr Madasu asked for Mr Nannapaneni’s account details and the hours he worked at the Supermarket, saying that he will fix the matter by the end of December 2022. Fair Work Inspector Woodhead provided him with a spreadsheet recording the hours worked by Mr Nannapaneni, based on the evidence he provided to the investigation, to assist him or his accountant in making the calculations.
Mr Madasu went on to say to Fair Work Inspector Woodhead that his accountant was on holidays but would be back the next week. He asked him what the amount owing was, so that Om Shiva could arrange payment and inform the Australian Taxation Office. In the reply, Fair Work Inspector Woodhead told Mr Madasu that Om Shiva must perform the calculations, as a requirement of the Compliance Notice. A non-compliance letter was also sent to Om Shiva.
On 1 December 2022, Mr Madasu sent Fair Work Inspector Woodhead a form for Mr Nannapaneni to complete, so that Om Shiva’s accountant could process the payslips. Mr Nannapaneni completed and returned the form the same day. Fair Work Inspector Woodhead again asked Mr Madasu for his calculations and planned payment date.
On 6 December 2022, Fair Work Inspector Woodhead wrote to Mr Madasu and told him the matter was being referred for consideration of litigation. On 7 December 2022, Mr Madasu wrote to Fair Work Inspector Woodhead and told him that he had forwarded all of the information to Om Shiva’s accountant. He said that the accountant was doing the paperwork and it would be completed by Friday.
On 14 December 2022, Mr Madasu forwarded Fair Work Inspector Woodhead an email from Om Shiva’s accountant, requesting an extension to process the payroll, due to the length of time that underpayment occurred over and past records and compliance issues. The email told Mr Madasu that he would be notified by the following week how much further time was required.
After this time, there was no communication by Mr Madasu with the Office of the Fair Work Ombudsman. The matter was not resolved by the end of December 2022 as foreshadowed by Mr Madasu. There is no explanation as to why Om Shiva’s accountant did not complete the requirements in the Compliance Notice or process the payroll.
The respondents have submitted that there are special circumstances explaining the reasons for why it did not comply with the Compliance Notice. They have pointed to Mr Madasu’s wife stopping work at the Supermarket in November 2022 after incidents at work where she was verbally and physically threatened by members of the public. Over the period of the Compliance Notice, Mr Madasu’s wife made the decision to stop working at the Supermarket.
The respondents also point to the impact that the COVID-19 pandemic had on the financial position of the Supermarket. It is said that the respondents have been under significant financial distress since May 2020, where the Supermarket experienced a 40 to 60% decrease in sales, which has been sustained each year to date.
I accept the difficult circumstances experienced by Mr Madasu at the Supermarket, the often lonely and unrelenting nature of the work, and the financial decline of the business. As a general proposition, I also accept that the respondents are both experiencing extremely difficult financial circumstances, with great future uncertainty.
The Supermarket has had an overdue debt to the Australian Taxation Office of $76,508.89 since 28 November 2023. It has an overdraft limit with the ANZ Bank of $49,999.00. In March 2024 the debt was $50,545.67, around the level it has been for some years. The Supermarket also has a car loan of $8,901.69. It has overdue payments of $15,932.36 to Jacana Energy. The Supermarket has ongoing operating costs of solar panel and battery rental, and pays $4,400 per month in rent.
The family home was sold in January 2024 and the family now rents a unit for $680 per week. Mr Madasu’s ANZ credit card limit is $17,500. Regular, almost daily, payments were made in March and April 2024. As at 1 May 2024 the balance was $17,407.43. Mr Madasu’s Commonwealth Bank credit card limit is $45,200. As at 24 May 2024, there was no available credit and the total amount owing was $45,920.96. Regular payments of $50 were made in an attempt to reduce the amount owing.
Notwithstanding these matters, I accept the Fair Work Ombudsman’s submission that to the extent the respondents seek to rely on their financial circumstances as special circumstances and factors in mitigation, they are required to be full and frank in their disclosures to the court. I also accept that in the analysis, I am required to take into account any unexplained matters.
In this respect, whilst I accept in overview that the respondents’ financial situation is extremely difficult, I also consider that the evidence cuts across some of the claims that are made, and that there are some unresolved questions about their financial circumstances.
For example, it is said that the family are currently living hand to mouth and that when money comes in, it goes toward rent and food, and paying off Supermarket and personal debts, including replaying Mr Nannapaneni. Further, Mr Madasu no longer draws a wage from his work out of the Supermarket, compared to $70,000 per year that was being paid prior to the COVID-19 pandemic.
Mr Madasu says that he will continue to make fortnightly payments until he has paid back the complete sum of the underpayment to Mr Nannapaneni. He says however that he is focused on rectifying the wrong, and that he is at capacity in terms of the payments that the Supermarket and he can make.
However, to an extent these claims do not sit comfortably with questions that arise from the financial evidence of the respondents. Between 22 March 2024 and 24 May 2024, total deposits of $45,425.94 were made to the ANZ account Mr Madasu holds jointly with his wife. In the same period, the total withdrawals were in the sum of $47,433.94. The closing balance was $1.04.
Over the same period of time that both the Supermarket and Mr Madasu have had significant levels of overdue debt and claim to be under significant financial distress, in March, April and May 2024, the joint bank account shows that approximately $30,000 of the $47,433.94 withdrawn from the account was cash withdrawals at the Mindil Beach Casino.
I do not draw any inferences from this fact apart from finding that these substantial withdrawals of cash have not been satisfactorily explained. The relevance of the lack of explanation goes to Mr Madasu’s evidence about the intertwined and highly precarious nature of the financial circumstances of the Supermarket and the family. In these circumstances I am unable to accept that the evidence provides a complete financial picture of the respondents. I do not accept the submission that the disclosures made by the respondents are as transparent as they can be.
Notwithstanding these deficiencies, taking all of the evidence into account I accept that the financial circumstances of Om Shiva and Mr Madasu are intertwined and constrained. However, I don’t consider that these circumstances provide a complete answer to the failure to comply with the Compliance Notice.
From 25 November 2022, the day after the period in the Compliance Notice had expired, Mr Madasu was in the process of instructing Om Shiva’s accountant to make the calculations. The circumstances set out in the correspondence with the Office of the Fair Work Ombudsman in November and December 2022, and the failure to produce any calculations, are relevant. Further, Mr Madasu’s evidence in these proceedings is that an accountant has now started helping him to make back payments to Mr Nannapaneni, including assistance with calculating income tax and superannuation.
In my view the personal and financial circumstances of Mr Madasu and of Om Shiva in and around the time the Compliance Notice was issued provide some explanation as to why there may not have been any engagement with the Office of the Fair Work Ombudsman during the operative period of the Compliance Notice. I also accept that Mr Madasu was under considerable pressure around this time, and found the reality of the Compliance Notice process difficult to face.
However, the respondents engaged the external involvement of Darwin Accountants in late-November or December 2022. The accountants may have required more time to prepare the calculations because of the length of time the Compliance Notice covered and associated compliance issues, but ultimately nothing was submitted.
In all the circumstances, I consider that the failure to comply with the Compliance Notice is serious, and undermines the compliance notice regime.
Contrition, co-operation and corrective action
After proceedings were instituted, Om Shiva and Mr Madasu admitted the contraventions alleged and made detailed admissions of fact. Om Shiva and Mr Madasu also commenced making repayments to Mr Nannapaneni in April 2024.
The respondents ought to be given credit for these actions. I accept the Fair Work Ombudsman’s submission, supported by Om Shiva and Mr Madasu, that a discount of 20% is appropriate in both cases, as the conduct in admitting the contraventions and making detailed admissions of fact, together with commencing repayments makes the matter one where it is fairly said that the admissions by the respondents “(a) has indicated an acceptance of wrongdoing and a suitable and credible expression of regret; and (b) has indicated a willingness to facilitate the course of justice.”[9]
[9] Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [76].
Further, in his evidence in these proceedings, Mr Madasu has said that he deeply regrets the impact that the conduct has had on Mr Nannapaneni, both by not paying him correctly and by not providing him pay slips. He now knows what he did was wrong and is committed to paying Mr Nannapaneni back the money he is entitled to, even though his own financial situation is so dire. He has expressed that he is deeply sorry for his actions and omissions.
Mr Madasu has not attempted to make those statements as any excuse. He said that since he was served with the Compliance Notice, he has had his head in the sand. He has found the Compliance Notice impossible to face. He has been at a loss as to what to do next, as both the Supermarket and his own personal finances are in a dire state.
He has accepted that his actions were intentional for the purpose of s 550 of the Act. He has however said that he never set out to break the law and his intentions were never malicious. He now accepts and knows that he must actively ensure that he is complying with relevant laws and a Compliance Notice.
I accept Mr Madasu’s evidence of contrition, co-operation and corrective action. Each of these factors mitigate the pecuniary penalty that should be imposed.
The need to ensure compliance with minimum standards by the provisions of an effective means for investigation and enforcement of employee entitlements
Compliance with minimum standards is an important consideration in the assessment of the appropriate penalties for reasons that include that it is an object of the Act to promote a guaranteed safety net of fair relevant and enforceable minimum terms and conditions for all employees.[10]
[10] See s 3(b).
The efficacy of statutory notices would be hindered or made redundant if the recipients perceive that failure to comply will not carry meaningful consequences.[11] Further, I accept the Fair Work Ombudsman’s submission that the obligation on employers to provide pay slips is a fundamental safeguard against underpayment, overwork and mistreatment. A failure to comply with a requirement to issue proper pay slips is to leave the employee significantly disempowered, creating a structure within which breaches of industrial laws can easily be perpetrated.[12]
[11] Fair Work Ombudsman v Big Daddy’s Pty Ltd [2022] FedCFamC2G 786 at [42].
[12] Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557 at [548, citing Fair Work Ombudsman v Taj Palace Tandoori Indian Restaurant [2012] FMCA 258 at [67].
When he first met him in February 2020, Mr Madasu understood that Mr Nannapaneni wanted to be paid cash in hand. He took from that conversation that Mr Nannapaneni did not want to go on the books and wanted to be paid in cash. Mr Madasu thought that he was doing Mr Nannapaneni a favour, but he now appreciates that what he did was wrong and that he should have ensured that he was compliant with all of the relevant workplace laws.
Failure to make and retain records undermines the capacity of employees to pursue their entitlements, and the capacity of the Fair Work Ombudsman to investigate and enforce compliance with workplace laws. As I have already observed, the quantification of Mr Nannapaneni’s entitlements over many years was only made possible as a result of the records he had kept.
I agree that the penalty to be imposed must serve the purpose of promoting compliance with the minimum standards to which employees are entitled.
The nature and extent of loss or damage sustained as a result of the breach
The agreed underpayment amount is $68,970.44. The court’s focus is on the loss caused by the failure to comply with the Compliance Notice, rather than the underlying contraventions. However, financial loss to Mr Nannapaneni of his lawful entitlements, including the delay in receiving his payments, is a relevant loss that flows from the breach that is before the court.[13] In this case, the loss has deprived Mr Nannapaneni of the benefit of being paid minimum wage entitlements for a period of approximately 18 months. That is significant, also taking into account that the Compliance Notice alleged several contraventions of the Award encompassing a failure to pay casual minimum hourly rates, overtime rates, and evening, weekend and public holiday penalty rates.
[13] Fair Work Ombudsman v Corporation Sun Pty Ltd & Anor [2020] FCCA at [35]; Fair Work Ombudsman v Hess [2021] FCCA 1883 at [35].
I also accept that there is a public loss caused by the failure to comply with the Compliance Notice and record keeping obligations. The respondents’ failures have defeated the purpose of the Compliance Notice to prevent litigation, and have caused public funds to be incurred by both the office of the Fair Work Ombudsman and the court in connection with and conducting these proceedings.
Whether there is been similar previous conduct by the respondent
The Supermarket was established in 2015. There is no record of previous similar conduct by the respondents, although they have not employed staff apart from Mr Nannapaneni.
The size of the business enterprise involved
The Supermarket is a small business. Mr Madasu was born in India and came to Australia in November 2000. English is his second language. He has worked in the supermarket and grocery store industry throughout his career. After establishing the Supermarket in 2015, he has worked extremely long hours, every day of the week, in a physically and emotionally taxing environment. Mr Madasu is closing the Supermarket because he considers it is no longer financially sensible, nor emotionally healthy for him, to continue to operate it.
I consider that Mr Madasu no longer drawing a wage because of the financial inability of the Supermarket to sustain a payment of a wage to him is relevant. I also consider that the fact the Supermarket has been making a loss since the onset of the COVID-19 pandemic and has failed to recover from it is a relevant circumstance in the determination of the appropriate quantum of the pecuniary penalty is to be applied.
Whether or not the breach was deliberate
The respondents have admitted contraventions, but say that they did not maliciously set out to gain a benefit in relation to the contraventions.
Mr Madasu has accepted that his actions were intentional, but he says that they were not malicious. Mr Madasu has given some evidence of the circumstances in which he failed to give Mr Nannapaneni pay slips. However, there is no particular evidence about the circumstances in which Mr Nannapaneni was not paid his entitlements, which as has been observed span several failures to be paid in accordance with minimum entitlements under the Award.
Quantification of pecuniary penalty
The penalty must be proportionate, in that it must strike a “reasonable balance between deterrence and oppressive severity.”[14] The penalty must not be crushing or oppressive, but it must bear relativity to the seriousness of the conduct that has been engaged in.
[14] Pattinson at [41]; see also NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 at 293.
I consider the circumstances of this matter to be serious. In my view there is a need for general deterrence and a need to ensure that there is compliance with minimum standards by the provision of an effective means for investigation and enforcement of employee entitlements and loss. There is a need for small businesses in the supermarket and grocery industry to appreciate the seriousness of their obligations to comply with compliance notices and their record keeping obligations. The penalty should be enough that it is not seen as “the cost of doing business.”[15] I also take into account the loss and damage that is associated with the respondents’ contravening conduct.
[15] Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [66].
The relevant factors particular to the respondents that mitigate the penalty to be imposed include the deterioration of the financial affairs of both respondents, and the limited sustainability of the Supermarket as a business. I also take into account the significant co-operation in the litigation and the remorse and contrition that is demonstrated. I have regard to the payments that have been made to Mr Nannapaneni since April 2024, and the commitment to maintaining those payments.
In my view, weighing all these factors together I consider that pecuniary penalties fixed at 50% of the maximum in each instance are appropriate. Having regard to the matters I have identified, I will reduce those penalties by 20%.
I will make declarations that:
(a)the First Respondent contravened section 716(5) of the Fair Work Act 2009 (Cth) by failing to comply with the compliance notice issued on 27 October 2022, pursuant to section 716(2) of the Act;
(b)the Second Respondent was involved, within the meaning of section 550(2) of the Act, in the First Respondent’s contravention of section 716(5) of the Act and is taken to have contravened that provision;
(c)the First Respondent contravened section 536(1) of the Act by failing to give Sai Ratna Kumar Nannapaneni pay slips within one working day of paying an amount in relation to the performance of work; and
(d)the Second Respondent was involved, within the meaning of section 550(2) of the Act, in the First Respondent’s contravention of section 536(1) of the Act and is taken to have contravened that provision.
I will make orders that pursuant to section 545 of the Act, Om Shiva take the following steps to remedy the direct effects of its non-compliance with the Compliance Notice, within 28 days of this order:
(a)paying to Mr Nannapaneni the total amount of $68,970.44 (gross) (Underpayment Amount), less any amounts that have already been paid as at the date of this Order;
(b)paying the additional superannuation contributions to Mr Nannapaneni’s nominated superannuation fund as required by clause 20.2 of the General Retail Industry Award 2020 in respect of the Underpayment Amount;
(c)produce to the Fair Work Ombudsman evidence that the Underpayment Amount and additional superannuation contributions were rectified;
I order that pursuant to s 547(2) of the Act, Om Shiva pay interest to the employee on the Underpayment Amount within 28 days of this order.
I order that pursuant to s 546(1) of the Act, within 28 days of this order:
(a)Om Shiva pay pecuniary penalties to the Commonwealth for its contravention of s 716(5) of the Act in the sum of $13,320;
(b)Om Shiva pay pecuniary penalties to the Commonwealth for its contravention of s 536(1) of the Act in the sum of $26,640;
(c)Mr Madasu pay pecuniary penalties to the Commonwealth for his contravention of s 716(5) of the Act in the sum of $2,664;
(d)Mr Madasu pay pecuniary penalties to the Commonwealth for his contravention of s 536(1) of the Act in the sum of $5,328;
(e)pursuant to s 546(3)(a) of the Act, or pecuniary penalties imposed on the respondents be paid to the consolidated revenue fund of the Commonwealth; and
(f)the applicant have liberty to apply.
SHOULD THE ORDERS BE STAYED?
The respondents have sought a stay of the orders for payment of the Underpayment Amount, superannuation and interest for 6 months. It is acknowledged that the application is for a lengthy period, but it is said that this time would be used to continue to make incremental payments of money to Mr Nannapaneni that the court orders the respondents to pay. The stay application does not extend to the orders for the payment of pecuniary penalties.
The respondents reiterated that their financial status is genuinely dire. As an alternative position, the respondents put that the court should exercise its discretion to order a stay for a lesser period in the event that it considers that 6 months is too long.
I take the matters set out by the respondents into account, but also that the position cuts across the Statement of Agreed Facts. The agreed orders include for the first respondent to take steps to remedy the direct effects of its non-compliance with the Compliance Notice within 28 days of the order, including by paying the underpayment amount, paying additional superannuation and interest to Mr Nannapaneni and producing evidence of payment.
I also consider that the lack of complete financial disclosure by the respondents, and the unexplained cash withdrawals of approximately $30,000 between March and May 2024, has a bearing on the consideration of this issue.
Whilst a stay of the orders for payment of pecuniary penalties may undermine the deterrent effect of the orders[16], in my view it is appropriate to stay the operation of the orders for Om Shiva to pay Mr Nannapaneni for a period of time. Notwithstanding the questions that arise on the respondents’ financial evidence as to capacity, Om Shiva is paying Mr Nannapaneni in fortnightly instalments. There is clearly a benefit to enabling this to continue.
[16] Fair Work Ombudsman v Lotus Farm Pty Ltd [2024] FedCFamC2G 369 at [44 – 47].
I consider some balance must be struck, between the risks of exacerbating the financial pressure on Om Shiva and Mr Madasu, against the objective of Mr Nannapaneni receiving repayment of the amounts owing to him. Mr Nannapaneni has experienced delay in receiving payment. I consider it is counter-productive to put that in any further jeopardy, notwithstanding my views about the deficiencies in the financial evidence.
I consider however that a stay of 6 months is too long. I will order part of the orders be stayed for 3 months.
I certify that the preceding eighty-seven (87) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Liveris. Associate:
Dated: 9 September 2024
0
13
3