Fair Work Ombudsman v Rika Foods North Melbourne Pty Ltd
[2022] FedCFamC2G 768
Federal Circuit and Family Court of Australia
(DIVISION 2)
Fair Work Ombudsman v Rika Foods North Melbourne Pty Ltd [2022] FedCFamC2G 768
File number: MLG 2447 of 2021 Judgment of: JUDGE FORBES Date of judgment: 16 September 2022 Catchwords: INDUSTRIAL LAW – Fair Work - failure to comply with Compliance Notice – importance of statement of agreed facts – involvement in contravention – cooperation with regulator and contrition - penalties pursuant to s 546 Fair Work Act 2009 (Cth) Legislation: Corporations Act 2001 (Cth)
Crimes Act 1914 (Cth) s 4AA
Evidence Act1995 (Cth) s 191
Fair Work Act 2009 (Cth) s 3, 33, 539, 545, 546, 550, 716
Cases cited: Agreed Penalties Case (2015) 258 CLR 482
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128
Fair Work Ombudsman v ASGBRIS Pty Ltd [2020] FCCA 553
Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150
Fair Work Ombudsman v Corporation Sun Pty Ltd & Anor [2020] FCCA 2849
Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown (2017) 275 IR 148
Fair Work Ombudsman v Nobrace Centre Pty Ltd & Anor (No 2) [2019] FCCA 2144
Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor (No 2) [2020] FCCA 2583
Fair Work Ombudsman v Sun Sea Equity Pty Ltd [2021] FCCA 104
Fair Work Ombudsman v Syndicate Group Pty Ltd [2015] FCCA 2847
Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290
Kelly v Fitzpatrick [2007] FCA 1080
Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543
Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412
Trade Practices Commission v CSR Ltd [1990] FCA 521
Division: Division 2 General Federal Law Number of paragraphs: 95 Date of last submissions: 12 May 2022 Date of hearing: 27 May 2022 Solicitor for the Applicant: Ms Karakinos First Respondent: Mr Pantovic Second Respondent: In person
Table of Corrections 28 September 2022 In paragraph 41, the Maximum Penalty listed in the third column and second row of the table has been corrected from “$6,600” to “$6,660” 28 September 2022 In paragraph 94, the Maximum Penalty listed in the third column and second row of the table has been corrected from “$6,600.00” to “$6,660.00” 28 September 2022 In paragraph 94, the Maximum after Discount listed in the fourth column and second row of the table has been corrected from “$5,940.00” to “$5,994.00” 28 September 2022 In paragraph 94, the Penalty after Discount listed in the fifth column and second row of the table has been corrected from “$1,980.00” to “$1,998.00” 28 September 2022 In paragraph 95, the penalty for the Second Respondent has been corrected from “$1,980.00” to “$1,998.00” ORDERS
MLG 2447 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: RIKA FOODS NORTH MELBOURNE PTY LTD
First Respondent
RADOMIR PANTOVIC
Second Respondent
order made by:
JUDGE FORBES
DATE OF ORDER:
16 September 2022
Amended pursuant to rule 17.05(2)(g) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 on 28 September 2022
THE COURT ORDERS THAT:
1.Pursuant to section 546(1) of the Fair Work Act 2009 (Cth) (“the FW Act”), the First Respondent pay a pecuniary penalty of $9,990.00 for its contravention of section 716(5) of the FW Act which was the subject of the declaration made by this Court on 27 May 2022.
2.Pursuant to section 546(1) of the FW Act, the Second Respondent pay a pecuniary penalty of
$1,980.00$1,998.00 for his involvement (within the meaning of section 550(2)(c) of the FW Act) in the contravention of section 716(5) of the FW Act which was the subject of the declaration made by this Court on 27 May 2022.3.Pursuant to section 546(3)(a) of the FW Act, any pecuniary penalties ordered to be paid by the First and Second Respondent be paid into the Consolidated Revenue Fund of the Commonwealth within 28 days.
4.The Applicant has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE FORBES:
INTRODUCTION
In this matter, the Fair Work Ombudsman (“Ombudsman”) seeks the imposition of pecuniary penalties against Rika Foods North Melbourne Pty Ltd and the company’s sole director and secretary Mr Radomir Pantonvic in relation to a contravention of section 716(5) of the Fair Work Act 2009 (Cth) (“the FW Act”) following the respondents’ failure to comply with a compliance notice issued on 13 April 2021.
The Ombudsman seeks the making of pecuniary penalties pursuant to section 546(1) of the FW Act following two declarations made by this Court by consent on 27 May 2022. The first declaration being that the first respondent contravened section 716(5) of the FW Act and the second being that the second respondent was involved in that contravention by virtue of section 550(2)(c) of the FW Act[1].
[1] Orders made by Judge Forbes on 27 May 2022
In this matter, the Court was presented with a statement of agreed facts made between the Ombudsman and the first and second respondents. In the statement of agreed facts filed on 11 May 2022, the respondents admitted contraventions of the FW Act and consented to the declarations referred to above. This statement of agreed facts was filed in substitution of an earlier document filed on 13 December 2021, a matter about which I will comment shortly.
To support its application for the imposition of penalties against the respondents, the Ombudsman relied on the statement of agreed facts, an affidavit of Fair Work Inspector Blaec Hammond (“Hammond affidavit”) as well as a written outline of submissions on penalties which was developed orally at the penalty hearing.
BACKGROUND
The first respondent (Rika) was the operator of a juice and coffee bar located in the Sonsa Markets in Collingwood, Victoria. Rika is incorporated pursuant to the Corporations Act 2001 (Cth) and has been registered since 20 June 2019. The second respondent (Mr Pantovic) was the sole director and company secretary of Rika from its registration.
It is agreed that employees of Rika performing work at the juice and coffee bar were entitled to be paid according to the Fast Food Industry Award 2010 (“the Award”).
Rika employed Ms Bobae Seok from 20 January 2021 until 28 January 2021 (“the employment period”). Ms Seok was a casual employee. Throughout the eight-day employment period, Ms Seok performed 40 hours of work. As a Fast Food Employee Level 1 under Schedule B of the Award, Ms Seok was entitled to be paid the minimum wage of $26.76 per hour worked (“the minimum hourly rate”).
Ms Seok was not paid anything for the hours that she worked throughout the employment period.
On 3 March 2021, Ms Seok requested the assistance of the Ombudsman. Following this request, the Ombudsman directed Fair Work Inspector Mr Victor Acevedo to conduct an investigation into Rika’s compliance with the Award.
Following the investigation, Mr Avecedo formed a reasonable belief pursuant to section 716(1)(b) of the FW Act[2], that Rika had failed to fulfil its obligation under clause 13.2 of the Award to pay Ms Seok the minimum hourly rate throughout the employment period. The Ombudsman’s investigation gave rise to a reasonable belief that Rika owed Ms Seok $1,070.40 in outstanding wages for the 40 hours of work performed.
[2] Statement of Agreed Facts 11 May 2022 page 3, [9]
On 13 April 2021, Mr Acevedo issued the first respondent with a compliance notice (“the Compliance Notice”) pursuant to section 716(2) of the FW Act. The Compliance Notice alleged that throughout the employment period, Rika contravened clause 13.2 of the Award. It is agreed that the Compliance Notice satisfied the requirements of section 716(3).
On 13 April 2021, the Compliance Notice was emailed to Mr Pantovic and the following day it was sent via pre-paid express post to Rika’s registered address[3]. Service of these documents is not in issue.
[3] Affidavit of Blaec Hammond affirmed 12 May 2022 page 8
The Compliance Notice compelled Rika to undertake certain steps on or before
11 May 2021 to rectify the effect of the alleged contravention, including[4]:
(a)identify the number of hours Ms Seok worked throughout the employment period;
(b)identify the amount already paid to Ms Seok during the employment period;
(c)calculate the amount owed to Ms Seok for the employment period;
(d)make any outstanding payments to Ms Seok immediately;
(e)record the underpayment rectification information by recording the amounts referred to in (a) to (c) and the amount of underpayment identified in (d);
(f)calculate and pay superannuation contributions to Ms Seok’s nominated fund in respect of the wages paid or owing as required by clause 21.2 of the Award; and
(g)provide reasonable evidence of the steps taken to comply with the Compliance Notice by 18 May 2021.
[4] Statement of Agreed Facts 11 May 2022 page 3, [12]
The Compliance Notice stated that failure to comply with these actions on or before
11 May 2021 may result in Rika contravening section 716(5) of the
FW Act. The Ombudsman also informed Rika that it could apply to review the Compliance Notice.
Ultimately, Rika failed to comply with its obligation under the Compliance Notice as none of the stipulated steps necessary to rectify the contravention were undertaken by the prescribed date. In the statement of agreed facts, Rika admits to contravening section 716(5) of the FW Act, by failing to adhere to the specific terms of the Compliance Notice without a reasonable excuse[5].
[5] Statement of Agreed Facts 11 May 2022 page 1, [2]
Mr Pantovic has admitted that he was responsible for ensuring that Rika complied with the Compliance Notice[6]. By the Statement of Agreed Facts, Mr Pantovic admits that he[7]:
(a)possessed actual knowledge of the Compliance Notice that was issued to Rika;
(b)possessed actual knowledge that Rika did not comply with the Compliance Notice; and
(c)intentionally participated in Rika’s failure to comply with the Compliance Notice.
[6] Statement of Agreed Facts 11 May 2022 page 4, [18]
[7] Statement of Agreed Facts 11 May 2022 page 4, [19]
By reason of the above and by virtue of subsection 550(2)(c) of the FW Act, Mr Pantovic accepts that he was involved in Rika’s contravention of section 716(5). Pursuant to section 550(1) of the FW Act, Mr Pantovic is taken to have contravened subsection 716(5) of the FW Act.
Litigation background
The Ombudsman commenced these proceedings against both respondents on 28 September 2021[8]. The Ombudsman’s originating application and statement of claim were served on the first respondent on 5 October 2021[9].
[8] Applicant’s Originating Application – Fair Work Division 28 September 2021
[9] Affidavit of Service sworn by Paul Ralph 8 October 2021
By its originating application, the Ombudsman sought the making of orders and declarations including that the respondents pay pecuniary penalties in respect of Rika’s alleged contravention of section 716(5) of the FW Act and Mr Pantovic’s alleged involvement in that contravention pursuant to s 550(2).
On 3 November 2021, I made orders by consent that the respondents file and serve a response and any defence to the application and that the Ombudsman be afforded an opportunity to file a reply.
Shortly thereafter, on 19 November 2021, I made further orders by consent for the parties to jointly file a statement of agreed facts by 10 December 2021. By consenting to the making and filing of a statement of agreed facts, I infer that the respondents were willing to cooperate with the Ombudsman to expedite these proceedings. On that day, I also ordered that the matter be listed for a penalty hearing on 29 March 2022.
On 12 December 2021, a statement of agreed facts was filed by the Ombudsman on behalf of all parties (“the December Statement of Agreed Facts”). The document had been prepared and signed by solicitors acting on behalf of the Ombudsman and it was signed by Mr Pantovic on behalf of the first and second respondents. By the December Statement of Agreed Facts, the respondents agreed to the making of declarations against them and orders that they pay penalties to be determined by the Court.
The December Agreed Statement of Facts was an agreement in writing made between the Ombudsman and the first and second respondents for the purposes of section 191 of the Evidence Act 1995 (Cth). Without leave the parties to such an agreement are prohibited from adducing evidence to contradict or qualify the facts agreed[10].
[10] Evidence Act 1995 (Cth) s 191(2)(b)
The Ombudsman filed an outline of submissions on 28 January 2022. That outline relied upon the December Agreed Statement of Facts as the basis for its submission that civil penalties should be imposed on Rika and Mr Pantovic, in the range of 60 to 70% of the statutory maximum (less a 10% discount). The outline of submissions was extensively cross-referenced against the December Statement of Agreed Facts.
On 29 March 2022, this matter came before this Court for a penalty hearing. A solicitor appeared on behalf of the Ombudsman and Mr Pantovic appeared in person on behalf of both the first and second respondents.
Prior to Court that morning I observed that the December Statement of Agreed Facts contained numerous formatting errors, including issues with the numbering of paragraphs. These errors resulted in inaccurate and confusing cross-referencing throughout the document itself, with the effect that admissions attributed to the respondents were essentially incomprehensible. The effect of these errors also carried through to the Ombudsman’s filed outline of submissions which relied on those incoherent admissions. Given the great significance of an agreed statement of facts in evidentiary terms, including the expectation that it should be relied upon by the Court as the factual foundation for the imposition of civil penalties, I considered these to be errors of substance not merely form.
At the commencement of the hearing and after being informed that the Ombudsman intended to rely on its written outline of submission and the statement of agreed facts, the Court drew these errors to the attention of the Ombudsman. It was somewhat concerning that the Ombudsman’s legal representative indicated that these issues were known before the commencement of the hearing. I observed that as a model litigant in these proceedings, it was incumbent on the Ombudsman to bring this to the attention of the Court.
Perhaps it was not fully appreciated that if the matter had proceeded on the basis of the filed documents there was a significant risk the Court would have been led into error, with the real possibility that penalties would have been sought and might have been imposed without a sound factual basis and/or on non-binding admissions. Alternatively, perhaps it was intended that the Court should make factual findings and accept admissions which departed from those contained in the signed December Statement of Agreed Facts. A signed statement of agreed facts is an important document that binds the parties under section 191 of the Evidence Act 1995 (Cth). It cannot simply be amended ‘on the run’.
I made orders adjourning the penalty hearing to 27 May 2022.
On 11 May 2022, the Ombudsman and the respondents made a second Statement of Agreed Facts (“the Amended Statement of Agreed Facts”). The Amended Statement of Agreed Facts was again prepared and filed by the Ombudsman’s solicitor.
The penalty hearing was held on 27 May 2022. Ms Karakinos appeared on behalf of the Ombudsman and Mr Pantovic appeared in person on behalf of both respondents.
Declaration
At the hearing, pursuant to the respondents’ admissions contained within the Amended Agreed Statement of Facts, I made a declaration that Rika contravened section 716(5) of the FW Act by failing to comply with the Compliance Notice. I also declared that Mr Pantovic was involved in Rika’s contravention for the purpose of section 550(2)(c) of the FW Act.
Pursuant to section 545(1) of the FW Act, I also ordered Rika to take steps to:
(a)make a payment of $1,070.40 gross to Ms Seok;
(b)calculate and pay additional superannuation contributions into Ms Seok’s account; and
(c)provide evidence to the applicant that the underpayment amount and superannuation payments were made.
I also ordered that the first respondent pay interest to Ms Seok’s nominated bank account pursuant to section 547(2) of the FW Act.
PENALTY PROCEEDING
Pursuant to the agreed declarations, the Ombudsman now seeks the imposition of pecuniary penalties against each of the respondents.
Sub-section 546(1) of the FW Act grants the Court power to order a person pay pecuniary penalties in circumstances where it is satisfied that a person has contravened a civil remedy provision. Subsection 716(5) of the FW Act is characterised as a civil remedy provision.
Pursuant to column 4 of the table set out in sub-section 539(2) of the FW Act, contravention of sub-section 716(5) attracts a maximum penalty of 30 penalty units[11]. For breaches that have occurred on or after 1 July 2020, the value of a penalty unit $222[12]. Accordingly, the applicable maximum penalty for contravention of sub-section 716(5) is $6,660 (“the maximum penalty amount”).
[11] Fair Work Act 2009 (Cth) s 33
[12] Crimes Act 1914 (Cth) s 4AA
Pursuant to sub-section 546(2)(a) of the FW Act, the maximum pecuniary penalty for an individual must not exceed $6,660 for each contravention.
For a body corporate respondent, the maximum pecuniary penalty a Court may award must not be more than 5 times the maximum penalty amount. In dollar terms, the maximum pecuniary penalty amount for a body corporate that contravenes sub-section 716(5) FW Act is $33,300.
In both written and oral submissions, the Ombudsman submits that the imposition of penalties within the range of 60% to 70% of the statutory maximum amounts for both the first and second respondents would be appropriate. The Ombudsman submitted that a discount of 10% would appropriately acknowledge Mr Pantovic’s cooperation throughout these proceedings.
Accordingly, the Ombudsman submits that the appropriate range of penalties is as follows[13]:
[13] Applicant’s Outline of Submission on Penalty, page 2 [10]
Respondent Contravention Maximum Penalty Recommended penalty range 60 to 70% Penalty Amount with 10% discount Rika s.716(5) $33,300 $19,980 - $23,310 $17,982 - $20,979 Mr Pantovic s.716(5) $6,660 $3,996 - $4,662 $3,596 - $4,195 Applicable legal principles
The High Court of Australia in Australian Building and Construction Commissioner v Pattinson (‘Pattinson’)[14] recently confirmed that the purpose of civil remedy provisions is the promotion of compliance with the FW Act.
[14] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
In Pattinson the Court reiterated that unlike criminal sentences, civil penalties are imposed primarily, if not solely, for the purpose of deterrence. Whereas criminal penalties import notions of retribution, denunciation and rehabilitation, the purpose of a civil penalty is primarily if not wholly protective in promoting the public interest in compliance[15].
[15] Pattinson at [15]; The Commonwealth v Director, Fair Work Building Industry Inspectorate ("the Agreed Penalties Case") (2015) 258 CLR 482 at 495 [24]
In facilitating this purpose, the Court’s task is to place a fair and reasonable price on any contravention. The imposition of a financial disadvantage will promote compliance by ensuring that contravening the FW Act is perceived as an “economically irrational choice” by a potential contravener[16].
[16] Pattinson at [66]
In considering an appropriate penalty pursuant to s 546 of the FW Act, the Court must determine the objective seriousness of the conduct and take into account all of the surrounding circumstances. The price of non-compliance should be proportionate to the gravity of the offence.
The indicia relevant to this consideration are well established[17]. The non-exhaustive list of germane considerations for the Court include the following:
[17] Trade Practices Commission v CSR Ltd (1991) ATPR 41-076; [1990] FCA 521 at [42]; see also Pattinson at [18]; Kelly v Fitzpatrick [2007] FCA 1080 at [14]
·The nature and extent of the conduct which led to the breach;
·The circumstances in which the conduct took place;
·The nature and extent of any loss or damage sustained as a result of the breach;
·Whether there has been similar previous conduct by the respondent;
·Whether the breach was properly distinct or arose out of one course of conduct;
·The size of the business enterprise involved;
·Whether or not the breach was deliberate;
·The involvement of senior management in the breach;
·Whether the party committing the breach has shown contrition;
·Whether the party committing the breach has taken corrective action;
·Whether the party committing the breach has cooperated with enforcement authorities;
·The need to ensure compliance with minimum standard by provision of an effective means for investigation and enforcement of employee entitlements; and
·The need for specific and general deterrence.
The factors within this well-settled list are regarded as potential considerations for the Court. These factors are not intended to operate as a rigid checklist[18]. Instead, the Court must determine the most appropriate quantum of penalty by turning its mind to all of the relevant circumstances[19].
[18] Pattinson at [18]; Trade Practices Commission v CSR Ltd [1990] FCA 521 at [42]; Kelly v Fitzpatrick [2007] FCA 1080 at [14]
[19] Pattinson at [68]
CONSIDERATIONS
The respondents did not actively contest the Ombudsman’s submissions concerning penalty. Nonetheless, the determination of penalty remains a matter for the Court.
Nature and extent of the conduct which amounted to the breach
The relevant conduct involved Rika breaching its obligations under the Award and the FW Act with regards to Ms Seok’s employee entitlements. The contravention concerns one employee, in respect of 40 hours work over 8 days in late January 2021. Ms Seok was not paid at all for her work, when she was entitled to be paid.
The Compliance Notice was served in April 2021 and required corrective action to be taken by 11 May 2021. The steps required to be taken by that statutory notice were not taken and the respondents had no reasonable excuse. As a consequence, Ms Seok remained unpaid. However, I acknowledge that my chambers received an email from Mr Pantovic which suggests that a payment was made to Ms Seok yesterday.
Pursuant to the respondents’ admissions within the Amended Agreed Statement of Facts, it is uncontentious that this conduct engages the FW Act’s pecuniary penalty regime.
Deterrence
As mentioned, the central purpose of the civil remedy provisions in the FW Act is deterrence[20].
[20] Agreed Penalties Case (2015) 258 CLR 482 at 506 [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ)
Deterrence has two aspects - general and specific. General deterrence concerns the community at large whereas specific deterrence refers to the individual contravener and the particular circumstances surrounding the contravention. Both general and specific deterrence are important considerations for the Court when determining the imposition of pecuniary penalties[21].
[21] Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown (2017) 275 IR 148; [2017] FCA 1301 at [98]
General deterrence
A fundamental purpose of imposing a penalty should be to send a message to the wider community that the contravening conduct is unacceptable and offends the standards expected of those who are bound by workplace laws. A penalty should act as a deterrent to prevent “similar contraventions by like-minded persons or organisations”[22]. The penalty should deliver sufficient sting to ensure that it is not perceived as “the cost of doing business”[23].
[22] Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543; [2007] FCAFC 65, [93] (per Lander J)
[23] Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290 at [27].
The Ombudsman asserted that compliance notices are an important tool of Fair Work Inspectors which operate to obviate the need for unnecessary legal proceedings or the imposition of penalties by the Court[24]. Compliance notices provide a mechanism for the efficient and cost-effective rectification of identified contraventions of the FW Act, including underpayments to employees.[25]
[24] Fair Work Ombudsman v Syndicate Group Pty Ltd [2015] FCCA 2847 at [27]
[25] see for example, Fair Work Ombudsman v Nobrace Centre Pty Ltd & Anor (No. 2) [2019] FCCA 2144 at [19]; Fair Work Ombudsman v Blu Hornsby Pty Ltd [2016] FCCA 1150 at [29]
There are considerable benefits to employers, employees, the Regulator and the public that flow from the use of the compliance notice procedure. In Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor (No 2)[26] at [39] the Court explained a purpose of the statutory scheme is to obviate the need for litigation:
The purpose of s. 716 is to provide an alternative to litigation. That is, it is designed to prevent litigation. Litigation is timely and expensive. It is also not controversial that Court resources are limited and this Court actively promotes alternative resolution methods in order to reduce unnecessary expenditure.
[26] Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor (No 2) [2020] FCCA 2583
The respondents’ conduct has cut across the purpose of the compliance notice regime and has resulted in costly, time-consuming and avoidable enforcement proceedings. The Ombudsman submits, persuasively, that the efficacy of the statutory scheme of compliance notices will be significantly undermined if the respondents’ non-compliance does not attract a meaningful consequence.
I accept the Ombudsman’s submission that there is a need for general deterrence to encourage compliance with a statutory notice scheme given its legislative purpose. Ultimately, this is necessary for upholding the integrity of the compliance notice regime of the FW Act.
The Ombudsman also asserted that general deterrence is particularly important in matters that involve the hospitality and restaurant industry, stating that non-compliance is notorious within the sector, in particular, non-compliance with minimum wage requirements[27].
[27] Fair Work Ombudsman v Sun Sea Equity Pty Ltd [2021] FCCA 104
While I acknowledge the general thrust of this submission and the invitation to send an even louder message to a targeted audience, the Court should be cautious not to tar all industry participants with the same brush. It is incumbent on the Court, if it is to exercise its discretion properly and fairly, to have regard to whether a particular respondent is an appropriate vehicle for the message of general deterrence. There are a thousand stories behind non-compliance in the industry, some more deserving of consideration than others. It is my view that the respondents should not be unduly punished merely because of their participation within a particular industry. The objective of pulling others into line should not overwhelm consideration of the particular circumstances of the contravention and how that conduct should be judged against community expectation.
On this issue, Mr Pantovic submitted that the Court should have some regard to the impact that the COVID-19 pandemic and lockdowns had on the hospitality industry and his business in particular. He alleged that the effect of trading and other restrictions imposed within periods of State-wide lockdowns had diminished Rika from a $1.2 million business to being worth ‘nothing’. The respondents submitted that COVID-19 should operate as a mitigating factor in the Court’s approach to penalty.
Despite the respondents not filing any specific evidence regarding the impact of COVID-19 on Rika or the hospitality industry more generally, the Court is entitled to take judicial notice of the fact that Victoria was subject to significant restrictions throughout the pandemic and the fact that trading conditions have impacted some industries more than others. I will discuss the relevance of this later in my reasons.
Specific deterrence
Specific deterrence is aimed at ensuring that the particular contravener does not engage in the same contravening conduct[28].
[28] Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2) [2014] FCA 128 at [50]
The Ombudsman submits that by failing to comply with the Compliance Notice, the respondents demonstrated a disregard for statutory obligations under the FW Act and there is a need to deter them from engaging in future contraventions. The Ombudsman suggests that this is of particular concern given at the time of the penalty hearing, Rika remained registered and there was no evidence to suggest that Mr Pantovic was no longer involved in the business.
Mr Pantovic informed the Court that Rika is not trading and that he has requested ASIC to deregister the company. Other than this submission, no evidence was put to Court to suggest that the first respondent had embarked on the deregistration process.
As to his involvement in the contravention, Mr Pantovic submitted that this was his first offence in decades in business. This submission was not contested by the Ombudsman.
Nature, circumstances and deliberateness of the contravention
The Ombudsman’s written submission on penalty filed on 12 May 2022 addressed this consideration as follow:
24. The contravention of section 716(5) of the FW Act took place against a background where:
(a) the Respondents were on notice from 13 April 2021:
(i) of the due date for compliance with the Compliance Notice; and
(ii) that failure to comply with the Compliance Notice may lead to the FWO commencing proceedings seeking civil penalties and orders for compliance;
(b) the Company admits it did not have a reasonable excuse for non-compliance with the Compliance Notice;
(c) the Company did not take the steps required to comply with the Compliance Notice by 18 May 2021, or at all; and
(d) the Company has still not paid the Underpayment Amount to the Employee;
25. Despite being given ample time and multiple opportunities by the FWO to comply with the Compliance Notice and avoid litigation, the Company failed to comply by the required date in the Compliance Notice and thereafter failed to take steps to rectify that failure, despite being clearly informed that this may lead to the FWO commencing legal proceedings. Mr Pantovic represented to employees of the FWO on several occasions that he was about to take action to comply, but this has still not occurred.
26. As a result of the Company’s failure to comply with the Compliance Notice, the FWO was required to bring proceedings seeking orders to remedy the contravention.
27. The Company’s conduct in failing to comply with the Compliance Notice demonstrates a deliberate disregard for its obligations under the FW Act and the authority of the FWO as a regulator of Commonwealth workplace laws.
28.In view of these factors, the FWO submits that the Respondents’ failure to comply with the Compliance Notice was deliberate and that a significant penalty should be imposed.
I accept the Ombudsman’s submission. Having regard to the Statement of Agreed Facts and other evidence before the Court I must find that Rika’s failure to comply with the Compliance Notice was deliberate and not accidental. Rika has admitted that it had no reasonable excuse for not complying with the Notice.
The respondents had knowledge of the requirements of the Compliance Notice and did not comply. Save for Mr Pantovic’s submission that the business had been hit very hard by COVID, no evidence has been put to the Court by the respondents to otherwise explain the company’s non-compliance. Attempting to comply or engaging with the regulator to delay or make alternative arrangements are not sufficient.
Nature and extent of loss
The Ombudsman submits that Ms Seok suffered a material loss as a result from the respondents’ contravention. Rika’s failure to comply with the Compliance Notice meant that Ms Seok was denied the benefit of the $1,040 that she was owed in wages as well as the requisite superannuation contributions that were not paid.
The Ombudsman submits that this underpayment amount is significant, particularly as Ms Seok was not remunerated for any of the work she performed.
I am satisfied that the loss incurred by Ms Seok was significant and material, given she was a casual employee who was not paid anything throughout her employment period. There is no evidence before the Court about Ms Seok’s personal circumstances, but I infer from her award classification that she was inexperienced. To not be paid at all is particularly egregious as it undermines the confidence a vulnerable worker will have in future employment and employers.
Compliance with minimum standards
The Ombudsman submits that a seminal object of the FW Act is to provide all employees with a guaranteed safety net of minimum terms and condition which are relevant, fair and enforceable[29]. In order to adequately enforce these terms, it is essential that Fair Work Inspectors are able to effectively exercise their compliance powers conferred by the FW Act.
[29] Fair Work Act 2009 (Cth) s 3
The Ombudsman contends that the first respondent’s failure to comply with the Compliance Notice undermines the enforcement framework which has been established by parliament to protect employees[30]. I accept that submission.
[30] Fair Work Ombudsman v Nobrace Centre Pty Ltd & Anor (No 2) [2019] FCCA 2144 at [19]; Fair Work Ombudsman v ASGBRIS Pty Ltd [2020] FCCA 553 at [36]
Size of business
The Ombudsman submits that the size of Rika should not excuse the contravention.
No objective evidence was provided regarding Rika’s financial circumstances. However, I infer that the first respondent was a fledgling small business which had a limited cash flow. In that respect, Mr Pantovic submitted that the COVID 19 pandemic subjected his business to overwhelming financial strain and that this was a contributing factor to his non-compliance, worthy of consideration by the Court.
The financial circumstances and size of a business do not free a contravener of the consequences of non-compliance with the FW Act. It is incumbent on all employers to comply with the requirements of the FW Act. The responsibilities imposed by law cannot be avoided simply because an employer might be described as a “small business” or because the business is of a particular size.
In Kelly v Fitzpatrick [2007] FCA 1080, Justice Tracey stated:
No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction “must be imposed at a meaningful level”.[31]
[31] Kelly v Fitzpatrick [2007] FCA 1080 at [28]
Similarly, in Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 the Court said:
Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to the Court’s consideration of penalty[32]
[32] Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at [27] (per Driver FM)
The Court notes that non-payment of Ms Seok occurred in late January 2021 and the contravention occurred in April and May 2021, during the COVID-19 pandemic. Although the COVID-19 pandemic is not in and of itself an excuse for an employer to contravene its obligations under a Fair Work instrument, the Court must have regard to the circumstances in which the contravention took place.
The first respondent was registered in June 2019. For the majority of its existence it operated in a period of uncertainty during which Victoria was subjected to a series of lockdowns. Mr Pantovic submitted that the pandemic had decimated his business but the respondents did not put any financial or other evidence to the Court concerning the specific impact of COVID-19 on Rika’s operations.
Even in the absence of that evidence, it would be ignorant for the Court to not acknowledge the significant impact that COVID-19 had on small businesses within Victoria, including in particular hospitality businesses which depend on patronage from passing traffic. I take that into account, not to diminish or excuse the admitted contraventions, but in my assessment of what is an appropriate penalty in all the circumstances.
Cooperation with the FWO and contrition
I accept that the respondents have co-operated in these proceedings and made early admissions of the contravention. This has saved the parties and the Court the time, cost and effort associated with a contested trial. The respondents have agreed to the allegations in the statement of claim, which includes the facts establishing the contraventions. The respondents have also agreed the process to be adopted for the determination of the matter as against them. The utility of that co-operation ought to be reflected in a discount in the penalty imposed for the contraventions.
The respondents have also been cooperative with the Ombudsman as these proceedings have moved through the Court. Despite the delay and confusion caused when the Ombudsman was required to make and file the Amended Statement of Agreed Facts, the respondents maintained their cooperation throughout.
While an early admission of liability may sometimes be self-serving, I accept that the respondents’ conduct in this case reflects contrition and remorse. Mr Pantovic has expressed regret for his contravention. During oral submissions, Mr Pantovic apologised to the Court for his conduct and invited the Court to “make an example of him”. I accept his contrition is genuine and I believe he comprehends the gravity and seriousness of his contravention. That said, at the time of the penalty hearing the contravention still had not been corrected and a more tangible expression of contrition would have carried greater weight.
The Ombudsman acknowledges the second respondent’s cooperation throughout these Court proceedings and submits that the respondents should benefit from a discount of 10%. I agree.
CONCLUSION
Fixing a penalty in this case requires the Court to ensure that the compliance notice regime established by the FW Act is respected and supported. Employers and others who receive such notices should be under no misapprehension about what is required of them. Non-compliance must attract a sufficient sanction to meet the objectives of general and specific deterrence.
Having said that, a penalty must be fixed that is proportionate to the gravity of the contravening conduct. Whilst the contravention is objectively serious, in my view it falls at the lower end of the scale.
The Ombudsman submits that a penalty between 60% to 70% of the maximum with a 10% discount is appropriate for each of the respondents. In my view, a penalty in that range is excessive in the particular circumstances of this case.
I accept that the penalty should be meaningful to ensure the objective of general deterrence. The respondent did not comply with its obligations under the Notice, it did not correct the situation when given an opportunity to do so and it left the regulator with no option but to initiate costly legal proceedings using scarce public funds. The respondents chose a course which should not be seen as a viable option by others.
But the penalty should not be crushing and I do not consider specific deterrence should weigh heavily in this case.
The discretion conferred by section 546, like any discretionary power conferred by statute on a Court, is to be exercised judicially, that is, fairly and reasonably having regard to the subject matter, scope and purpose of the legislation. If deterrence is the object, the penalty should not be greater than is necessary to achieve this object; severity beyond that would be oppression[33].
[33] Pattinson at [40] citing NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 293
This is the respondents’ first offence. They made early admissions, have willingly cooperated at every stage of these proceedings and have shown contrition and remorse. This is not a case where the respondents seek to be excused from their contravention because of the COVID-19 pandemic, but they rightly submit that it is an objective fact to be taken into account in considering the context in which the contravention took place. Although there is no objective financial evidence before the Court, I accept that the respondents’ business operated in a sector which has been particularly impacted by lockdowns and trading uncertainty, an environment in which many similar businesses have not survived.
Having regard to and weighing the matters referred to above, it is my view that each respondents should pay a penalty set at one-third of the maximum amount with a discount of 10% calculated as follows:
Respondent Contravention Maximum Penalty Maximum after discount Penalty after discount Rika s.716(5) $33,300.00 $29,970.00 $9,990.00 Mr Pantovic s.716(5) $6,660.00 $5,994.00 $1,998.00
Accordingly, I fix a penalty for Rika in respect of its single contravention of s 716(5) of the FW Act of $9,990.00. I fix a penalty for Mr Pantovic in respect of his single contravention of s 716(5) of the FW Act (which he is taken to have committed by reason of s 550(1) of the Act) of $1,998.00.
I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 16/09/2022
3
17
0