Fair Work Ombudsman v Samurais Paradise Pty Ltd - [2017] FCCA 2013

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v SAMURAIS PARADISE PTY LTD & ANOR

[2017] FCCA 2013

Catchwords:
INDUSTRIAL LAW – Awards – breach of award – contravention of FW Act – breach admitted – pecuniary penalty – penalty to be paid to the Commonwealth.

Legislation:

Fair Work Act 2009 (Cth), ss.45, 535, 536, 545, 546, 550, 557

Commonwealth of Australia v Director, Fair Work Building Industry Assessment [2015] HCA 46
Mason & Harrington Corporation Pty Ltd t/as Pangea Restaurant & Bar [2007] FMCA 7

Applicant:

FAIR WORK OMBUDSMAN

First Respondent:

SAMURAIS PARADISE PTY LTD
(ACN 152 102 808)

Second Respondent:

SHIGEO ISHIYAMA

File Number:

BRG 1166 of 2016

Judgment of:

Judge Vasta

Hearing date:

9 August 2017

Date of Last Submission:

9 August 2017

Delivered at:

Brisbane

Delivered on:

9 August 2017

REPRESENTATION

Solicitors for the Applicant:

Fair Work Ombudsman

Counsel for the Respondents:

Ms S. Moody

Solicitors for the Respondents:

MBA Lawyers

ORDERS

THE COURT DECLARES THAT:

The First Respondent contravened the following civil remedy provisions:
(a)section 45 of the Fair Work Act 2009 (FW Act) by failing to the Minimum Rate of Pay to each of the Employees in accordance with clause 20.1 of the Restaurant Award;
(b)section 45 of the FW Act, by failing to pay the Monday to Friday Casual Loading to each of the Employees in accordance with clause 20.1 of the Restaurant Award;
(c)section 45 of the FW Act, by failing to pay the Monday to Friday Casual Loading to each of the Employees in accordance with clause 13.1 of the Restaurant Award
(d)section 45 of the FW Act, by failing to pay Sunday Penalty Rate to each of the Sunday Employees in accordance with clause 34.1 of the Restaurant Award;
(e)section 45 of the FW Act, by failing to pay the Public Holiday Penalty Rate to each of the Public Holiday Employees in accordance with clause 34.1 of the Restaurant Award;
(f)section 45 of the FW Act, by failing to pay the Late Night Penalty to each of the Late Night Employees in accordance with clause 34.2(a)(i) of the Restaurant Award;
(g)section 45 of the FW Act, by failing to pay the Early Morning Penalty to each of the Early Morning Employees in accordance with clause 34.2(a)(ii) of the Restaurant Award;
(h)section 45 of the FW Act, by failing to pay the Minimum Shift Payment to each of the Minimum Shift Employees in accordance with clause '13.2 of the Restaurant Award;
(i)section 45 of the FW Act, by failing to make superannuation contributions for each of the Employees in respect of amounts paid during the Assessment Period in accordance with clause 30.2(b) of the Restaurant Award;
(j)regulation 3.44(1) of the FW Regulations, by making and keeping the Hoshino NTP Records and the Ishihara NTP Records in respect of Ms Hoshino and Mr Ishihara respectively, knowing that the entries in those records were false and/or misleading;
(k)regulation 3.44(6) of the FW Regulations, by making use of entries in the Hoshino NTP Records and the Ishihara NTP Records by providing those records to the Applicant, knowing that the entries in those records were false and/or misleading;
(l)regulation 3.44(1) of the FW Regulations, by making and keeping the Audit Records in respect of the Audit Records Employees knowing that the entries in those records were false and/or misleading;
(m)regulation 3.44(6) of the FW Regulations, by making use of entries in the Audit Records in respect of the Audit Records Employees, by providing those records to the Applicant knowing that the entries in those records were false and/or misleading;
(n)section 535(1) of the FW Act, by failing to make and keep records for the Employees with the information prescribed by regulations 3.32(d) and 3.33(1)(b) of the FW Regulations; and
(o)section 536(1) of the FW Act, by failing to provide pay slips to the Employees.
The Second Respondent was involved in each of the contraventions referred to in Declaration 1 above, pursuant to s.550(1) of the FW Act.

THE COURT FURTHER ORDERS THAT:

If, as at the date of the hearing in respect of these proceedings, the First Respondent has not made the superannuation contributions set out at (a) and (b) below and provided evidence of same to the Applicant, the parties agree to an order pursuant to s.545(1) of the FW Act that within 28 days of the Court's order, the First Respondent:
(a)make superannuation contributions at the rate of 9.5 per cent on behalf of the Employees to their respective nominated superannuation funds in respect of the ordinary time earnings paid to them by the First Respondent during the Assessment Period (less any superannuation contributions already made by the First Respondent in respect of the Assessment Period as at the date of the order); and
(b)make contributions on behalf of the Employees to their respective nominated superannuation funds in respect of the back−payments made to each of the Employees of the Total Underpayment Amount (as set out in Column 11 of Annexure B) at the superannuation guarantee charge rate prescribed by the applicable superannuation legislation as at the date such payments were made (less any contributions already made by the First Respondent at the superannuation guarantee charge rate in respect of the back−payments, as at the date of the order).
Pursuant to section 546(1) of the FW Act, the First Respondent pay pecuniary penalties fixed in the sum of $246,400.00 in respect of the contraventions set out in paragraph 1 (a) to (o) of the Declaration above.
Pursuant to s.546(1) of the FW Act, the Second Respondent pay pecuniary penalties fixed in the sum of $38,000.00 in respect of each of the contraventions referred to in declaration 2 above.
(Pursuant to s.546(3)(a) of the FW Act, any pecuniary penalties ordered to be paid by the First Respondent and the Second Respondent be paid to the Commonwealth within 18 months of the Court’s orders.
(Liberty for the Applicant to apply to the Court for the matter to be re-listed in the event that any of the Court’s orders are not complied with.

NOTATION:

A.It is noted that these orders have been corrected to the amounts announced in Court on 11 August 2017.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 1166 of 2016

FAIR WORK OMBUDSMAN

Applicant

And

SAMURAIS PARADISE PTY LTD (ACN 152 102 808)

First Respondent

SHIGEO ISHIYAMA

Second Respondent

REASONS FOR JUDGMENT

(Ex tempore)

By application and statement of claim filed on 16 December 2016, the Applicant, Fair Work Ombudsman, asked the Court to make declarations against the First and Second Respondents, that they had breached various sections of the Fair Work Act 2009 (Cth) (“the FW Act”), and to impose pecuniary penalties.
The Respondents, that is, Samurais Paradise Pty Ltd, the First Respondent, the company, and Shigeo Ishiyama, the Second Respondent, who is, for all intents and purposes, the mind behind the First Respondent, have accepted that they have breached the FW Act and have submitted to this application, now being an application for the imposition of the appropriate civil pecuniary penalties.
The facts, in short compass, are that the First Respondent ran two restaurants, a Japanese curry house and Samurais Paradise restaurant. Those two restaurants were trading in Surfers Paradise.
In April 2015, the Fair Work Ombudsman was contacted anonymously by an employee of the First Respondent talking about not being paid in accordance with the Award. There was contact made by the Fair Work Ombudsman to the Respondent company where the Fair Work Ombudsman told the company that it did have responsibilities under the Award and no more was heard of it. It seems that matter needed no further intervention by the Fair Work Ombudsman.
On 25 August 2015, as part of an audit of restaurants in the Surfers Paradise area, inspectors from the Fair Work Ombudsman visited these restaurants. There they found that there was a system of underpayments to the employees there.
The next day there was a follow-up visit with a notice to produce records showing the wages and hours worked by the employees. The Fair Work Ombudsman inspector, who gave the First and Second Respondents the notice to produce, told the Respondents that if they didn’t have records, then they were not to make records up.
The next day the inspector sent through educational material which would show what it was that the company had to do to ensure that it complied with the requirements of the Award.
The company did provide records on 10 September 2015, though they were records that showed the time worked and the wages for five employees. For two of those employees it showed that they were getting $11.00 an hour.
It turns out that those records were falsified both as to the rate of pay and the hours worked, as well as the fact that there were actually nine employees rather than five employees.
On 25 September 2015, a rectification notice was served on the respondents by the Fair Work Ombudsman seeking that a total of just of $20,000.00 be paid to those employees for whom their preliminary investigations had found had been underpaid.
On 12 October 2015, the Respondents provided more records to the Fair Work Ombudsman which said that all employees were now being paid properly, were being given payslips and had their superannuation paid up to date. It turns out that those records as well were false. There were no payslips. There was no superannuation paid and most of the workers were still being paid about $10.00 an hour.
Soon after that information was provided, the employees themselves contacted the Fair Work Ombudsman who then conducted a proper investigation.
According to the agreed statement of facts, there were a number of breaches of the FW Act. To start with, with regard to the nine employees, it would seem, again, that they were paid between $8.00 and $10.00 an hour. They were paid in cash on a weekly basis. They were directed to sign some timesheets at the time they received their wages in cash as a record confirming that the payment was made.
At the time, the minimum rates of pay were for cooks $18.02 to $18.47 per hour, and for the kitchen attendants, $17.35 to $17.79 an hour. There was no payment of casual loading. There was no payment of Saturday loading. There was no payment of Sunday loading. There was no payment of public holiday loading. There was no night-time allowance for working between the hours of 10 am and midnight. There was no payment for early morning allowance, which is working between the hours of midnight and 2 am. There was no minimum shift allowance paid and there was no superannuation that was paid.
There was an underpayment for these nine employees of $59,080.37. Whilst one can go through each of the particular areas and look at them and say that, in the great scheme of things, for nine employees over that period, that is not a great deal of money, one has to stand back and look at this fact; that this was an underpayment of just under $60,000.00 over a period that was just under four months.
There were nine employees. If one extrapolated that to the course of a year, it would mean that a business such as the ones being run by the First Respondent and Second Respondent, would have a saving to them of about $180,000.00.
When one is looking at a small business, the temptation is great that such a saving to them would give them a competitive edge over all the other businesses in their area. It is instructive that the Second Respondent did say to the Fair Work Ombudsman that he felt that he had to underpay so as to stay competitive. Whilst one applauds persons trying to stay competitive, this cannot be done at the expense of the employees and in breach of the FW Act.
The quantum of money may not seem great but, when one looks at the proportion, it shows that each of the nine employees were being paid less than half, and some even only a third, of what it is that they were actually entitled to be paid.
The aggravating circumstances of the falsifying of records and the provision on two occasions of false records, shows that this case is in a very serious bracket.
There is certainly deliberate behaviour. To their credit, the First and Second Respondents have cooperated and never put the Fair Work Ombudsman to the trouble of having to prepare for a trial hearing or to seek to prove all of the matters that I have already spoken about in the recitation of these facts.
In deciding what I ought do as far as making orders for pecuniary penalties, the first thing I should do is look at whether these offences can be grouped. The Fair Work Ombudsman has submitted to me that I ought group these offences into 15 categories. Such categories would be in accordance with the principles in groupings of matters pursuant to s.557 of the FW Act.
The Respondents asked me to make even further groupings by grouping the offences of not paying Saturday, Sunday and public holiday loadings as one group, not paying the late night and early morning loadings as another group, making the false records on two occasions as one group and the two occasions of producing a false record as another group.
Whilst there may be some merit in what the Respondents have said, it is my view that the failure to do what is required under the FW Act creates separate and distinct offences in, and of, themselves. Though it is recognised that the contravention involving one particular behaviour as opposed to another particular behaviour is still a breach of the same provision of the FW Act, that does not automatically mean that those offences should be grouped together.
In the case of the Saturday, Sunday and public holiday loading, those three are three separate loadings and have different calculations. The late night and the early morning allowances also have different calculations.
So whilst they may all be within the same sort of offending, to my mind they are separate and distinct matters and ought not be grouped any more than they have.
As far as the making of the false records are concerned, it is my view that there were two different forms of making false records; the first being falsifying a rate and hours of five employees, and the second being the falsifying of other records with the a covering letter saying that all employees were paid properly. That second type included the provision of a pay slip and a form to say that superannuation had been paid which it hadn’t. Those records are separate and distinct to each other and ought not be grouped.
The provision of those false records were done on two different occasions, which makes it a more aggravating factor and ought not be grouped in, and of itself, as one offence.
Therefore, I am content to accept the submission of the Fair Work Ombudsman as to the groupings that I ought make as it really is the only proper means by which the enormity of the wrongfulness of the Respondents can be recognised.
The purpose of pecuniary penalties was discussed by the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Assessment [2015] HCA 46. At paragraph 55 of that judgment the Court said:
“No less importantly, whereas criminal penalties import notions of retribution[74] and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance:
‘Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]. ... The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.’”
In Mason & Harrington Corporation Pty Ltd t/as Pangea Restaurant & Bar [2007] FMCA 7, which is known as the Pangaea case (“the Pangea case”), the Court there set down a list of a number of matters that the Court ought take into account in the assessment of civil penalties.
I have had regard to the whole of that list. However, I have not slavishly followed it as if it were some form of checklist so that I can then arrive at some form of mathematical calculation for what is to be the appropriate penalty.
The matters that I take into consideration, apart from the ones that I have already spoken of, is the size of the underpayment, the deliberate nature, the deterrence aspect, the co-operation given by the Respondents.
Both the Applicant and the Respondents have made submissions as to what ought be the proper penalty. Whilst I am grateful for those submissions, it in the end is a matter for the Court to look at.
In looking at these contraventions and where they sit for the breach involving the non-payment of the minimum wage I see this as the most serious aspect. The setting of wages between $8.00 and $10.00 an hour is an incredibly low wage, and it would have been known very easily to any employer that such a wage was way too low.
Yet notwithstanding the interventions of the Fair Work Ombudsman in the site visit and in the rectification notice, the wages were not at all interfered with and still kept being paid.
For that reason I would assess an appropriate penalty for this contravention as being $50,000.00.
For the failure to pay the casual loading that is a consequence also of the setting of such a low wage and then a complete thumbing of the nose at the provisions of the award. I would calculate the appropriate penalty for that breach as $25,000.00.
For the failure to pay the Saturday loading, the Sunday loading and the public holiday loading each of those I would assess the penalty as being $25,000.00.
For the failure to pay the night allowance and the early morning allowance, I would calculate that as $15,000.00 for each.
For the failure to pay the minimum shift allowance, a penalty of $5,000.00 will be imposed.
For the failure to pay superannuation I would assess that penalty as being $30,000.00.
The making of false records, as I have already said, is a most heinous offence. The Respondent was warned not to make false records, but did any way and those false records gave quite an improper picture of what was happening. I would impose a penalty of $16,000.00 for the making of the false records.
For the producing of those false records I would also impose a penalty of $16,000.00.
For the second breach of making false records I would impose a penalty of the maximum of $18,000.00.
For producing those false records I would also impose the maximum of $18,000.00.
Those latter penalties ought reflect the extreme seriousness with which I view those matters. They are in the worst category of offending.
The failure to keep records is a very serious matter as well. A business cannot be conducted properly without proper records, and neither can the Fair Work Ombudsman do their job without proper records being kept. I would impose a penalty of $25,000.00 for the failure to keep records.
Payslips are the one thing that an employee needs to have so that they know that they have been paid properly. For the failure to provide payslips, I would impose a penalty of $20,000.00.
Adding all those up, on my rough calculations, that comes to a total of $328,000.00.
There ought be a discount for those matters in mitigation. Such a discount is 15 per cent. That would make a total of $278,800.00.

Both the Fair Work Ombudsman and the Respondents have asked me to give another discount to reflect the totality principle. In my mind, there is not such a need to do that because there has been, already, a discount given for the cooperation. The company may be in dire straits but that is a matter than can be cured by giving a greater time to pay.
The totality principle really only acts to ensure that a “crushing” sentence or penalty is not imposed. The use of the word “crushing” connotes that the overall penalty imposed would not be commensurate to the offending if the penalty I have already calculated were to not be discounted further. I am of the view that the penalty I have calculated is commensurate with the offending behaviour of the First Respondent. Therefore I decline to make any further discount on that.
With regard to the Second Respondent, in looking at his matter, the provisions of s.550 of the FW Act would show that he is accessorily liable and there is really no need to differentiate. This means that if one simply divided the penalty of the First Respondent by five, one would get to a total of $55,040.00 which would be the proportionate penalty. He has given me an affidavit that said that he is in a very bad financial position. I am of the view that I can give a further discount on his behalf.
Whilst that would mean that I would normally impose a penalty on him of $55,040.00, I have decided to give him a larger discount and instead impose on him a total pecuniary penalty of $40,000.00. Given the substantial nature of the penalties that I have imposed, I will order that the Respondents pay within 18 months.
So therefore I make the orders sought by the Applicant - that is, I make the declarations as they have asked in the statement of claim and in their submissions.

Addendum

I went through my notations afterwards on Wednesday evening and realised that I had made this mistake, so I do apologise to the parties. The mistakes that you highlighted in your email, Mr Williams, are two of the mistakes. The other mistakes were that I had, on my notes, for contraventions 2, 3, 4 and 5. I made an order for a total of $25,000.00. I had actually later in my note changed that to $20,000.00, and that hadn’t been reflected so the sum was too much.
The other thing is that I forgot, when I was going through the matters of mitigation, that the Respondents had actually made good the $59,000.00 that they had short-changed the nine employees, and that was a matter that I hadn’t mentioned when I was going through the matters in mitigation. That leads me, rather than the 15 per cent discount that I did initially give, that I would be giving a 20 per cent discount. That means that the gross penalties are:
a)for contravention 1, $50,000.00 for the First Respondent and $10,000.00 for the Second Respondent.
b)For contraventions 2, 3, 4 and 5 each, $20,000.00 for the First Respondent and for the Second Respondent, $4,000.00.
c)For contraventions 6 and 7 each, for the First Respondent $15,000.00 and for the Second Respondent, $3,000.00.
d)For contravention 8, the sum of $5,000.00 for the First Respondent and $1,000.00 for the Second Respondent.
e)For contravention 9, the sum of $30,000.00 for the First Respondent and $6,000.00 for the Second Respondent.
f)For the contravention of making false records the first time, $16,000.00 for the First Respondent and $3,200.00 for the Second Respondent; for the issuing of or the presenting of those over to the Fair Work Ombudsman on the first occasion, 16,000 for the company and 3200 for the second respondent.
g)For 12 and 13, it was $18,000.00 on each contravention for the First Respondent and nothing for the Second Respondent;
h)For contravention 14, $25,000.00 for the First Respondent, $5,000.00 for the second respondent;
i)For contravention 15, $20,000.00 for the First Respondent and $4,000.00 for the Second Respondent.
That gives totals of $308,000.00 for the First Respondent and $54,400.00 for the Second Respondent.
Applying the 20 per cent discount that I will now give for the cooperation and the reparation to the workers, that gives me a total of $246,400.00 for the First Respondent and $43,520.00 for the Second Respondent.
For the First Respondent, I make no further discount and the order will be that, for those contraventions, the company must pay the pecuniary penalty of $246,400.00 within 18 months of Wednesday’s date, which was 9 August.
Though I will make a smaller discount again for the Second Respondent and that is that I make a further discount of $5,520.00, which gives him a total of $38,000.00, and I order that that be paid within 18 months as well.

I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Judge Vasta

Date: 10 October 2017