Fair Work Ombudsman v Seasonal Farm Services

[2017] FCCA 1020

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v SEASONAL FARM SERVICES & ANOR [2017] FCCA 1020

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)

Cases cited:
Commonwealth of Australia v Fair Work Building Industry Inspectorate [2015] HCA 46

Mason & Harrington Corporation Pty Ltd t/as Pangea Restaurant & Bar [2007] FMCA 7

Applicant: FAIR WORK OMBUDSMAN

First Respondent: SEASONAL FARM SERVICES PTY LTD ACN 159 763 569

Second Respondent: RAM KUMAR

File Number: BRG 906 of 2016

Judgment of: Judge Vasta

Hearing date: 5 May 2017

Date of Last Submission: 5 May 2017

Delivered at: Brisbane

Delivered on: 5 May 2017

REPRESENTATION

Counsel for the Applicant: Ms Forsyth

Solicitors for the Applicant: Fair Work Ombudsman

Counsel for the Respondents: Mr P. Barry

Solicitors for the Respondents: Mckays Solicitors

ORDERS

THE COURT DECLARES THAT:

1. The First Respondent contravened the following civil remedy provisions:

   (a)section 45 of the Fair Work Act 2009 (FW Act) by virtue of a contravention of clause 14.1 of the Horticulture Award 2010 (Award), by failing to pay the Minimum Wage Employees amounts sufficient to meet their entitlement to the Minimum Hourly Wage;

   (b)section 45 of the FW Act by virtue of a contravention of clauses 10.4(d) and A.5.4 of the Award by failing to pay the Hourly Rate Employees and Mixed Rate Employees (Employees) amounts sufficient to meet their entitlement to casual loading;

   (c)section 45 of the FW Act by virtue of a contravention of clause 17.1(a) of the Award by failing to pay Singh a leading hand allowance;

   (d)section 535(1) of the FW Act, by failing to keep the records prescribed by regulation 3.33(2) of the Fair Work Regulations 2009 (Cth) (FW Regulations); and

   (e)section 535(1) of the FW Act, by failing to keep the records prescribed by regulation 3.32(e) of the FW Regulations.

2. The Second Respondent was involved in each of the following contraventions by the First Respondent pursuant to section 550(1) of the FW Act:

   (a)the contraventions committed by the First Respondent in Declarations 1(a) to 1(c) above, from 26 September 2014 to 28 June 2015; and

   (b)the contraventions committed by the First Respondent in Declarations 1(d) to 1(e) above, during the whole of the Audit Period, being 1 June 2014 to 28 June 2015.

THE COURT ORDERS THAT:

1. The Total Underpayment amount of $60,780.30 as set out in Schedule B and Schedule C of the Statement of Agreed facts filed on 12 December 2016, or such other amounts which remain outstanding, be paid to the Employees as follows:

   (a)The First and Second Respondent, jointly and severally pay to the Employees the amounts owing to them for the period between 26 September 2014 to 28 June 2015, being a total of $11,859.55 within 30 days of the Court’s order; and

   (b)(The First Respondent pay the remainder of the Total Underpayment amount of $48,920.75 to the Employees within 60 days of the Court’s order.

2. The First Respondent pay the amounts owing to any Employees who have not been paid in accordance with order 3 above to the Applicant within a further 14 days in accordance with section 559(1).

3. Pursuant to section 546(1) of the FW Act, that the First Respondent pay pecuniary penalties of $85,000 in respect of the contraventions set out at Declaration 1 above.

4. Pursuant to section 546(1) of the FW Act, that the Second Respondent pay pecuniary penalties of $17,000 in respect of the contraventions set out at Declaration 2 above.

5. An order pursuant to section 546(3)(a) of the FW Act that any pecuniary penalties ordered to be paid by the First Respondent and the Second Respondent be paid to the Commonwealth within 240 days of those Court’s orders and:

   (a)in the event that the some or all of the amounts payable to the Employees in accordance with Order 3 are not met, the Fair Work Ombudsman may remit, at its discretion, the penalties paid to the Commonwealth to the Employees until their claims are met;

   (b)in the event that the Applicant receives a partial payment of the penalty amount the amounts will be distributed to the said employees in accordance with the percentage of total underpayment; and

   (c)in the event that the Applicant cannot locate one or more of the said employees within 6 months of receiving the penalty amount, pay the applicable amount due to each employee who cannot be located:

   (i)firstly, to other employees in proportionate amounts, until each employee’s underpayment is met;

   (ii)secondly, for any residual amount, to the Commonwealth.

6. An order that the Applicant have liberty to apply on seven days' notice in the event that any of the preceding orders are not complied with.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 906 of 2016

FAIR WORK OMBUDSMAN

Applicant

And

SEASONAL FARM SERVICES PTY LTD ACN 159 763 569

First Respondent

RAM KUMAR

Second Respondent

REASONS FOR JUDGMENT

(Ex tempore)

1. By application and statement of claim filed in this Court on 30 September 2016, the Fair Work Ombudsman seeks declarations and orders for pecuniary penalty and other orders against Seasonal Farm Services Pty Ltd and Mr Ram Kumar, who is, in effect, the controlling mind of the corporate First Respondent. 

2. In short compass, the evidence reveals the following: 

   a)That Mr Kumar has been a somewhat successful man who emigrated from India to New Zealand; and

   b)Conducted what was a fairly successful business. 

3. However, after the earthquake in Christchurch in 2011 and the destruction of the building in which he was working, he and his family made the decision that it would be in their best interests to come to Australia to work, rather than rebuild his position in New Zealand.

4. He started the company that is the First Respondent.  The First Respondent pays a number of employees to pick, pack and clean fruit and vegetables that are grown in the Lockyer Valley. They also harvest, plant, weed the fruit and vegetables, as well as general labouring duties, such as inserting irrigation piping, operating tractors, cleaning sheds and warehouses.

5. There was, during a period of 1 June 2014 to 28 June 2015, some 214 employees that had worked for Mr Kumar through the First Respondent. 

6. One of those 214 was a Mr Singh.  Mr Singh supervised up to 25 employees and instructed them on a number of things they had to do in the course of their employment.  In effect, he was known as a “leading hand”.

7. Most of the employees were overseas workers who were temporarily residing in Australia pursuant to some form of visa, predominantly the 417 visas that allow someone to work here for a certain amount of time. 

8. In October 2014 to March 2015, the Fair Work Ombudsman received workplace complaints from two former employees of the First Respondent and there was an investigation of these complaints. It was identified that these two had been underpaid and there are “findings of contravention” letters that were issued.

9. Following the determination of those two complaints, in June 2015, the Fair Work Ombudsman decided to commence a broader audit of the First Respondent in respect of all employees engaged during that period from 1 June 2014 to 28 June 2015. 

10. It was found there that the employees were not all remunerated in the same way, that some were paid hourly rates of pay, some were paid piece rates, and others were paid a mixture of hourly rates and piece rates.  The Fair Work Ombudsman in evidence before me has compiled three lists:

    a)ones who were on the fixed hourly rates,

    b)ones who were on the piece rates, and

    c)a third list of people who were on a mixture of both.

11. The problem for the Fair Work Ombudsman was that there were no records as to the hours worked for the piece rate employees and that also impacted those workers who were on the mixed type of employment because, for the piece rate part of their component of their wages, there were no records.  This made the investigation extremely difficult.  Now, whilst that does mean that there is no evidence as to what was worked, it means that there is no way of ascertaining whether or not the breaches of the Fair Work Act 2009 (Cth) (“the FW Act”) were even more blatant than what the investigation discovered.

12. The investigation discovered that, for 17 employees, they were not paid according to the award as far as the proper hourly rate was concerned.  In the scheme of things, it is not known whether the true situation was greater than what was discovered because there is the dearth of material as to the timesheets.  What it does show is that those employees were underpaid a total of $104.18 during that period. 

13. Whilst that equates to, in effect, an average of $6 per person and it is over a period of a year and it may not seem much, it is still significant because there was a disregarding of what the proper pay rate was and a very “laissez-faire attitude” as to making sure the persons were paid properly.

14. The other matter to take into consideration is that, whilst on average it may be about $6.00 per person, it does not mean that it is, in any way, trivial.  Persons who are working for the minimum wage need really every cent that they are entitled to, and an under payment of $6.00 can actually be, in their particular circumstances, devastating.  One has to look at all of those matters to put the offending in this particular aspect into its proper context. 

15. The next breach that was found was that the First Respondent was required to pay the employees casual loading for all ordinary hours worked.  The casual loading is a 25 per cent loading on top of what is the award rate. 

16. There were 130 employees affected by this failure to pay that rate from 1 June 2014 to 28 June 2015.  The total underpayment of all those employees was $60,112.64.  Again, whilst one divides that up into the 130 employees, it may seem as though, again, it is not a great sum. 

17. But not only is it a significant sum again for those people who are on the minimum wage, it means that the company has unjustly enriched itself by $60,000.00 during the year, and that is something that is quite significant and is something that does show to me that this breach is very serious. 

18. The third breach that was found was that Mr Singh, who was the leading hand, ought to have been paid an allowance of $1.10 per hour.  He worked 512.25 hours for the First Respondent, but he was never paid any allowance in relation to his being the leading hand.  He was underpaid in total $563.51.

19. Again, such a sum may not seem great, but considering that Mr Singh was, in effect, a supervisor he ought to have been properly remunerated and he was not. 

20. The last breach was the failure to keep the record of the hours that I have already spoken about. 

21. Those are matters, it has been agreed by both sides, can be linked, pursuant to s.557 of the FW Act, into those four categories of breaching the FW Act. Therefore, the contraventions are really in those four categories.

22. That means that for the first contravention, second contravention and third contravention, the maximum penalty for the First Respondent is $51,000.00 and for the fourth contravention it is $25,500.00. 

23. For Mr Kumar personally, it means that the penalty is $10,200.00 maximum for contraventions 1, 2 and 3, and $5,100.00 in relation to contravention 4. 

24. It comes, then, to me to decide the appropriate penalty.  Both Counsel have, quite properly, referred me to a number of authorities that speak of the way in which a court should look at the determination of penalty.  On a number of occasions during today’s hearing, counsel for the Respondents referred to today’s hearing as a sentencing hearing.  In many ways, that is what it is. 

25. However, using the word “sentencing” connotes a criminal aspect to this matter. 

26. I have been reminded of the words of the High Court in the Commonwealth of Australia v Fair Work Building Industry Inspectorate [2015] HCA 46, where, at paragraph 55, the Court said:

    “...whereas criminal penalties import notions of retribution 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[75]: 

    ‘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.’”

27. In doing so, what the High Court has done is to emphasise that there is a reason for civil penalties and one should never, as it were, lose sight of the purpose of the legislature in giving the Court power to impose such penalties. 

28. Both Counsel have referred me to the list of matters that the Court spoke about in Mason & Harrington Corporation Pty Ltd t/as Pangea Restaurant & Bar [2007] FMCA 7, where a very helpful list of some 11 or 12 circumstances was made, and how Courts subsequently have looked at this matter.

29. I am cognisant of all of those factors, however, am also very careful not to treat this as simply a checklist as if to somehow then mathematically arrive at what is the appropriate penalty.

30. To my mind, the factors relevant to penalty here go to what can be said about the deliberate nature of the matter.  I have already spoken as to the circumstances and the nature of the breaches and what the loss was to all of the employees and so on. 

31. But the question of whether the breaches were deliberate is probably the matter that has really taken some significance here.  In this matter, the Second Respondent, Mr Kumar, has said in paragraph 9 of his affidavit of 31 January 2017:

    “To ensure I started properly I became a member of Employsure, who implied they were somehow affiliated with the Fair Work Ombudsman’s office and for an annual subscription were offering free help.  I paid $600.53 per week and Employsure’s agents they told me that they will advise me from time to time about fulfilling all legal requirement to run a legitimate business.”

32. Mr Kumar then went on to talk about the fact that he did not get good service and repeated a number of internet comments about the reliability and efficiency of Employsure.  He then went on to say at paragraph 11:

    “It was never my intention to short change or ‘exploit’ my employees by not paying them properly.  As I was a new employer I for example was unaware of the different types of employment categories viz Full-time, Part-time or casual employment.  I tried but was unable to obtain any advice from Employsure, and then followed what other Labour Hire Operators in the Gatton area was paying.”

33. He then spoke really to say that what has happened here, to cause the breach, has been a combination of misunderstanding and error; therefore trying to submit to me that this conduct was not deliberate. 

34. However, the evidence that is before me does not sustain such a submission.  What is clear here is that, in looking at the way in which the company has paid the employees, there were many occasions where the Applicant did actually pay both the proper base rate and the 25 % loading.

35. An example of this is a payslip that one finds at page 64 of the affidavit of the inspector that was filed before me.  That, to my mind, shows that there is an inexplicable aspect as to how it is that a person who has misunderstood the award and not known that this is what he had to do, has actually done it and did it on 26 September 2014. 

36. That aspect of the payment led to paragraph 42 of the statement of agreed facts filed 12 December 2016, which read as such:

    “From at least 26 September 2014, the second respondent knew that:

    (a) the award applied to the employees

    (b) the award prescribed minimum rates of pay and

    loadings payable to employees; and

    (c) the Award prescribed a loading for casual employees.”

37. There were other aspects where the Second Respondent spoke of the loading, and that comes from an email that is reproduced at page 43 of the Fair Work Ombudsman’s affidavit of 2 February 2017, where Mr Kumar wrote to the inspector and said this to her on 30 July 2015:

    “…I confirm that Seasonal Farm Services Pty Ltd didn’t have any per piece contract agreement in writing prior to 1st July, 2015 but always have verbal agreement with employees about per piece rate, the price and target to achieved to worked on hourly rate + 25 % loading.”

38. There is a prospectus for the company that Mr Kumar ran.  That prospectus is reproduced at pages 45 onwards in that same affidavit.  On page 59 of the affidavit, which would equate to page 15 of the prospectus, the prospectus shows the rates of pay that persons are paid, which is directly from the Horticulture Award, with a note that there is casual loading of 25 per cent. 

39. The Applicant also on 26 March 2015 attended a seminar that was put on by Fair Work and was given the education pack, which shows all the material that he needed to know about this aspect.  Albeit he gave the person there at the seminar the very distinct impression that he was trying to do the right thing, the fact is he knew what the right thing was and he just simply did not do it. 

40. There were preliminary findings as to what was happening in March 2015.  Those were those findings as to those first two persons who had made complaints.  It was obvious then that there was something wrong, and yet this practice of not paying the loading continued all the way through to 28 June 2015.

41. Therefore, I am of the view that there was deliberateness in the conduct of the Applicant. 

42. Another issue that has been of some discussion has been the aspect of cooperation.  While it is true that what the Applicant has done is that, once the Fair Work Ombudsman said that they were going to conduct the audit that they did in June 2015, the Applicant did cooperate and did not obstruct the Fair Work Ombudsman.  The Applicant, though, did not provide timesheets for the workers who were on the per piece agreements because such were never kept.  This made the task of the Fair Work Ombudsman a difficult one to complete. 

43. However, once the audit was complete and findings were made in March of 2016, the Applicant has not sought in any way to derogate from what the Fair Work Ombudsman has said and, upon the first return of this application, informed the Court that it would proceed by way of penalty hearing, and an agreed statement of facts was soon filed before the Court. 

44. Whilst there may be an inevitability about such a letter sent by the FWO and one might look at that as being a practical matter, that does not mean, even if one were to look upon it, that there has not been a cooperation that has meant a saving of some time and money.

45. As well as that, there have been indications of remorse.  However, the persons who have been affected have not yet been repaid.  I have also taken into account the financial situation that the Second Respondent says that he is now in, though I do note what the Fair Work Ombudsman says about his salary and the directors fees he had been receiving from Seasonal Farm Services, which stills seems to be an on-going concern.  Those matters are relevant, but the aspect of specific and general deterrence, in my view, does outweigh those matters.

1. However, it does not mean that they are ignored, and I have not ignored them.

2. Therefore, I am of the view that for the first contravention, a penalty for the company in the sum of $10,000.00 is appropriate. 

3. For the second contravention, I am of the view that a penalty of $45,000.00 is appropriate. 

4. For the third contravention, I am of the view that a penalty of $20,000.00 is appropriate.

5. For the fourth contravention, which I consider extremely serious, a penalty of $25,000.00 is appropriate.

6. That is a total of $100,000.00.  I am of the view that that sum should be discounted by 15 per cent because of all of those mitigating factors that I have spoken. That means that pecuniary penalties for the First Respondent in the sum of $85,000.00 will be imposed. 

7. With regard to Mr Kumar, I am of the view that, using the same rationale, that pecuniary penalties totalling the sum of $17,000.00 ought be imposed. 

8. I therefore make the following orders that are in the minute of proposed orders. 

9. I will make the orders in orders 1 and 2.  Order 3 will be that the total amount of underpayment of $60,000.00, or other amounts as remain outstanding, shall be paid within 60 days as follows.  In order 3(a), the time will be 30 days, and order (b), it will be 60 days. 

10. Order 5 will be that the pecuniary penalties of $85,000.00 shall be paid, and order 6, $17,000.00 shall be paid, and order 7 will be that those penalties shall be paid within 240 days of these orders. 

11. It is imperative that the employees are paid first.  I will make all the other orders that have been submitted to me.

I certify that the preceding fifty- six (56) paragraphs are a true copy of the reasons for judgment of Judge Vasta

Date:  24 May 2017