Fair Work Ombudsman v Security Protection Services Pty Ltd & Ors
[2010] FMCA 252
•13 April 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v SECURITY PROTECTION SERVICES PTY LTD & ORS | [2010] FMCA 252 |
| INDUSTRIAL LAW – WORKPLACE RELATIONS – Contraventions of award and collective agreement – previous history of contraventions – need for specific deterrence. PENALTIES – Principles for fixing – totality principle. |
| Workplace Relations Act 1996, ss.185(2), 719, 728 |
| Ikin v Crown Trading Group Pty Ltd & Anor [2009] FMCA 1187 Kelly v Fitzpatrick (2007) 166 IR 14 Mason v Harrington Corporation Pty Ltd [2007] FMCA 7 Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 Pearce v The Queen [1998] HCA 57; 194 CLR 610 Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (2006) ATPR 42 Klousia v TKM Investments Pty Ltd & Anor [2009] FMCA 208 Workplace Ombudsman v Saya Cleaning Pty Ltd & Anor [2009] FMCA 38 Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306; 3 FCR 503, 508 PKIU and Others v Vista Paper Products Pty Ltd and Another (1994) 127 ALR 673 Cotis v MacPherson [2007] FMCA 2060 [12]; FMCA 2060; (2007) 169 IR 30 Inspector Trundle v M & K Angelopoulos Pty Ltd [2009] FMCA 37 Quinn v Martin (1977) 16 ALR 141 IanSeymour v Stawell Timbers Pty Ltd (1985) 70 ALR 391 Textile Clothing and Footwear Union of Australia v South Cross Clothing Pty Ltd [2006] FCA 325 McIver v Healey [2008] FCA 425 Australasian Meat Industry Employees Union v Meneling Station Pty Ltd [1987] 16 IR 245 Yorke v Lucas (1985) 158 CLR 661 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | SECURITY PROTECTION SERVICES PTY LTD |
| Second Respondent: | NEIL STEWART RUUT |
| Third Respondent: | CINDY MICHELLE RUUT |
| File Number: | LNG 8 of 2009 |
| Judgment of: | Turner FM |
| Hearing date: | 2 March 2010 |
| Date of Last Submission: | 1 April 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 13 April 2010 |
REPRESENTATION
| Solicitors for the Applicant: | Zeeman & Zeeman |
| Solicitors for the Respondents: | Gunson Williams |
ORDERS
The Court imposes a total penalty of $136,900.00 on the second and third respondents jointly and severally.
That the second and third respondents pay penalties totalling $136,900.00 within 60 days.
That the matter be adjourned to 10am on 28 April 2010 in MELBOURNE in relation to the issues of to whom the penalties are to be paid and the applicant’s applications for interest and costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
LNG 8 of 2009
| FAIR WORK OMBUDSMAN |
Applicant
And
| SECURITY PROTECTION SERVICES PTY LTD |
First Respondent
| NEIL STEWART RUUT |
Second Respondent
| CINDY MICHELLE RUUT |
Third Respondent
REASONS FOR JUDGMENT
This is an application under s.719 of the Workplace Relations Act 1996 (the “WRA”) for the imposition of penalties for the underpayment of 47 employees (Statement of Agreed Facts “SOAF” 2.2) engaged in the security and watching services industry in Tasmania.
The applicant seeks the imposition of penalties for breaches of:
·Section 185(2) of the WRA being non-payment of casual loadings;
·The Security Industry National Agreement Preserving State Award (“Security Industry NAPSA”); and
·The SPT Employee Collective Agreement (the “ECA”)
The parties
The applicant is the Fair Work Ombudsman (the “FWO”).
The first respondent is a corporation that conducted a business in the security and watching industry. It is now under external administration, a liquidator having been appointed on 15 January 2010, by reason of a creditor’s voluntary winding up (SOAF 8). It is expected that its liabilities will exceed its assets by $164,000.00
(Court Book “CB” 2109).
The second respondent was the sole director and secretary of the first respondent from 26 June 1991 until 9 November 1998
(Transcript “T” 44) and was at all material times involved in determining the entitlements of employees of the first respondent (SOAF 9). He held 11 of the 12 shares in the first respondent; his wife (the third respondent) held the other share (CB 2107).
The third respondent had been a director and the company secretary of the first respondent since 16 October 2006 (SOAF 10), although
CB 2106 shows that she was a director from 26 June 1991 (the date of incorporation) until 15 May 1997, and then from 5 November 1998, and the company secretary since 26 June 1991. The Liquidators Report to Creditors dated 26 May 2004 (CB 2106) discloses that the third respondent was appointed as director and company secretary from
26 June 1991 until 15 May 1997. The second respondent was a director from 26 June 1991 until 5 November 2008. The second respondent was disqualified from becoming a director on 9 November 2008. The third respondent became the sole director from 5 November 2008
(CB 2106). In any event it is agreed that the second and third respondents were responsible at the relevant times for calculating the entitlements for all of the employees involved.
The Underpayments
The underpayment of the 47 employees occurred between
27 March 2006 and 9 June 2008 when the second and third respondents were involved in calculating the entitlements of the employees
(SOAF 9 and 10).
Statement of Agreed Facts (“SOAF”)
The parties entered into the SOAF on 1 March 2010 (Exhibit A1). Annexure VV to the Statement of Claim was incorporated into the SOAF, but was subsequently varied by consent, and an amended Annexure VV was provided to the Court on 5 March 2010 together with a Schedule as to Course of Conduct (“SCC”).
A copy of the SCC was sent to the solicitor acting for the second and third respondents on 19 March 2010. By orders made in chambers that day, the second and third respondents were to file any written submissions they wished to make as to the SCC by 26 March 2010; with the applicant to file and serve any submissions in reply by
2 April 2010. Submissions by the second and third respondents dated 30 March 2010 was received by the Court. Submissions in Reply by the applicant dated 1 April 2010 were received by the Court. Those submissions are considered under the heading “Number of Contraventions.”
As a result of the SOAF, the matter was listed on 2 March 2010 for submissions as to penalty; Mr Zeeman represented the applicant, and Ms Duvnjak for the second and third respondents. The first respondent was not represented.
The parties agreed that as the first respondent had gone into liquidation the applicant was proceeding against the second and third respondents only.
The parties agreed that the second and third respondents were involved in the breaches within the meaning of sub-s.1 of s.728 of the WRA. (Transcript 2 March 2010, page 5 line 30 “T5, l.30”). It was therefore agreed that they had contravened the provisions contravened by the first respondent [WRA s.728(1)].
Statutory Entitlements
Section 185(2) of the WRA commenced on 27 March 2006 and provides as follows:
(2)The casual employee must be paid, in addition to his or her actual basic periodic rate of pay, a casual loading that is at least equal to the guaranteed casual loading percentage of that actual basic periodic rate of pay.
Note – The employee’s actual basic periodic rate of pay should at least equal the guaranteed basic period rate of pay under section 182.
Immediately prior to 27 March 2006 (when much of the WRA commenced to operate) the first respondent was bound by the Tasmanian Security Industry Award (the “Security Industry Award”) and employed individuals in the classification of “Security Officer – Level 1” (SOAF 11).
From 27 March 2006 to 23 December 2007 the first respondent employed employees as Security Officer – Level 1 as contained in the preserved Australian Pay and Classification Scale derived from the Security Industry Award, and was bound by the Security Industry NAPSA (SOAF 12).
On or after 24 December 2007 the first respondent employed employees as “Officer Level 1” under the ECA (SOAF 13).
From 27 March 2006 to 23 December 2007 the first respondent was required:
·To pay a casual loading of 20% (SOAF 15)
·
To pay relevant employees as leading hands if applicable
(SOAF 16)
·To pay an annual leave loading of 17.5% (SOAF 17)
·To provide casual employees with a minimum of three hours work per engagement (SOAF 18)
·To pay overtime at a prescribed rate to employees who worked in excess of 8 hours on a Monday to Friday (SOAF 19)
·To pay employees not rostered to work on a public holiday one fifth of the employee’s weekly basic rate, for that day (SOAF 20)
·To provide a rest break of not less than 10 hours between the end of a period of overtime and the commencement of ordinary time duty (SOAF 21)
·To pay a prescribed rate for work on Saturdays (SOAF 22)
·To pay a prescribed rate for work on Sundays (SOAF 23)
·To pay a prescribed rate for work on public holidays (SOAF 24)
·To pay prescribed rates for work on various shifts (SOAF 25)
·To pay a prescribed rate for working split shifts (SOAF 26)
·To not have employees work a shift in two periods exceeding a spread of 14 hours (SOAF 27)
From 24 December 2007 it was a term of the SPT Employee Collective Agreement (the “ECA”):
·That the first respondent was to pay an employee, other than a casual, an hourly rate of $18.36 (SOAF 28)
·That the first respondent pay employees a prescribed rate for work on public holidays (SOAF 29)
The SOAF then sets out the agreed breaches relating to each of the 47 employees.
The SOAF then sets out particulars of the agreed underpayments to each employee (SOAF Annexures A – UU).
The 47 employees were underpaid a total of 4,390 times, amounting to $170,599.78 (Replacement for Annexure VV to the Statement of Claim).
Number of Contraventions
It is alleged that the respondents underpaid the employees a total of 4,930 times (SCC 3.4).
The second and third respondents agreed in the hearing that there were 15 separate breaches. (T60, l.9). In the submissions relating to the SCC this was reduced to 14.
The applicant alleges that there were 248 separate breaches (para.3.5 and page 6 of SCC).
Single Courses of Conduct
Section 719(2) of the WRA provides:
(2)Subject to subsection (3), where:
(a)2 or more breaches of an applicable provision are committed by the same person; and
(b)the breaches arose out of a course of conduct by the person;
the breaches shall, for the purposes of this action, be taken to constitute a single breach of the term.
Mr Zeeman submits that each time a new hourly rate was set incorrectly for an employee, a new breach occurred.
Submissions of the second and third respondents as to schedule as to course of conduct
It can be inferred from the applicant’s submissions that had the employees flat hourly rates have not changed, there would have been 14 breaches. The Court rejects this submission. The table at pages 5 – 6 of the SCC shows that if the hourly rates had not been varied the total number of breaches (under the columns headed “Employee Collective Agreement Breaches”) would be reduced by two.
The second and third respondents argue that it would be nonsense for the respondents to be penalised for increasing an hourly rate of pay of employees. The approach taken by the Court is to count multiple breaches of either the casual hourly rate or the public holiday rate, as one breach of each, thus eliminating that issue.
It is submitted that annexures A to UU of the SCC show that many employees received identical rates of pay and therefore that constituted a single breach. The Court finds that underpaying each employee constitutes a single breach, even where there are multiple underpayments under that provision, as there is no evidence here that the underpayments resulted from a single decision.
It is submitted that there were 14 breaches of distinct terms and that these were from one course of conduct being the payment of 47 employees pursuant to individual contracts of employment. The Court finds that there were multiple breaches of distinct terms, and it has not been shown that they arose out of a single course of conduct in relation to the 47 employees.
The decision in Quinn v Martin (1977) 16 ALR 141, IanSeymour v Stawell Timbers Pty Ltd (1985) 70 ALR 391 and Textile Clothing and Footwear Union of Australia v South Cross Clothing Pty Ltd [2006] FCA 325 were referred to in support of the proposition that
“Provided all breaches of a particular term of the Award arise out of the same course of conduct, even if they involve different employees, they must be treated as a single breach. This is clearly supported by authority (Quinn v Martin)”
In the present case it has not been shown that all breaches of particular terms arose out of the same course of conduct. Therefore it has not been shown that the breaches relating to groups of employees were single breaches.
The respondents seek then to rely on the decision in McIver v Healey [2008] FCA 425 apparently to submit that nominal penalties should be imposed for some breaches and substantial penalties in respect of others. In the circumstances of this case with 148 breaches, the Court finds it appropriate to apply the same averaged penalty for each breach and then decide whether the penalties in total are appropriate to the conduct.
It is then submitted that the Court should decide that the breaches here should be reduced to 14 because:
(a)All employees were employed to undertake similar security work.
(b)The various terms were breached in the same manner for each employee.
(c)All employees were employed on a flat hourly rate under individual contracts made in similar terms.
The Court does not find that the number of breaches should be reduced because the employees were employed to do similar security work. The fact that various terms were breached in the same manner for each employee does not mean that the breaches at different times arose out of the same course of conduct. The fact that all employees were employed on a flat hourly rate, in breach of their entitlements, does nothing to reduce the number of breaches, nor does the fact that they were all parties to individual contracts with similar terms; The Court finds later, that this last factor has not been established by the respondents.
It is submitted that there is no authority in support of the proposition “that an increase in hourly rate gives rise to a new course of conduct”. The Court has removed the effect of multiple increases in hourly rates for individual employees in Table 2 attached to the SCC thereby reducing the courses of conduct to 148. Further, on examination of the circumstances here, the Court finds that engaging employees at different times and on different hourly rates does not constitute a single course of conduct.
It is submitted that the exact procedure followed by Justice Marshall in setting penalties in McIver v Healey supra should be applied here. In that case His Honour said that the failure to pay appropriate loadings and allowances flowed from the setting of the incorrect rates of pay for the relevant classifications. By way of distinction from that case, many of the breaches here, resulted from applying the incorrect instrument to the employees. The decision has no direct relevance here.
It is submitted that if the methodology of Justice Marshall is applied here, there would be 47 breaches. If the Court were to apply that methodology it would come to the same overall result as to the total penalty, and impose a penalty for each breach of $2,900.00 (totalling $136,000.00).
The Court finds that each series of breaches of each term relating to an employee constitutes a single breach of that term. Adjusting the figures of the number of breaches in Table 2 of the SCC by reducing multiple breaches of a provision for an employee to one breach results in 148 breaches in terms of s.719(2) of the WRA: for instance for ABDALLA Mustafa there were two breaches; for ARNOL Jason there seven; and so on.
Submissions of the applicant in reply to the second and third respondent’s submissions as to the course of conduct.
The applicant submits that “for each provision breached in respect to an employee that is one course of conduct, irrespective of how many times each provision was breached.” The Court accepts that submission and has adjusted Tables 1 and 2 of the SCC accordingly, which results in 148 breaches.
The applicant submits that “where however there was a decision to change an employee’s wage rate that gives rise to a further course of conduct. The Court rejects that submission and applies the submission above that “for each provision breached in respect to an employee, that is one course of conduct, irrespective of how many times each provision was breached.” Tables 1 and 2 of the SCC have been adjusted accordingly.
The applicant submits that in the absence of changes to the flat hourly rate of employees there would be 148 breaches. The Court calculates that from Table 1 and 2 to the SCC as follows:
| Employee | Number of Breaches |
| Mustafa Abdalla | 2 |
| Jason Arnol | 7 |
| Andrew Baker | 5 |
| Stephen Bannister | 1 |
| Jeremy Bearman | 2 |
| Jacqueline Blades | 1 |
| Theo Castrisios | 1 |
| Alfred Cauker | 4 |
| David Coppleman | 1 |
| Allan Duell | 1 |
| Peter Dunlop | 2 |
| Grant Farrell | 2 |
| Ryan Gregson | 5 |
| Gregory Grubb | 1 |
| Adam Hare | 1 |
| John Harding | 1 |
| Sarah Harvey | 1 |
| Benjamin Hay | 7 |
| Nathan Heidenreich | 2 |
| Adam Hill | 1 |
| Michael Houstein | 1 |
| Shannon Lees | 2 |
| Rodney Lockley | 10 |
| William Lockley | 9 |
| Piotr Marciniak | 9 |
| Michael McKinnon | 6 |
| Ewan Millar | 9 |
| Jose’ Miranda | 5 |
| Therese Mitchell | 1 |
| Alistair Morston | 1 |
| Brad Munn | 1 |
| Michael Parker | 1 |
| Alexander Radovanovic | 9 |
| Robin Ralph | 1 |
| Julian Riza | 8 |
| Mathew Rooke | 3 |
| Paulo Saisoaa | 1 |
| Leigh Sciberras | 2 |
| Evie Sharman | 2 |
| Colin Shepard | 2 |
| Kristopher Stacey | 1 |
| Corin Vaughan | 1 |
| Ian Vaughan | 1 |
| Robert Vlaskovac | 4 |
| Aaron Wale | 1 |
| Nigel Wilton | 1 |
| Leslie Young | 8 |
| Total | 148 |
The Court accepts that it is incumbent on the respondents to establish whether there has been a course of conduct Australasian Meat Industry Employees Union v Meneling Station Pty Ltd [1987] 16 IR 245 at [45]. The second and third respondents have not established that there were 14 breaches only.
The applicant submits that the third respondent cannot rely on the material in para.25 of her affidavit sworn 20 August 2009 as to her belief that the relevant employees were subject to individual employment agreements with fixed hourly rates to be paid in lieu of overtime and penalty payments. The applicant submits that the third respondent cannot rely on that assertion given her admission that she was involved in the contravention for the purposes of s.728 of the WRA. The applicant referred to Yorke v Lucas (1985) 158 CLR 661. Mason ACJ and Wilson, Deane and Dawson JJ held at 667 that to aid, abet or counsel an offence, the person must have knowledge of the essential matters which go to make up the offence. It is submitted here that the third respondent cannot deny knowledge of the factual element of the contravention because she has admitted involvement in them (T5, l.30). The second and third respondents admit having been “involved in all contraventions for the purposes of s.728 of the WRA.” They are therefore taken to have “aided, abetted, counselled or procured” the contraventions [s.728(2)(a)]. The Court accepts that the principle in Yorke v Lucas applies here. The second and third respondents have admitted that one or the other/or both were involved in all contraventions. They cannot claim now that they did not know what those contraventions involved.
The applicant refers to the submissions for the second and third respondents that the number of breaches should be reduced to 14 on the basis that each breach arose from a single course of conduct. The applicant submits that such a conclusion is contrary to the evidence. The Court finds that the respondents’ submission is not supported by the evidence; for instance the respondents have not established that the applicable provisions were breached in the same manner for each employee. The submission that “all employees were employed to undertake similar security work.” does not support a finding that there was one identifiable decision or course of conduct. The second and third respondents submit that the individual agreements were in similar terms. Even if that were established, there is no evidence that the making of the agreements arose out of one course of conduct; and Annexures A9-A17 to the third respondent’s affidavit sworn
20 August 2009 show agreements in various forms and with different dates.
The applicant relies on the decision in Inspector Trundle v M & K Angelopoulos Pty Ltd supra at [28] that “differences in rates of pay for some of the six employees does however present an impediment to concluding that there was a (single) course of conduct.” And at [30] “In my view it can not be said that there was a (single) course of conduct that led to the independent breaches occurring in relation to all six employees in circumstances where employees were performing the same type of work but at different rates of pay.” Those statements do not affect the Court’s finding of the appropriate total penalty in this case.
Amount of underpayments
It is agreed that the underpayments totalled $170,599.78
(new Annexure VV to the SOAF). The respondents have paid $36,568.00 of that amount, leaving $134,031.78 outstanding. The first respondent is in liquidation and has no funds to pay the shortfall. At the hearing on 2 March 2010 the applicant stated that the application is now against the second and third respondents only (T5, l.46). The second and third respondents as the sole shareholders of the first respondent, enjoyed the fruits of the underpayments or they have had the benefit of the moneys underpaid, at least to the extent that it enabled the first respondent to continue operating, thereby allowing the second respondent to continue drawing a salary and facilitating:
a)The second respondent driving a leased second hand Landcruiser Sahara at a cost of $1,479.00 per month. The lease commenced on 24 February 2009. By that time the second respondent was well aware of the proceedings pending against him. He was put on notice by the letter to him dated 14 November 2007 (CB 1075) that an investigation was being conducted into alleged underpayments of employees.
b)
The third respondent was sent a breach notice on 15 April 2008 estimating the underpayments to be $157,297.31 (CB 1079). Instead of attempting to rectify the underpayments the second and third respondents chose to enter into motor vehicle leases. They leased the Landcruiser at a total cost of $104,510.00
(Exhibit A2, page 329) The second respondent still drives that vehicle
c)
The third respondent having the benefit of driving a leased BMW 325 at a cost of $1,282.00 per month. The lease was entered into on 6 August 2007 at a total cost of $78,657.76
(Exhibit A2, page 53). The third respondent still drives that vehicle.
Income of the second and third respondents
The second respondent now has an average gross weekly income from NRG Optical Laboratories of $1,232.22 (his affidavit sworn
25 February 2010 para [3]): plus $240.00 per week from Premier Rental Equipment (Ibid [4]): plus $3,000.00 per month for vehicle operating costs (Ibid [6] and affidavit filed 21 August 2009 [7]). The third respondent did not receive any income from the first respondent (T54, l.31) and now has a gross income from Tas Vacations of $44,000.00 per annum (her affidavit sworn 25 February 2010 para [3]).
It is contended that they have no funds to pay the shortfall to the employees.
Relevant history of the respondents
The third respondent has been a director of Security Protection Services Pty Ltd since 26 June 1991 (CB 2106). The second respondent has been an employer or a director or shareholder of an employer in the security industry for many years. During that time he, or associated entities have been the subject of four proceedings for underpayment of employee entitlements. The proceedings were all in the Tasmanian Industrial Commission.
The first was matter T5470 of 1995 (CB 1039). It involved Direct Security Group Pty Ltd alleging underpayment of wages and non payment of superannuation contributions. The company office holders at the time were Neil Ruut and Cindy Michelle Mace (who the Court understands to now be Cindy Michelle Ruut, the third respondent in this matter (CB 2106, para [20]). An amount of $10,336.00 was agreed to be outstanding to an employee as at November 2005. $8,855.00 of that amount was paid to the employee. By decision dated
13 August 1996 the Commission ordered the company to pay the balance of $1,480.00 and left the claim for unpaid superannuation contributions for a later hearing. The second and third respondents were directors of the company at the relevant time (CB 1043). The second respondent was the sole shareholder (CB 1044).
The second matter was T7115 of 1997 (CB 1049). This involved ESTI Holdings Pty Ltd for breaches of the Security Industry Award, relating to underpayment to an employee of $2,391.00.
Neil Stewart Ruut was an officer of the company at the relevant time (CB 1056). The Commission ordered the company to pay the employee $2,391.00.
The third matter was T11325 of 2004 (CB 1065). This involved Neil Ruut and Associates for breaches of the Security Industry Award relating to underpayment of an employee of $14,831.00. The business was conducted by Neil Ruut (CB 1069). The Commission ordered the business to pay the employee $14,831.00 and left the claim for unpaid superannuation contributions for a later hearing.
The fourth matter was T11647 of 2004 (CB 1071). This matter involved Neil Ruut and Associates relating again to the underpayment of wages to, and non payment of superannuation contributions for, an employee, totalling $17,019.00. Only $9,000.00 or $10,000.00 was paid and Mr Ruut was then fined by a Magistrates Court for not complying with the order (T35, l.23).
The Australian Tax Office (“ATO”) lodged a Proof of Debt against Security Resources Pty Ltd for unpaid SGC Superannuation for 1997 and 1999 of $35,792.00. Unpaid superannuation contributions to
30 June 2000 were $56,731.00 (CB 2107 at [3.2]).
The Australian Securities and Investment Commissions (“ASIC”) issued a media release on 18 November 1998 stating that ASIC had banned Neil Stewart Ruut from being involved in company management for four years ending 9 November 2002 (CB 1034).
ASIC stated:
·That Mr Ruut had managed ESTI Holdings Pty Ltd and Direct Security (Tasmania) Pty Ltd.
·That ESTI Holdings failure left debts of about $195,000.00 and Direct Security’s deficiencies were approximately $170,000.00.
·31 unsecured creditors of Direct Security were owed $165,000.00 and 43 employees lost unpaid wages and other payments.
·That the companies had $61,000.00 in superannuation guarantee payments outstanding, and $179,000.00 owing to the ATO.
Contrition
The second and third respondents plead contrition, saying that they have never denied the breaches and have cooperated in the resolution of the matter since the underpayments were discovered. However the second respondent at least is preparing to “walk away” (post) from the matter leaving $134,031.00 owing to the employees.
The applicant was alerted to underpayments when it received a letter from a disaffected employee of the first respondent in October 2007 (T53, l.35). The second respondent was alerted on 14 November 2007 (CB 1075). The Court infers that the third respondent as the other shareholder would have been made aware of this. This situation occurred because the business of the first respondent was failing. There is no evidence that the second and third respondents gave employee entitlements a high priority. Instead they both entered into a lease agreement on behalf of the first respondent for a relatively expensive motor vehicle for the second respondent.
A picture emerges of a failing business and regular underpayments of employees in circumstances where past cases remove the ability to claim that the underpayments were accidental or made without knowing of the care required. There is no proof that the underpayments were deliberate, but they were at the very least careless; they appear to have occurred wantonly. Mr Zeeman submits that the breaches should be considered as deliberate, as the second and third respondents had been the subject of the proceedings detailed above. Later, the second respondent was disqualified from being a company director for four years. The decisions referred to were reached before the alleged breaches in the current case occurred (between 27 March 2006 and
9 June 2008).
The Court accepts the above history as relevant in this matter. The second and third respondents are taken to have been put on notice by the previous proceedings of the care required in calculating the entitlements of employees. An employee enters into a contract of employment to give their labour and expertise – they are entitled to be paid correctly in return.
Deliberate, or in this case at least careless, underpayment of entitlements will not be condoned. It is too late for the second and third respondents to plead that the contraventions were accidental, or that they were not aware of the need for strict compliance with the statutory entitlements of employees. The second and third respondents say they are now in parlous financial circumstances and cannot pay the amounts outstanding or significant penalties. The second and third respondents have brought such repercussions on themselves.
Principles in respect to Penalty
The Court accepts the submissions by Mr Zeeman in relation to assessing penalty as follows:
a)The approach to the assessment of penalties is well settled. In Ikin v Crown Trading Group Pty Ltd & Anor [2009] FMCA 1187 Burchardt FM recently described the approach in the following way:
“The authorities in relation to the approach the Court should take in matters such as these are now, in my respectful view, well established. The cases were considered by Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14. Subject only to the caution expressed by Buchanan J in Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] 165 FCR 560 at [91] to the effect that the matters identified by Tracey J should not be treated as a rigid catalogue of matters for attention, it is now accepted that Tracey J’s approach is correct in the sense that it indicates a number of relevant considerations. I also note the observations of Gyles J in A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union [2008] FCA 466 at [6] where his Honour said:
“There are no mandatory statutory criteria and it is wrong to regard factors seen as relevant by one court as statutory criteria. Indeed, lists of factors can confuse an essentially straightforward task and lead to over-elaborate reasoning.”
b)The nature and extent of the conduct is relevant
. Here there were underpayments to 47 employees totalling $170,599.78. The breaches occurred between 27 March 2006 and mid 2008. The applicant notified the second respondent of possible breaches as early as 9 October 2007 (CB 1005). There were further notifications on 17 November 2007, 15 April 2008 and
30 April 2008. The third respondent was sent formal notification on 4 July 2008 (CB 1085).
c)Previous similar conduct is relevant. The history of the second and third respondent in the security industry is set out above.
d)Contrition is relevant. The Court has considered this above and makes further comment below where the Court does not except that the second and third respondents have shown sincere patience for their actions.
e)The size of the business is relevant. The business was such that the second and third respondents were the “controlling minds” of it. The evidence shows that the second and third respondents had direct involvement in the calculations that lead to the underpayments. They are equally responsible for the contraventions.
f)It is relevant to consider whether the contraventions were deliberate? The Court has considered this above and finds the conduct here has been wantonly careless.
g)Whether senior management was involved in the breaches? Clearly the second and third respondents were the “controlling minds” of the first respondent and involved in all the breaches.
h)Whether corrective action has been taken? $36,568.00 of the underpayments has been paid, leaving a shortfall of $134,031.00. Mr Ruut gave evidence that after the first respondent transfers the business to a company in Queensland he will be “walking away” (T24, l.26). Ms Duvnjak agreed that her clients are escaping the liability to pay the shortfall to the employees (T58, l.16). This shows that the second and third respondents have no intention of making good the shortfall.
i)The need for specific and general deterrence. The Court accepts that having regard to the history of the second and third respondents they are unlikely to be deterred from further breaches unless a significant penalty is imposed on each of them. Appropriate and significant specific deterrence is required.
j)The financial circumstances of the second and third respondent. The Court deals with this issue below.
k)Whether the breaches arose out of one course of conduct? The Court deals with this issue below.
l)The totality principle. The Court deals with this issue below.
Ms Duvnjak made the following submissions as to penalty
The third respondent gave evidence that she became a director of the first respondent on 16 October 2006 and was primarily responsible with respect to the calculation of wages of employees of the first respondent (CB 2266 cl.24). She believed that the employees had a fixed hourly rate greater than that provided in the Security Industry NAPSA. She believed the rate was in lieu of overtime and penalty entitlements. The second respondent assisted in the calculation of the entitlements (CB 2267 para [25]; T48). The third respondent accepts now that the payment of a fixed hourly rate was invalid and that the first respondent was bound to pay it’s employees:
·For the period prior to 27 March 2007 pursuant to the Security Industry Award
·From 27 March 2007 to 23 December 2007 pursuant to the Security Industry NAPSA
·From 24 December 2007 pursuant to the ECA.
Ms Duvnjak referred to the factors in Mason v Harrington Corporation Pty Ltd [2007] FMCA 7 as relevant in determining penalties being as follows:
The circumstances in which conduct took place.
In the present case the most relevant circumstance is that businesses operated by the second and third respondents have had extensive involvement in breaching employee entitlements in the security industry. The second respondent especially should have been acutely aware of the need for strict compliance with statutory entitlements. He seems to learn nothing from legal proceedings involving him. The third respondent, as the wife of the second respondent, and director, shareholder and company secretary of the first respondent should also have been equally aware of the need for strict compliance.
The nature and extent of any loss or damage.
Employees of the first respondent have lost income as a result of the actions of the second and third respondents. The amounts still owing to the employees is set out in the affidavit of the third respondent sworn on 20 August 2009 as follows (CB 2265):
| Employee | Payment Start Date | Last Payment Date | Back Pay Paid to Date | Amount Outstanding |
| Jason Arnol | 29/9/08 | 17/8/09 | $2,350.00 | $11,117.99 |
| Andrew Baker | 22/10/07 | 12/11/07 | $2,245.00 | $2,187.59 |
| Ryan Gregson | 17/8/ | 17/8/09 | $50.00 | $1,957.75 |
| Benjamin Hay | 29/9/08 | 17/8/09 | $2,350.00 | $17,904.79 |
| Rodney Lockley | 29/9/08 | 17/8/09 | $2,300.00 | $17,038.79 |
| William Lockley | 29/9/08 | 17/8/09 | $2,350.00 | $22,262.55 |
| Piotr Marciniak | 29/9/08 | 17/8/09 | $3,100.00 | $13,093.04 |
| Ewan Millar | 29/9/08 | 10/8/09 | $2,350.00 | $17,067.42 |
| Alexander Radovanovic | 29/9/08 | 17/8/09 | $1,925.00 | $12,693.42 |
| Julian Riza | 1/6/09 | 10/8/09 | $650.00 | $4,462.16 |
| Robert Vlaskovac | 17/8/09 | 17/8/09 | $50.00 | $11,337.09 |
| Les Young | 27/10/08 | 17/8/09 | $2,150.00 | $3,622.42 |
The third respondent deposes that the first respondent had repaid a total of $26,418.24 to 30 August 2009. Therefore this must mean that at that date $144,181.54 was outstanding. The evidence at the hearing is that $36,568.00 has been repaid, which leaves a balance outstanding of $134,031.00. The first respondent’s liabilities exceed its assets; Therefore any recompense from that source is unlikely. A thread of similarity appears in the second and third respondent’s activities going back to at least 1995 with employees engaged in businesses associated with them being underpaid and losing money. Ms Duvnjak submits that the second and third respondents will not be paying the $134,031.00 as that is a liability of the first respondent.
Similar previous conduct.
The second and third respondents have each been involved in similar previous conduct.
Whether the breaches are distinct or arose out of the one course of conduct.
The Court refers to s.719(2) of the WRA. Ms Duvnjak conceded at the hearing that there were 15 separate breaches, that was reduced to 14 breaches in her submissions on the SCC.
The size of the company.
The first respondent had 47 employees and modest profits. The second and third respondents held all 12 shares between them. They, as the only directors of the company were jointly the “controlling minds” of the first respondent. The third respondent was the company secretary.
Were the breaches deliberate?
Given the history of proceedings against businesses involving the second and third respondents, the Court finds it hard to accept that the underpayments were accidental or arose from a misunderstanding of the relevant entitlements. Also, it is hard to accept that the second and third respondents were merely careless in calculating employee entitlements. The appropriate description is that the second and third respondents “had no regard to whether the calculations gave the employees their correct entitlements.” That is not a proper standard of conduct for any employer. It is wanton, and close to deliberate misconduct.
Involvement of senior management.
The second and third respondents were the senior management of the first respondent. They were not inexperienced; indeed they have extensive experience in the industry, and in underpaying employees.
Contrition
On analysis, when the second and third respondents were “caught again” they may have decided to cooperate in the knowledge gained from previous cases that this may help their cause. The Court gives the cooperation little weight. Contrition means “sincere penitence” (Macquarie Dictionary) which the Court finds an inapt description of the conduct of the second and third respondents. They want to “walk away” from the underpayments resulting from their activities.
Deterrence
The Court adopts the statement of Justice Finklestein in Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 that “for a penalty to have the desired effect, it must be imposed at a meaningful level.” As in Mason v Harrington (supra) the Court has reached the view that this is a case that calls for strong specific deterrence and for general deterrence. Previous proceedings involving the second and third respondent have not deterred them. Merely ordering them to pay entitlements underpaid had not deterred them. However any deterrent element in the penalties must not be oppressive or crushing.
It is relevant that the second and third respondents as the holders of all the shares in the first respondent, have had the benefit of the $170,599.78 (now $134,031.00) underpaid to the employees. The latter is a relevant figure to consider when determining if the total penalty is oppressive or crushing.
Total penalty
a)The totality principle requires application in two separate ways. First, to the extent that two or more contraventions have common elements, the wrongdoer should not be penalised more than once for the same conduct. Consequently the penalties imposed by the Court should be an appropriate response to what the wrongdoer did (Law Institute Journal November 2008 re: Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 per Graham J at [46] referring to the principle enunciated by McHugh, Hayne and Cullinan JJ in Pearce v The Queen [1998] HCA 57; 194 CLR 610 at [40] that:
Tto the extent to which two offences of which an offender stands convicted contain common elements, it would be wrong to punish that offender twice for the commission of the elements that are common…the punishment to be exacted should reflect what an offender has done; it should not be affected by the way in which the boundaries of the particular offences are drawn. Often those boundaries will be drawn in a way that means that offences overlap. To punish an offender twice if conduct falls in that area of overlap would be to punish offenders according to the accidents of legislative history rather than according to their just deserts.”
The Court understands that to be saying that if prescriptions of offences overlap so that they define two or more offences for the same conduct, the offenders should be penalised only once for that conduct. The decision does not stand for the proposition that if an offender commits the same offence twice or more against the same person, or a number of times against a number of persons the offender should necessarily only be penalised once.
b)The Court will then consider an appropriate penalty to impose in respect of each course of conduct, having regard to all the circumstances of the case.
c)Next, having fixed an appropriate penalty for each course of conduct, the Court will take a final look at the aggregate penalty to determine whether it is an appropriate response to the course of conduct that has led to the breaches and is not oppressive or crushing. This is known as the “instinctive synthesis test.” Australian Ophthalmic Supplies (supra per Gray J at [23], per Graham J at [71], per Buchanan J at [102]).
After determining an appropriate penalty for specific contraventions the Court is required to review the total of the penalties and consider whether the aggregate is just and appropriate Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (2006) ATPR 42 per Goldberg J at [82-83].
The factors listed in Mason v Harrington (supra) and Kelly v Fitzgerald (supra) “can be useful providing they do not become transformed into a rigid catalogue of matters for attention.” At the end of the day the task of the Court is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions have occurred, and the need to sustain public confidence in the statutory regime which imposes the obligations Australian Ophthalmic Supplies (supra per Buchanan J at [91]). Here the Court regards the amount of underpayments outstanding to be a relevant factor.
A Court should discuss how it regarded the contraventions in the present case as compared to a worst possible case Ibid [110].
Ms Duvnjak conceded that there are 15 specific breaches (T60, l.9) later reduced to 14. She referred to the decision in Klousia v TKM Investments Pty Ltd & Anor [2009] FMCA 208 at [64-75] in relation to penalties for multiple breaches.
As in Klousia there is no evidence in this case that the breaches of each applicable provision arose from one identifiable decision.
Applicant’s submissions as to Penalty
Mr Zeeman tendered the applicant’s written submissions as to penalty which were marked as Exhibit A5.
Mr Zeeman submits that:
“there is a need for specific and general deterrence based on the repeated involvement of the second and third respondents in breaches of workplace laws, and that it can be inferred that they will continue to offend unless a significant penalty is imposed.”
The Court accepts that submission.
As to general deterrence, Mr Zeeman submits that there is a need to ensure that employers comply with minimum standards. The Court accepts that submission.
Mr Zeeman referred to the following decisions:
At paragraph 30 of Workplace Ombudsman v Saya Cleaning Pty Ltd & Anor [2009] FMCA 38, Federal Magistrate Simpson summarised the law in respect of the effect of size and financial circumstances of a respondent on determining penalty:
“The first respondent is a small company and, I infer, has very few if any assets. However Justice Tracey said in Kelly v Fitzpatrick (supra):
“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.”
In Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at paras. 27 to 29 it was decided:
“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 a Court’s consideration of penalty.”
Notwithstanding financial hardship that an employer may be experiencing in Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306; 3 FCR 503, 508 Keely J decided:
“In this connection it is important that the respondent – and other employers bound by the award or by other awards under the Act – understand the importance of complying with an award and it follows that any decision taken by them which is regarded as affecting their obligations to comply with particular provisions of the award or the award generally should only be taken after careful consideration. They must not be left under the impression that in times of financial difficulty they can breach an award made under the Act either with impunity or in the belief that no substantial penalty will be imposed in respect of a breach found by a court to have been committed.”
In PKIU and Others v Vista Paper Products Pty Ltd and Another (1994) 127 ALR 673 Wilcox CJ, in penalising both a company in receivership and its bankrupt controlling director said:
“While this evidence suggests that both Vista and
Mr McNamee may have difficulty in paying penalties, I do not think I should allow it to deflect me from imposing whatever penalties are otherwise appropriate.”
Driver FM decided in Cotis v MacPherson [2007] FMCA 2060 [12]; FMCA 2060; (2007) 169 IR 30:
“It is, in my view, important to make the point that employers should not and cannot regard insolvency, either personal or corporate, as a refuge from their responsibilities under the Workplace Relations Act.”
The Court finds the above statements of the law to be relevant here.
Notwithstanding the financial position of the second and third respondents the Court considers the penalty to be imposed to be appropriate.
Mr Zeeman submits that “the state of health of the second respondent has little or no relevance to the question of penalty.” The Court agrees.
Mr Zeeman submits, and the Court accepts that “for the purposes of s.719(2) of the WRA:
i)Where breaches of an applicable provision arise out of one identifiable decision, the breaches can be deemed to have arisen out the one course of conduct, and
ii)Where one identifiable decision has led to the breach of an applicable provision in respect of two or more employees, those breaches can be deemed to constitute a single breach of the applicable provision. Mason v Harrington (supra) at [14].
The Court accepts Mr Zeeman’s submission that “the employees here were engaged at different times and on various flat hourly rates which changed from time to time.” (See SCC).
The Court accepts the submission by Mr Zeeman that in the absence of identifiable decisions relating to two or more employees each provision breached in respect of an employee is one course of conduct, irrespective of how many times each provision was breached, Inspector Trundle v M & K Angelopoulos Pty Ltd (supra) at [28] and [30].
The Court finds that there were at least 47 different breaches arising out of employing the employees on different dates (Table 3 attached to SCC). Mr Zeeman submits that there are 248 separate breaches
(pages 2, 5 and 6 attached to the SCC). The Court has reduced this to 148 separate courses of conduct and breaches.
Because of the history of previous proceedings involving the second and third respondents the Court finds their conduct as only slightly less serious than deliberate. The breaches are not by themselves the worst that may occur, however, overall, the conduct is very serious and calls for an appropriate total penalty.
The Court has taken into account, but rejects, the explanation by the third respondent that she thought she was complying with prescribed entitlements by calculating and paying flat hourly rates. Having regard to the circumstances here and the history of past cases, she must have been aware of the need for strict compliance and utmost care. The second respondent was also aware of those needs.
Having regard to the circumstances, including the underpayments of significant income to the employees, and the loss suffered by many of them, the Court finds the contraventions to be very serious. However it does not assess the contraventions as being the worst possible; the contraventions were not deliberate, although very close to it; some of the contraventions have been rectified. Some of the underpayments were over $20,000.00, some were only a few dollars
(Amended Annexure VV). The amount of underpayment does not in itself determine the seriousness of a contravention. The fact that here some involved a few dollars only does not mean that overall the conduct was less serious. The Court finds it appropriate to apply an average penalty.
The maximum penalty for each contravention is $6,600.00. The Court determines that the appropriate penalty for each course of action is $925.00. That means a total joint penalty of $136,900.00.
The Court considers that total penalty to be just and appropriate and not oppressive and crushing having regard to the previous conduct of the second and third respondents and to the fact that the second and third respondents jointly have had the benefit of the moneys underpaid or withheld. The penalty is appropriate to the overall conduct of the second and third respondents.
That Court finds that the second respondent had more involvement in the previous cases than the third respondent and equal involvement in all the conduct leading to the underpayments in this case.
The Court therefore imposes a total penalty of $136,900.00 on the second and third respondents jointly and severally.
The Court orders that the second and third respondents pay penalties totalling $136,900.00 within 60 days.
As the hearing was confined to the issue of penalties, no order is made under s.719(6) of the WRA to pay employees amounts underpaid. That claim was not pressed at the hearing which proceeded against the second and third respondents only.
The applicant asked that, after determination of penalties the Court fix a date for hearing submissions as to whom the penalties are to be paid. That hearing will occur on 28 April 2010 at 10 am. The Court will also hear on that day the applicant’s application for interest and for costs.
I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of Turner FM
Associate: Erin Firns
Date: 13 April 2010
ABBREVIATIONS
·ASIC – Australian Securities and Investments Commission
·ATO – Australian Taxation Office
·CB – Court Book
·ECA – SPT Employee Collective Agreement
·FWO – Fair Work Ombudsman
·Security Industry NAPSA – Security Industry National Agreement Preserving State Award
·SCC – Schedule as to Course of Conduct
·SOAF – Statement of Agreed Facts
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