Fair Work Ombudsman v Skyter Trade Pty Ltd

[2018] FCCA 1483

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v SKYTER TRADE PTY LTD & ANOR [2018] FCCA 1483

Catchwords:
INDUSTRIAL LAW – Commonwealth – compliance and enforcement – civil remedies – pecuniary penalty orders – assessing penalty – deterrence.

INDUSTRIAL LAW – Commonwealth – compliance and enforcement – civil remedies – pecuniary penalty orders – amount of penalty – course of conduct.

INDUSTRIAL LAW – Commonwealth – compliance and enforcement – civil remedies – pecuniary penalty orders – amount of penalty – totality and proportionality.

Legislation:

Crimes Act 1914 (Cth), s.4AA

Fair Work Act 2009 (Cth), ss.44(1), 50, 125(1), 357(1), 535(1), 539(2), 546(2)(a), 550(1), 557(1), 712(3)

Fair Work Regulations 2009 (Cth), regs.3.32, 3.33, 3.34, 3.44(6), 3.44(1)

Cases cited:

Fair Work Ombudsman v Amritsaria Four Pty Ltd [2016] FCCA 968

Fair Work Ombudsman v Civic National Pty Ltd [2016] FCCA 2459
Fair Work Ombudsman v ECFF Pty Ltd [2014] FCCA 2996
Fair Work Ombudsman v EJ Group International Pty Ltd [2017] FCCA 997
Fair Work Ombudsman v Kang [2017] FCCA 1010
Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557
Fair Work Ombudsman v Mai Pty Ltd [2016] FCCA 1481
Fair Work Ombudsman v Mamak Pty Ltd [2016] FCCA 2104
Fair Work Ombudsman v Oz Staff Career Services Pty Ltd [2016] FCCA 105
Fair Work Ombudsman v Rubee Enterprises Pty Ltd [2016] FCCA 3456
Fair Work Ombudsman v Shaik [2016] FCCA 2345
Fair Work Ombudsman v Singh [2016] FCCA 1335
Fair Work Ombudsman v Ultra Tune Australia Ltd (2012) 225 IR 326
Fair Work Ombudsman v Little Vienna Pty Ltd [2017] FCCA 916
Markarian v The Queen (2005) 228 CLR 351

Applicant: FAIR WORK OMBUDSMAN

First Respondent: SKYTER TRADE PTY LTD

Second Respondent: DONG ZHAO

File Number: BRG 492 of 2017

Judgment of: Judge Jarrett

Hearing date: 26 October 2017

Date of Last Submission: 26 October 2017

Delivered at: Brisbane

Delivered on: 8 June 2018

REPRESENTATION

Counsel for the Applicant: Mr Tan

Solicitors for the Applicant: Office of the Fair Work Ombudsman

Counsel for the Respondents: Mr Leung

Solicitors for the Respondents: Peak Lawyers

ORDERS

THE COURT DECLARES THAT:

(1)The first respondent contravened the following civil remedy provisions of the Fair Work Act 2009 and the Fair Work Regulations 2009:

(a)s.357, by representing to Mr Humit Vijan that the contract of employment under which he performed work for the first respondent was a contract for services under which he performed work as an independent contractor;

(b)s.50, by failing to pay Mr Humit Vijan his minimum hourly rate in accordance with clause 9 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(c)s.50, by failing to pay Mr Humit Vijan the per delivery amount in accordance with clause 9 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(d)s.50, by failing to pay overtime rates to Mr Humit Vijan in accordance with clause 14 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(e)s.50, by failing to pay public holiday penalty rates to Mr Humit Vijan in accordance with clause 18.5 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(f)s.50, by failing to pay superannuation contributions for Mr Humit Vijan in accordance with clause 15 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(g)s.50, by failing to pay the uniform allowance to Mr Humit Vijan in accordance with clause 35.3 of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(h)s.44, by failing to provide Mr Humit Vijan with a Fair Work Information Statement under s.125 of the Fair Work Act 2009;

(i)s.536(1), by failing to give pay slips to Mr Humit Vijan within one (1) working day of paying him in relation to the performance of work;

(j)s.535(1), by failing to make, and keep for seven (7) years, employee records of the kind prescribed by the Fair Work Regulations in respect of Mr Humit Vijan;

(k)reg.3.44(1), by keeping records that were false or misleading;

(l)reg.3.44(6), by making use of false or misleading records; and

(m)s.712, by failing to comply with a Notice to Produce Records or Documents.

(2)The second respondent was involved, within the meaning of s.550(1) of the Fair Work Act 2009, in each of the contraventions committed by the first respondent as set out in declaration 1 above.

THE COURT ORDERS THAT:

(3)Pursuant to s.546(1) of the Fair Work Act 2009 the first respondent pay a pecuniary penalty of $180,000 in respect of the contraventions set out in declaration 1 above; and

(4)Pursuant to s.546(1) of the Fair Work Act 2009 the second respondent pay a pecuniary penalty of $36,700 in respect of the contraventions set out in declaration 2 above.

(5)The first and second respondents to pay their respective pecuniary penalty amounts to the Commonwealth within twenty-eight (28) days of the Court’s orders.

(6)The first respondent, at its expense, engage a third party with qualifications in accounting or workplace relations to undertake an audit of its compliance with the Fair Work Act 2009 and the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014 on the following terms (first audit);

(a)the audit period will be the period commencing 1 November 2015 and ending 31 May 2016 (first audit period);

(b)the audit is to be completed within two (2) months of the date of these orders (first audit completion date);

(c)the first audit will apply to all employee and persons otherwise engaged to perform work for the first respondent at any time during the first audit period;

(d)according to each employee’s classification of work, category of assessment period and hours of work worked during the first audit period, the first audit will assess the first respondent’s compliance with the following obligations:

(i)wages and work related entitlements under the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(ii)record-keeping obligations under the of the Fair Work Act 2009 and Fair Work Regulations; and

(iii)pay slip requirements under the of the Fair Work Act 2009 and Fair Work Regulations; and

(e)within thirty (30) days of the first audit completion date, the first respondent will provide the applicant:

(i)a copy of the audit report which will include a statement of methodology used in the audit; and

(ii)written details of any contraventions identified in the first audit, the steps the first respondent will take to rectify any identified contravention(s) and by when the rectification will occur.

(7)The first respondent, at its expense, engage a third party with qualifications in accounting or workplace relations to undertake an audit of its compliance with the Fair Work Act 2009 and the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014 on the following terms (second audit):

(a)the audit period will be the period commencing one (1) month after the date of these orders and ending six (6) months after the commencement of the second audit (second audit period);

(b)the audit is to be completed within two (2) months of the completion of the second audit period (second audit completion date);

(c)the audit will apply to all employees and persons otherwise engaged to perform work for the first respondent at any time during the second audit period;

(d)according to each employees classification of work, category of assessment period and hours of work worked during the second audit period, the audit will assess the first respondent’s compliance with the following obligations:

(i)wages and work related entitlements under the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(ii)record-keeping obligations under the of the Fair Work Act 2009 and Fair Work Regulations; and

(iii)pay slip requirements under the of the Fair Work Act 2009 and Fair Work Regulations; and

(e)within thirty (30) days of the second audit completion date, the first respondent will provide the applicant:

(i)a copy of the audit report which will include a statement of methodology used in the audit; and

(ii)written details of any contraventions identified in the audit, the steps the first respondent will take to rectify any identified contravention(s) and by when the rectification will occur.

(8)The first respondent, within thirty (30) days of this order, display a notice on the premises of the business that can easily be viewed by employees (Workplace Notice) on the following terms:

(a)The Workplace Notice must contain:

(i)the minimum rates of pay under the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014 including the minimum hourly rate, overtime, Saturday, Sunday and public holiday penalty rates, and uniform allowance;

(ii)information about where employees can find a copy of the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014;

(iii)information to the effect that it is unlawful for an employer to make a representation to employees that they are independent contractors;

(iv)information on who to contact if the employees, have any complaints in relation to their employment; and

(v)information on how to contact the Fair Work Ombudsman.

(b)the Workplace Notice must be in a form approved by the applicant at least seven (7) days prior to the first respondent displaying the Workplace Notice;

(c)the first respondent will provide proof of the display of the Workplace Notice to the applicant within fourteen (14) days of the Workplace Notice being approved by the applicant; and

(d)the Workplace Notice must be displayed continuously for a period of one (1) year.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 492 of 2017

FAIR WORK OMBUDSMAN

Applicant

And

SKYTER TRADE PTY LTD

First Respondent

DONG ZHAO

Second Respondent

REASONS FOR JUDGMENT

As Corrected

1.The first respondent operates a Pizza Hut store in Upper Coomera, Queensland under a franchise agreement with Yum! Restaurants Australia Pty Ltd.   Between 1 November, 2015 and 31 May, 2016 it employed Mr Humit Vijan to work in its store and as a pizza delivery driver. 

2.Over that period, the first respondent underpaid Mr Vijan a total of $6,248.41.  The first respondent admits that in so doing, it contravened the Fair Work Act 2009 (Cth) (“the Fair Work Act”) in a number of respects and is liable to the imposition of pecuniary penalties in respect of those contraventions.

3.During the period over which the contraventions occurred the second respondent was the sole director and shareholder of the first respondent. He admits that he was, for the purposes of s.550(1) of the Fair Work Act, “involved in” all of the first respondent’s contraventions and is liable to the imposition of pecuniary penalties along with the first respondent. 


4.The parties have caused a Statement of Agreed Facts to be filed on 21 August, 2017.  The parties agree on the making and form of declarations about the contraventions and orders for the imposition of penalties.  The matter to be decided is the amount of the penalties to be imposed on each respondent and that determination is to be made against the following facts derived from the statement of agreed facts and the evidence filed by the applicant in the proceedings.  The respondents filed no evidence in the proceedings, although purported to make submissions based upon facts not established in the evidence.

5.According to Mr Vijan’s evidence, after replying to an advertisement by the first respondent seeking delivery drivers, on or about 22 November, 2015 he went to the first respondent’s store at Upper Coomera for an interview and work trial.  He says that at the relevant time he was supporting his wife who was studying.  That is consistent, to some extent, with the second respondent’s submissions that Mr Vijan came to see the second respondent in November, 2015 and told him “his sad story that he recently came to Australia and had no job and was desperate to earn money to feed his family”.  Whilst the second respondent says that he was at the time in no need for extra staff, the second respondent says that Mr Vijan kept begging him for work. 

6.Mr Vijan was interviewed by the second respondent who eventually offered him work.  The second respondent told Mr Vijan that he would be paid $12 per hour and $2 per delivery.  Mr Vijan accepted what was offered.

7.He commenced on 23 November, 2015.  He worked in the store for his first shift.  He almost immediately negotiated an increase in his pay with the second respondent to $15 per hour because the store seemed very busy.  In that regard, Mr Vijan swears in his affidavit filed on 19 September, 2017:

10.    I do not recall the rest of the conversation entirely as we negotiated my rate of pay back and forth, but I recall that we settled on $15 per hour with 55 hours per week.  At that time, I thought that being allocated more hours per week would compensate me for the low rate of pay.  I recall the conversation included words to the following effect:

Dong: Ok, I’ll increase your pay from $12 to $15.  But in January I will reduce it by a dollar or two because it won’t be busy then.

Me: We’ll see about that.  How will I be getting my pay? On TFN?

Dong: Why are you wanting your pay on TFN?

Me: That might help me get permanent residency if I want to apply.

Dong: Trust me, I’m a citizen.  That never helps anything.  It’s only going into the ATO’s pocket.  Neither in yours, neither in mine.

Me: I want to pay my taxes here.

Dong: Fine.  I’ve misplaced your TFN and ABN, can you send me both again.

8.The second respondent says that it was Mr Vijan who suggested working for lower wages as an independent contractor by producing his ABN.  I reject this submission.  There is no evidence to support it.  The evidence set out above ­– How will I be getting my pay? On TFN?­ ­– is more suggestive of Mr Vijan thinking he was an employee than an independent contractor. 

9.While Mr Vijan showed some awareness that he was being paid a low rate of pay and took steps to negotiate an increase in his rate of pay from $12 to $15 per hour, he mistakenly perceived that being given “more hours per week” was a legitimate bargaining tool and adequate compensation for a low, flat rate of pay.  The applicant submits that in light of all these individual circumstances, taken together, Mr Vijan was vulnerable to and subjected to, exploitation by the respondents.  The applicant submits that Mr Vijan was a low-skilled visa worker (having completed no more than a secondary education) with a non-English speaking background who had recently arrived in Australia and was looking for work to financially support himself and his wife in her studies.  However, I am not satisfied on the evidence that Mr Vijan was in fact a “vulnerable employee” whatever that might mean.  He had completed high school in India and whilst Hindi was his first language, he could speak English.  There is nothing in the evidence to suggest that his English language skills compromised his ability to communicate effectively with the second respondent.  Indeed, the conversation recorded in his affidavit of evidence in chief reveals that he had a more than competent command of English, was able to converse with the second respondent without any difficulty and most importantly, understood his rights to things such as breaks.  Moreover, the questions How will I be getting my pay? On TFN? indicate a level of understanding on Mr Vijan’s part about employment arrangements in Australia which is inconsistent with the notion that he did not know what was occurring in respect of his employment.  His willingness and ability to renegotiate his remuneration and his threat to resign his employment in the context of a discussion with the second respondent about his pay shows a level of assertiveness inconsistent with him being exploited, or being “vulnerable” in the way suggested by the applicant in her submissions. 

10.It is often submitted by the applicant in cases such as the present that the worker or workers concerned are vulnerable workers because they fall within a particular class of employees.  Often, they are said to be vulnerable simply because they are foreign nationals working in Australia pursuant to a visa performing unskilled work.  But as Lucev FM (as his Honour then was) said in Fair Work Ombudsman v Ultra Tune Australia Ltd (2012) 225 IR 326 at [14], it is not correct to simply assume that because an employee is a foreign national, he or she is unfamiliar with Australia’s labour practices, or more vulnerable to underpayment or exploitation than any other employee. Membership of a class of vulnerable workers might be relevant to fixing a penalty because it might represent an attempt by an employer to exploit a worker by employing that person because of perceived vulnerabilities. But unless there has been exploitation of the worker because of those qualities, that the worker is a member of a particular class of employees said to vulnerable will not be to the point.

11.In Fair Work Ombudsman v Amritsaria Four Pty Ltd [2016] FCCA 968 Judge Smith made a similar point:

59.    The applicant submitted, amongst other things, that the Court should take into account the extensive and sophisticated business arrangements of Mr Sarkaria and his experience as a business man, and the vulnerability of the two employees in question.  I deal with the first of these later in these reasons.

60.    The evidence of the vulnerability of the employees was sketchy.  In their complaints to the applicant, both Mr Yousaf and Mr Ahmed claimed that they were new to this country and jobless.  Mr Yousaf claimed that he had found it difficult to find a job.  I accept that this was the case and that this made them both vulnerable to exploitation.  However, I do not think that this goes very far.  Many employees are vulnerable to a certain extent and for different reasons: age, employment experience, financial needs, lack of control of record-keeping, and lack of knowledge of workplace rights.  As Lucev FM (as his Honour then was) said in Fair Work Ombudsman v Ultra Tune Australia Ltd (2012) 225 IR 326; [2012] FMCA 560 at 336 [14], one cannot simply assume that because an employee is a foreign national, he or she is unfamiliar with Australia’s labour practices, or more vulnerable to underpayment or exploitation than any other employee.

61.    In a sense, to give too much weight to such vulnerability (that is to say, at that level of generality) is to ignore the fact that the workplace laws are intended to protect employees to a certain extent.  There is an element of double-counting involved in the applicant’s submission to the contrary.  It may, of course, be different if the evidence were to have gone further.

12.That a particular employee might be a member of a class of workers said to be “vulnerable” to exploitation by an employer does not necessarily mean that as a matter of fact that employer did exploit the worker as alleged.  Whether that is so depends upon the evidence in the particular case at hand.  Workers who do not fit comfortably into a class of workers said to be “vulnerable” to exploitation can still be the subject of exploitation.

13.Moreover, to the extent that the applicant submits that Mr Vijan did not appreciate the differences between a tax file number and an Australian business number– he says that he thought that both were required to work in Australia – I reject that submission.  The evidence I have set out above is inconsistent with the proposition that Mr Vijan did not understand the difference.

14.Irrespective of what the respondents and Mr Vijan might have agreed at the time, the parties now agree that Mr Vijan performed the duties of a Customer Service Attendant Grade 3 pursuant to the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014.  The flat rate paid to Mr Vijan did not cover the minimum hourly rates and other allowances, including the “per delivery” allowance that was provided for by the Agreement.  The first respondent did not make any superannuation contributions on Mr Vijan’s behalf.  The underpayments, having regard to Mr Vijan’s entitlements under the Agreement are as follows:

Entitlement	Amount due	Paid	Underpayment
Minimum hourly rate	$14,328.35	$14,308.35	$19.54
Per delivery amount	$3,608.01	$0	$3,608.01
Overtime for first two hours	$1,285.43	$1,252.40	$33.03
Overtime after two hours	$2,025.41	$915.93	$1,109.48
Hours worked on public holidays	$2,767.33	$1,411.83	$1,355.50
Shift Allowance Two shifts per week	$3.32	$0	$3.32
Three or more shifts per week	$119.52	$0	$119.52
Total	$6,248.40

15.For the period of Mr Vijan’s employment from 1 November, 2015 to 31 May, 2016 he was underpaid a total of $6,248.40.

16.Initially, Mr Vijan was allocated shifts each week by text messages from the second respondent, but he was soon put on the store roster.  His shifts would change each week, but generally:

a) if he started working at 11am, he would finish at 11pm; and

b)if he started working at 4.30pm or 5pm, he would work until closing time, that is, about 11pm on weeknights and 12am on weekends.

17.In early 2016 the applicant was conducting what is described in the material as “Pizza Hut franchisee compliance activity”. On or about 12 February, 2016, Fair Work Inspector Anna Arnold sought information from the first respondent pursuant to the provisions of the Fair Work Act. There is no dispute that she was entitled to that information.

18.On 27 February, 2016 the respondents provided information to Inspector Arnold including, among other things, purported rosters of work for Mr Vijan.  However, the rosters were false.  The respondents admit that the second respondent created the rosters in response to the request for information and that they were false.  They admit that the creation and provision of these rosters to Inspector Arnold contravened regulations 3.44(1) and 3.44(6) of the Fair Work Regulations 2009 (Cth) (“the Fair Work Regulations”).

19.In May, 2016 Mr Vijan requested pay slips from the second respondent as proof of his income in order to obtain a lease for some accommodation.  In response, the second respondent provided tax invoices to Mr Vijan.

20.The applicant’s investigations revealed, and the respondents now admit, that during Mr Vijan’s employment the respondents did not, at any time:

a)provide pay slips to Mr Vijan;

b)remit income tax to the Australian Taxation Office in respect of Mr Vijan’s earnings; or

c)make superannuation contributions on behalf of Mr Vijan.

21.On 12 July, 2016 Inspector Arnold issued a Notice to Produce to the respondents pursuant to the provisions of the Fair Work Act. The notice required the production of various records by 3 August, 2016. Inspector Arnold also requested that the second respondent participate in a voluntary interview.

22.On 3 August, 2016, the respondents produced some records to Inspector Arnold in response to the notice. One of the documents was a payroll activity statement which showed superannuation of $1,773.53 as having been paid on behalf of Mr Vijan. Again, the records were false and the respondents now admit that the second respondent created those false records. They admit that the creation and provision of the false payroll activity statement to Inspector Arnold contravened regulations 3.44(1) and 3.44(6) of the Fair Work Regulations, respectively.

23.On 4 August, 2016 the respondents produced further records to Inspector Arnold in response to the notice to produce.  Inspector Arnold was dissatisfied with the first respondent’s response to the notice to produce.  On the same day Inspector Arnold issued to the first respondent a notice of failure to comply with the notice to produce she had previously issued.  The notice of failure to comply required a response by 11 August, 2016.

24.On 11 and 25 August, 2016 the respondents produced further records to Inspector Arnold in response to the notice to produce and the notice of failure to comply.

25.On 6 October, 2016 Inspector Arnold conducted a recorded interview with the second respondent.  During that interview, the second respondent made statements confirming that the rosters provided on 27 February, 2016 in respect of Mr Vijan were false.

26.On 7 November, 2016 the second respondent sent a ‘statement’ to Inspector Arnold to explain his conduct.


27.In November, 2015 the first respondent made a payment of $20.00 to Mr Vijan which was not specifically attributable to any entitlement or contravention.  In or around February, 2017 the first respondent rectified and paid the remaining balance of the total underpayment, namely $6,228.41, to Mr Vijan.

28.On 7 March, 2017 Mr Vijan resigned from his employment with the first respondent.  


The contraventions

29.The first series of contraventions to be identified are those arising out of the first respondent’s representations (made by the second respondent) to Mr Vijan that the contract under which he performed work was a contract for services whereby he performed work as an independent contractor.  Those representations are said to arise out of the following matters:

a)At, the commencement of his engagement, the second respondent, acting on behalf of the first respondent and within the scope of his actual or apparent authority, requested Mr Vijan to provide an Australian Business Number as a requirement for Mr Vijan to be remunerated for his work in the Business;

b)On or around 3 May, 2016 in response to a request from Mr Vijan for pay slips, the second respondent, acting on behalf of the first respondent and within the scope of his actual or apparent authority, provided to Mr Vijan documents entitled “Recipient Created Tax Invoices” (Tax Invoices);

c)the first respondent did not provide Mr Vijan with pay slips;

d)the first respondent did not remit income tax to the Australian Taxation Office in respect of the amounts paid to Mr Vijan for the work Mr Vijan performed for the first respondent;

e)the first respondent did not make superannuation contributions on behalf of Mr Vijan on the amounts paid by the first respondent to him for his work.

30.The applicant contends that there is one contravention of s.357(1) of the Fair Work Act. I accept that submission.

31.As I have set out above, the parties agree that Mr Vijan performed the duties of a Customer Service Attendant Grade 3 pursuant to the Pizza Hut Queensland – SDA Employee Relations Enterprise Agreement 2014.  He was not paid according to the terms of that Agreement and that resulted underpayment of the relevant minimum hourly rate, per delivery amount, overtime rates, penalty rates for work performed on public holidays, uniform allowance and superannuation contributions.

32.Each time there was a failure to pay one of those entitlements, there was a contravention of s.50 of the Fair Work Act. Subsection 557(1) of the Fair Work Act however, requires the Court to treat multiple contraventions of certain specified provisions of the Fair Work Act as a single contravention if the contraventions are committed by the same person and the contraventions arose out of a course of conduct by that person. Subsection 557(1) is engaged in respect of the underpayment contraventions insofar as there are multiple contraventions of the same obligation arising from the Agreement. But where there are separate and distinct obligations that arise under Agreement, s.557(1) of the Fair Work Act has no application.

33.Accordingly, there are six contraventions of s.50 of the Fair Work Act to be considered.

34.The first respondent was required by s.125(1) of the Fair Work Act to give Mr Vijan a Fair Work Information Statement before, or as soon as practicable after, the commencement of his work. It did not and thereby contravened s.44(1) of the Act.

35.The first respondent was required by s.536(1) of the Fair Work Act to give a pay slip to Mr Vijan within one working day of paying an amount to him in relation to the performance of his work. The first respondent did not give any pay slips to Mr Vijan during the relevant period. The first respondent thereby contravened s.536(1) of the Fair Work Act.

36.The applicant accepts that the respondents have the benefit of s.557(1) of the Fair Work Act in respect of some of the contraventions. The parties agree that the first respondent contravened s.535(1) of the Fair Work Act each time that it failed to comply with regs.3.32, 3.33 and 3.36 of the Fair Work Regulations. Those regulations deal with the various matters that must be specified in a record that is to be kept for the purposes of s.535(1) of the Act. That subsection requires an employer to make, and keep for 7 years, employee records of the kind prescribed by the Fair Work Regulations in relation to each of its employees. Here the contraventions of s.535(1) are numerous. But the respondents have the benefit of s.557(1) of the Fair Work Act which compels the Court to treat the numerous contraventions of that subsection as one contravention where the various contraventions arise out of a course of conduct. I am satisfied that the contraventions of s.535(1) that result from non-compliance with regs.3.32, 3.33 and 3.34 arise out of a course of conduct by the first respondent and therefore must be treated as one contravention.

37.The applicant argues that the remaining contraventions of s.535(1) that arise out of non-compliance with regs.3.44(1) and 3.44(6) of the Fair Work Regulations should be treated as four separate contraventions. Regulation 3.44(1) requires an employer to correct a record that the employer is required to keep under the Fair Work Act or the Fair Work Regulations as soon as the employer becomes aware that it contains an error. Regulation 3.44(6) requires that a person not make use of an entry in an employee record made and kept by an employer for the purposes of the Fair Work Regulations if the person does so knowing that the entry is false or misleading. The relevant contraventions are:

a)a contravention of reg.3.44(1) of the Fair Work Regulations, by making and therefore keeping the false and misleading rosters provided to Inspector Arnold on 27 February, 2016;

b)a contravention of reg.3.44(1) of the Fair Work Regulations, by making and therefore keeping the false and misleading payroll activity statement produced to Inspector Arnold on 3 August, 2016;

c)a contravention of reg.3.44(6) of the Fair Work Regulations, by providing and therefore making use of the false and misleading rosters; and

d)a contravention of reg.3.44(6) of the Fair Work Regulations, by producing and therefore making use of the false and misleading payroll activity statement.

38.It is difficult to see how these four contraventions arise out of a course of conduct by the first respondent. The creation of the false records occurred on separate occasions and the provision of them to the applicant’s inspector also occurred on separate occasions. The onus is upon the first respondent to prove the matters necessary to engage s.557(1) of the Fair Work Act. In my view it has not done so. 


39.The first respondent contravened s.712(3) of the Fair Work Act when it failed to comply with the notice to produce served upon it on 12 July, 2016.

40.The parties agree that the second respondent attracts accessorial liability for the first respondent’s contraventions pursuant to s.550(1) of the Fair Work Act.

41.The applicant submits, and I accept, that there are 15 contraventions by the respondents in respect of which they are liable to a penalty.  A summary of those contraventions is set out in the Appendix to these reasons.

Consideration

42.Sections 539(2) and 546(2)(a) of the Fair Work Act prescribe the maximum penalties that may be imposed by this Court for contraventions of civil penalty provisions by reference to “penalty units” within the meaning of s.4AA of the Crimes Act 1914 (Cth) (“the Crimes Act”). At the relevant time, s.4AA of the Crimes Act prescribed that a penalty unit was $180. 
The maximum penalties that may be imposed by the Court in respect of the relevant contraventions are also set out in the Appendix to these reasons.

43.There is no evidence as to why the first or second respondents attempted to treat Mr Vijan as an independent contractor rather than an employee.  That was clearly a choice that the respondents made because the only sworn evidence that I have that touches upon this issue is the evidence from Mr Vijan that I have extracted above.  He clearly enough raised the status of his engagement when he enquired about how he would be paid.

44.The payment of a flat rate led to the underpayment contraventions.  The one agreement to pay the flat rate is the common thread that runs through those contraventions.  It is appropriate, I think, to recognise that by imposing one penalty for the contravention relating to the failure to pay the delivery payment payable per delivery, for no other reason than that contravention accounts for more than one half of the total underpaid amount.  That penalty will be higher than would be the case if that was the only underpayment contravention because I propose to impose much smaller penalties for the other underpayment contraventions.  They all arose from the same course of conduct.

45.As the applicant submits, the failure by the respondents to make and keep any records in relation to Mr Vijan’s employment is a serious contravention, due no doubt to the attempt to treat his engagement as a contract for services.  The gravity is compounded by the respondents’ attempt to remedy the lack of records by creating knowingly false records specifically for the purposes of responding to the applicant’s compliance activity and subsequent investigation. 

46.The failure to provide pay slips is also a result of the respondents’ attempt to treat Mr Vijan’s engagement as a contract for services and the misrepresentations created by the respondents as set out above.  The conduct was exacerbated by the respondents’ conduct in deliberately providing falsified pay slips to the applicant on 27 February, 2016.  The second respondent admitted this conduct in a statement to Inspector Arnold when he said:

When FWO conducted its audit of Pizza Hut franchisees in February 2016 and asked for payslips of all employees I panicked as I did not have any for Mr Vijan because he was not officially on the payroll.  Instead, I took the payslips of a former employee and changed their name to Mr Vijan’s.  The times specified and pay stated on the payslips were totally unrelated to the hours Mr Vijan worked and the pay he had received.

47.The total underpayment­ – $6,228.41 – was rectified in February, 2017 by the first respondent so, in the end, there has been no loss to Mr Vijan.  However, as the applicant correctly observes, Mr Vijan was held out of his money for a not insubstantial period of time.  The amount he was underpaid was, no doubt, significant to Mr Vijan.  According to the evidence, he was the sole breadwinner for he and his wife and was responsible for their daily living expenses, rent, groceries and his wife’s tuition fees.  Partly as a result of being underpaid, he needed to borrow about $1,500 from his cousin in Melbourne and about $20,000 from his father in India, which he says was culturally shameful and embarrassing.  Mr Vijan’s evidence was that he was constantly anxious and stressed about their low bank balance and at times felt depressed and humiliated.  The evidence is that Mr Vijan was responsible for paying all the running costs for his car that he used for all deliveries he performed for the respondents, as well as paying for replacement tyres, registration and insurance. 

48.Whilst superficially cooperating with the applicant’s investigation, the respondents actively sought to mislead the investigator by creating and then providing false documents to her.  In the end, there were three conflicting iterations of rosters by the respondents provided on 27 February, 2016, 11 August, 2016 and 25 August, 2016.  I accept that the conflicting versions created confusion and hampered the Fair Work inspector’s ability to accurately determine the hours worked by Mr Vijan. 

49.Ultimately, the second respondent participated in a recorded interview with Inspector Arnold and admitted during his recorded interview with her that the rosters he had provided on 27 February, 2016 were false.  Consequently, Inspector Arnold formed the view that the rosters were not reliable nor an accurate record of the hours worked by Mr Vijan and instead she needed to rely on the sign in and sign out records as the most accurate record of Mr Vijan’s start and finish times for the purpose of calculating the entitlements owed to him.

50.However, the second respondent stated in his interview with Inspector Arnold that the delivery drivers would be waiting in the store at the start of their shift and might not sign in until the first delivery order was ready.  Therefore, the applicant submits, it is likely that the total underpayment of $6,248.41 is a conservative amount and that Mr Vijan may have actually worked and been not been properly paid for more hours than can be reliably calculated due to the poor record-keeping by the respondents. 

51.Whilst it is accurate to observe, I think, that the respondents did make admissions as to the relevant conduct and have made appropriate admissions in these proceedings by way of a statement of agreed facts, thus avoiding the need for a contested liability hearing, the second respondent’s conduct in creating false records on two occasions and providing them to the Fair Work Inspector compromises any discount for cooperation significantly.

52.There is no dispute that the second respondent was involved in each of the first respondent’s contraventions and that by reason of s.550 of the Fair Work Act, is taken to have contravened each of those provisions.

53.The second respondent is a tertiary educated young man with a Bachelor of Business with an Accountancy major and a Diploma in Business. After he purchased the Coomera Pizza Hut (using the first respondent as the ownership vehicle for the business) the second respondent attended training conducted by the franchisor. The training included education on the terms and conditions in the relevant Enterprise Agreement and employee entitlements under the Fair Work Act. The evidence shows that the content of the training included statements to the following effect:

a)“Fair Work Information Statement – All new employees to receive a copy”;

b)“Payslips – To be provided within 1 working day of their pay day”;

c)“What happens if I don’t give my employees pay slips?”;

d)“Record Keeping Obligations”;

e)“You must make super contributions if you employ a person under a verbal or written employment contract on a full-time, part-time or casual basis”;

f)“Enterprise agreements set out the employment conditions between an employee or group of employees and an employer...[m]ay override a modern award however the base rate of pay must be at least equal to the relevant Award”;

g)“We strongly advise you do not engage Contractors”; and

h)“Non-negotiables: not paying penalties, allowances or overtime; ...  failing to provide pay slips; ...  Sham Contracting”.

54.The applicant submits that despite attending this training, the second respondent flagrantly disregarded the basic entitlements of Mr Vijan under the Agreement and the Fair Work Act. Further, the second respondent deliberately attempted to engage Mr Vijan as an independent contractor despite clear advice from the franchisor to not engage in such arrangements. I accept that the respondents conduct was deliberate. 


55.To date, the respondents have not expressed any contrition for their conduct to Mr Vijan, the Court or the applicant.  However, by his written submissions the second respondent expresses some regret for his actions. 

56.The failure to keep proper records and to provide pay slips to employees is an insidious practice that is only aggravated by the creation and provision of false documents designed to conceal the employer’s wrong doing.  The failure to keep records and provide pay slips frustrates the ability of employees to hold an employer accountable for their minimum entitlements.  It frustrates the ability of the applicant and others to investigate, assess and claim employees’ entitlements and can result in significant public funds to be expended on Fair Work Inspectors undertaking extensive investigations.  Self-evidently, such time and resources would not have been necessary if the respondents had kept accurate records as required by law.

57.The applicant submits that the penalties to be imposed in this case should reflect the need for general deterrence in the “Pizza Hut franchise industry”.  The applicant points to evidence that in November, 2015 the applicant began an audit of Pizza Hut franchisees across Australia.  The evidence shows that in January, 2017 the applicant released a report which showed that:

a)that at least 24 of the 34 franchisees audited had engaged in contraventions of the Fair Work Act;

b)seven franchisees had engaged delivery drivers as independent contractors rather than employees in potential contravention of s.357 of the Fair Work Act; and

c)a total of $12,086 in underpayments was owed to employees, predominantly for underpayments of minimum hourly rates and allowances.

58.I accept that the penalty should reflect a general need to deter activity that contravenes the Fair Work Act for the reasons advanced by the applicant. However, there is a broader purpose to the penalties to be imposed upon the respondents in this case, particularly in relation to the contraventions concerning the creation and provision of false records. That is a practice which is not uncommon as the publicly available cases in this Court show: Fair Work Ombudsman v ECFF Pty Ltd [2014] FCCA 2996; Fair Work Ombudsman v Oz Staff Career Services Pty Ltd [2016] FCCA 105; Fair Work Ombudsman v Amritsaria Four Pty Ltd [2016] FCCA 968; Fair Work Ombudsman v Singh [2016] FCCA 1335; Fair Work Ombudsman v Mai Pty Ltd [2016] FCCA 1481; Fair Work Ombudsman v Mamak Pty Ltd [2016] FCCA 2104; Fair Work Ombudsman v Shaik [2016] FCCA 2345; Fair Work Ombudsman v Rubee Enterprises Pty Ltd [2016] FCCA 3456; Fair Work Ombudsman v Little Vienna Pty Ltd [2017] FCCA 916; Fair Work Ombudsman v EJ Group International Pty Ltd [2017] FCCA 997; Fair Work Ombudsman v Kang [2017] FCCA 1010; Fair Work Ombudsman v Civic National Pty Ltd [2016] FCCA 2459. Employers and those that control them ought to be under no misapprehension that the creation and provision of false records is a serious matter and will be treated seriously by the Court. There is a significant element of general deterrence to be brought to bear in fixing the relevant penalties in this case.

59.I also accept that there is also a need for specific deterrence given:

a)the flagrant conduct of the respondents in creating and providing false and misleading records to a Fair Work Inspector in the course of an investigation;

b)the deliberate disregard for basic employee entitlements and clear advice from the franchisor to not engage workers as independent contractors; and

c)the need to ensure this kind of conduct does not occur again.

60.By way of mitigation, the second respondent submits that he was born in China and came to Australia to study.  His studies were financed by his father.  His father operates his own business in China and wanted him to obtain a good education in Australia so he would have a promising career either in China or in Australia.  Whilst he was studying he developed an interest in the fast food industry.

61.He purchased the business relevant to the present application on the recommendation of a friend in 2013 for $550,000.00 using $320,000 borrowed from a Bank and $250,000 borrowed from his father.  The surplus borrowings were used to meet the costs of the purchase and other set-up capital requirements.

62.The second respondent says that he relied upon a Profit & Loss Projection that the franchisor gave him which showed a projected profit range of $100,000.00 per year for the first six years.

63.The second respondent submits that his major financial burden was and remains the payment of the principal and interest to his Bank and presently the Bank is owed some $207,790.00.  The business has suffered a loss each year since the first respondent purchased the business.  Whilst he has been able to keep up the loan repayments to the Bank, he has no funds to repay his father, something about which “he says he feels very guilty and heartbroken”.

64.He claims that the business has declined in profitability since 2014 because of:

a)“Pizza Hut Head Office’s policy to push all its shops into a “price war” by selling cheap pizzas below food cost; and

b)in 2017 additional competition coming from a new Dominos Pizza in the region.

65.The second respondent says that he now knows that it was wrong to pay Mr Vijan lower wages and that it was a “serious mistake” to do so.  The second respondent says that he is still young and “full of drive and really want to pick my life up again and start afresh so as not to let my father down”.

Penalties

66.The applicant recommends that the Court impose differing ranges of penalties for each of the contraventions, taking into account a 10% discount to acknowledge the respondents’ cooperation.   


67.The applicant submits that the most serious contraventions are the keeping and making use of false and misleading records.  I accept that submission.  However, I also take the view that the misrepresentation contravention is also serious because the attempt to engage the Mr Vijan as a contractor led to many of the other contraventions.  In my view, the underpayment contraventions and the failure to keep proper records and to provide pay slips all flow from the attempt to engage Mr Vijan as a contractor.  That contravention should, taking into account the matters set out above and the discount, attract a penalty of 65% of the maximum. 

68.The underpayment contraventions all resulted in Mr Vijan being short changed his pay, but that has been rectified.  The largest component of the underpayment related to his failure to receive his delivery allowance.  In respect of that contravention, a penalty of 65% is also appropriate, but a penalty of 20% in respect of the other underpayment contraventions recognises that all of the underpayment contraventions arose from a single course of conduct – namely the decision to pay Mr Vijan a flat rate of pay.  Imposing a lesser penalty in respect of the contraventions other than that relating to the per delivery allowance avoids the prospect that the first respondent is punished twice for the same offending.

69.Taking into account the matters set out above, the lack of any prior contraventions of the Fair Work Act and a 10% discount for the respondents’ cooperation, I fix the penalties for the contraventions related to creating and providing false documents at 65% of the maximum penalties for each of those contraventions. 


70.For the failure to provide a Fair Work Information Statement I accept the applicant’s submission that a penalty of 40% (after discount) of the maximum is appropriate.  For the failure to provide pay slips, a penalty of 50% (after discount) of the maximum is appropriate and a similar penalty is appropriate for failing to comply with the notice to produce.

71.The penalties for the second respondent ought to be assessed on the same basis and in the same percentage terms as that of the first respondent.

72.The total penalties are, therefore:

a)for the first respondent – $246,600; and

b)for the second respondent ­– $49,320. 

73.The final step in determining penalty is to consider the aggregate penalty and to determine whether it is an appropriate response to the contravening conduct.  In Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557, Marshall J after referring to Markarian v The Queen (2005) 228 CLR 351 noted at [49] that “the essential question to ask” in relation to the application of the totality principle is “whether the total penalties are appropriate having regard to the potential maximum penalties” for the relevant contraventions.

74.The total penalties set out in the appendix to these reasons result in sums for each respondent that are 40% of the maximum possible penalties. The applicant submits that higher penalties between 50% and 59% of the maximum penalties strikes an appropriate balance between the seriousness of the conduct and ensuring that the total penalties are not oppressive or crushing. However, I am not satisfied that either the penalties as fixed according to these reasons or those contended for by the applicant achieves that purpose. Overall, I am not satisfied that a penalty of $246,600 is an appropriate response to the offending involved in this case. The offending involved underpayment of a little over $6,200 over a period of seven months. It also involved the attempts to deceive as I have set out above. Nonetheless, there is no evidence that the respondents have been found to have contravened the Fair Work Act before and the application has been resolved quickly. Whilst the contraventions are serious and involve deliberate conduct on the part of the respondents, an appropriate response is a total penalty of $180,000 for the first respondent. A penalty of $36,700 is an appropriate response to the second respondent’s offending.

75.I make the orders set out at the commencement of these reasons.

I certify that the preceding seventy-five (75) paragraphs are a true copy of the reasons for judgment of Judge Jarrett

Date:  8 June 2018

Appendix

First Respondent

Provision(s) contravened	Description of contravention	Maximum penalty	Penalty (% of maximum) (incl. 10% discount)	Penalty
Section 357	Misrepresentation	$54,000	65%	$35,100
Section 50	Failure to pay minimum hourly rate	$54,000	20%	$10,800
Section 50	Failure to pay per delivery amount	$54,000	65%	$35,100
Section 50	Failure to pay overtime rates	$54,000	20%	$10,800
Section 50	Failure to pay public holiday rates	$54,000	20%	$10,800
Section 50	Failure to pay uniform allowance	$54,000	20%	$10,800
Section 50	Failure to pay superannuation	$54,000	20%	$10,800
Section 44	Failure to provide a Fair Work Information Statement	$54,000	40%	$21,600
Section 536	Failure to provide pay slips	$27,000	50%	$13,500
Section 535	Failure to make and keep records	$27,000	50%	$13,500
Regulation 3.44(1)	Keeping false or Misleading records (rosters provided on 27 February 2016)	$18,000	65%	$11,700
Regulation 3.44(1)	Keeping false or Misleading records (payroll activity statement produced on 3 August 2016)	$18,000	65%	$11,700
Regulation 3.44(6)	Making use of false or misleading records (rosters provided on 27 February 2016)	$18,000	65%	$11,700
Regulation 3.44(6)	Making use of false or misleading records (payroll activity statement produced on 3 August 2016)	$18,000	65%	$11,700
Section 712	Failure to comply with a Notice to Produce	$54,000	50%	$27,000
TOTAL	$612,000	$246,600

Second Respondent

Provision(s) contravened	Description of contravention	Maximum penalty	Penalty (% of maximum)	Penalty
Section 357	Misrepresentation	$10,800	65%	$7,020
Section 50	Failure to pay minimum hourly rate	$10,800	20%	$2,160
Section 50	Failure to pay per delivery amount	$10,800	65%	$7,020
Section 50	Failure to pay overtime rates	$10,800	20%	$2,160
Section 50	Failure to pay public holiday rates	$10,800	20%	$2,160
Section 50	Failure to pay uniform allowance	$10,800	20%	$2,160
Section 50	Failure to pay superannuation	$10,800	20%	$2,160
Section 44	Failure to provide a Fair Work Information Statement	$10,800	40%	$4,320
Section 536	Failure to provide pay slips	$5,400	50%	$2,700
Section 535	Failure to make and keep records	$5,400	50%	$2,700
Regulation 3.44(1)	Keeping false or Misleading records (rosters provided on 27 February 2016)	$3,600	65%	$2,340
Regulation 3.44(1)	Keeping false or Misleading records (payroll activity statement produced on 3 August 2016)	$3,600	65%	$2,340
Regulation 3.44(6)	Making use of false or misleading records (rosters provided on 27 February 2016)	$3,600	65%	$2,340
Regulation 3.44(6)	Making use of false or misleading records (payroll activity statement produced on 3 August 2016)	$3,600	65%	$2,340
Section 712	Failure to comply with a Notice to Produce	$10,800	50%	$5,400
TOTAL	$122,400	$49,320

CORRECTIONS:

(1)The tables within the appendix where it refers to sections 51, 52, 53, 54 and 55 for the First and Second Respondent have been corrected to refer to section 50.