Fair Work Ombudsman v Sofworks Pty Ltd
[2023] FedCFamC2G 12
Federal Circuit and Family Court of Australia
(DIVISION 2)
Fair Work Ombudsman v Sofworks Pty Ltd [2023] FedCFamC2G 12
File number(s): MLG 2014 of 2021 Judgment of: JUDGE SYMONS Date of judgment: 20 January 2023 Catchwords: INDUSTRIAL LAW – Fair Work – parties by consent seek declaration of contravention of the Fair Work Act 2009 (Cth) – failure of the respondent to comply with compliance notice - dispute as to whether penalty should be imposed and level of penalty to be imposed – consideration of nature and circumstances of the conduct – consideration of any contrition, corrective action and cooperation with enforcement authority – the need for specific and general deterrence – penalty order made Legislation: Fair Work Act 2009 (Cth) ss. 90, 546, 716
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) r 9.04
Accident Compensation Act 1985 (Vic)
Manufacturing and Associated Industries and Occupations Award 2020
Cases cited: Australian Building and Construction Commission v Pattinson (2022) 399 ALR 599; [2022] HCA 13.
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482; [2015] HCA 46.
FWO v Nobrace Centre Pty Ltd & Anor (No 2) [2019] FCCA 2144
Kiropoulos v Link Group [2020] FCCA 205
Trade Practices Commission v CSR Ltd [1990] FCA 521
Division: Division 2 General Federal Law Number of paragraphs: 45 Date of last submission/s: 8 December 2022 Date of hearing: 8 December 2022 Place: Melbourne Solicitor for the Applicant: Maddocks Lawyers Respondent: Mr Minutoli ORDERS
MLG 2014 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: SOFWORKS PTY LTD
Respondent
order made by:
JUDGE SYMONS
DATE OF ORDER:
20 January 2023
The Court declares BY CONSENT that
1.The Respondent contravened s 716(5) of the Fair Work Act 2009 (Cth) (‘FW Act’) by failing to comply with the compliance notice issued on 23 April 2021.
THE COURT ORDERS THAT:
2.Pursuant to s 546(1) of the FW Act, the Respondent pay a pecuniary penalty of $10,000 in respect of the contravention of s 716(5) of the FW Act.
3.Pursuant to s 546(3)(a) of the FW Act, the pecuniary penalty ordered to be paid by the Respondent is to be paid to the Commonwealth within 28 days of this order.
4.The Applicant has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE SYMONS:
introduction
This is an application for the imposition of a penalty in respect of the respondent’s failure to comply with a compliance notice issued pursuant to s 716(2) of the Fair Work Act 2009 (Cth) (FW Act).
The respondent was represented in this proceeding by its director, Mr Minutoli, who (as a non-lawyer) was granted leave pursuant to rule 9.04 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) to carry on the proceedings and appear for the respondent.
The respondent has cooperated with the applicant and signed a statement of agreed facts.[1] The respondent has admitted to contravening s 716(5) of the FW Act by failing to comply with a compliance notice issued on 23 April 2021.
[1] Statement of Agreed Facts filed on 15 February 2022.
The parties agree that the following declaration and order should be made:
(a)a declaration that the respondent contravened section 716(5) of the FW Act by failing to comply with the Compliance Notice issued on 23 April 2021.
(b)an order pursuant to s 546 of the FW Act that the respondent pay a pecuniary penalty to the Commonwealth for the contravention set out in paragraph [1] above within 28 days.
The only outstanding issue is the size of any penalty to be imposed.
background
The respondent is the operator of an underground cable location business, Geelong Cable Locations. In or around March 2021, Fair Work Inspector Acevedo (FWI Acevedo) commenced an investigation into the respondent’s compliance with workplace laws following a request for assistance made to the applicant from a former employee of the respondent, Mr Shaun Stephen.
Following this investigation, FWI Acevedo formed a reasonable belief that the respondent had contravened the Manufacturing and Associated Industries and Occupations Award 2020 and s 90(2) of the FW Act by failing to pay its employee, Mr Stephen, all accrued but untaken annual leave on termination of his employment. At the time Mr Stephen’s employment with the respondent ended in February 2021, he was owed 146.155 hours in accrued but untaken annual leave entitlements.
On the basis of this belief, FWI Acevedo gave a compliance notice to the respondent on 23 April 2021, which required the respondent to take certain steps to remedy the contraventions (Compliance Notice). Those steps included that the respondent calculate the amounts referable to accrued annual leave owing to Mr Stephen, make those payments to Mr Stephen by 21 May 2021, and produce evidence of having done so to the applicant by 28 May 2021.
As stated, it is common ground that the respondent failed to comply with the compliance notice and the respondent admits that it contravened s 716(5) of the FW Act.
On 16 November 2021, the respondent provided to the applicant by email (through its solicitors at the time) a schedule outlining its calculations of the outstanding entitlements required to pay Mr Stephen, stating that:
(a)on 22 March 2021 the respondent paid Mr Stephen $1,510.08; and
(b)on 16 November 2021, the respondent paid $2,891.76 to Mr Stephen.
It is agreed that by making the payments referred to above, the respondent paid to Mr Stephen all amounts outstanding in respect of the Compliance Notice.
SUBMISSIONS AND EVIDENCE ON PENALTY
Orders were made by the Court on 18 March 2022 which established a timetable for the parties to file and serve submissions and any evidence upon which they would seek to rely on the question of penalty.
The applicant filed submissions and the affidavit of Fair Work Inspector Jay Chin (FWI Chin) sworn on 8 April 2022, the affidavit of FWI Acevedo (Alvarez) sworn on 8 April 2022 and the affidavit of solicitor Lyndel David sworn on 1 July 2022.
While the respondent had the benefit of legal representation when its defence and (subsequently) the statement of agreed facts was filed, by the time it came to file its submissions on 7 June 2022 the lawyers were no longer acting for the respondent. The respondent did not appoint another lawyer and the submission filed on the respondent’s behalf was prepared by its director, Mr Minutoli. The respondent did not file any affidavit material although some of the matters raised in the written submission were in the nature of (unsworn) evidence.
On 1 July 2022 the applicant filed reply submissions.
PENALTY
Compliance notice
Section 716(5) of the FW Act provides that a person must not fail to comply with a compliance notice properly given. That section is a civil remedy provision. The power to issue a compliance notice was introduced as an alternative process to deal with an employer’s failure to meet minimum entitlement obligations without the need to commence litigation.
This Court has previously recognised that compliance notices provide an efficient mechanism to rectify identified contraventions of the FW Act without the need for costly and often time-consuming litigation.[2]
[2] See, e.g., FWO v Nobrace Centre Pty Ltd & Anor (No 2) [2019] FCCA 2144 and the cases referred to in that decision.
Relevantly, s 716(4B) of the FW Act provides:
A person who complies with a notice in relation to a contravention of a civil remedy provision is not taken:
a) to have admitted to contravening the provision; or
b) to have been found to have contravened the provision.Had the respondent complied with the Compliance Notice, these proceedings would not have been necessary, and moreover, there would have been no finding of a contravention and the civil penalty provisions of the FW Act would not have been engaged.
Penalty range sought
Applicant’s submissions
The applicant seeks that a penalty be imposed in the range of $12,488 to $14,895, which amount takes into account a 25 per cent discount for the respondent’s cooperation in the proceedings. Viewed in context, this represents a penalty range of approximately 37 to 45 per cent of the maximum penalty of $33,300 available for the contravention by a corporation of s 716(5) of the FW Act.
Respondent’s submissions
The respondent’s position was that it resisted the making of an order that it be required to pay a pecuniary penalty in any amount. Mr Minutoli was asked during the hearing on 8 December 2022 whether he wished to put any figure or proposed range to the Court for its consideration (in circumstances where the applicant had identified its position) but he declined to do so.
Factors relevant to penalty
As noted in the applicant’s submissions, the primary purpose of civil penalty provisions such as those under consideration in this matter is to promote the public interest in compliance and to impose a price on contravention at a level which is sufficiently high that it is likely to have an effect on both specific and general deterrence.[3]
[3] See, eg, Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [55] and [79].
The primary purpose of deterrence was reiterated by the High Court in the decision of Australian Building and Construction Commission v Pattinson [2022] HCA 13 (“Pattinson”). In that decision, the majority upheld the Commissioner’s appeal and confirmed that the purpose of a civil penalty is primarily, if not solely, the promotion of the public interest in compliance with provisions of the FW Act by those responsible and by (like) others. The Court rejected the approach implicit in the decision of the Full Court (the subject of the appeal) that a penalty must be proportionate to the seriousness of the conduct that constituted the contravention. The majority held instead that “[t]he power conferred by s 546 of the Act is not subject to constraints drawn from the criminal law and there is no place for a ‘notion of proportionality’ in a civil penalty regime”.[4] However, the High Court did accept that s 546 requires the Court to ensure that any penalty “strikes a reasonable balance between deterrence and oppressive severity”.[5] It was only in this more qualified sense that the concept of “proportionality” had any role to play.
[4] See Australian Building and Construction Commissioner v Pattinson & Anor [2022] HCA 13 at [10].
[5] Ibid at [41].
The High Court in Pattinson also referred to the several factors identified by French J in Trade Practices Commission v CSR Ltd [1990] FCA 521 which informed the assessment of a penalty of an appropriate deterrent value. The list revealed that both the circumstances of the contravener and the circumstances of the contravention may be relevant to the assessment of whether the maximum level of deterrence is called for.[6] However, the Court repeated the caution that the list of possible relevant considerations should not be approached as a “rigid catalogue of matters for attention” and instead the task of the court remains to determine what is an “appropriate” penalty in the circumstances of the particular case.[7]
[6] Ibid at [57].
[7] Ibid at [18] and [19].
Nature and circumstances of the conduct and extent of any loss
As noted above, the compliance notice regime was introduced as a means to quickly and inexpensively resolve contraventions of the FW Act. Had the respondent complied with the Compliance Notice within the time frame specified, this litigation would have been avoided.
The applicant submits that the respondent was provided with numerous opportunities, including at the investigation phase and prior to the commencement of these proceedings, to rectify the contravention and comply with the Compliance Notice. Its failure to do so and to engage with the applicant left it with no other option than to commence proceedings. The applicant invites the Court to infer that the respondent was motivated to rectify its non-compliance with the Compliance Notice (paying the second of the amounts referred to at [10] above) only when and because these proceedings were commenced.
The applicant acknowledged that the amount owing to Mr Stephen under the Compliance Notice was relatively modest. The applicant also acknowledged that there had been a degree of confusion on the part of the respondent as to how the obligation to account for and pay annual leave entitlements might intersect with workers compensation legislation. However, the applicant noted that on 19 April 2021 (this being two days’ prior to the giving of the Compliance Notice), FWI Chin had sent an email to Mr Minutoli in which he had explained that as there was no clear evidence of the employee (Mr Stephen’s) dismissal as at 7 February 2020, he was still employed by the respondent, and therefore entitled to accrue annual leave, even while absent from work and in receipt of workers compensation payments. A Fair Work Ombudsman library article which confirmed this advice was attached to the email.[8]
[8] See affidavit of FWI Chin sworn 7 April 2022 annexure “JC-5” being the email of 19 April 2021. The “library article” is not reproduced.
During the hearing, the applicant took the Court to the decision of (then) Judge Mercuri in Kiropoulos v Link Group [2020] FCCA 205 in which her Honour held that an employee accrues annual leave entitlements while receiving workers’ compensation payments pursuant to the Accident Compensation Act 1985 (Vic). The applicant contended that there had essentially been no uncertainty regarding the obligation of the respondent to make payments to Mr Stephen at the time the Compliance Notice was given and that the applicant’s position (reflected in this decision) had been subsequently vindicated by admissions made by the respondent in the statement of agreed facts.
The respondent, in its written submissions, identified as relevant to the circumstances of its conduct that it had (through Mr Minutoli) conducted its own research about the accrual of holiday pay whilst on WorkCover but had not found any conclusive information on the topic. According to Mr Minutoli, he had decided that the best approach was to have the matter proceed to court to be determined on a “common sense” basis. It was only when the respondent engaged a lawyer that it decided to “settle and plead guilty” and to pay Mr Stephen his outstanding entitlements for annual leave.
The financial circumstances of the respondent
Whilst there was an absence of any sworn evidence as to the financial circumstances of the respondent, Mr Minutoli explained to the Court that its failure to comply with the Compliance Notice occurred at a time when the business was struggling to keep its head above water as a result of the Covid-19 pandemic. Mr Minutoli said the business remained afloat only because he was in receipt of the job-keeper allowance and other government grants and because he made two withdrawals of funds from his superannuation.
The applicant submitted that while there was no evidence before the Court relating to the financial circumstances of the respondent, it was well established that the size and financial circumstances of a respondent are not exculpatory of breaches of workplace laws, and that capacity to pay a penalty will be of less relevance than achieving the objective of general deterrence.
Deterrence
On the topic of deterrence, the applicant submitted that any penalty should be pitched at a level that serves the objective that it not be seen by others in the community as simply the cost of doing business. The applicant emphasised that in this case, there was a need for a meaningful and deterrent penalty given the impact that a failure to comply with a statutory notice had on the efficacy of such notices and the system of workplace compliance more generally.
The applicant also submitted that general deterrence was of particular importance in this matter due to “the level of non-compliance in the manufacturing industry”. The applicant referred to its publication “Fair Work Ombudsman Industry profile and FWO Interactions – Manufacturing”[9]which recorded that between July 2018 and December 2021, the manufacturing industry had accounted for 5.3% of completed disputes by the applicant across all industries and that 20% of those disputes had been concerned with termination of employment and 12% had involved contraventions relating to annual leave entitlements.
[9] Reproduced as annexure “VJAA-5” to the Acevedo affidavit.
The respondent challenged the need in its case for any form of deterrence. As far as specific deterrence was concerned, the submission was made (albeit not supported by sworn evidence) that because the respondent did not have any staff and did not intend to employ anyone again based on the risks inherent in the business conducted by it, there was no prospect that the respondent would find itself in the same situation again. The respondent sought to juxtapose its situation – describing itself as a business that had never been in trouble with the law and with a sole purpose of protecting the community – with the situation of a serial offender or a big business that systematically underpaid its employees.
As far as general deterrence was concerned, the respondent queried its efficacy having regard to the more unusual characteristic of its case, namely, that it involved the intersection between workers compensation and the FW Act. The respondent submitted that general deterrence could only be achieved if “FairWork and WorkCover got together and held a press conference” regarding the respondent’s case and identified the obligation on an employee to pay holiday pay while an employee was on WorkCover. This would then (according to the respondent and in order to be effective) need to be followed up with an explanatory email sent to “every small business owner out there”.
In response to this submission, the applicant argued that the imposition of penalties did in fact have a deterrent effect because of the Fair Work Ombudsman’s practice of publishing media releases at the commencement and conclusion of proceedings (identifying the penalty imposed by the Court) and through the industry-specific reports which it published.
Whilst the applicant acknowledged that the respondent was not currently employing any employees, it submitted that specific deterrence was relevant insofar as there was a need to ensure the respondent’s compliance with the FW Act and other legislative obligations more broadly. It was also relevant to the extent that the entitlements of any future employees or contractors might be concerned in circumstances where the respondent remained registered.
Contrition, corrective action and cooperation
The applicant concedes that the respondent has cooperated insofar as it has made early admissions, including in its defence filed on 17 November 2021, paid all outstanding monies owed to the employee, has agreed to a statement of facts and, through this process, consented to the making of a declaration. The applicant further acknowledges that this cooperation has had the effect of limiting its and the Court’s time and resources in preparing for and determining a contested factual hearing on liability. The applicant submits that in these circumstances, it would be appropriate to apply a maximum discount of 25 per cent on any penalty the Court was minded to impose.
CONSIDERATION
Having regard to the submissions made by both the applicant and the respondent I have determined that a penalty in the amount of $10,000, which represents approximately 30 per cent of the maximum penalty available for a contravention of s 716(5) of the FW Act, should be applied.
In fixing this amount I accept, as a general proposition, that a failure by an employer to comply with a compliance notice given under ss 716(2) and (3) of the FW Act, undermines the efficacy of the statutory notice regime and increases the administrative and cost burden of the workplace regulator and where proceedings are then issued in this Court, diverts judicial resources. This is a mischief to which general deterrence can and should appropriately be directed.
Further, and notwithstanding the contravention has general characteristics (namely, the failure to comply with a compliance notice) and the underlying contravention assumes only contextual significance, general deterrence in a case such as this can potentially be deployed to achieve a more targeted, educative purpose. This was a matter that both parties recognised in their submissions.
I accept in this regard that the question of how and to what extent the obligation to accrue and then remit upon termination, payments on account of annual leave might operate when an employee is in receipt of workers compensation payments is a matter about which the respondent (through its sole director, Mr Minutoli) had an incomplete understanding. It is reasonable to expect that the respondent’s misapprehension was not unique although I note that the industry profile information did not descend to this level of detail. There would therefore be an obvious benefit associated with the promulgation by the applicant of a communication that in addition to identifying the fact of (and amount) of civil penalty also identified in plain terms the obligation of employers who found themselves in a situation analogous to that of the respondent.
As far as the need for specific deterrence is concerned, I have taken the approach that the action and attitude of the respondent’s sole director, Mr Minutoli, should be assimilated to the respondent. This is because it was Mr Minutoli who engaged with the applicant prior to and after the giving of the compliance notice and it was Mr Minutoli who gave instructions to his lawyer (when represented) to prepare documents on the respondent’s behalf and who, ultimately, came to represent the respondent via the preparation of written submissions and at the hearing on 8 December 2022. I find that as a result of Mr Minutoli’s involvement with this process and his willingness to accept (albeit belatedly) responsibility for what occurred, that he would be unlikely to facilitate or acquiesce in a future breach by the respondent of a workplace law. I consider for this reason that there is little need for specific deterrence in this case.
I have also taken into account, to the extent that the matters raised are distinct from those relevant to specific deterrence, the cooperation demonstrated by the respondent through its defence filed at an early stage of the proceeding which contained an admission that the respondent had failed to comply with the Compliance Notice and the payment (at the same time) of the outstanding amount owed to Mr Stephen as well as the respondent’s cooperation in the finalisation of an agreed statement of facts. While there is a nexus between the decision to make the outstanding payment and the institution of these proceedings, it was also a decision that reflected the fact that the respondent was by this stage in possession of advice from its legal representative.
I accept that the COVID-19 pandemic created difficult operating conditions for the respondent. However, there was no detailed evidence of any kind placed before the Court that illuminated the respondent’s true financial situation and capacity to pay any penalty. Indeed, the respondent’s submissions, as far as any penalty was concerned, were directed primarily at the question of deterrence. I did not understand the respondent to make any submission of substance that it would be inhibited financially from meeting a pecuniary penalty. In these circumstances, I consider that a penalty in the amount of $10,000 is an appropriate and proportionate response to the respondent’s single contravention of s 716(5) of the FW Act.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons. Associate:
Dated: 20 January 2023
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