Fair Work Ombudsman v Sphere 38 (BNE) Pty Ltd
[2021] FCCA 536
•19 March 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Fair Work Ombudsman v Sphere 38 (BNE) Pty Ltd [2021] FCCA 536
File number(s): BRG 490 of 2020 Judgment of: JUDGE EGAN Date of judgment: 19 March 2021 Catchwords: INDUSTRIAL LAW – Failure to comply with Compliance Notice – regret and contrition on the part of the respondents – how pecuniary penalty ought to be assessed – relevant principles – orders accordingly. Legislation: Fair Work Act 2009 (Cth), ss 23(1), 90(2) 550, 716. Cases cited: Kelly v Fitzpatrick (2007) 166 IR 14.
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor (2015) 258
CLR 482.
Fair Work Ombudsman v Promoting You Pty Ltd [2012] FMCA 58.
Fair Work Ombudsman v Viper Industries Pty Ltd & Anor [2015] FCCA 492.
Construction, Forestry, Maritime, Mining, and Energy Union v Australian Building and Construction
Commissioner [2018] FCAFC 126.
Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383
Number of paragraphs: 32 Date of last submission/s: 5 March 2021 Date of hearing: 5 March 2021 Place: Brisbane Counsel for the Applicant: Mr McKechnie Solicitor for the Applicant: Office of the Fair Work Ombudsman Solicitor for the Respondents: Ms Adams of GLR Law ORDERS
BRG 490 of 2020 BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: SPHERE 38 (BNE) PTY LTD ACN 608 358 587
First Respondent
GREGORY DALE JOHNSTON
Second Respondent
ORDER MADE BY:
JUDGE EGAN
DATE OF ORDER:
19 MARCH 2021
IT IS DECLARED THAT:
1.The First Respondent contravened the provisions of s. 716(5) of the Fair Work Act 2009 (Cth) (‘the FWA’) by failing to comply with the Compliance Notice issued to it on 2 April 2020.
2.The Second Respondent was involved in, within the meaning of s. 550(2)(c) of the FWA, the contravention by the First Respondent of s. 716(5) of the FWA and is taken, pursuant to the provisions of s. 550(1) of the FWA, to have contravened s. 716(5) of the FWA.
AND IT IS ORDERED THAT:
3.The First Respondent pay a pecuniary penalty in the sum of $10,000.00 in respect of the contravention the subject of Declaration (1) herein.
4.The Second Respondent pay a pecuniary penalty in the sum of $2,500.00 in respect of the contravention the subject of Declaration (2) herein.
5.Each of the First and Second Respondents respectively pay to the Commonwealth of Australia the pecuniary penalties ordered to be paid in Orders (3) and (4) herein within twenty-eight (28) days of the date of this Order.
REASONS FOR JUDGMENT
JUDGE EGAN:
Introduction
By an application filed on 2 September 2020, the applicant sought a declaration that the first respondent contravened the provisions of s. 716(5) of the Fair Work Act 2009 (Cth) (‘the FWA’) by reason of the first respondent’s failure to comply with a compliance notice issued to it by the applicant on 2 April 2020. Such Compliance Notice related to alleged contraventions by the first respondent of the provisions of s. 90(2) of the FWA by reason of the first respondent’s failure to pay outstanding entitlements to three previous employees of the first respondent. [1]
[1] See Annexure “AJM-1” to the Affidavit of Aaron Mullins filed on 2 December 2020.
A declaration was also sought that the second respondent was relevantly involved in the first respondent’s contraventions within the meaning of the provisions of s. 550(1) of the FWA. The second respondent was the sole director of the first respondent, and was solely responsible for the overall operation, management and control of the first respondent. [2]
[2] Paragraph [5] of the Statement of Agreed Facts filed on 22 January 2021.
On 22 January 2021, a Statement of Agreed Facts (‘the SAF’) was filed. That Statement detailed admitted contraventions by the first respondent of the provisions of s. 716(5) of the FWA, and by the second respondent by reason of the operation of s. 550(1) of the FWA. Such admitted contraventions are contained in paragraphs [3] and [4] of the SAF and were as follows:
“B Admitted Contraventions
3. On the basis of the facts set out below, the First Respondent admits to contravening the following civil remedy provision of the FW Act:
a) section 716(5) of the FW Act by:
(i) failing without reasonable excuse to comply with a Compliance Notice issued by Fair Work Inspector Aaron Mullan (FWI Mullan) as a result of FWI Mullan forming a reasonable belief that the First Respondent contravened:
A. The national Employment Standards (NES); and
B. terms of the Electrical, Electronic and Communications Contracting Award 2010 (the Award).
4. The Second Respondent admits to his involvement, within the meaning of section 550(1) of the FW Act, in the contraventions admitted by the First Respondent at paragraph 3 above.”
Events Relating to Non-compliance
Within the Compliance Notice, directions were given for the first respondent to rectify underpayments on or before 5 May 2020 at paragraphs [7] – [10] as follows: [3]
[3] See Annexure “AJM-1” to the Affidavit of Aaron Mullins filed on 2 December 2020.
“Required action under this Compliance Notice
7. In accordance with section 716(2) of the FW Act, I require you by 5 May 2020 to:
Step 1 – calculate and rectify underpayments
(a) in respect of the contravention referred to in row (a) of the table above:
i) in respect of Jeme Heness, Natasha Dickeson, Sergei Udachin (Employees):
1. Calculate the full amount each Employee should have been paid for the Annual Leave entitlement when their employment ended.
2. Calculate the amount of Annual leave loading each Employee was entitled to when their employment ended.
3. Make a payment to each Employee of the amounts referred to in (1) and (2).
4. Make a record of the information and amounts referred to in to (2) and the amount of the payment referred to in (3) immediately above (Underpayment Rectification Information).
Step 2 – Superannuation
(b) calculate additional superannuation contributions required by clause 23.2 of the Award in respect of the amounts required to be paid to the employees of the Employer as a result of Step 1
(c) in relation to each employee who is owed such additional superannuation contributions, pay such additional superannuation contributions to the chosen Superannuation Fund of the employee.
Reasonable evidence of steps taken to comply with this Compliance Notice
8. In accordance with section 716(2) of the FW Act, I require you to produce the following reasonable evidence of your compliance with the actions specified in paragraph 7 above:
(a) a schedule that sets out:
(i)in relation to the Employees, and in respect of the contravention that concerns the Employees, the Underpayment Rectification Information
(ii) in relation to the Employees, the additional superannuation contributions calculated for the employee and paid to the employee’s Superannuation Fund in accordance with Step 2
(b) proof that full payment has been made to the Employees required to be made by Step 1 and Step 2, such as a bank transfer showing the transfer of funds to each employee and their Superannuation Fund, or a copy of the employee's payroll records showing the payment(s).
9. The evidence referred to above must be provided to the Fair Work Ombudsman by 12 May 2020 by email to or by post to GPO Box 9887 Brisbane 4001.
10. You may be liable to a civil penalty or other civil remedy under the FW Act if you give false or misleading information or produce false or misleading documents in response to this Compliance Notice. You may also be liable for a criminal offence under the Criminal Code if you do so.”
On 1 May 2020, the second respondent emailed Mr Mullan, a Fair Work Inspector acting on the applicant’s behalf, requesting an extension of time to allow the first respondent to assess the applicant’s claims. Such email read as follows: [4]
“Dear Aaron
As a result of the Covid situation we have had to drastically reduce our work force including office staff that normally handle Hr and payroll.
We request an extension to further assess the claims as we do not agree with the amounts claimed by the ex-employees, our current payroll system has far less indication than that claimed and a manual review will need to be completed and this is very time consuming.
Entrusting a 4 week extension is satisfactory.
Regards.
Greg Johnston”
[4] Annexure “AJM-3” to the Affidavit of Aaron Mullins filed on 2 December 2020.
On 7 May 2020, Mr Mullan responded to the second respondent advising that there was no capacity under the FWA for the applicant to grant extension to a compliance notice. Such correspondence read as follows: [5]
“Good Afternoon Greg
Unfortunately there is no capacity under the Fair Work Act to grant an extension to a Compliance Notice. In this instance if evidence of payment is not received by 12 May 2020 I will be required to issue a non-compliance letter.
This letter provides 7 days for a company to provide a reasonable excuse for their non-compliance, any response provided assessed to deem whether it is reasonable or not.
Please keep in mind that non-compliance with a Compliance Notice can result in a referral for consideration of litigation.”
[5] See Annexure “AJM-4” to the Affidavit of Aaron Mullins filed on 2 December 2020.
It is not in dispute that, as at 5 May 2020, the first respondent had failed to rectify the relevant underpayments. Nor is it in dispute that as at 12 May 2020, the first respondent had failed to provide to the applicant evidence of the first respondent’s compliance with the Compliance Notice. [6]
[6] Paragraph [20] of the SAF.
On 13 May 2020, a letter was sent to the second respondent requesting that the first respondent provide a reasonable excuse for its non-compliance. [7] No excuse was proffered in response to the letter of 13 May 2020 by the first respondent for its non-compliance.
[7] See Annexure “AJM-5” to the Affidavit of Aaron Mullins filed on 2 December 2020.
On 20 May 2020, one Adam Corn, a Senior Fair Work Inspector, sent a letter to the second respondent encouraging the second respondent to make contact with him to discuss options for the first respondent’s compliance with the Compliance Notice. Such letter read as follows: [8]
“Dear Mr Johnston
I am writing to you about a Compliance Notice issued to Spere38 (BNE) Pty Ltd by Fair Work Inspector (FWI) Aaron Mullan on 2 April 2020. The Compliance Notice was issued because FWI Mullan formed a reasonable belief that Sphere38 (BNE) Pty Ltd had contravened the National Employment Standards and the Electrical, Electronic and Communications Contracting Award 2010 in relation Jeme Heness, Natasha Dickeson, and Sergei Udachin, by failing to pay annual leave and leave loading on termination.
FWI Mullan is in my team and I have oversight of his work. I attempted to phone you this morning on [number omitted] and [number omitted] and left a voice mail.
As at 12 May 2020 Sphere 38 (BNE) Pty Ltd has not complied with the Compliance Notice. FWI Mullan has attempted informed you of this and offered you a period in which to respond to the facts of the matter and non−compliance with the Compliance Notice. The FWO is now considering what further steps should be taken to ensure compliance with the Compliance Notice occurs.
I understand that these may be difficult times for Spher38 (BNE) Pty Ltd or perhaps you are unsure what steps need to be taken to comply with the Compliance Notice. I encourage you to contact me directly to discuss possible options to assist compliance. The FWO can consider a reasonable payment plan and or a reasonable extension of time to comply. Of course, I cannot discuss these options if you do not make contact with me.
I need to make it very clear that if you do not contact me before COB 27 May 2020, I will have no choice but to recommend that litigation commence against Sphere38 (BNE) Pty Ltd and you personally for non−compliance with the Compliance Notice.
My contact details are outlined below. I am not always available to answer the phone so please do leave a message with your contact details so that I can return your call as soon as possible.”
(phone numbers omitted)
[8] See Annexure “AJM-7” to the Affidavit of Aaron Mullins filed on 2 December 2020.
The applicant did not receive any response from either the second respondent or another representative of the Company to its 20 May 2020 letter. [9]
[9] Paragraph [11] of the Affidavit of Adam Corn filed on 20 January 2021.
On 22 and 23 September 2020, the first respondent made the relevant rectification payments to the three (3) former employees to which the Compliance Notice related in respect of all outstanding underpayments/entitlements. [10]
[10] Paragraphs [25] – [28] of the SAF.
The Contraventions
A contravention of s. 716(5) of the FWA occurs when, without reasonable excuse, there is a failure to comply with a compliance notice issued pursuant to the provisions of s. 716(2) and (3) of the FWA. Paragraph 20(c) of the Statement of Agreed Facts constituted an admission by the respondents that the first respondent did not have a reasonable excuse for failing to comply with the Compliance Notice. Sub-sections (2), (3) and (5) of s. 716 relevantly provided as follows:
“Giving Notice
(2) The inspector may, except as provided by subsection (4), give the person a notice requiring the person to do either or both of the following within such reasonable time as is specified in the notice:
(a) take specified action to remedy the direct effects of the contravention referred to in subsection (1);
(b) produce reasonable evidence of the person’s compliance with the notice.
(3) The notice must also:
(a) set out the name of the person to whom the notice is given; and
(b) set out the name of the inspector who gave the notice; and
(c) set out brief details of the contravention; and
(d) explain that a failure to comply with the notice may contravene a civil remedy provision; and
(e) explain that the person may apply to the Federal Court, the Federal Circuit Court or an eligible State or Territory Court for a review of the notice on either or both of the following grounds:
(i) the person has not committed a contravention set out in the notice;
(ii) the notice does not comply with subsection (2) or this subsection; and
(f) set out any other matters prescribed by the regulations.
…
(5) A person must not fail to comply with a notice given under this section.
Note: This subsection is a civil remedy provision (see Part 4‑1).”
The second respondent, as the director of the first respondent, had admitted his involvement, within the meaning of s. 550(1) of the FWA, in the contravention of s. 716(5) of the FWA by the first respondent.
The three aggrieved individuals who were the recipients of the rectification payments required to be made by the Compliance Notice issued to the first respondent on 2 April 2020 were owed entitlements over periods of seven (7), ten (10), and twelve (12) months respectively. The second respondent was on notice from 17 February 2020 that investigations into the potential contraventions of the FWA by the first respondent were being conducted by the applicant. [11] The Court also noted that rectification payments were not paid until after the filing of the application before this Court.
[11] Paragraph [3] of the Affidavit of Aaron Mullins filed on 20 January 2021 and paragraph [3] of the
Affidavit of Gregory Dale Johnston filed on 22 December 2020.
Approach to Imposition of Penalty and Proportionality
In Kelly v Fitzpatrick (2007) 166 IR 14, Justice Tracey, at [14], set out a non-exhaustive list of relevant considerations for the Court when determining an appropriate penalty as follows:
“[14] In Mason v Harrington Corporation Pty Ltd [2007] FMCA 7 Mowbray FM identified “a non-exhaustive range of considerations to which regard may be had in determining whether particular conduct calls for the imposition of a penalty, and if it does the amount of the penalty”. Those considerations were derived from a number of decisions of this Court. I gratefully adopt, as potentially relevant and applicable, the various considerations identified by him. They were:
•The nature and extent of the conduct which led to the breaches.
•The circumstances in which that conduct took place.
•The nature and extent of any loss or damage sustained as a result of the breaches.
•Whether there had been similar previous conduct by the respondent.
•Whether the breaches were properly distinct or arose out of the one course of conduct.
•The size of the business enterprise involved.
•Whether or not the breaches were deliberate.
•Whether senior management was involved in the breaches.
•Whether the party committing the breach had exhibited contrition.
•Whether the party committing the breach had taken corrective action.
•Whether the party committing the breach had cooperated with the enforcement authorities.
•The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements and
•The need for specific and general deterrence.
The parties accepted that these considerations should guide the exercise of my discretion in the present proceeding.”
At [28] of His Honour’s reasons in Fitzpatrick, Tracey J said as follows:
“[28] … 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”: see Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] ATPR 41-815 at [13].”
Civil penalties are to be imposed to promote, for the public interest, compliance with workplace laws by the imposition of a penalty that is sufficiently high in order to deter repetition both by the contravener and by others who are in a position to contravene legislation. [12] However, such penalties must not be crushing or oppressive. [13]
[12] Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Anor (2015) 258
CLR 482
[13] Fair Work Ombudsman v Promoting You Pty Ltd [2012] FMCA 58.
Nature and Extent of the Conduct Which Lead to the Breaches
The first respondent, as is evident from a reading of the SAF, was on notice as to the contraventions of the FWA requiring remedy upon receipt of the Compliance Notice on 2 April 2020. Although the second respondent, acting on behalf of the first respondent in his capacity as the director of the company, requested an extension of time to address the issues raised in the compliance notice, by correspondence dated 7 May 2020, the first respondent was alive, or ought to have been alive, to the fact that evidence of compliance was required to be provided to the applicant by 12 May 2020. The first respondent also failed to provide:
(a)A reasonable excuse for the failure to comply with the compliance notice in response to the Failure to Comply Notice sent to it on 13 May 2020; and
(b)A response to the telephone calls and letter directed to it on 20 May 2020 by the applicant providing it with an opportunity to discuss options for a reasonable payment plan in the light of the effects of the COVID-19 pandemic following non-compliance with the Compliance Notice.
The applicant submitted that the failure by the first respondent to comply with the compliance notice frustrated the utility of compliance notices which serve as mechanisms for the efficient and cost effective rectification of contraventions of the FWA. The Court accepts such submission. The first respondent, whilst helpfully assisting with the resolution of the proceedings before the Court by moving to accept its contraventions in the SAF, nevertheless forced the applicant to commence litigation in this Court so as to effect relevant compliance with the provisions of the legislation. Such intentional failure to comply with a mandatory notice only after such time that the applicant commenced litigation ought to be reflected in the penalty imposed, in order to appropriately uphold the principle of general deterrence. [14]
[14] Fair Work Ombudsman v Viper Industries Pty Ltd & Anor [2015] FCCA 492 at [7].
Seriousness of the Breaches the subject of the Compliance Notice:
When considering the gravity of contraventions prior to the imposition of an appropriate penalty, the Court is required to conduct a comparative exercise as to where such contraventions sit against the maximum penalty as a figurative yardstick. [15]
[15] Construction, Forestry, Maritime, Mining, and Energy Union v Australian Building and Construction
Commissioner [2018] FCAFC 126 at [56] – [57] per Logan J and [108] – [110] per Bromwich J.
The individuals who were owed entitlements the subject of the compliance notice were cumulatively owed a total of $8, 434.11. Although the contraventions before the Court relate to the non-compliance by the first respondent with a compliance notice, the applicant correctly submitted that the loss suffered by the employees was a corollary of such failure. Although nonetheless serious, the sum of the outstanding entitlements owed is comparatively small as compared with other contravention proceedings which come before this Court. The first respondent’s contravention of the provisions of s. 716(5) was blatant, and the Court is alive to the fact that non-compliance with mandatory notices ought to be deterred by the Courts through the imposition of appropriate penalties. The Court accepts the applicant’s submissions in that regard.
Financial Circumstances of the Company during the COVID-19 Pandemic:
It was submitted on behalf of the respondents that the Court ought to appropriately discount the penalty ordered on the basis of the financial circumstances of the company affected by the lockdowns and hardships associated with the COVID-19 pandemic. The applicant submitted, in reliance upon the judgment of the Full Court of the Federal Court in Mornington Inn Pty Ltd v Jordan [16], that any consideration as to the financial circumstances of the company ought to be based on evidence. There was no evidence before the Court filed on behalf of the first or second respondent as to the financial circumstances of the first respondent.
[16] (2008) 168 FCR 383.
The Court is well aware that businesses and individuals were significantly affected during the imposed lockdowns and associated economic downturns resulting from the COVID-19 pandemic, both during and subsequent to March 2020, which was relevantly the time during which the applicant and the first respondent were in communications regarding the breaches of the FWA. The first respondent, whilst failing to provide direct evidence as to the financial circumstances of the company, sought an extension of time to comply with the compliance notice as a result of staff reductions within the payroll and human resources departments of the business on 7 May 2020. The Court accepts that the first respondent was adversely effected during the period when compliance was sought. The Court, in the exercise of its discretion, considers it appropriate to acknowledge the effects of the COVID-19 pandemic when assessing the gravity of the first respondent’s failure to comply with the compliance notice during that period.
Size of the Business
The second respondent put forward uncontested evidence as to the size of the business so as to establish that it was a small business as defined under the FWA [17] in that it had less than 15 employees. [18] The Court is minded to not make pecuniary penalty orders which are crushing or oppressive to the operations of a small business.
[17] s. 23(1) of the FWA.
[18] Paragraph [21] of the Affidavit of Gregory Dale Johnston filed on 22 December 2020.
Past Contraventions
There is no evidence before the Court that the first or second respondents had contravened the provisions of the FWA in the past.
Co-Operation, Contrition and Corrective Action
At the hearing of the matter, Counsel for the applicant conceded that the second respondent, on behalf of the first respondent, had co-operated with the applicant during the course of the investigation into contraventions of the FWA by the first respondent. The Court notes, however, the failure by the first respondent to contact the applicant following an offer to discuss options for a reasonable payment plan relating to the making of rectification payments as required by the compliance notice. The Court is minded, due to COVID-19 interruptions, to substantially discount the penalty ordered notwithstanding that the first respondent did not take the opportunity to contact the applicant to discuss a payment plan option prior to the commencement of litigation before this Court.
The respondents submitted that the Court ought to apply a discount of 60% as a result of the first respondent’s co-operation. It was submitted on behalf of the applicant that a discount of only 20% of the penalty imposed should apply.
The first respondent appropriately made the relevant rectification payments the subject of the Compliance Notice on 22 and 23 September 2020. The first respondent also assisted with the resolution of the proceedings before the Court by moving to admit contraventions in the SAF. On the question of corrective action and contrition, the Full Court observed in Mornington Inn at [76] that:
“[76] … the benefit of such a discount should be reserved for cases where it can be fairly said that an admission of liability: (a) has indicated an acceptance of wrongdoing and a suitable and credible expression of regret; and/or (b) has indicated a willingness to facilitate the course of justice.”
By virtue of the first respondent’s payment of the monies owed, and the admissions of guilt contained in the SAF, the Court finds that the first respondent has indicated both an acceptance of wrongdoing and a willingness to facilitate the course of justice. The Court is minded to reflect such findings in the exercise of its discretion when imposing a pecuniary penalty.
Pecuniary Penalties
Having weighed up all of the above factors, the most significant being the impact of the COVID-19 pandemic upon the first respondent relevant to its non-compliance with the Compliance Notice, the Court finds that it is appropriate for the first respondent to pay a pecuniary penalty, globally assessed, in the amount of $10,000.00.
The Court further finds that the second respondent, on the basis of his direct involvement with the contraventions of the first respondent, ought to pay a pecuniary penalty, globally assessed, in the amount of $2,500.00.
It is so ordered.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Egan. Associate:
Dated: 18 March 2021
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