Fair Work Ombudsman v Step Ahead Security Services Pty Ltd
[2016] FCCA 1482
•17 June 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v STEP AHEAD SECURITY SERVICES PTY LTD & ANOR | [2016] FCCA 1482 |
| Catchwords: INDUSTRIAL LAW – Application for imposition of pecuniary penalties – contravention of Award entitlements to basic rate of pay and loadings – penalties imposed. |
| Legislation: Acts Interpretation Act 1901(Cth), ss. 15AB(1)(a), 15AB(1)(b) Explanatory Memorandum to the Fair Work Bill 2008, paras 2176, 2177 Fair Work Act 2009 (Cth) ss. 3(b), 45, 529(2), 539(1), 545(1), 545(2), 550(1), 557(1), 557(2) Security Services Industry Award 2010 |
| Cases cited: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | STEP AHEAD SECURITY SERVICES PTY LTD |
| Second Respondent: | OWEN IVOR JENNINGS |
| File Number: | SYG 2530 of 2015 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 31 March 2016 |
| Date of Last Submission: | 31 March 2016 |
| Delivered at: | Brisbane |
| Delivered on: | 17 June 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr Taylor QC |
| Solicitors for the Applicant: | Office of the Fair Work Ombudsman |
| The Second Respondent appeared, with leave, for the first respondent. The Second Respondent appeared in person |
ORDERS
THE COURT DECLARES THAT:
the First Respondent contravened the following civil penalty provisions :
(a)s.45 of the Fair Work Act 2009 (Cth), by contravening clauses 14.1 and A.2.5 of Schedule A to the Security Services Industry Award 2010, by failing to provide four of its employees with the required minimum rate of pay under the Award;
(b)s.45 of the Fair Work Act 2009 (Cth) by contravening clauses 10.5(b) and A.5.4 to Schedule A of the Security Services Industry Award 2010, by failing to pay eight of its employees the required casual loading under the Award;
(c)s.45 of the Fair Work Act 2009 (Cth) (by contravening clauses 22.3 and A.5.4 of Schedule A to the Security Services Industry Award 2010, by failing to pay eight of its employees the required Night Span Penalty under the Award;
(d)s.45 of the Fair Work Act 2009 (Cth) by contravening clauses 22.3 and A.5.4 of Schedule A of the Security Services Industry Award 2010, by failing to pay to seven of its employees the required Saturday Span Penalty under the Award;
(e)s.45 of the Fair Work Act 2009 (Cth) by contravening clauses 22.3 and A.5.4 of Schedule A to the Security Services Industry Award 2010, by failing to pay seven of its employees the required Sunday Span Penalty under the Award;
(f)s.45 of the Fair Work Act 2009 (Cth) by contravening clauses 22.3 and A.5.4 of Schedule A to the Security Services Industry Award 2010, by failing to pay five of its employees the required Public Holiday Span Penalty under the Award;
(g)s.45 of the Fair Work Act 2009 (Cth) by contravening clause 23.3 of the Security Services Industry Award 2010, by failing to pay three of its employees the required overtime rate of pay under the Award;
(h)s.45 of the Fair Work Act 2009 (Cth) by contravening clauses 15.1(a) and A.5.4 of Schedule A to the Security Services Industry Award 2010, by failing to pay two of its employees the required Broken Shift Allowance under the Award; and
(i)s.45 of the Fair Work Act 2009 (Cth) by contravening clause 21.2(a)(i) of the Security Services Industry Award 2010 by failing to roster six of its employees for a minimum shift of four hours under the Award.
the Second Respondent was, for the purposes of s.550(2) of the Fair Work Act 2009 (Cth), involved in the First Respondent’s contraventions the Fair Work Act 2009 (Cth) set out in declaration 1 hereof.
THE COURT ORDERS THAT:
Pursuant to ss.545 and 550 of the Fair Work Act 2009 (Cth), within 28 days of the date of these orders the First and Second Respondents, jointly and severally, pay the following amounts totalling $22,779.72 to the Applicant and:
(a)the Applicant will within 14 days of receipt of such amounts, pay to the people set out in column one of the table below the amounts set out in column two:
Employee Underpayment amount Percentage of total underpayment Harry Broadbent $2,088.66
9.17%
Patrick Gill $2,425.03 10.65% Tyrone Hateley $2,913.16 12.79% Trent Howarth $518.07 2.27% Robert Lee $1,435.12 6.30% Jibak Saha $1,811.09 7.95% Robert Thomas $7,830.25 34.37% Trevor White $3,758.34 16.50%
(b)in the event that the Applicant receives a partial payment of the amount described in order (3) hereof the amount received shall be distributed to the Employees (so described in column 1 of the above table) in accordance with the percentage of total underpayment outlined in column three of the above table; and
(c)in the event that the Applicant cannot locate any of the Employees, the Applicant shall within 7 days of receipt, pay the applicable amount due to each Employee that cannot be located to the Commonwealth.
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) the First Respondent pay penalties for its contraventions of the Fair Work Act 2009 (Cth) set out in declaration 1 hereof in the sum of $257,000.00.
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) and subject to order (6) hereof the Second Respondent pay penalties for his involvement in the First Respondent’s contraventions, in the sum of $51,400.00.
Payment of 25% of the penalties provided for in order (5) hereof be suspended until such time as the Second Respondent is found, by a court to have committed a contravention of the Fair Work Act 2009 (Cth), during the 5 years following the date of these orders.
Pursuant to s.546(3)(a) of the Fair Work Act 2009 (Cth) all pecuniary penalties imposed be paid into the Consolidated Revenue Fund of the Commonwealth of Australia.
All penalties be paid within 28 days of the date of this order.
Pursuant to s.545(1) of the Fair Work Act 2009 (Cth) and/or s.545(2)(a) of the Fair Work Act 2009 (Cth), the Second Respondent is restrained from:
(a)aiding, abetting, counselling or procuring; or
(b)being in any way directly or indirectly knowingly concerned in,
conduct in respect of persons employed in the Security Industry that contravenes the Security Services Industry Award 2010 or the National Employment Standards contained in Part 22 of the Fair Work Act 2009 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
SYG 2530 of 2015
| FAIR WORK OMBUDSMAN |
Applicant
And
| STEP AHEAD SECURITY SERVICES PTY LTD |
First Respondent
And
| OWEN IVOR JENNINGS |
Second Respondent
REASONS FOR JUDGMENT
Step Ahead Security Services Pty Ltd operated a security business which provided security guards for static and mobile patrols. Mr Jennings is the sole director of Step Ahead Security Services.
In these proceedings, the Fair Work Ombudsman alleges that Step Ahead Security Services breached the Fair Work Act 2009 (Cth) in a number of respects because it did not pay to its employees amounts to which they were entitled pursuant to the Security Services Industry Award 2010.
Step Ahead Security Services admits the contraventions alleged against it. Mr Jennings admits the contraventions of the company and that he was involved in the contraventions for the purposes of s.550(1) of the Fair Work Act and therefore is liable to the imposition of penalties under the Act. These reasons relate to the imposition of pecuniary penalties upon Step Ahead Security Services and Mr Jennings for the admitted contraventions.
Background
Between 24 February, 2003 and 18 April, 2012 Mr Jennings was a director of Step Ahead Security Pty Ltd, an entity which ran a business that was the predecessor to the security business operated by Step Ahead Security Services Pty Ltd. From April, 2012 the business formerly conducted by Step Ahead Security Pty Ltd was taken up and conducted by the present first respondent Step Ahead Security Services Pty Ltd. Step Ahead Security Pty Ltd was placed in liquidation. Mr Jennings was a director of both Step Ahead Security Pty Ltd and Step Ahead Security Services Pty Ltd.
Between 26 May, 2014 and 20 August, 2014, a period of two months and 27 days, Step Ahead Security Services employed eight casual employees to work as security guards. The names of those eight employees appear in the schedule appended to these reasons.
Following an audit conducted by the applicant, the applicant determined that Step Ahead Security Services had underpaid those employees a total of $22,779.72.
The remuneration and other entitlements of the relevant employees sprang from the Security Services Industry Award 2010. At Schedule C of that Award, two employment classifications were provided namely, Security Officer level 1 and Security Officer level 2. The Award provided for various rates of remuneration and loadings to be paid to employees depending upon the employees’ classification and the nature, extent and time of day of the work undertaken by them. A minimum rate of pay was prescribed for work dependent upon the employee’s classification. Loadings were prescribed for casual employees, ‘night span’ work, work on Saturdays, work on Sundays, work on public holidays, overtime, broken shifts and for work where the employee was rostered for less than a minimum shift of four hours.
Despite the provisions in the Award to which I have just referred, during 26 May, 2014 and 20 August, 2014, each of the eight employees were engaged by the first respondent on the basis that they would be paid:
a)a flat rate of $21 per hour for all hours worked from Monday to Friday;
b)a flat rate of $25 per hour for all hours worked on a weekend; and
c)a flat rate of $30 per hour for all hours worked on a public holiday.
Paying the employees in that way, without regard to the rates of remuneration set out in the Award or to the various loadings and other entitlements contravened the Fair Work Act in that each time the first respondent did not pay an employee the minimum hourly rate of pay to which he was entitled under the Award, or any loading to which he was entitled, the first respondent contravened a term of the Award. Section 45 of the Fair Work Act provides that a person must not contravene a term of a modern award. The Security Services Industry Award 2010 is a modern award for the purpose of the Fair Work Act.
Section 45 of the Fair Work Act is a civil penalty provision as defined in that Act: s.539(1) of the Fair Work Act. The Court may impose a penalty upon a party who is found to have contravened a civil penalty provision and specifically s.45 of the Act: ss.529(2) and 545(1) of the Fair Work Act.
So as to determine what, if any, pecuniary penalty ought to be imposed upon the respondents it is necessary to identify each of the separate contraventions that have been committed.
Here the contraventions involve the failure by Step Ahead Security Services to pay to the eight employees concerned their entitlements to even a basic minimum wage. The breaches are numerous because each time an employee is entitled to be paid the basic rate of pay or one of the relevant loadings identified above, there was a contravention of the Act. Each breach of an obligation provided for in an industrial instrument is a separate contravention of that industrial instrument and consequently s.45 of the Fair Work Act. Accordingly, there are many contraventions involved in this case. The total number has not been quantified in the evidence.
However, s.557 of the Fair Work Act provides:
557. Course of Conduct
(1) For the purposes of this Part, 2 or more contraventions of a civil remedy provision referred to in subsection (2) are, subject to subsection (3), taken to constitute a single contravention if:
(a) the contraventions are committed by the same person; and
(b) the contraventions arose out of a course of conduct by the person.
Section 557(1) is engaged in this case. Each of the numerous contraventions is a contravention of s.45 of the Act. The contraventions were committed by the same person, namely the first respondent. If they arose out of the same course of conduct by the first respondent, they must be taken to constitute a single contravention. That is the legislatively mandated outcome. However, as the decision in Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153 directs, s.557(1) operates on contraventions which occur when a term of an award is contravened through the operation of s.45 of the Act. The contravention occurs when a term of a modern award is contravened. The effect of subsection 557(1) in relation to contraventions of s.45 is that two or more contraventions of a term of a modern award are taken to constitute a single contravention.
The declarations agreed upon by the parties treat the multiple contraventions of each separate obligation in the Award as a single contravention. There are nine declarations relating to nine specific obligations arising from the award. That approach is consistent with Rocky Holdings (above).
I accept that it is not appropriate to further group any of the contraventions as each contravention arose from the breach of a distinct and separate obligation provided by a term of the Award. The respondents did not contend to the contrary.
Consideration of Penalties
The maximum penalties that may be imposed by the Court upon Step Ahead Security Services and Mr Jennings for each contravention are:
a)300 penalty units or $3,000 for each contravention by Step Ahead Security Services; and
b)60 penalty or $6,600 for each contravention by Mr Jennings.
The contraventions by Step Ahead Security Services and Mr Jennings relate to the failure to pay the employees the correct minimum wage rate, casual loading, night work penalty rate, Saturday penalty rate, Sunday penalty rate, public holiday penalty rate, overtime rate, broken shift allowance and to comply with minimum shift lengths pursuant to the Award. The underpayments arose because Step Ahead Security Services and Mr Jennings decided not to pay in accordance with the Award and instead to apply a flat hourly rate of pay.
Mr Jennings was the controlling mind of Step Ahead Security Services. The evidence demonstrates that he was well aware of the requirements of the Award. His knowledge arises from the previous dealing that he had with the office of the Fair Work Ombudsman when he conducted security businesses through Step Ahead Security Pty Ltd and another company Cover Security Pty Ltd. There is evidence that Mr Jennings had significant contact with officers from the Fair Work Ombudsman when they investigated complaints made by employees of those companies about underpayment of wages and entitlements.
There is evidence before me in the form of an affidavit by Jason Rhodes filed on 2 March, 2016, a person who describes himself as a “Team Leader – Gold Coast and Coffs Harbour, Regional Services Team”. Mr Rhodes was in the past employed as a Fair Work Inspector. Mr Rhodes’ evidence establishes that between 2006 and 2014 at least 13 individuals had made complaints to the Fair Work Ombudsman or its predecessor in relation to Step Ahead Security Services, Step Ahead Security Pty Ltd and Mr Jennings. The Fair Work Ombudsman had conducted audits in respect of Step Ahead Security Pty Ltd and Step Ahead Security Services. Investigations carried out by the Fair Work Ombudsman led to the issuing of several contravention letters, 37 compliance notices and a letter of caution to Step Ahead Security Pty Ltd and Mr Jennings.
Whilst neither respondent in this case is to be punished for the short comings of Step Ahead Security Pty Ltd, it is relevant to consider Mr Jennings’ conduct in the present case against the background knowledge that he must have had arising from those previous dealings.
There is clear evidence that the first respondent and Mr Jennings have disregarded the first respondent’s employees’ minimum entitlements notwithstanding Mr Jennings’ considerable involvement with the Fair Work Ombudsman and the warnings that have been issued to him by the Fair Work Ombudsman and predecessor agencies.
I accept the submissions for the Fair Work Ombudsman that in the circumstances, particularly those revealed by Mr Rhodes’ evidence, both Step Ahead Security and Mr Jennings have demonstrated calculated and deliberate conduct which plainly amounts to a blatant disregard for Australia’s workplace laws and the rights and entitlements of the first respondent’s employees.
The contraventions in these proceedings represent a significant underpayment to the eight employees concerned over a short three month period. The total amount underpaid is $22,779.72. The underpayments are still outstanding. The underpayments represent significant contraventions because:
a)they involve contraventions of minimum standards and in particular the payment of wages and entitlements;
b)the underpayment is significant for award reliant employees; and
c)the first respondent has retained the benefit of the underpayments to the detriment of the employees.
There is evidence that for two of the employees, Mr Lee and Mr Hateley, the failure to pay their minimum entitlements has impacted upon them significantly and in particular it has impacted upon them being able to maintain stable living arrangements and their ability to meet their financial commitments.
Although there have been prior complaints and investigations into the conduct of Step Ahead Security Services, Mr Jennings and the other companies to which I have referred, these are the first proceedings to be taken against either the company or Mr Jennings.
There is no evidence before me about the size of Step Ahead Security Services’ business. At the time of the audit conducted by the Fair Work Ombudsman, Step Ahead Security Services had eight employees. But neither respondent has put before the Court any evidence about the size of the business or its financial circumstances. There is some evidence that there may be winding up proceedings on foot against Step Ahead Security Services instigated by the Australian Taxation Office.
There can be no other conclusion than that the contraventions in this case were deliberate. Despite having been warned by the Fair Work Ombudsman in previous dealings relating to employee complaints that Mr Jennings and his businesses (by whatever entity he chose to conduct them) should meet the requirements of any applicable award it seems clear that Step Ahead Security Services and Mr Jennings have chosen not to do so in respect of these employees.
There is no evidence from either respondent to suggest any reason for the contraventions other than that the first respondent and Mr Jennings made a deliberate decision to pay the relevant employees a flat rate of pay as I have set out above rather than pay them according to the Award. There can be no doubt that Mr Jennings was aware when he agreed with each of the employees that they should be paid a flat rate of pay that he was contravening the Fair Work Act. Mr Jennings has been involved in the security industry for over a decade. He is clearly aware of the Award and the requirements for employees to have their entitlements under the Award met. His failure to ensure that that has occurred in respect of these employees is most concerning.
As the Fair Work Ombudsman points out, the respondents have expressed no contrition for their actions: there is no statement of regret or apology. The underpayment of $22,779.72 is still outstanding. There is no evidence of any action taken by Step Ahead Security Services or Mr Jennings to attempt to rectify the underpayments. There was no suggestion in oral submissions by Mr Jennings that the underpayments would be rectified.
It is necessary to record and to take into account when assessing penalty that both Step Ahead Security Services and Mr Jennings cooperated with the Fair Work Ombudsman after these proceedings were commenced. They have made appropriate admissions and have entered into a statement of agreed facts. There has been no necessity for a trial of these proceedings. A discount on the penalties that I impose to reflect that cooperation is appropriate.
Other cases have recognised that award rates in the security industry are not high and are barely above the minimum rate of pay: eg. Fair Work Ombudsman v Alarcorp Pty Ltd [2013] FCCA 1748 at [18]. Compliance with minimum standards is an important consideration because one of the stated principal objects of the Fair Work Act is the preservation of an effective safety net for employee entitlements and effective enforcement mechanisms. The award rates in this industry are, as remarked in Alarcorp, barely above minimum rates and maintenance of the safety net is important.
The need for specific deterrence in this case looms large. I have already found that the conduct of both Step Ahead Security Services and Mr Jennings was deliberate. It is deliberate, at least insofar as Mr Jennings is concerned, against a background of similar conduct in the past and against a background of a full appreciation by him of his company’s obligations towards the employees of the companies he controls (de facto or de jure). Mr Jennings was previously a director, secretary and shareholder of two companies providing services in the security industry that have been de-registered namely:
a)Cover Security Pty Ltd which was de-registered on 25 March, 2011; and
b)Step Ahead Security Pty Ltd which was de-registered on 15 June, 2014.
Cover Security had its principal place of business at the same address as the first respondent’s principal place of business. Step Ahead Security Pty Ltd was de-registered at a time when there were outstanding complaints of underpayment made by the employees of that company that were being pursued by the Fair Work Ombudsman.
The applicant suggests that the Deputy Commissioner of Taxation has commenced proceedings to wind up the first respondent. However, despite this, Mr Jennings continues to be active in the security industry through his involvement in another company named Tweed Coast Security Pty Ltd. There is evidence of Mr Jennings’ “LinkedIn Profile” which states he is a “company consultant” for Tweed Coast Security. Despite that rather bland description of Mr Jennings’ involvement with Tweed Coast Security, the evidence of Mr Lee and Mr Hateley is that Mr Jennings is in charge of the operations of Tweed Coast Security in the same way as he was in charge of the operations of Step Ahead Security Services.
Tweed Coast Security Pty Ltd operates out of the same premises from which the first respondent operated. It has the same registered address and uses security guards previously employed by the first respondent. According to records maintained by the Australian Investments and Securities Commission the sole director of Tweed Coast Security Pty Ltd is Kade Jennings and Ryan Joseph Jennings is its sole shareholder. Both of those people were previous shareholders of Cover Security Pty Ltd.
I accept the Fair Work Ombudsman’s submission that in this matter, the circumstances demand penalties that are of a level that make the contravening conduct unprofitable and to make the prospect of future contraventions commercially undesirable. The penalty in this case needs to be sufficient to deter both respondents from repeating the current contraventions.
General deterrence is also important in this case. Employers should be in no doubt that they have a positive obligation to ensure compliance with the obligations they owe to their own employees under the law. That seems to be particularly necessary in the security services industry.
There is evidence before me that in February, 2016 the Fair Work Ombudsman’s strategic research analysis and reporting team prepared an industry profile into the security industry. That profile presents a range of internal and external data and industry information to form “a holistic view of the industry”. Some of the data in the profile identifies that:
a)employment within the security industry is predicted to increase by 29% over the next four years to 2019;
b)the applicant has recovered more than $520,000 for over 192 workers since July, 2013 as a result of disputes lodged with the Fair Work Ombudsman in this particular industry; and
c)the largest expense incurred in investigation and security businesses are labour costs. Wages account for around 49% of revenue.
The security industry is inherently labour intensive according to the report’s conclusions. Profit margins are low and therefore security service companies’ look for ways to reduce costs such as subcontracting and using low cost labour. The Fair Work Ombudsman has received a total of 2,168 disputes over the period July, 2010 to January, 2016 relating to businesses registered as “investigation and security services”. There is evidence that data collected by the Fair Work Ombudsman in 2009 and 2011 as part of its national security industry campaigns revealed the strong need for deterrence in the security industry. The data revealed that only 51% of employers were complying with the Fair Work Act and the use of flat rates of pay by employers was widespread in an attempt to avoid the application of penalty and loading provisions.
Conclusions
In my view, having regard to the deliberateness of the breaches in this case by the first respondent, the fact that the underpayments have not been rectified, the fact that there has been no expression of remorse from the first or second respondents, the need for general deterrence in the security industry established by the evidence placed before the Court and the need for specific deterrence in this case for the reasons I have already set out, significant penalties are appropriate.
In respect of the individual contraventions the penalties will be as set out in Appendix A to these reasons. I have concluded that a penalty of 70% of the maximum for each contravention in respect of each respondent is appropriate. I have applied a discount of 20% as recommended by the fair Work Ombudsman to take into account the respondents’ cooperation in these proceedings. The penalties, in summary are:
a)for the first respondent $257,000.00; and
b)for the second respondent $51,400.00.
I have considered the totality of the penalties. Given the suggestion that Step Ahead Security Services is facing winding up proceedings and that Mr Jennings is involved in yet another security business via another corporate entity, I infer that the first respondent is not in a healthy financial position. Any penalty is likely to be difficult for the company to bear. I take that into account.
There is no evidence before me about the financial position of Mr Jennings. I cannot conclude that a penalty of the size set out above is likely to be crushing. Having regard to the facts set out above, it is, in my view, a proportionate response to the contraventions which Mr Jennings is taken to have committed.
Compensation orders
The Fair Work Ombudsman seeks orders for compensation in respect of the underpayments to each of the employees. It is appropriate that I make those orders against the employer – Step Ahead Security Services. However, the Fair Work Ombudsman also seeks similar orders for compensation against Mr Jennings.
Mr Jennings’ liability for the first respondent’s contraventions arises pursuant to s.550(1) of the Fair Work Act. That section is in the following terms:
550 Involvement in contravention treated in same way as actual contravention
(1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
(2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced the contravention, whether by threats or promises or otherwise; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d)has conspired with others to effect the contravention.
As the submissions for the Fair Work Ombudsman point out, a provision in like terms was found in the predecessor of the Fair Work Act, namely the Workplace Relations Act 1996 (Cth). Section 728 of the latter Act provided authority to impose a penalty upon an accessory to a failure to comply with an award. However, the power to order that a person make good an underpayment could only be exercised against an employer. So much was provided by s.719 which, relevantly, provided as follows:
(6) Where, in a proceeding against an employer under this section, it appears to the eligible court that an employee of the employer has not been paid an amount that the employer was required to pay under an applicable provision (except a term of an ITEA), the court may order the employer to pay to the employee the amount of the underpayment.
(7) Where, in a proceeding against an employer under this section, it appears to the eligible court that the employer has not paid an amount to a superannuation fund that the employer was required, under an applicable provision (except a term of an ITEA), to pay on behalf of a person, the court may order the employer to make a payment to or in respect of that person for the purpose of restoring the person, as far as practicable, to the position that the person would have been in had the employer not failed to pay the amount to the superannuation fund.
(8) Without limiting the generality of subsection (7), the eligible court may order that the employer pay to the superannuation fund referred to in subsection (7), or another superannuation fund, an amount equal to the amount (in this subsection called the unpaid amount) that the employer failed to pay together with such additional amount as, in the opinion of the court, represents the return that would have accrued in respect of the unpaid amount had it been duly paid by the employer.
(my emphasis)
By contrast s.545 of the Fair Work Act is more broadly worded. Section 545 provides:
545 Orders that can be made by particular courts
Federal Court and Federal Circuit Court
(1)The Federal Court or the Federal Circuit Court may make any order the court considers appropriate if the court is satisfied that a person has contravened, or proposes to contravene, a civil remedy provision.
(2)Without limiting subsection (1), orders the Federal Court or Federal Circuit Court may make include the following:
(a) an order granting an injunction, or interim injunction, to prevent, stop or remedy the effects of a contravention;
(b) an order awarding compensation for loss that a person has suffered because of the contravention;
(c) an order for reinstatement of a person.
By its terms, s.545(1) provides a broad power to “make any order the court considers appropriate” where the court is satisfied that a person has contravened a civil remedy provision. The only jurisdictional requirement is the need for the Court to be satisfied that a person has contravened, or proposes to contravene, a civil remedy provision.
In a case where the Court has found that a person is involved in a contravention for the purposes of s.550(1) of the Act and is therefore to be taken to have committed the contravention, the necessary satisfaction will always be achieved.
Subsection 550(1) requires the court to treat the accessory as having contravened the relevant civil remedy provision. Subsection 545(2)(b) makes it clear that the power in s.545(1) includes the power to make an order awarding compensation for loss that a person has suffered “because of the contravention”. It follows that where it is established that the accessory was “involved in” the contravention of the civil remedy provision the only jurisdictional requirement for making an order to pay compensation will always be met.
Only two cases seem to have given any consideration to the point to date. Whilst orders have been made in other cases, as the submissions for the Fair Work Ombudsman point out, in those cases the power has been assumed without argument.
The first case in which the point was given consideration was Scotto v Scala Bros Pty Ltd & Anor [2014] FCCA 2374. In that case Cameron J held that the Court had the power to order an accessory to pay compensation. His Honour contrasted the lack of power under the Workplace Relations Act with the provisions of the Fair Work Act, concluding that the broad power granted to the Court to make compensation orders extended to a power to make an order against a person “involved in” a contravention. However, his Honour’s judgment does not make clear what arguments were put against the proposition, and he was not asked to consider paragraph 2177 of the Explanatory Memorandum to the Fair Work Bill 2008.
The second case was my decision in Sponza v Coal Face Resources Pty Ltd [2015] FCCA 1140 where I determined to follow the approach of Cameron J in Scotto v Scala Bros Pty Ltd on the basis that it was not plainly wrong. In that case I was referred to paragraph 2177 of the Explanatory Memorandum to the Fair Work Bill 2008. On its face, that paragraph is inconsistent with the contention that s.545(1) permits a court to make an order for compensation against an accessory. Paragraphs 2175-2177 of the Explanatory Memorandum, dealing with s.545 of the Fair Work Act, provide:
2176. The clause means that a pecuniary penalty for a contravention of a civil remedy provision can also be imposed on a person involved in a contravention. For example, where a company contravenes a civil remedy provision, a pecuniary penalty can also be imposed on a director, manager, employee or agent of the company.
2177. However, while a penalty may be imposed on a person involved in a contravention, the clause does not result in a person involved in a contravention being personally liable to remedy the effects of the contravention. For example, where a company has failed to pay, or has underpaid, an employee wages under a fair work instrument, the director is not personally liable to pay that amount to the employee.
In Sponza I considered paragraph 2177 of the Explanatory Memorandum and accepted a submission that it was not consistent with a plain reading of s.545(1). Nonetheless I made an order that the accessory be made jointly and severally liable with the corporate employer to make the relevant compensation payments in that case. In my view, the text of s.545(1) of the Act was clear and unambiguous. There was no immediately apparent reason to read down the wide words of s.545(1) of the Act.
I remain of that view. There is no reason based on the text of the section to read down the broad power in s.545(1) such that orders awarding compensation for failing to pay an amount due under the Fair Work Act or a fair work instrument can only be made against the employer.
As the submissions for the Fair Work Ombudsman point out, extrinsic materials such as an Explanatory Memorandum can be considered in three ways:
a)as a matter of common law, to assist to determine the mischief to be remedied by the statute and by that means identify the purpose of the statute to assist to determine the intended meaning of particular text;
b)pursuant to s.15AB(1)(a) of the Acts Interpretation Act 1901, to confirm that the meaning of the provision is the ordinary meaning conveyed by the text; and
c)pursuant to s.15AB(1)(b) of the Acts Interpretation Act, to determine the meaning where the text is ambiguous or obscure or the ordinary meaning conveyed by the text is manifestly absurd or unreasonable.
Extrinsic materials however cannot be relied upon to displace the clear meaning of the text of the legislation: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at [47].
Dealing with the three circumstances in which extrinsic materials might be taken into account, first, the mischief that is sought to be remedied by this part of the Fair Work Act is the failure to abide by minimum employment standards. The object found in s.3(b) of the Fair Work Act, namely ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions is consistent with that proposition. The mischief is dealt with by providing power to court to impose civil penalties for breach and by providing a power to require a person who contravened a provision to compensate a person who has suffered a loss as a result of the contravention.
Nor is there anything in the objects of the Fair Work Act that would support the notion that the broad power ought to be read down.
Paragraph 2177 of the Explanatory Memorandum does not identify a mischief to be addressed that is inconsistent with the purpose that otherwise arises from the text of the legislation.
Second, there are two ways of reading paragraph 2177 of the Explanatory Memorandum. On one view paragraph 2177 is stating what is literally true, namely the mere fact that a person is found to have been “involved in” a contravention such that they must pay a penalty does not automatically result in them becoming liable to remedy the effects of the contravention. On that reading the Explanatory Memorandum could be used to confirm the ordinary meaning of the text, namely that a person who is an accessory is not liable to pay compensation whenever a penalty is imposed, but only where a court considers such a further order to be appropriate. An alternative reading of the paragraph is that the Explanatory Memorandum is expressing a view that the Fair Work Act does not grant the power to order that an accessory pay compensation. For the reasons expressed above, that is inconsistent with the ordinary meaning of the words of s.545(1) of the Act.
Third, while the Explanatory Memorandum can be used to confirm that the ordinary meaning of the words was intended, it cannot be used to potentially change the interpretation which might otherwise be reached, unless the Court first concludes that the text is ambiguous or obscure or that the ordinary meaning conveyed by the text is manifestly absurd or unreasonable. However, ss.545(1) and 545(2)(b) are not ambiguous or obscure. Nor could it be said that to grant a power to the federal courts to order accessories to pay compensation is absurd or unreasonable.
I accept the Fair Work Ombudsman’s submissions that in those circumstances the text of the Explanatory Memorandum cannot be used to lead to a different interpretation from that which arises from the text of the statute.
Moreover, my conclusion that the Court has power to make an order for compensation against an accessory is reinforced by the terms of s.545(3) of the Fair Work Act which provide a limited power to State and Territory courts to make orders for the payment of money against an employer only. Subsection 545(3) provides:
(3)An eligible State or Territory court may order an employer to pay an amount to, or on behalf of, an employee of the employer if the court is satisfied that:
(a) the employer was required to pay the amount under this Act or a fair work instrument; and
(b) the employer has contravened a civil remedy provision by failing to pay the amount.
That an eligible State or Territory court is by s.545(3) restricted to making underpayment orders against an employer only serves to confirm that this Court is not so constrained. The contrast in language is stark. Had the legislature intended State and Territory courts to have the same power as federal courts, s.545(3) would have been entirely unnecessary. Conversely, that the power of State and Territory courts to make orders about amounts required to be paid by employers is limited to orders against employers is strongly suggestive of the proposition that the power of federal courts is not so limited.
Finally, it is necessary to recognise, I think, that it is not necessary for an applicant for an order against an accessory to establish that it was the act of the accessory that caused the relevant loss or contravention. Subsection 545(2)(b) confirms that the Court has the power to award compensation for loss that a person has suffered because of the contravention. That does not mean, however, that before an order for compensation could be made against the accessory an applicant must demonstrate the loss suffered was because of the contravention by the accessory, rather than because of the primary contravention.
That is so for two reasons. First, s.550 directs a court to treat the accessory as having contravened the same civil remedy provision as was contravened by the employer. In that sense there is no different contravention that caused the loss. Second, the specific power set out in s.545(2)(b) is not the limit of the federal courts’ powers to make orders. As the opening words of s.545(2) make clear, the powers enumerated in that subsection are merely examples of the wide power to make any order the court considers appropriate that those courts can exercise and there is no reason to read the words in s.545(2)(b) as limiting that broad power.
But should the Court make the orders sought against Mr Jennings? The discretion conferred by s.545(1) is plainly unfettered but, no doubt, must be exercised judicially. In that respect, it seems to me that the following matters are likely to be relevant matters for consideration in most cases:
a)whether such an order is unnecessary given the capacity of the employer to make the compensation payments;
b)the nature and extent of the accessory’s involvement in the contravention;
c)any relevant public policy reasons; and
d)the nature of the order sought, including whether the accessory is to be made solely liable, or jointly liable.
That list is not intended to be exhaustive. It will vary from case to case depending on the circumstances of each.
In circumstances where it can be demonstrated that the principal contravenor will be able to pay the amount ordered, the utility of an order against an accessory at all might be questionable. That would be particularly so, for example, where the accessory had an ownership or proprietorial interest in the relevant employer and the employer’s business was continuing.
However here there is a real doubt that Step Ahead Security Services will be in a position to make the payments and there is no question that Mr Jennings is in a position to influence the first respondent. Those matters tend in favour of making an order against Mr Jennings and making him jointly and severally liable for those payments.
The nature of the accessory’s conduct and degree of involvement may be relevant in some cases. Where the conduct was clear and the result a significant loss to employees it is more likely, I would think, that the compensation orders would be made against an accessory. That would be less likely where the court forms the view that the accessory was not in a position to influence whether the employer brought about the loss.
In this case Mr Jennings was responsible for ensuring that Step Ahead Security Services complied with its legal obligations under the Fair Work Act. The underpayments arose despite the fact that Mr Jennings was plainly aware of Step Ahead Security Services’ statutory obligations. That must be so given his previous dealings with the Fair Work Ombudsman.
I accept the submission of the Fair Work Ombudsman that there is nothing about Mr Jennings’ involvement that would lead the Court not to make an order against him for the employee’s loss.
The policy reasons underpinning the imposition of compensation orders on accessories include the deterrence of conduct that undermines the standard required: Zhu v The Treasurer of New South Wales (2004) 218 CLR 530 at [121]. Public policy also requires the prevention of people retaining a benefit resulting from their misconduct. These considerations are plainly relevant when the Court determines whether or not to exercise its discretion to order those who control or influence an employer to abide by its statutory obligations to pay compensation.
I accept the Fair Work Ombudsman’s submission that the use of the power to award compensation in appropriate cases would go some way to discouraging those that control a corporate employer from allowing the corporation to fail only to continue the business via a new corporation. It would encourage them to take steps to ensure the corporation they control meets its statutory obligations as they arise.
That is a significant factor in this case. Mr Jennings was the sole director of two previous companies offering security services that were each wound up, the second one in circumstances where there were complaints of outstanding remuneration owed to employed security guards that were not pursued following the employer’s deregistration. Now Step Ahead Security Services is liable to be wound up in circumstances where Mr Jennings from mid-2014 has been operating what appears to be the same business out of the same premises via a fourth company.
I accept that given those facts there are no public policy reasons why an order for compensation would not be made against Mr Jennings.
The order sought is that Mr Jennings be jointly and severally liable with Step Ahead Security Services to pay compensation. In my view that order is appropriate. An order for several liability would not be appropriate because it may lead to a situation where the employees could potentially receive double compensation. They may ultimately be entitled to receive some portion of their wages from any liquidator that might be appointed to Step Ahead Security Services. Joint liability alone is also not appropriate.
Conclusion
In my view the orders and declarations set out at the commencement of these reasons are appropriate in the circumstances of this case.
I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 17 June, 2016.
Date: 17 June, 2016
Appendix A
| Contravention | Maximum penalty | Imposed penalties | |||
| Description of contravention | Total Underpayment amount | First Respondent | Second Respondent | First respondent 70% of maximum and 20% discount | Second respondent 70% of maximum and 20% discount |
| Failure to pay minimum wages - clauses 14.1 and A.2.5 of Schedule A to the Award | $4,565.99 | $51,000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay casual loading - clauses 10.5(b) and A.5.4 of Schedule A of the Award | $4,599.94 | $51,000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay Night Span Penalty - clauses 22.3 and A.5.4 of Schedule A to the Award | $3,340.15 | $51,000.00 | $10,200.00 | $$28,560.00 | $5,712.00 |
| Failure to pay Saturday Span penalty - clauses 22.3 and A.5.4 of Schedule A of the Award | $2,358.75 | $51,000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay Sunday Span Penalty - clauses 22.3 and A.5.4 of Schedule A to the Award | $5,548.31 | $51,000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay Public Holiday Span Penalty - clauses 22.3 and A.5.4 of Schedule A to the Award | $460.12 | $51, 000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay overtime - clause 23.3 of the Award | $201.88 | $51, 000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to pay Broken Shift Allowance - clauses 15.1(a) and A.5.4 of Schedule A to the Award | $638.55 | $51, 000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Failure to roster employees for a minimum shift of four hours - clause 21.2(a)(i) of the Award | $588.04 | $51, 000.00 | $10,200.00 | $28,560.00 | $5,712.00 |
| Totals | $22,779.72 | $459,000.00 | $91,800.00 | $257,040.00 | $51,408.00 |
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