Fair Work Ombudsman v The House of Colour At Tuggerah Pty Ltd

[2016] FCCA 1148

FEDERAL CIRCUIT COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v THE HOUSE OF COLOUR AT TUGGERAH PTY LTD [2016] FCCA 1148

Catchwords:
INDUSTRIAL LAW – Pecuniary penalties – failure to comply with three notices issued under s.716(2) of the Fair Work Act 2009 (Cth) (Act) demanding payment of amounts claimed to be owing to an employee under an award and under s.90(2) of the Act.

Legislation:

Fair Work Act 2009, ss.61(3), 90(2), 539(1), 546(1), 557(1), 716, 716(1),

716(2), 716(5)

Cases cited:
Australian Building & Construction Commissioner v Construction, Forestry, Mining and Energy Union (No 2) [2010] FCA 977; (2010) 199 IR 373

Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39
Construction, Forestry, Mining and Energy Union v Williams [2009] FCAFC 171
Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] FCAFC 59

Fair Work Ombudsman vKentwood Industries Pty Ltd (No 3) [2011] FCA 579
Kelly v Fitzpatrick [2007] FCA 1080; (2007) 166 IR 14
Mason v Harrington Corporation Pty Ltd [2007] FMCA 7

Sayed v Construction, Forestry, Mining and Energy Union [2015] FCA 338

Applicant: FAIR WORK OMBUDSMAN

Respondent: THE HOUSE OF COLOUR AT TUGGERAH PTY LTD ACN 159 331 754

File Number: SYG 2604 of 2014

Judgment of: Judge Manousaridis

Hearing dates: 26 February 2015; 10 June 2015

Delivered at: Sydney

Delivered on: 13 May 2016

REPRESENTATION

Solicitors for the Applicant: Ms C Baillie appeared on 26 February 2015; Mr J Robertson appeared on 10 June 2015.

No appearance by or on behalf of the respondent.

ORDERS

1. Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (FW Act) the respondent pay to the Commonwealth a pecuniary penalty in the sum of $23,500.

2. The respondent pay the pecuniary penalty referred to in order 1 within 28 days from the day on which these orders are made or within such further time as the applicant agrees or the Court directs.

3. The parties have liberty to apply in relation to the implementation of these orders.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2604 of 2014

FAIR WORK OMBUDSMAN

Applicant

And

THE HOUSE OF COLOUR AT TUGGERAH PTY LTD
ACN 159 331 754

Respondent

REASONS FOR JUDGMENT

Introduction

1. The applicant (FW Ombudsman) seeks an order pursuant to s.546(1) of the Fair Work Act 2009 (Cth) (FW Act) that the respondent (House of Colour) pay a pecuniary penalty in relation to House of Colour’s contravention of s.716(5) of the FW Act. That subsection provides that a person must not fail to comply with a notice given under s.716 of the FW Act.

Background

1. Until around June 2013, House of Colour operated a hair dressing business in Tuggerah, New South Wales.

2. From 30 October 2012 until 21 February 2013 House of Colour employed Ms Jodie Kay as a first year hairdresser apprentice. From 1 October 2012 until 28 February 2013 House of Colour employed Ms Hayley Stilton as a hairdresser. And from at least 8 October 2012 until 6 June 2013, House of Colour employed Ms Marlana Dalla-Vecchia as a hairdresser. All three were employed full time. The Hair and Beauty Industry Award 2010 (Award) applied to House of Colour’s employment of each of Ms Kay, Ms Stilton, and Ms Dalla-Vecchia.

3. In 2013 each of Ms Kay, Ms Stilton, and Ms Dalla-Vecchia (employees) lodged a complaint with the FW Ombudsman. The complaints were investigated by Inspector McDonnell, who formed a reasonable belief that House of Colour contravened s.90(2) of the FW Act by failing to pay to each of the employees their accrued and untaken annual leave entitlements that became payable when their employment with House of Colour was terminated.

4. On 23 July 2014 Inspector McDonnell issued to House of Colour compliance notices pursuant to s.716(2) of the FW Act in relation to each of the amounts House of Colour had failed to pay to the employees. The notices required that by 14 August 2014 House of Colour pay $456.57 to Ms Kay, $1,387.39 to Ms Stilton, and $1,776.35 to Ms Dalla-Vecchia. The notices also required that within seven days House of Colour produce evidence of its compliance with each of the notices. House of Colour failed to comply with the requirements of the notices.

5. Subsection 716(2) of the FW Act provides that an inspector may give to a person a notice requiring the person to take the action specified in the notice to remedy the direct effects of the contravention identified in s.716(1) of the FW Act. That subsection applies, however, only if an inspector reasonably believes that a person has contravened one or more of the provisions or terms referred to in s.716(1) of the FW Act. One of the contraventions referred to in s.716(1) of the FW Act is the failure to comply with a provision of the “National Employment Standards” (NES). Subsection 61(3) of the FW Act provides that Divisions 3 to 12 of Part 2-2 of the FW Act constitute the NES. Subsection 90(2) is included in Division 6 of Part 2-2 and, therefore, is a NES. Subsection 716(5) of the FW Act, which requires that a person to whom a notice under s.716(2) has been issued must not fail to comply with the notice, is a “civil remedy provision” within the meaning of s.539(1) of the FW Act.

6. The FW Ombudsman applied to this Court for relief, claiming that House of Colour had contravened s.716(5) of the FW Act by failing to comply with the compliance notices. House of Colour did not file any response to the application and, on 21 November 2014, I entered default judgment against House of Colour.

Principles

1. The approach of most courts when assessing penalties for a single contravention of the FW Act is to take into account the factors that were identified by Mowbray FM in Mason v Harrington Corporation Pty Ltd.[1] These factors are: the nature and extent of the conduct which led to the breaches; the circumstances in which the 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 party committing the breach; 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. Although any one or more of these factors may be relevant to the assessment of a pecuniary penalty in any given case, “courts have warned against the use of checklists because they give rise to the risk of transforming the process of instinctive synthesis into the application of a rigid catalogue of matters for attention”.[2]

   [1] [2007] FMCA 7. In Kelly v Fitzpatrick [2007] FCA 1080; (2007) 166 IR 14 at [14] Tracey J adopted this same list of factors as “potentially relevant and applicable”.

   [2] Australian Building & Construction Commissioner v Construction, Forestry, Mining and Energy Union (No 2) [2010] FCA 977; (2010) 199 IR 373 at [10] (Barker J)

2. Where, as in this case, there is more than one contravention committed by the one person, the first task is to determine whether the contraventions arose out of a single course of conduct by the person. If the contraventions arise out of a single course of conduct, then, under s.557(1) of the FW Act, the contraventions are taken to constitute a single contravention. The Court applies to that deemed contravention the factors that courts have considered relevant to assessing the amount of the pecuniary penalty for a single contravention.

3. Where the contraventions have not arisen out of a single course of conduct, a penalty must be separately assessed for each contravention. According to a number of authorities, in addition to considering the factors courts usually consider when assessing a penalty for a single contravention, the Court must also usually take into account the extent to which the contravention shares characteristics with the other contraventions. The idea is that the amount of the penalty for each contravention should reflect acts or omissions that are common to each contravention to avoid a person being penalised more than once for what in substance is a single contravention. This idea is sometimes given the name of “the one transaction principle”.[3] After this process is repeated for each contravention, and a penalty is assessed for each contravention, the Court should undertake “a final review of the aggregate penalty” to “determine whether it is an appropriate response to the conduct which led to the contraventions”.[4]

   [3]  See, for example, Construction, Forestry, Mining and Energy Union v Williams [2009] FCAFC 171 (Moore, Middleton, Gordon JJ); Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39 (Moore, Middleton, Gordon JJ); Sayed v Construction, Forestry, Mining and Energy Union [2015] FCA 338 at [31] (Mortimer J)

   [4] Fair Work Ombudsman vKentwood Industries Pty Ltd (No 3) [2011] FCA 579 at [10]

4. In Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union, the Full Federal Court held that the one transaction principle should be taken into account, not when assessing the penalty for each contravention, but after a penalty has been assessed for all contraventions:[5]

   The totality principle applies to the fixing of fines: Camilleri’s Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683 at 704; EPA v Barnes [2006] NSWCCA 246 at [43] [50]. The Court must fix a fine for each offence and then review the aggregate, considering whether it is just and appropriate, as a reflection of the overall criminality. Such consideration may lead to moderation of the fine imposed in respect of each offence: Barnes at [49]. It is at this stage that it is relevant to consider matters such as whether the separate offences were part of a single course of conduct (or whether the offences may be grouped together in some way as representing separate courses of conduct) and whether there is an overlap between the legal elements of some of the offences.

   [5] [2015] FCAFC 59 at [41]

Approach

1. With respect, there does not appear to be much utility in assessing the amount of a pecuniary penalty for each contravention before determining whether the contraventions in question share common elements. A more convenient approach would be first to assess the extent of the common elements among the contraventions. If, as a result of that assessment, the elements of two or more of the contraventions substantially overlap to such an extent as to render them in substance one contravention, the factors courts usually consider when assessing penalties for a single contravention should be applied to the contraventions as if they were in substance one contravention.

2. That is the approach the FW Ombudsman has taken in her written submissions. The FW Ombudsman submits that the House of Colour’s three contraventions have a sufficient similarity to be appropriately grouped together as a single contravention.[6] The FW Ombudsman points to the notices having been issued on the same day and sent to House of Colour under cover of the one letter, and to the notices relating to the same underlying conduct, being the failure to pay accrued annual leave entitlements on termination.[7] I propose to follow the FW Ombudsman’s approach.

Assessment of pecuniary penalty

[6] Applicant’s Penalty Submissions, [25]

[7] Applicant’s Penalty Submissions, [24]

The nature and extent of the conduct which led to the breaches

1. The nature of the conduct which led to House of Colour’s contraventions is its failure to comply with three compliance notices. There is no evidence to suggest House of Colour made any attempt to comply with the notices. On the contrary, the evidence satisfies me House of Colour made no attempt to comply with the notices.[8]

   [8] Affidavit of B J McDonnell, [23]-[28]

2. That, however, does not exhaust the conduct that it is relevant to examine; for the notice was issued in relation to contraventions of s.90 of the FW Act which an inspector of the FW Ombudsman had reasonable grounds for believing House of Colour had engaged in. I am aware that it is no element of a contravention of s.716(5) of the FW Act that the person to whom a notice under s.716(2) of the FW Act has been issued has in fact contravened any of the provisions identified in the compliance notice. A penalty for a contravention of s.716(5) of the FW Act cannot, therefore, be assessed on the assumption that the person to whom a compliance notice has been issued has contravened those provisions. Nevertheless, in my opinion, the nature of the contraventions alleged in the notice is relevant to assessing the nature and extent of the conduct that led to the contravention, at least where the person against whom the notice is issued has not indicated he or she disputes the matters alleged in the notice.

3. The evidence before me shows, and I find, that an inspector of the FW Ombudsman engaged with Mr Nevil Lal who was the sole director of House of Colour. The engagement included the inspector: issuing a notice to produce to House of Colour, with which House of Colour did not comply; sending to House of Colour detailed information about minimum rates of pay and allowances relevant to its employees; and arranging to meet with Mr Lal.[9] There is no suggestion in the evidence that Mr Lal, or any other person on behalf of House of Colour, disputed it was liable to pay the amounts the compliance notices required House of Colour pay in relation to each of the employees.

   [9] Affidavit of B J McDonnell, [35]

The circumstances in which the contravening conduct took place

1. The failure by House of Colour to comply with the compliance notices occurred in circumstances where an inspector of the FW Ombudsman attempted to engage with House of Colour, through its director, Mr Lal, in the manner to which I have already referred. Although Mr Lal did contact inspectors four or five times, Mr Lal did not comply with the notice to produce that had been served on House of Colour. The nature and extent of any loss or damage sustained as a result of the breaches

2. The FW Ombudsman points to each of the employees being young, and who relied on being paid their wages. House of Colour’s contraventions has deprived the employees of their lawful entitlements - $456.57 in the case of Ms Kay, $1,387.39 in the case of Ms Stilton, and $1,776.35 in the case of Ms Dalla-Vecchia. These are not insignificant amounts.

The size of the business enterprise involved

1. There is no evidence of the financial circumstances of House of Colour. It has, however ceased trading, which indicates it is likely it has no financial capacity to pay any pecuniary penalty. There is no evidence, however, that explains why House of Colour ceased trading.

Whether or not the breaches were deliberate

1. I have already found that House of Colour made no attempt to comply with the compliance notices. To that extent, I infer that House of Colour’s contraventions of s.716(5) of the FW Act was deliberate.

Contrition, cooperation, and corrective action

1. There is no evidence House of Colour has expressed contrition. Nor is there any evidence it has taken any corrective action or has attempted to cooperate with the FW Ombudsman.

General and specific deterrence

1. House of Colour has not previously been the subject of any proceedings by the FW Ombudsman. That is not surprising, given that House of Colour was registered in July 2012 and ceased trading in around June 2013. No aspect of specific deterrence therefore arises. General deterrence, however, is another matter.

2. The FW Ombudsman relies on statistics which disclose a high level of non-compliance with the FW Act in the hair and beauty industry, a substantial proportion of which relates to young workers. The FW Ombudsman submits that the penalty should send a message to employers that they must provide their employees with the correct entitlements and take steps to respond to notices issued by government regulators such as the FW Ombudsman. I accept those submissions.

Overall assessment

1. In my opinion, the penalty should be set at the upper end of the scale. House of Colour has not disputed the allegations made in each of the notices that it did not pay to the employees the amounts specified in the notices; House of Colour has not responded in any meaningful way to the FW Ombudsman’s communications and notices to produce; House of Colour’s non-compliance relates to young employees who rely on minimum entitlements; and there is no evidence to explain why House of Colour did not comply with the notices. These circumstances disclose a disregard by House of Colour of the FW Act. The penalty, therefore, should reflect not only these aspects of House of Colour’s contraventions, but the necessity to signal to the community that contraventions of the FW Act in these circumstances will be punished at the upper end of the scale, and thus serve as a deterrent to other employers from contravening the FW Act.

2. In my opinion, $23,500 is an appropriate pecuniary penalty. I propose, therefore, to order that House of Colour pay to the Commonwealth a pecuniary penalty in the sum of $23,500, and that it should make that payment within 28 days.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date:  13 May 2016