Fair Work Ombudsman v Theill Pipelines Pty Ltd & Anor
[2021] FCCA 492
•5 February 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v THEILL PIPELINES PTY LTD & ANOR | [2021] FCCA 492 |
| Catchwords: INDUSTRIAL LAW – Pecuniary penalty – failure to comply with compliance notice – consideration of appropriate penalties – importance of deterrence – where second respondent is a bankrupt – where respondents failed to comply with non-monetary aspects of a compliance notice – deliberate conduct – penalties to be paid by the first and second respondents. |
| Legislation: Fair Work Act 2009 (Cth), ss.539, 546, 550, 716 Building and Construction General On-site Award 2010 |
| Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3 Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301 Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor [2020] FCCA 2358 Kelly v Fitzpatrick [2007] FCA 1080 Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 155 Trade Practices Commission v CSR Ltd [1990] FCA 762 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | THEILL PIPELINES PTY LTD |
| Second Respondent: | GARRY VINCENT O’NEILL |
| File Number: | MLG 198 of 2020 |
| Judgment of: | Judge Mercuri |
| Hearing date: | 3 February 2021 |
| Date of Last Submission: | 3 February 2021 |
| Delivered at: | Melbourne |
| Delivered on: | 5 February 2021 |
REPRESENTATION
| Advocate for the applicant: | Ms Kyriakdis |
| Solicitors for the applicant: | None |
| Advocate for the first respondent: | None |
| Solicitors for the first respondent: | None |
| Advocate for the second respondent: | Ms Duncan |
| Solicitors for the second respondent: | Maloney Anderson Legal |
ORDERS
Pursuant to section 456(1) of the Fair Work Act 2009 (Cth) and with respect to the contraventions of section 716(5) of the Fair Work Act 2009 (Cth) being the subject of the declarations made on 28 October 2020:
(a)the first respondent pay a pecuniary penalty to the Commonwealth of Australia fixed in the sum of $18,900 within 28 days or such longer period as agreed to by the applicant; and
(b)the second respondent pay a pecuniary penalty to the Commonwealth of Australia fixed in the sum of $3,150 within 28 days or such longer period as agreed to by the applicant.
The applicant have liberty to apply.
AND THE COURT NOTES THAT:
(A)Pursuant to rule 16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth), the court may vary or set aside a judgment or order made in the absence of a party.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 198 of 2020
| FAIR WORK OMBUDSMAN |
Applicant
and
| THEILL PIPELINES PTY LTD |
First Respondent
and
| GARRY VINCENT O’NEILL |
Second Respondent
REASONS FOR JUDGMENT
(revised from the transcript)
These reasons for judgment were delivered orally. They have been corrected from the transcript. Grammatical errors have been corrected and an attempt has been made to render the orally delivered reasons amenable to being read.
Before the court is an application by the Fair Work Ombudsman for the imposition of pecuniary penalties on each of the respondents for contraventions of the Fair Work Act 2009 (Cth) (“the FW Act”). The applicant relies upon the following documents:
a)initiating application and statement of claim filed on 20 January 2020;
b)affidavit of Luke Patrick Finnegan affirmed and filed on 7 September 2020;
c)affidavit of Anastasia Kyriakdis affirmed 21 September 2020 and filed on 5 October 2020;
d)affidavit of Anastasia Kyriakdis affirmed and filed on 27 October 2020;
e)affidavit of Anastasia Kyriakdis affirmed and filed on 1 February 2021;
f)affidavit of the Senior Fair Work Inspector Lauren Marie Kelly, sworn on 22 December 2020 and filed on 23 December 2020; and
g)written submissions filed on 23 December 2020.
The second respondent relies upon:
a)his affidavit affirmed on 20 January 2021 and filed on 21 January 2021; and
b)written submissions filed on 21 January 2021.
Background
By way of brief procedural background, on 28 October 2020, the court entered default judgment against both the first and second respondents. Based on the respondents’ deemed admissions, the court also made declarations that:
a)the first respondent had contravened section 716(5) of the FW Act by failing to comply with a compliance notice; and
b)the second respondent was involved in that contravention within the meaning of section 550 of the FW Act and, therefore, was also taken to have contravened section 716(5) himself.
In brief, I will turn to the factual background for this matter.
From 1999 to January 2020, the first respondent operated an excavation business in the construction industry, principally in North West Victoria, but also, for a period of time, in Banyo, Queensland. The second respondent was, at all material times, the sole director of the first respondent. Mr Michael Carol (“the employee”) was employed by the first respondent to work in Banyo, Queensland from 2009 until late 2018.
In October 2019, the applicant served a compliance notice on the first respondent pursuant to section 716 of the FW Act. The first respondent did not comply with the compliance notice and ultimately ceased operation on 1 January 2020.
The first respondent has not participated in these proceedings. The second respondent was declared a bankrupt in March 2020. He has participated in these proceedings and was represented and continues to be represented. It is common ground that:
a)at all relevant times the second respondent was the sole director of the first respondent;
b)upon being declared bankrupt he ceased to hold that position; and
c)consequently, the first respondent ceased to have a director.
No other directors have been appointed to the first respondent. However, the evidence before the court is that the first respondent remains registered to date.
Compliance notice
A compliance notice was issued by the applicant to the first respondent dated 4 October 2019 on the basis that a Fair Work Inspector had formed a reasonable belief that the first respondent had contravened provisions of the National Employment Standards and the Building and Construction General On-site Award 2010.
Pursuant to the compliance notice, the first respondent was required to take certain steps to remedy the contraventions, including identifying the amounts paid to the employee in respect of the entitlements identified therein and producing evidence of compliance. The first respondent was given until 15 November 2019 in which to comply with that notice.
On 14 November 2019, the second respondent contacted Mr Luke Ryan, the Fair Work Inspector dealing with this matter, in relation to the compliance notice. In that conversation, the second respondent discussed the financial difficulties which the first respondent was experiencing, particularly in Queensland, and there was also some reference made in that discussion to the second respondent’s wife’s illness.[1] It is clear from that file note that Mr Ryan explained to the second respondent the following:
a)unless there is a reasonable excuse, a failure to comply with the compliance notice is itself a contravention of the FW Act;
b)if the compliance notice is not complied with, legal proceedings could be issued; and
c)if the first respondent did not intend to comply with the compliance notice, the second respondent should write to the Fair Work Ombudsman explaining the company’s financial position, its incapacity to pay the amounts owed, and provide evidence to support those facts.
[1] See file note in court book pages 246 to 247.
The first respondent did not comply with the compliance notice, nor did it or the second respondent provide any evidence that it had attended, at a minimum, to the calculation of the employee’s entitlements and the amounts paid to him, as required by the compliance notice.
Default judgment
The applicant commenced these proceedings on 17 January 2020. As stated, on 28 October 2019, the court entered default judgment against the respondents and made declarations pursuant to the FW Act.
The second respondent filed an affidavit in these proceedings on 21 January 2021 in which he relevantly states that, in 2019, the first respondent was struggling financially and suffered losses of about $80,000. He referred to his discussions with Mr Ryan in November 2019 and conceded that the first respondent did not comply with the compliance notice.
He further stated that he became bankrupt on 18 March and consequently ceased to hold office as the director of the first respondent. The second respondent further stated that in November 2019, whilst the first respondent was required to comply with the compliance notice, he was in hospital for some three weeks with his wife in Melbourne. He further stated that he has never been involved in a case such as this before, that he has – to the best of his knowledge – paid all of his employees their wages and entitlements, other than the employee concerned, but that, because of the amount that this particular employee claimed, he could not afford to pay.
Section 716 relevantly provides for compliance notices to be issued. It forms part of Part 5-2 Division 3 of the FW Act which establishes the office of the Fair Work Ombudsman and confers upon the Fair Work Ombudsman various powers to assist it in carrying out its functions.
It is common ground that section 716(5), which provides that a person must not fail to comply with a compliance notice properly given, is a civil remedy provision. The power to issue a compliance notice was introduced as an alternative way for the Fair Work Ombudsman to deal with employer’s failures to meet their minimum entitlement obligations without the need to commence litigation.
The court has previously recognised that compliance notices provide an efficient mechanism to rectify identified contraventions, including the underpayment of minimum entitlements to employees, without the need for costly and often time-consuming litigation. I refer, in particular, to the judgment of Judge Blake of this court in Fair Work Ombudsman v NoBrace Centre Pty Ltd & Anor (No. 2) [2019] FCCA 2144 and the cases referred to in that decision.
This is a particularly important enforcement option where a breach may be a one-off or may not involve a significant amount of money.
Relevantly, section 716(4B) provides:
A person who complies with a notice in relation to a contravention of a civil remedy provision is not taken:
(a) to have admitted to contravening the provision; or
(b) to have been found to have contravened the provision.
Had the first respondent complied with the compliance notice, these proceedings would not have been necessary, and, moreover, there would have been no finding of a contravention or the capacity to impose a penalty on either of the respondents. However, as stated, the first respondent has continued to fail to comply with the compliance notice within the timeframe specified or, indeed, at any time prior to the commencement of these proceedings in January 2020. Indeed, it is common ground that the first respondent has still not complied with any aspect of the compliance notice and, in this regard, it is noteworthy that the compliance notice required not only the payment of certain amounts of money but also the calculation of the amounts owed to the employee and what, if any, amount had already been paid. Whilst the first respondent, through the second respondent’s evidence, seems to have maintained that it was unable to make the payments to the employee because of the financial strife in which it found itself, no explanation has been given as to why the first respondent was unable to provide the information requested by the compliance notice about the employee’s entitlements and how much the employee had already received.
Submissions on penalty
Turning then to the question of what penalty ought to be imposed. Both the applicant and the second respondent recommend a penalty be imposed. However, there is a difference as to the level of that penalty.
As stated, no submissions on penalty were made by the first respondent. It is common ground that under section 539(2) and section 546(2) of the FW Act, the maximum penalty which could be imposed in this case is $31,500 in the case of the first respondent and $6,300 in the case of the second respondent. The applicant seeks a penalty of 60 per cent of that maximum to be imposed on both the first and the second respondents. The second respondent seeks a penalty of 10 per cent of the maximum to be imposed upon him and makes no submission in relation to what if any appropriate penalty ought to be imposed in relation to the first respondent.
The court has a broad discretion under section 546 of the FW Act. The principles which apply to the court’s discretion are well established, as noted by French J, as he then was, in Trade Practices Commission v CSR Ltd [1990] FCA 762:
Punishment for breaches of the criminal law traditionally involved three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act].… The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.[2]
[2] Trade Practices Commission v CSR Ltd [1990] FCA 762 at [43].
Similarly, in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3, the High Court recently considered the purpose and intent of the court’s powers under the FW Act to order the imposition of civil penalties. Keane, Nettle and Gordon JJ relevantly stated:
As has been observed, the principal object of an order that a person pay a pecuniary penalty under s 546 is deterrence: specific deterrence of the contravener and, by his or her example, general deterrence of other would-be contraveners. According to orthodox sentencing conceptions as they apply to the imposition of civil penalties, specific deterrence inheres in the sting or burden which the penalty imposes on the contravener. Other things being equal, it is assumed that the greater the sting or burden of the penalty, the more likely it will be that the contravener will seek to avoid the risk of subjection to further penalties and thus the more likely it will be that the contravener is deterred from further contraventions; likewise, the more potent will be the example that the penalty sets for other would-be contraveners and therefore the greater the penalty’s general deterrent effect. Conversely, the less the sting or burden that a penalty imposes on a contravener, the less likely it will be that the contravener is deterred from further contraventions and the less the general deterrent effect of the penalty. Ultimately, if a penalty is devoid of sting or burden, it may not have much, if any, specific or general deterrent effect, and so it will be unlikely, or at least less likely, to achieve the specific and general deterrent effects that are the raison d’etre of its imposition.[3]
[3] Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3 at [116].
In determining whether and, if so, what penalty ought to be imposed for particular conduct, the court is required to have regard to a range of factors. Those factors were identified by Tracey J in Kelly v Fitzpatrick [2007] FCA 1080 at [14]. I do not propose to set out that list, however, it is set out in that paragraph. That list, while convenient, does not prescribe or restrict the matters to which the court must or may have regard in determining an appropriate penalty.[4]
[4] Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 155 at [11]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] 165 FCR 560 at [27], [28], [55] and [78].
The relevant approach to the determination of an appropriate penalty was also summarised in Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301 at [36] by Bromwich J. In this case, where there is only one contravention alleged, the court is required to:
a)identify the contraventions;
b)consider the appropriate penalty for each contravention; and
c)apply the ‘totality principle’ and assess whether the overall penalty is an appropriate response to the conduct which lead to the contravention, including by reference to any penalties proposed by the applicant and the respondents.
I should note that the second respondent did not take issue with the applicant’s submissions as to the legal principles which regulate the manner in which the court must approach the issues of determining an appropriate penalty, or the maximum penalties which could be imposed in this case. The difference between the parties is how those principles ought to be applied to the facts in this case.
Nature and circumstances of conduct
Turning then to the relevant factors in this case, I will deal first with the nature and circumstances of the conduct. The applicant submitted that in the circumstances of this case, the first respondent’s failure to comply with the compliance notice and the second respondent’s involvement in that non-compliance is serious and represents a deliberate disregard of the obligations imposed upon employers by the FW Act and the industrial instruments made pursuant to that Act. Moreover, it was submitted that the first respondent and the second respondent’s failure to comply with the compliance notice and their approach to the issues raised in this proceeding demonstrates a deliberate disregard for the authority of the applicant as the regulator of Commonwealth workplace laws.
In response, it was submitted for the second respondent that the first respondent’s failure to comply with the compliance notice was not deliberate, nor was it a flagrant disregard of the applicant’s authority. Rather, it was submitted for the second respondent that at the time the employee ceased working for the first respondent, it was the second respondent’s belief that the employee had no claim to any entitlements on termination.
Moreover, the second respondent submitted that by the time he became aware of the compliance notice and the underpayment in October 2019, the financial situation for the first respondent had become dire. As stated, he also said that at that time he was facing some personal difficulties given his wife’s illness and hospitalisation. In that context, it was submitted that his conduct and that of the first respondent ought not to be viewed as deliberately seeking to avoid obligations under workplace laws.
The second respondent further submitted that he has been involved in the first respondent’s business for many years, including as sole director, and that in all of that time, this is the first time that either the first respondent or the second respondent had been subject to claims in relation to unpaid employee entitlements.
I accept on the basis of the evidence before me that the second respondent believed that the employee had no outstanding entitlements on termination. I also accept on the evidence before me that the second respondent’s wife was ill and underwent surgery in late 2019 which may well have distracted the second respondent from personally attending to this matter in a diligent manner.
However, it is apparent from the affidavit of Ms Kelly[5] that an investigation into the employee’s entitlements was commenced in or about April 2019. As early as 18 April 2019, the first respondent was served with the notice to produce documents and records which was not responded to by the first respondent within the time specified. It appears from annexure LMK-5 to Ms Kelly’s affidavit that the second respondent was involved in discussions about this issue. There was no explanation in the second respondent’s affidavit as to what, if any, enquiries he made about the employee’s claimed entitlements once he was contacted by the Fair Work Ombudsman in April 2019.
[5] Affidavit of Lauren Marie Kelly sworn on 22 December 2020 and filed on 23 December 2020.
In addition, in his affidavit, the second respondent asserted that throughout 2019, the first respondent was struggling financially. He stated that it was operating at a loss of some $80,000. There was no independent documentary evidence which supports an assertion of a loss in that amount.
Indeed, the profit and loss statement annexed to the second respondent’s affidavit at annexure GVO-5[6] for the financial year ending 30 June 2019 shows a slight profit of over $24,000. It is not clear, therefore, how the second respondent asserted that the business operated at a loss of $80,000.
[6] Court book page 414.
I also note that the second respondent submitted that, as the first respondent’s liability under the compliance notice was unexpected, it did not have the financial capacity to pay the amounts claimed in that notice. Moreover, it was submitted that the second respondent could not compel the first respondent to pay an amount when it did not have the funds to do so.
However, as noted, the financial statements provided do not support the assertion made that the first respondent did not have the financial capacity to pay the amounts claimed in the notice. And whilst the profit and loss statement was in respect of the financial year ending 30 June 2019, the second respondent has not produced any financial statements for the period beyond 30 June 2019, noting that he was not declared bankrupt until March 2020. Moreover, there was no evidence that either the first respondent or the second respondent thought to enter into a payment plan or any other arrangement to discharge the obligations that the first respondent had under the compliance notice.
Involvement of senior management
It was common ground that the second respondent was the sole director and secretary of the first respondent and was personally involved in dealing with this issue. As I say, he had discussions with the inspector both in early 2019 and then once the compliance notice was issued.
Whilst I accept that the second respondent was dealing with a personal crisis in late 2019, he remained the sole director of the first respondent at that time and had an obligation to ensure that the business of the first respondent was adequately attended to. Indeed, his own evidence was that he delegated the running of the business to a Mr Stephen Atkinson. No evidence was led about Mr Atkinson’s actions in relation to this issue.
In any event, the second respondent did speak to Mr Ryan about the notice, was given advice by Mr Ryan as to what options he had, and did not comply with that advice.
Size of the business
It was conceded that the first respondent’s business is not a large or sophisticated one. However, on the second respondent’s own evidence, it is clear that the business had been in operation for many years, had operated in two states and had employed up to 8 employees at any one time. It is, therefore, not an insignificant business.
It is also clear from the file note of the discussion between the second respondent and Mr Ryan in November 2019 that the first respondent engaged a bookkeeper or accountant to assist with the company’s account. No explanation was offered as to why appropriate support was not sought from that person in relation to responding to the compliance notice.
Moreover, it was submitted for the applicant that, in any event, the size and financial circumstances of an employer does not justify the non-compliance with workplace laws. There is much force to this submission. An employer is required to comply with workplace laws. Whilst the second respondent may have relied upon others and may have mistakenly formed the view that Mr Carol was not entitled to any payment on termination, there was nothing in the second respondent’s material which addressed what enquiries he made when the matter was first raised with him in April 2019.
Corrective action, cooperation and contrition
It was submitted that the first respondent’s continued failure to comply with the compliance notice was clear evidence that there is no contrition on its part. Moreover, the applicant submitted that the first respondent continued to fail to comply not only with the compliance notice, but also with orders of this court made on 28 October 2020 which required it to comply with the compliance notice.
The first respondent had minimal engagement with the applicant during its investigation and has not engaged at all with these proceedings. I therefore accept the applicant’s submission in relation to the contrition, cooperation and corrective action by the first respondent. Moreover, whilst I accept that the first respondent currently does not have a director, it does remain registered, and no explanation has been given as to why it does not currently have a director.
It was also submitted for the applicant that the second respondent’s engagement in these proceedings had also been limited, and that, in those circumstances, the court should find that the second respondent had also not shown appropriate contrition or appropriately cooperated with the applicant. It was submitted that there should be no penalty discount on the basis of co-operational contrition or corrective action taken.
For the second respondent it was submitted that he had indeed expressed remorse and contrition. He said that this contravention ought to be viewed against a history of never having previously faced any underpayment claims, notwithstanding his lengthy involvement in the first respondent’s business. The second respondent also pointed to the fact that he used some of his own funds to meet other employees’ entitlements when they were terminated from the business and that these factors show that he is committed to doing the right thing by employees.
He also submitted that since the contravention, he had been declared bankrupt, had minimal income and, as a bankrupt, he cannot act on behalf of the first respondent. Therefore, there was a level of complexity arising from that situation.
There is some force to the second respondent’s submissions in this regard. However, I note that the second respondent was not declared bankrupt until 18 March 2020, and there was no evidence as to what steps he took before being declared bankrupt to have the first respondent comply with the compliance notice.
On balance, I find that:
a)the evidence does not support any finding that the first respondent had shown remorse, contrition or has cooperated with the applicant; and
b)whilst the second respondent had, to an extent, engaged with the applicant in these proceedings, overall his conduct does not, in my view, weigh heavily in his favour in terms of contrition or cooperation.
I do note that the second respondent did ultimately consent to judgment being entered against him, although I note that that came fairly late in these proceedings. I therefore find, on balance, that there has been some limited cooperation by the second respondent and no cooperation by the first respondent.
Compliance with minimum standards
It was submitted for the applicant that for the statutory purpose to which compliance notices are directed to be effective, a failure to comply with such notices must carry meaningful consequences. This is particularly so if they are to be effective in providing an enforcement mechanism which avoids litigation with the attendant costs and delay. It was submitted that penalties for non-compliance with a compliance notice must be set a sufficient level to deter other parties from simply ignoring such notices or otherwise failing to comply with them.
As noted by Judge Kendall in Fair Work Ombudsman v Soma Kitchen Pty Ltd & Anor [2020] FCCA 2358, after setting out the terms in section 716, he said:
[28]Section 716 was enacted to provide an alternative to litigation. In effect, s 716 is an informal mechanism by which the applicant can undertake its functions pursuant to s 682 of the Act and seek compliance with minimum entitlements without having to commence court proceedings.
[29]Section 716 is beneficial for all parties involved. It allows the applicant to carry out its statutory function and remedy potential contraventions of the Act. It provides the employer (or alleged contravener) the opportunity to rectify any contraventions without any admission or finding of liability.
The explanatory memorandum which accompanied the amendments introducing section 716 of the FW Act relevantly said:
The functions of the FWO emphasise preventative compliance (e.g. through education and advice) and co-operative and voluntary compliance (e.g. through enforceable undertakings). However, in some circumstances it will be necessary for the FWO to enforce compliance more formally, through compliance notices or court proceedings.
It is clear from the explanatory memorandum that compliance notices are an alternative to court proceedings. I agree with the submission made by the applicant that the penalty imposed for non-compliance with a compliance notice must be at such a level which dissuades employers from simply using non-compliance as a means to continue to avoid meeting their obligations.
Were the contraventions deliberate?
It was submitted for the second respondent that the contraventions were not deliberate. Rather, that the circumstances which led to the contraventions were the result, initially, of the mistaken belief that the employee had no outstanding entitlement on termination. The issuing of the compliance notice then coincided with the first respondent experiencing a significant decline in work resulting in it having no funds to rectify the situation and comply with the notice.
As stated earlier, the difficulty I have in accepting this submission is that the compliance notice did not simply require the payment of outstanding entitlements, it also required the calculation of entitlements and what payments had been made in satisfaction of those entitlements. No explanation was proffered for either of the respondents as to why those non-financial things were not done, even if one accepts that there were financial limitations on the first respondent’s capacity to make the payments required.
Whilst I accept the second respondent did not intentionally set out to underpay the employee, once the notice was issued, the second respondent did not show that it took any steps to respond to the compliance notice, save for contacting the Fair Work Inspector to say that the first respondent had no funds. In that sense, the respondents’ actions in not complying with the notice were, in my view, ‘deliberate’.
Deterrence
Both parties accepted that one of the key considerations to which the court must have regard in determining an appropriate penalty is deterrence, both specific and general.
General deterrence
It was submitted for the applicant that the imposition of a penalty must not simply be seen as part of the cost of doing business if the penalty is to have meaningful deterrent effect. It was further submitted that in considering what penalty would have a general deterrent effect in this case, it was relevant to have regard to the fact that the first respondent operated in the construction industry and that industry accounted for 13.5 per cent of all disputes raised with the applicant. Moreover, it was submitted that the construction industry constituted the second largest industry in which disputes about underpayment of wages and entitlements were raised with the applicant.
It was submitted for the second respondent that this factor ought to be given limited weight in the circumstances of this contravention on the basis that the first and second respondents did not have the financial capacity to comply with the compliance notice. Moreover, it was submitted that the contravention arose from the precarious financial position of the first respondent when the compliance notice was issued and that the underpayment was an unexpected expense. Therefore, this was not a case of a situation where either the first respondent or the second respondent simply did not budget for specific entitlements, and thereby preferenced the business cash flow ahead of employee interests.
It was also submitted that this was a case which arose from an initial mistake which could have been rectified in the ordinary course, but unfortunately, was compounded by the poor financial position of the first respondent when the compliance notice was issued.
I do not accept the second respondent’s submissions in this regard. General deterrence cannot apply only when a respondent consciously and intentionally sets out to act in contravention of its obligations as an employer. Organisations and individuals who employ staff must take their responsibilities to their employees seriously. As the authorities to which I have previously referred show, penalties imposed for failing to meet those obligations must be at a sufficient level to have sufficient ‘sting’ or ‘burden’ so as to deter employers from failing to meet those obligations.
Moreover, in this case the contravention which is the subject of these proceedings is the failure to comply with a compliance notice. The deterrence, therefore, is directed to ensuring that employers take the responsibility to respond to a compliance notice, unless there is a reasonable excuse, seriously. The level of the penalty to be imposed must be at a level which has the capacity to deter employers from simply ignoring the notice or, as in this case, asserting that there is no money, and doing nothing more to comply. And again, I come back to the point that not only did the respondents fail to pay the amount claimed as owed to the employee, but they did nothing else to comply with the notice.
Specific deterrence
It was conceded that specific deterrence was less significant in this case in circumstances where the second respondent had given evidence that:
a)he was an undischarged bankrupt;
b)he was no longer a director of the first respondent; and
c)it was his intention to retire later this year.
However, it was submitted for the applicant that the evidence before the court shows that the first respondent remained registered. It continued to have shareholders although it did not have a current director. The applicant further submitted that:
a)the first respondent had failed to comply with the compliance notice;
b)the first respondent had failed to engage with the applicant either during the investigation or during this litigation; and
c)there was no evidence of any steps taken by the first respondent to put in place remedial steps to ensure that future contraventions do not occur.
I agree with the applicant’s submissions in relation to specific deterrence and general deterrence.
Consideration
Having considered each of these factors, the applicant submitted that the court ought to impose 60 per cent of the maximum penalty, both in respect of the first respondent and the second respondent. It was submitted for the applicant that penalties of that magnitude were not oppressive or crushing and were reflective of the seriousness of the conduct engaged in by both the first and second respondents. No submissions were made on the question of penalty by the first respondent.
In circumstances where:
a)the first respondent had done nothing to comply with the compliance notice, including those aspects which did not require the expenditure of any monies; and
b)the first respondent continued to fail to comply not only with the compliance notice but also orders of this court;
I am satisfied that it is appropriate for a penalty set at 60 per cent of the maximum applicable to be applied in relation to the first respondent.
As to the second respondent, he had participated, albeit to a more limited extent, in these proceedings. He had expressed his remorse and cooperated, albeit belatedly, with the applicant in agreeing to orders being made in October 2020. Therefore, I believe that some discount ought to be granted to the second respondent as compared to the first respondent.
However, having regard to the need for deterrence – both general and specific in this case – I am not satisfied that a penalty set at 10 per cent of the maximum would be appropriate in all of the circumstances. The second respondent was involved in the contravention of failing to comply with the compliance notice. As stated, there were aspects of the compliance notice which could have been and should have been done and which did not require the expenditure of money.
Having regard to the purpose of compliance notices as an efficient and effective means by which the applicant can seek to address underpayment issues, penalty for non-compliance must be set at a level which discourages employers from simply ignoring such notices on the basis that there will be little, if any, consequences to them doing so.
Having regard to all of these factors, I therefore find that a penalty set at 50 per cent of the maximum is appropriate for the second respondent.
In relation to the amount of time to pay any penalties, the applicant sought orders that the penalties be paid within 28 days. However, in oral submissions, the applicant indicated that it would be amenable to providing the respondents more time to pay, provided that time was reasonable.
With that in mind, I propose allowing further time for payment of the penalties subject to the agreement of the applicant.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Judge Mercuri
Associate:
Date: 16 March 2021
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