Fair Work Ombudsman v VIP Security Services Pty Ltd
[2018] FCCA 1969
•20 July 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v VIP SECURITY SERVICES PTY LTD & ANOR | [2018] FCCA 1969 |
| Catchwords: INDUSTRIAL LAW – Commonwealth – Compliance and enforcement – Civil remedies – Pecuniary penalty orders – Assessing penalty – Deterrence. INDUSTRIAL LAW – Commonwealth – Compliance and enforcement – Civil remedies – Pecuniary penalty orders – Amount of penalty – Totality and proportionality. |
| Legislation: Fair Work Act 2009, ss.550(1), 557(1) |
| Cases cited: Fair Work Ombudsman v Lohr [2018] FCA 5 Rocky Holdings v. Fair Work Ombudsman [2014] FCAFC 6 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | VIP SECURITY SERVICES PTY LTD |
| Second Respondent: | ADAM MARCINKOWSKI |
| File Number: | BRG 560 of 2017 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 19 April 2018 |
| Date of Last Submission: | 21 May 2018 |
| Delivered at: | Brisbane |
| Delivered on: | 20 July 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr McKechnie |
| Solicitors for the Applicant: | Fair Work Ombudsman |
| Counsel for the Respondents: | Ms Hartigan |
| Solicitors for the Respondents: | Wotton & Kearney Insurance Lawyers |
ORDERS
THE COURT DECLARES THAT:
The First Respondent contravened:
(a)s.340 of the Fair Work Act 2009 (Cth) by taking unlawful adverse action against Theo Kouros;
(b)s.45 of the Fair Work Act 2009 (Cth) by failing to ensure that Matt Donohoe and Theo Kouros were better off on individual flexibility agreements in accordance with clause 7.3(b) of the Security Services Industry Award 2010;
(c)s.45 of the Fair Work Act 2009 (Cth) by failing to pay casual loading in accordance with clause 10.5(b) of the Security Services Industry Award 2010;
(d)s.45 of the Fair Work Act 2009 (Cth) by failing to pay broken shift allowance in accordance with clause 15.6 of the Security Services Industry Award 2010;
(e)s.45 of the Fair Work Act 2009 (Cth) by failing to pay night span penalty in accordance with clause 22.3 of the Security Services Industry Award 2010;
(f)s.45 of the Fair Work Act 2009 (Cth) by failing to pay permanent night span penalty in accordance with clause 22.3 of the Security Services Industry Award 2010;
(g)s.45 of the Fair Work Act 2009 (Cth) by failing to pay Saturday penalty in accordance with clause 22.3 of the Security Services Industry Award 2010;
(h)s.45 of the Fair Work Act 2009 (Cth) by failing to pay Sunday penalty in accordance with clause 22.3 of the Security Services Industry Award 2010;
(i)s.45 of the Fair Work Act 2009 (Cth) by failing to pay public holiday penalty in accordance with clause 22.3 of the Security Services Industry Award 2010;
(j)s.45 of the Fair Work Act 2009 (Cth) by failing to pay overtime in accordance with clause 23.3 of the Security Services Industry Award 2010;
(k)s.45 of the Fair Work Act 2009 (Cth) by failing to reimburse employees for the cost of uniforms in accordance with clause 15.11(b) of the Security Services Industry Award 2010;
(l)s.323 of the Fair Work Act 2009 (Cth) by failing to pay some if its employees in full;
(m)s.44 of the Fair Work Act 2009 (Cth) by failing to pay personal leave in accordance with s.99 of the Fair Work Act 2009 (Cth); and
(n)s.44 of the Fair Work Act 2009 (Cth) by failing to pay annual leave in accordance with s.90 of the Fair Work Act 2009 (Cth).
The Second Respondent was involved in each of the First Respondent’s contraventions in declaration 1 above within the meaning of s.550 of the Fair Work Act 2009 (Cth).
THE COURT ORDERS THAT:
Pursuant to s.546(1) of the Fair Work Act 2009 (Cth) the Second Respondent pay pecuniary penalties of $115,668 in respect of his involvement in each of the contraventions set out above.
BY CONSENT THE COURT FURTHER ORDERS THAT:
Pursuant to s.546(3)(a) of the Fair Work Act 2009 (Cth) the Second Respondent pay the pecuniary penalties to the Commonwealth within 28 days of the date of this order.
Pursuant to s.545(1) of the Fair Work Act 2009 (Cth), the Second Respondent is to engage a third party with qualifications in accounting or workplace relations to undertake an audit of compliance with the Fair Work Act 2009 (Cth) and the Security Services Industry Award 2010 on the following terms:
(a)the audit period will be the period commencing on the date of this order and ending six months after the date of this order (Audit Period);
(b)the audit is to be completed within two months of the date of this order (Audit Completion Date);
(c)the audit will apply to all employees and persons otherwise engaged to perform work for VIP Securities International Pty Ltd (ACN 623 436 840) at any time during the Audit Period;
(d)according to each VIP Securities International Pty Ltd’s classification of work, category of employment and hours of work worked during the Audit Period, the audit will assess compliance with wages and work related entitlements under the Security Services Industry Award 2010; and
(e)within 30 days of the Audit Completion Date, the Second Respondent will provide to the Applicant:
(i)a copy of the audit report which will include a statement of the methodology used in the audit; and
(ii)written details of any contraventions identified in the audit, the steps VIP Securities International Pty Ltd will take to rectify any identified contravention(s) and by when the rectification will occur.
Pursuant to s.545(1) of the Fair Work Act 2009 (Cth), that the Second Respondent will, within 60 days of the date of this order, provide all persons employed or engaged by VIP Securities International Pty Ltd as security guards with a workplace notice on the following terms:
(a)the workplace notice must contain:
(i)information on the rates payable under the Security Services Industry Award 2010;
(ii)information on individual flexibility agreements, including their affect, the “Better Off Overall Test”, and the fact that employees are not required to agree to them; and
(iii)information on how to contact the Fair Work Ombudsman;
(b)the workplace notice must be in a form approved by the Applicant at least 7 days prior to the Second Respondent providing the workplace notice; and
(c)the Second Respondent will provide proof to the Applicant that the workplace notice has been circulated to the employees of VIP Securities International Pty Ltd within 14 days of the workplace notice being approved by the Applicant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 560 of 2017
| FAIR WORK OMBUDSMAN |
Applicant
And
| VIP SECURITY SERVICES PTY LTD |
First Respondent
| ADAM MARCINKOWSKI |
Second Respondent
REASONS FOR JUDGMENT
These are the Court’s reasons for the making of the orders and the imposition of the penalties set out at the commencement hereof in respect of certain contraventions of the Fair Work Act 2009 (Cth) by the first and second respondents in connection with the employment of four of its employees.
Since these proceedings were commenced, the first respondent has commenced to be wound up and so no relief, other than relevant declaratory relief, is sought against the company. I will say more about that later in these reasons, but for present purposes it is sufficient to record that the penalties that are to be imposed for the contraventions are to be imposed only upon the second respondent.
The second respondent is and was at all times from 22 February, 2016 the sole director of the first respondent and was involved in the operation and management of it. The second respondent admits the contraventions of the Act alleged against the first respondent and that he was involved in those contraventions for the purposes of s.550(1) of the Fair Work Act. Because the second respondent accepts that he was involved in the first respondent’s contraventions for the purposes of s.550(1) of the Fair Work Act, the second respondent is to be taken to have committed the contraventions himself. Further, because the first respondent is now in liquidation, I am not asked to impose penalties upon the first respondent. For the sake of convenience then, for the purposes of these reasons I shall hereafter refer to the second respondent simply as the respondent. I shall not differentiate between the respondents, except where such differentiation is relevant.
Aside from the discretionary exercise of fixing an appropriate penalty for each of the admitted contraventions, there is an issue of fact as to whether the relevant contraventions were deliberate or the result of inadvertence on the part of the second respondent.
Both parties called evidence, most of which was not controversial. Some of the evidence relating to the receipt of legal advice concerning the terms upon which the first respondent engaged employees and the inferences to be drawn from that evidence is controversial, but there was no request to cross-examine the second respondent or any other witness.
The matters are to be determined against the following facts as agreed between the parties and as I find them to be.
The respondent was born in Poland and came to Australia in 1981. Between 2004 and 24 September, 2008 he worked as a security guard on the Gold Coast and earned approximately $660 - $700 per week. On 24 September, 2008 he registered the first respondent and started working for himself using that company to operate his business. As the business grew he hired others to work as security guards to assist him.
Urszula Marcinkowski, the respondent’s wife, was a director of the first respondent from 30 March, 2011 to 22 February, 2016. Pino Flego was employed by the first respondent as its Operations Manager from on or around 4 April, 2016.
The second respondent’s evidence is that the first respondent had attempted to win work with the Gold Coast City Council a number of times. He swears that he was always told that the first respondent was “too expensive”. A contract for security work was to be awarded in early 2015. The second respondent swears that in early 2015 he and a friend, Pino Flego, “spent a number of days preparing the tender for the GCCC contract”. From that evidence of the respondent, it is open to infer, and I do infer that as part of the process of preparing the tender, the respondent needed to give close consideration to the labour costs of the business given that his previous attempts to win a contract with the Council had failed because the first respondent was “too expensive”. Part of that consideration would have required a knowledge of what the first respondent intended to pay to any person it intended to employ to enable the first respondent to carry out the contracted work. The respondent was aware that there was a regulatory regime in place because he gives evidence that he called the Fair Work Ombudsman “a number of times” and consulted the applicant’s website. Whilst he claims to have not understood the material on the website, he gives no particulars of what it was that he saw that he did not understand.
As matters transpired, in April, 2015 the first respondent was awarded the contract for which it had tendered with the Gold Coast City Council. The contract was to provide security services at 270 Council locations on and around the Gold Coast. The contract was to run between April, 2015 and April, 2017. A short time elapsed between the awarding of the contract and its commencement. In less than a month, the second respondent was required to hire 50 security guards, purchase cars and draft run sheets for each of the 270 sites the first respondent was required to service. The first respondent went from three employees to 50 employees in a very short space of time.
There is no dispute that the Security Services Industry Award 2010 applied to the employment of security guards by the first respondent. The respondent accepts that it did.
The respondent deposes that after winning the contract, he thought it was “important” to have an employment agreement in place. He does not say why he thought it was important. In April, 2015 he spoke to a lawyer and, he says, said words to the effect of:
I need an employment contract for VIP employees. I don’t know what I’m supposed to pay each employee. Is it possible to pay our guards a flat rate? Since the day rate is $19.49 and the night rate is $23, would a flat rate of $24 be enough? I don’t have experience in employing staff and I don’t understand all of this terminology dealing with employment.
A number of matters are apparent from that evidence. First, the respondent clearly knew that there were prescribed rates of pay because he nominates them precisely. Second, he plainly knew that different rates applied to work that was applied at different times, again, because he nominates the rates. Third, the suggestion of $24 per hour is his. Fourth, he did not understand “all of this terminology dealing with employment”, and plainly he was seeking advice about those matters.
At the lawyers’ request, the respondent sent a list of employees and their rostered hours for each week to them. The respondent swears that the lawyers “were going to advise me what to pay each employee in accordance with the award. But because staff and their hours kept changing, [the lawyers] couldn’t keep up with all the different pay rates that applied”. The respondent swears that he said to the lawyer with whom he was engaging:
Can’t we just have a flat rate that we pay to everyone with one generic contract?
The lawyer told the respondent that they would “draw up a generic contract”. He does not say when this conversation occurred.
Again, a number of matters are apparent from that evidence. First, the respondent clearly knew there was an Award that covered the employees’ employment. Second, the Award provided for different rates of pay. Third, the rates of pay were clearly connected to the “staff and their hours”.
Despite the respondents desire to have his lawyers tell him what the first respondent’s employees should be paid, the evidence demonstrates that the respondent already knew that. At the time Aritos Kouros, a security guard employed by the first respondent, signed his employment contract on 24 April, 2015 he was given a page of pay rates that reflected the Award rates pay and referred to the Award classification of employees.
On 1 December, 2015 the lawyers sent the respondent an email with what he says he thought was a generic employment contract attached to the email “on its own”. He says that “The email did not have any other document attached. I opened the attachment and went straight to the pay rate in (what I thought was) the contract. When I saw that Prestige had inserted $24 per hour, I thought Prestige had decided that rate was legally acceptable.” However, this evidence is disingenuous. The email is exhibited to the respondent’s affidavit filed on 31 October, 2017. It is in the following terms (emphasis in the original):
Dear Mr Marcinkowski
Please see attached* for your review our Individual Flexibility Agreement for VIP Security Services’ Security Guards (the IFA).
The IFA has been drafted in the form of a template, allowing you to fill in the details unique to each employee in a schedule, rather than being required to draft a new agreement for each employee.
Before implementing the IFAs, please be aware that the IFA, as drafted, will comply with legislation provided that the Guards’ average 4 week work cycle is the same as that provided in Schedule 2 of the IFA. Accordingly, you will be required to closely monitor all Guards’ hours of work so that each Guard is working, on average, the same hours in the night span, Saturday span, Sunday span and day span over each 4 week work cycle.
In these circumstances, if a Guard, for example, works:
• overtime; or
• more weekends than normal; or
• more nights than normal,
you will be required to make changes to their roster in subsequent weeks to ensure that they would not be better off overall if they had been paid as prescribed under the relevant award. This could be achieved by rostering the relevant guard on for more day shifts in subsequent weeks or reducing the employee’s hours to ensure that they are working, on average, 152 hours over each four week work cycle.
Should you have any questions or concerns, please do not hesitate to contact us.
The respondent does not say that he did not read the email. Indeed, he must have to have discovered that its purpose was to forward an IFA for his review. The body of the email demonstrates that the respondent was made aware (if he was not before) of the various types of pay rates applicable under the Award – the night span, Saturday span, Sunday span and day span. The email carries a very clear and emphasised warning about the limitations of the IFA. Given that warning and the fact that the rate of $24 per hour was the rate suggested by the respondent himself, it is very difficult to accept his assertion that “When I saw that Prestige had inserted $24 per hour, I thought Prestige had decided that rate was legally acceptable”. I do not accept that assertion.
The respondent says that on 6 July, 2016 he received an email from the applicant asking the first respondent to provide documents for their investigation. The respondent forwarded this email to his wife and told her to read it and to put together all the documents for the applicant. On 8 August, 2016 the respondent gave to the applicant a number of documents in response to a Notice to Produce. Included was a letter from the first respondent’s lawyers dated 7 September, 2015. On 5 October, 2016 during an interview with the Fair Work Inspector who was investigating this matter the respondent was shown this letter. It was apparently sent by email and addressed to the respondent’s wife, Urszula. That letter, three pages in length, amongst other things said:
Based on the reasons below, we do not consider that your proposed flexibility arrangements satisfy the Better Off Overall Test and are, in fact, unlawful if entered into, rendering the:
(a) flexibility arrangement capable of being declared invalid if challenged by an employee; and
(b) Company potentially liable for fines and penalties.
The letter goes on to record:
1. Original Employment Arrangements
As detailed in our previous correspondence, in order for an IFA to be lawful, the Company’s proposed remuneration must result in the Guards being better off overall when compared to the remuneration they received pursuant to the Award. Accordingly, a comparison must be made of the remuneration that a Guard will receive under any IFA and what the Guard currently receives pursuant to the Award.
Based on the average hours worked as originally instructed and the applicable rates of pay pursuant to the Award, we estimate that, pursuant to the Award, the Guards’ average salary each 28 day, 4 week cycle (the Cycle) would be $3,652.32 broken down as follows:
[table omitted]
Accordingly, for any IFA to be valid, the Guards must receive at least $3,652.32 per Cycle.
2. The Flexibility Arrangement
Based on your most recent instructions with respect to this matter, we understand that you wish for all Guards’ IFAs to provide that the Guards will be:
(a) working on the basis of 4 days on, 4 days off on a rotating roster;
(b) working eight (8) hour shifts;
(c) paid at a flat rate of $24.00 per hour;
(d) paid for one thirty (30) minute meal break taken throughout the course of each of their shifts; and
(e) receiving a discount of 20% on all additional torches, socks, belts, tactical bags and additional equipment purchased through LE Gear (the Discount), (collectively, the Flexibility Arrangement).
Based on the matters set out above, we have calculated that, excluding the Discount, the Flexibility Arrangement will result In each Guard receiving an average of $2,688.00 each Cycle. Accordingly, the Flexibility Arrangement will result in the Guards being paid at least $964.32 less than if they are paid in accordance with the Award due to the Guards, under the Flexibility Arrangement, only working, on average, 112 hours each Cycle as opposed to 152 under the Original Arrangements. In these circumstances, we do not consider that the Discount will provide the Guards with a benefit sufficient to compensate for this shortfall.
…
3. How Can This Issue Be Resolved?
As is clear from the information provided above, the Flexibility Arrangement will not satisfy the Better Off Overall Test and is, therefore, capable of being struck out as invalid if challenged by a Guard. The Company may also be potentially liable for fines and penalties if it was to proceed to implement the Flexibility Arrangement.
In addition, we consider that the Flexibility Arrangement effectively changes the Guards’ basis of employment from full time to part time. In these circumstances, we consider that the Flexibility Arrangement is incapable of being effected by entering into an IFA since the Award makes it clear that an IFA may only be used to vary the hours in which work may be performed, as opposed to the total number hours required to be performed.
The respondent claims to have never seen this advice before it was produced to him by the Fair Work Inspector. He gives evidence that he has discussed the matter with his wife since he has been shown it but she does not recall receiving the letter either. She swears that she must have “forgotten about it”.
Neither the second respondent nor his wife were challenged on their evidence in cross-examination. Nonetheless, it is difficult to accept that having gone to the trouble to instruct lawyers to provide advice about the proposed rate and the contractual arrangements to be put in place between the first respondent and its employees, the first respondent and his wife would not follow up on the request for that advice. It was plainly something of some significance given the respondent’s evidence that he had engaged lawyers for the express purpose of obtaining advice about these matters very soon after the first respondent won the Gold Coast City Council contract in April, 2015. It seems, frankly, inexplicable that having sought that advice on such a significant matter, the respondent or his wife (who was also a director at the time the advice was sought) would not be anxiously awaiting its receipt.
To suggest, as the second respondent does, that between instructing the lawyers in April, 2015 and the receipt of the email sent to him in December, 2015 with the generic IFA there was no contact with the lawyers and no receipt of any advice about the employment arrangements that the first respondent was attempting to put in place stretches credulity. Indeed, the letter from the lawyers dated 7 September, 2015 refers to “your Instructions to prepare IFA (IFAs) for all of the Company’s security guards” and to matters “detailed in our previous correspondence”. That indicates that rather than the impression that is given by the respondent’s evidence that the contact with the lawyers seemed to occur in April, 2015 and then not again until December, 2015 there was more frequent contact. The nature and the extent of that contact, however, is not clear.
Nonetheless, giving the respondent the benefit of the doubt, I find that he did not see the relevant letter of advice dated 7 September, 2015.
However, he did see the email sent to him in December, 2016 by the lawyers which attached the generic IFA. The terms of that email were apt to bring to the respondent’s attention the difficulties with the arrangements that he wished to put in place for the first respondent’s employees. Without careful attention to the hours worked by each employee as pointed out in that email, there was a very real risk that the arrangements would fall foul of the Fair Work Act. There is no evidence that the respondent paid attention to those matters or paid any attention to the matters the lawyers pointed out to him. In those circumstances, I am satisfied that the respondent’s action in implementing the IFAs was plainly reckless. He showed no concern for whether those arrangements were within or without the Fair Work Act.
Relevantly for this proceeding, the first respondent employed five employees – Theo Kouros, Matthew Donohue, Jason Bosworth, Michael Sanders and Gregory Dell – who each worked as security guards for the first respondent.
Mr Dell worked for the first respondent from 13 April, 2015 to 9 June, 2016. He always worked as a full time security guard, although he performed light duties because of an injury from 13 March, 2016 to 9 June, 2016. He was paid $24 per hour during his employment and underpaid a total of $7,022.49. This was repaid to him in December, 2016 almost six months after his employment ended.
Mr Kouros worked for the first respondent from 3 August, 2015 to 9 May, 2016 on a full-time basis. On 1 April, 2016 he was offered an “Individual Flexibility Agreement” by the first respondent’s Operations Manager, Aristo Kouros, which he signed. He was paid $24 per hour.
On 11 April, 2016 Theo Kouros contacted Pino Flego to ask why he had been rostered to work for fewer hours than the 80 hours per fortnight he usually worked. Mr Flego told him that he was not a full-time employee. On 6 May, 2016 Mr Kouros sent the second respondent and Mr Flego an email regarding his employment status and his hours of work, referring to the IFA dated 1 April, 2016 and noting he had spoken to a Fair Work Inspector. On 9 May, 2016 acting under instruction of the Second Respondent, Pino Flego terminated Mr Kouros’ employment.
Mr Donohoe worked for the first respondent from 9 October, 2015 to 4 August, 2016. He was offered an IFA on 1 February, 2016 pursuant to which he was paid $24 per hour.
Mr Bosworth worked as both a security guard and a dog handler for the first respondent from 6 January, 2016 to 19 May, 2016. Mr Bosworth gives evidence that prior to working for the first respondent, he was looking for full time employment and that he relocated his family in order to work for the first respondent on the understanding that he was entitled to the corresponding benefits. After his employment was terminated, the respondents refused to pay his personal leave for a hospital stay and failed to pay his annual leave. He was paid $24 per hour during his employment and underpaid a total of $3,972.58. This was repaid in December, 2016 again more than six months after his employment ended.
Mr Sanders worked as both a security guard and a dog handler for the first respondent from 4 January, 2016 to 22 May, 2016. Mr Sanders has worked as a security officer for approximately 27 years. In or about mid-December, 2015 Mr Sanders was performing security work on a casual basis. He met with the second respondent to discuss working as a security dog handler with the first respondent. During the meeting, the second respondent told Mr Sanders that he would receive annual leave and sick leave entitlements. However, this did not happen when Mr Sanders worked for the first respondent. Mr Sanders was paid $24 per hour during his employment and underpaid a total of $4,942.96. His underpaid entitlements were paid to him in December, 2016.
The first respondent paid each of the employees a flat rate of pay of $24.00 per hour for all hours worked, regardless of whether they were working on a full time or casual basis. Further, the first respondent engaged in a practice whereby it required its employees to pay a $250 refundable deposit in exchange for a uniform to be deducted from their wages and reimbursed at the end of their employment. Pursuant to that requirement, the first respondent deducted $250 from the wages of Mr Dell, Mr Bosworth and Mr Sanders. In addition, a further $120 was deducted from the wages of Mr Bosworth and Mr Sanders. The amounts deducted from the wages of Mr Bosworth and Mr Sanders were repaid on 2 December, 2016 when the other underpayments were rectified.
The applicant commenced its investigation of the first respondent and the contraventions alleged against it in April, 2016. In late April, 2016 Mr Kouros complained to the applicant about his hours of work. His employment was terminated in early May.
On 19 May, 2016 and after terminating Mr Bosworth’s employment, the first respondent refused to pay to Mr Bosworth his personal leave and failed to pay his annual leave accrued up to and upon the termination of his employment. Soon thereafter, on 22 May, 2016 the first respondent failed to pay Mr Sanders’ annual leave when it terminated his employment. On 9 June, 2016 and after terminating Mr Dell’s employment, the first respondent refused to pay to him his accrued annual leave.
On 8 August 2016, the respondents provided documents to the applicant in response to a Notice to Produce. On 5 October, 2016 the second respondent submitted to a record of interview with a Fair Work Inspector. Later, in or around October, 2016 the first respondent ceased the requirement for employees to have deductions made from their wages in respect of uniforms as a result of advice from a Fair Work Inspector that such a practice was unlawful.
On 16 November, 2016 the applicant issued a contravention letter to the first respondent alleging that it had contravened the fair Work Act in a number of respects and on 2 December, 2016 the first respondent paid a total of $15,938.03 to Messrs Dell, Bosworth and Sanders in respect of the amounts that they had been underpaid as identified in the contravention letter.
The contraventions
The parties agree that the contraventions should be identified as follows:
Contravention
Number of employees affected
Number of times contravention occurred
Maximum penalty (body corp)
Maximum penalty (indiv)
1.
s 340: adverse action by terminating Theo Kouros because he made enquiries in his employment
1
1
$54,000
$10,800
2.
s 45: failure to ensure that Donohoe & Theo Kouros were better off overall under IFAs
2
2
$54,000
$10,800
3.
s 45: failure to pay Bosworth & Sanders casual loading 2
numerous
$54,000 $10,800 4.
s 45: failure to pay Dell & Bosworth broken shift allowance 2
numerous
$54,000 $10,800 5.
s 45: failure to pay Dell & Bosworth night span penalty 2
numerous
$54,000 $10,800 6.
s 45: failure to pay permanent night span 3
numerous
$54,000 $10,800 7. s 45: failure to pay Saturday rates 3 numerous $54,000 $10,800 8.
s 45: failure to pay Sunday rates
3
numerous
$54,000
$10,800
9.
s 45: failure to pay public holidays
3
numerous
$54,000
$10,800
10.
s 45: failure to pay overtime
3
numerous
$54,000
$10,800
11.
s 45: failure to reimburse for uniforms
3
numerous
$54,000
$10,800
12.
s 323: failure to pay wages in full
3
numerous
$54,000
$10,800
13.
s 44: failure to pay Bosworth personal leave
1
1
$54,000
$10,800
14.
s 44: failure to pay Bosworth, Dell & Sanders annual leave on termination
3
3
$54,000
$10,800
Totals
$756,000
$151,200
The Applicant argues that the respondent is entitled to the benefit of s.557(1) of the FW Act. And so he is. Most of the contraventions set out in the table above consist of numerous individual contraventions of the relevant provision. I have noted those in the table above. Despite those multiple contraventions, the respondent is entitled to the benefit of s.557(1) of the FW Act such that each of contraventions 2 to 12 and 14 above, should be treated as single contraventions of those civil remedy provisions.
The applicant suggests that it is appropriate to group contraventions 5 and 6 (night span penalty and permanent night span penalty) together and treat them as one contravention based on the “common element of penalties payable for hours worked at night”. Similarly, the applicant suggests that contraventions 8 and 9 (Saturday rates and Sunday rates) should grouped together and treated as one contravention based on the “common element of penalties payable for weekend work”. However, having regard to the decision in Fair Work Ombudsman v Lohr [2018] FCA 5 I do not consider that approach to be open. In that case Bromwich J considered an appeal as to whether the treatment of multiple groups of different contraventions (arising from the payment of a flat rate of pay) as a single contravention and assessing the applicable penalty on that basis was an error. His Honour referred to the decision of the Full Federal Court in Rocky Holdings v Fair Work Ombudsman [2014] FCAFC 62 and said:
33. The written submissions for the FWO on these grounds summarised the error asserted to have been made by the primary judge as follows (emphasis in original; footnotes omitted):
24. First, properly understood, the “one transaction” or “course of conduct” principle does not permit a sentencing judge to impose a single sentence for multiple contraventions on the basis that they formed part of a course of conduct, except where that is a course agreed or accepted by the parties. Absent a statutory provision that provides otherwise, a sentencing judge is required to impose a separate penalty for each contravention, having considered whether the penalties need to be adjusted to avoid the aggregate penalty being excessive. The Primary Judge did not do that.
25. Second, s.557 of the Act is the express statutory manifestation of the one transaction or course of conduct principle. By enacting s.557 Parliament has determined how multiple contraventions arising from a course of conduct are to be treated. Having applied s.557 of the Act it was not open for the Primary Judge to further consolidate the 12 contraventions into one contravention by applying that principle, in effect, again.
34. Those submissions for the FWO should be accepted. Despite the important factual differences between this case and Rocky Holdings, the Full Court’s decision in that case compels this outcome. Even if section 557 allows for the continued application of the course of conduct principle, which may be doubted, the application of section 557 to the facts of this case meant that there was no remaining work for the course of conduct principle to do. The fact that flat rates of pay cannot operate to deny the multiplicity of contraventions that this approach was found by his Honour to have produced.
In my view, the approach urged upon me in respect of contraventions 5 and 6 and 8 and 9 is not available having regard to that explanation of Rocky Holdings and the way in which s.557(1) of the Fair Work Act is intended to operate.
On that basis, the maximum penalty that might be imposed upon the second respondent is $151,200.
Matters relevant to penalties
A principal object of the FW Act is the preservation of an effective safety net for employee entitlements and effective enforcement mechanisms. Compliance with minimum standards is vital to the fundamental objects of the FW Act. The Act provides for imposition of penalties upon those who do not observe its terms. The overarching purpose for the imposition of civil penalties is “to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [55], citing Trade Practices Commission v CSR Ltd [1990] FCA 52. I approach the task of fixing penalties from that point of view.
The contraventions to which the respondent admits occurred over a 14 month period. During that period, the respondent failed to adhere to minimum standards by paying a flat rate of $24 per hour which resulted in underpayments to five employees, $15,938.03 of which related to three of those employees, failing to pay minimum entitlements such as personal leave and annual leave, failing to ensure two employees on IFAs were better off than under the Security Award, and terminating one employee because he enquired about his hours of work.
It is important to note, I think, that the first respondent paid the employees a flat rate of pay from the outset of their employment which in the case of Mr Kouros and Mr Dell was many months before the respondent was provided with the generic IFA by the lawyers. Thus, the offending underpayment conduct cannot be explained away by reference to the respondent attempting to have the employees sign up to an IFA at the time their employment commenced and thinking that a flat rate was appropriate.
The introduction of the IFAs seems to have been an attempt by the respondent to regularise the first respondent’s conduct in paying the employees a flat rate for the course of their employment. But it is clear from the respondent’s own evidence that at all relevant times he knew that the employees were entitled to be paid according to the Award rates. There is no evidence of the particular steps he took to ensure that the rate that the first respondent paid was sufficient to discharge its responsibilities.
After a Fair Work Inspector visited the respondent on 21 April, 2016 the inspector was contacted by five employees of the first respondent in relatively quick succession – Aristo Kouros, Mr Dell, Theo Kouros and Mr Bosworth on 29 April, 2016 and then Mr Sanders on 4 May, 2016.
Thereafter, the first respondent:
a)terminated the employment of Theo Kouros because he asked about his hours of work on 9 May, 2016 as I have set out above;
b)refused to pay Mr Bosworth personal leave accrued while he was admitted to hospital from 12 to 18 May, 2016; and then
c)failed to pay Mr Dell, Mr Bosworth and Mr Sanders annual leave on termination. The latter occurred despite a meeting initiated by Mr Bosworth and Mr Sanders with the second respondent on 28 April, 2016 at which the second respondent reassured the two that they would receive those entitlements.
The applicant submits that the respondent’s conduct, spanning around 14 months and affecting five different employees, is indicative of systemic behaviour which suggests not only an utter disregard for the law, but also a lack of consideration for basic entitlements, workplace rights and decency. I accept that submission.
The respondent was aware of the first respondent’s obligations to pay the employees certain rates of pay pursuant to the Award depending upon the shifts that they worked. So much is clear from his own evidence in these proceedings and what might be inferred from the correspondence from the lawyers. Further, the applicant has relied upon evidence from Aristos Kouros. He was employed as a security guard in April, 2015. Mr Kouros’ evidence went unchallenged. He swears:
12. Shortly after I received the First Payslip, I was approached by Adam while I was at the Office. It was the start of one of my shifts, and there were about 4 or 5 other patrol drivers there about to start their shifts. Adam said to me and the other guards words to the effect of “I can’t keep paying award wages. We’re going to do a flat rate of $24 per hour until I can get on top of things ... then everything will return to normal.” I did not feel like I had a choice but to accept the flat rate of $24 per hour (Flat Rate) rate because I needed the work and the money.
At least recklessly, in my view, the respondent then chose to utilise the purported IFAs in the face of a clear warning from the first respondent’s lawyers given in December, 2015 about the efficacy of the generic agreement prepared by them.
I am not satisfied that there has been any misunderstanding of the law as the respondent would have me accept so as to explain away the conduct constituting the underpayment contraventions and the contraventions relating to the IFAs. The respondent clearly understood his obligations but tried to avoid them. His attempt at avoiding them through the use of the IFA failed because he did not heed the advice of his lawyers of December, 2016 when they gave him the generic IFA. Unlike the advice of 7 September, 2016, that was advice that on his own evidence he received.
The underpayment of the relevant employees Award rates of pay was deliberate in my view. I am not satisfied that the respondent made any mistakes or underpaid the employees because he was “new” to the industry, as he argues in his written submissions. He plainly knew the relevant rates at the time he employed each of the employees but deliberately caused the first respondent not to pay them, but an insufficient flat rate instead.
The respondent caused the taking of adverse action against Mr Kouros because he chose to make enquiries about his status and hours. I agree that conduct by the respondent was deliberate and reprehensible. Mr Kouros is an older employee (at the time in his late fifties) and the evidence shows that he had received no negative feedback during his employment. He says he had been praised by the respondent during his employment for the quality of his work.
The respondent’s failure to cause the first respondent to pay personal leave to Jason Bosworth, despite having previously reassured him otherwise according to the evidence, was a deliberate decision by the respondent. When challenged about this by the applicant, the respondent attempted to avoid liability for Mr Bosworth’s entitlements by alleging that he was a casual employee.
The failure to pay annual leave on termination occurred not only in respect of Bosworth, but in respect of two other employees on separate occasions – in relation to Mr Sanders, whose employment ended on 22 May, 2016 and Mr Dell, whose employment ended on 9 June, 2016. The decision not to pay those gentleman their entitlements was also plainly a deliberate decision on the respondent’s part.
However, I accept that the conduct of the respondents in failing to reimburse for uniforms and making unauthorised deductions in respect of employees uniforms was unlikely to have been deliberate, particularly given that the Respondent took steps to ensure this practice ceased after being advised by a Fair Work Inspector in October, 2016.
Each of the 14 contraventions is serious although, in my view, the most concerning is the contravention relating to the taking of adverse action against Mr Kouros. The other contraventions relate to the non-payment of minimum rates, failure to ensure that its employees were better of overall on IFAs, deductions from wages, and failures to pay personal leave to one employee and annual leave on termination to at least three employees. Those matters represent a failure to adhere to minimum prescribed standards.
The respondents have co-operated with the Applicant during the investigation. For example, the second respondent submitted to a record of interview with a Fair Work Inspector and the respondent provided documents in response to a notice to produce documents. After these proceedings were commenced the respondent made admissions and entering the Statement of Agreed Facts.
In October, 2016 the respondents took corrective action by ceasing the uniform reimbursement plan pursuant to which the first respondent provided its employees with uniforms in exchange for a $250 refundable deposit deducted from their wages and reimbursed at the end of their employment. On 2 December, 2016 the respondents rectified the underpayments I have referred to above.
Despite those matters, however, the respondent has demonstrated no contrition for his actions. No apologies have been offered to the employees concerned and in particular Mr Kouros.
Questions of deterrence loom large. The respondent continues to operate and provide security services on the Gold Coast. On the morning of the hearing before me, the respondent sought leave to rely on a further affidavit which set out certain recent developments. That evidence reveals that on 13 April, 2018 (so six days before the hearing before me) the first respondent was placed into liquidation by way of a creditor’s voluntary winding up. The resolution of the members of the company leading to the winding up is in evidence. It shows that the second respondent was the chairman and the only person present at the meeting at which the resolution was passed.
The respondent is now the sole director of a new company called VIP Securities International Pty Ltd. The respondent swears that the new company “remains an active participant in the security industry”.
The respondent further swears that he has “applied all of the learnings from this matter to the new company”. He does not particularise what that means. He swears that the new company employs a former employee of the first respondent as “HR Officer of VIP”. I assume that means he is a dedicated human resources manager. His duties are not revealed by the evidence.
According to the respondent’s evidence, an organisation described as “Workforce Guardian” has been engaged by the respondent to “provide HR and employment law services to VIP International. VIP International purchased Workforce Guardian’s industrial relations compliance program. It is an IT system that keeps track of all licences, obligations and contracts for each of the guards. The service provides advice and continual updates about changes to industrial relations and employment law. It also has a service where we can call and speak to an advisor about industrial matters. It is effectively an outsourced HR/IR solution”.
The respondent swears that “Staff are paid pursuant to the Award, plus an extra 10 cents per hour. Workforce Guardian provides advice in order to comply with the Award”.
At the conclusion of the hearing before me and as a result of the fresh evidence about the first respondent and the existence of the new company that had, in effect, taken over the business of the old company I gave the parties the opportunity to make further written submissions about what, if any, effect that conduct by the respondent should have on the penalty to be imposed upon him.
Both parties filed further written submissions. In addition to filing further written submissions, the applicant filed an affidavit upon which she attempted to rely in support of some of the further submissions that she made. The respondent objected to the Court receiving the affidavit on the basis that the evidence in the penalty hearing had closed and there was no further direction from the Court for the filing of further evidence. Notwithstanding the objection, in his written submissions the respondent referred to and relied upon certain information contained within the affidavit. In the circumstances I have resolved to receive the affidavit.
There was no attempt to cross-examine the second respondent on any of the matters deposed to in his affidavit.
The applicant submits that the respondent’s actions in causing the winding up of the first respondent and operating effectively the same business with an almost identical name is an aggravating factor for the purpose of considering the penalties to be imposed upon him for the contraventions he is taken to have committed.
The applicant submits that the maximum penalties should be imposed on the respondent or each of his 14 contraventions. After the application of a 10% discount for cooperation, the applicant now seeks a total penalty of $136,080 be imposed on the second respondent.
It is often relevant to have regard to conduct that has occurred after a contravention has taken place for the purpose of fixing penalty. It can be taken into account in mitigation, for example where there has been rectification of an underpayment or some other act of contrition. It can also be taken into account as an aggravating circumstance, or something that might lead to the assessment of a higher penalty than the penalty would be absent that conduct: e.g., Fair Work Ombudsman v Grouped Property Services Pty Ltd (No.2) [2017] FCA 557 where a subsequent failure to comply with an order that an audit be conducted with respect to the respondent’s compliance with the Fair Work Act was not carried out properly. That conduct was considered as informing the weight to be given to the matter of specific deterrence.
The applicant submits that the winding up of the first respondent is relevant to:
a)the need for specific and general deterrence; and
b)whether the Second respondent had exhibited contrition.
It is agreed between the parties that the second respondent has caused the first respondent to be wound up. Beyond that, however, there is no evidence before me from which I could draw a conclusion about why that occurred. A number of possibilities exist. The first is that it was an attempt to avoid the imposition of greater penalties for the contraventions that are dealt with in these proceedings. Alternatively, it might have been the case that the company was insolvent and a winding up was entirely appropriate and occurred for proper reasons.
The applicant says that I ought to infer that the winding up of the first respondent was a cynical attempt by the second respondent to avoid the imposition of penalties upon the first respondent because:
a)these proceedings commenced on 15 June, 2017;
b)a mediation took place between the parties on 1 December, 2017;
c)the new company, with an almost identical name, was registered on 15 December, 2017 only two weeks following the mediation;
d)on 19 February, 2018, the parties filed the statement agreed facts;
e)on 6 April, 2018 the applicant filed her Outline of Submissions on Penalty;
f)the first respondent was voluntarily wound up on 13 April, 2018 a week after the applicant filed its Outline of Submissions on Penalty and less than a week prior to the penalty hearing;
g)the penalty hearing occurred on 19 April, 2018;
The applicant submits that it can be inferred from the above chronology that at the time when the second respondent committed the first respondent to the Statement of Agreed Facts, the second respondent, having already established the new company, was at least contemplating the prospect of winding up the first respondent and commencing business afresh with the new company.
The applicant further submits that the Court can and should infer that the second respondent’s decision to wind up the first respondent and commence trading afresh with the new company was to avoid the imposition of a penalty against the first respondent.
The respondent accepts that as a matter of principle the winding up of the first respondent might be relevant as the applicant submits, but says that on the facts of this case, it is not relevant because the Court cannot be satisfied that the second respondent did not cause the winding up of the first respondent for the purpose of avoiding the imposition of a penalty in this case. The respondent argues that the Statement of Affairs of the first respondent that is in evidence demonstrates that its liabilities far outweighed its assets by a margin in excess of $965,000. In those circumstances, the Court should not infer that the second respondent took steps to wind up the first respondent for anything other than proper purposes.
Although the chronology leads me to strongly to suspect that the winding up of the first respondent was a direct response to the imminent prospect of the imposition of significant penalties on the first respondent, I decline to draw that inference, principally for two reasons, namely:
a)the first respondent’s Statement of Assets demonstrates at face value that the company had a significant deficiency and was perhaps insolvent;
b)the second respondent was not cross-examined about these matters despite the opportunity to do so being present.
I accept the applicant’s submissions that the need for general deterrence is high. The overarching purpose for the imposition of civil penalties is “to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act.”: Commonwealthof Australia v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [55], citing Trade Practices Commission v CSR Ltd [1990] FCA 521.
There is unchallenged evidence before me that the security industry is fraught with systemic non-compliance issues. There are two reports from national campaigns conducted by the applicant in 2009 entitled National Security Industry Campaign 2009 - Report and Recommendations - March 2010 (2010 Report) and a follow up campaign and report in 2011 entitled the National Security Industry Follow - up Campaign 2011 - Final report - April 2012. That evidence demonstrates that the use of non-compliant flat rates of pay was widespread in the security industry and that there was a tendency by employers in the security industry in Queensland to continue to pay a flat rate, which in many (but not all) cases, led to most of the State’s monetary contraventions.
The applicant submits that given the nature of the security industry in Queensland and the correlation of the respondent’s practices (through the vehicle of the first respondent) with the widespread offending conduct evidence by the reports of the applicant’s compliance campaigns in the security industry, it is essential that the Court express its disapproval of the respondent’s behaviour to ensure that other employers in the industry are aware that it is not acceptable. I accept that submission.
There is also a demonstrated need in this case for specific deterrence. It is uncontroversial that the respondent is now the sole director and shareholder of a very similar business to that operated by the first respondent at the time of the contraventions. The new company has an almost identical name. It employs some of the same staff and operates in the same industry and geographical area as the first respondent did.
It is relevant that during the investigation which occurred over the period from at least 21 April, 2016 to 16 November, 2016 the first respondent was a member of the Australian Security Industry Association Limited. The evidence shows that through that membership the first respondent had access to materials designed to educate employers in the security industry such as the Guide to the Security Industry Award, a joint publication between the applicant and Australian Security Industry Association Limited. As I have pointed out above, the respondent, at all relevant times, knew of the Award and the rates to be paid pursuant to its terms.
The respondent submits that questions of general and moreso specific deterrence are no longer of any real moment because of the steps the respondent has taken to deal with the non-compliance issues by ensuring that his new company is well supported so as to ensure compliance with employment laws. He points out that since the applicant’s investigation, he implemented processes in the first respondent’s conduct of the business, and later, after it commenced trading, VIP Securities International Pty Ltd, to ensure that he abided by the relevant applicable industrial instruments and that all employees were paid in excess of the Award. I have certainly taken into account the steps the respondent has put in place, as described by him in his evidence, to ensure compliance with workplace and employment laws.
The applicant also submits that “significant penalties need to be imposed on the respondent because of the circumstances whereby his conduct has prevented the Court from imposing a meaningful penalty upon the first respondent. However, for the reasons I have given above, I am unable to make the requisite finding of fact that would be necessary to bring this matter to bear on the assessment of a penalty upon the respondent for that conduct.
Assessment of penalties
The contraventions in this case are serious. They were, for the reasons I have set out above, deliberate. A clear message needs to be sent to those that control employers in this industry that underpayment of employees and the non-observance of employment related requirements is not acceptable.
The penalties in this case should be tempered by an allowance to take into account the corrective action the respondent caused the first respondent to take in respect of the underpayments and the cooperation afforded to the applicant by the respondent during the investigation of the matters that led to these proceedings and these proceedings themselves.
I assess the following penalties:
Contravention Maximum penalty Percentage of maximum Penalty (after 10% discount) 1.
s 340: adverse action by terminating Theo Kouros because he made enquiries in his employment
$10,800
85%
$8,262
2.
s 45: failure to ensure that Donohoe & Theo Kouros were better off overall under IFAs
$10,800
85%
$8,262
3.
s 45: failure to pay Bosworth & Sanders casual loading $10,800 85% $8,262 4.
s 45: failure to pay Dell & Bosworth broken shift allowance $10,800 85% $8,262 5.
s 45: failure to pay Dell & Bosworth night span penalty $10,800 85% $8,262 6.
s 45: failure to pay permanent night span $10,800 85% $8,262 7. s 45: failure to pay Saturday rates $10,800 85% $8,262 8.
s 45: failure to pay Sunday rates
$10,800
85%
$8,262
9.
s 45: failure to pay public holidays
$10,800
85%
$8,262
10.
s 45: failure to pay overtime
$10,800
85%
$8,262
11.
s 45: failure to reimburse for uniforms
$10,800
85%
$8,262
12.
s 323: failure to pay wages in full
$10,800
85%
$8,262
13.
s 44: failure to pay Bosworth personal leave
$10,800
85%
$8,262
14.
s 44: failure to pay Bosworth, Dell & Sanders annual leave on termination
$10,800
85%
$8,262
Totals
$151,200
$115,668
In addition to penalties, the applicant sought the respondents consent to orders which it considered would remedy the respondents’ conduct and prevent a repeat occurrence. The respondents have consented to displaying a workplace notice, advising all employees of the first respondent of their workplace rights.
The aggregate penalty of $115,668.00 is, in my view, an appropriate response to the conduct which led to these contraventions. There is no evidence that it is, or is likely to be, oppressive or crushing.
The orders to be made were the subject of agreement between the applicant and the first and second respondents on the Statement of Agreed Facts. Because of the winding up of the first respondent, however, some of those orders are no longer apposite. Instead, the applicant seeks orders as set out in Annexure A to the further submissions filed by the applicant on 21 May, 2018.
The respondent agrees to some of the proposed orders and not to others. Specifically, the respondent says that the declarations as to the first respondent’s contravening conduct are no longer appropriate and should not be made. However, in my view those declarations are still necessary because they give context to the orders against the second respondent and record the contraventions that the second respondent is taken to have committed and for which pecuniary penalties are being imposed.
The applicant also seeks certain restraining orders against the respondent, but I decline to make them. I accept the respondent’s submission that the order is no more than a recitation of the law and is unnecessary and oppressive. The admitted contraventions occurred in 2016. There is no suggestion in the evidence that the respondent has been involved in any further contraventions since then.
In the circumstances, I make the orders set out at the commencement of these reasons.
I certify that the preceding ninety-six (96) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Associate:
Date: 20 July 2018
Key Legal Topics
Areas of Law
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Employment Law
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Statutory Interpretation
Legal Concepts
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Penalty
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Proportionality
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Statutory Construction
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Remedies
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