Fair Work Ombudsman v Xia Jing Qi Pty Ltd
[2019] FCCA 83
•18 January 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v XIA JING QI PTY LTD & ANOR | [2019] FCCA 83 |
| Catchwords: INDUSTRIAL LAW – Penalty – contraventions of the Fair Work Act 2009 (Cth) – failure to pay minimum hourly rate – failure to pay casual loading – failure to pay penalty rates – failure to make and keep records – false and misleading records – agreed statement of facts – consideration of matters relevant to penalty – pecuniary penalties imposed. |
| Legislation: Fair Work Act 2009 (Cth), ss.45, 325, 535, 546, 550, 557, 712, 793 Fair Work Regulations 2009 (Cth), reg.3.33, 3.44 |
| Cases cited: Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476 Cousins v Merringtons Pty Ltd (No.2) [2008] VSC 340 Fair Work Ombudsman v Dosanjh [2016] FCCA 923 Fair Work Ombudsman v Garfield Berry Farm Pty Ltd & Anor [2012] FMCA 103 Fair Work Ombudsman v JS Top Pty Ltd & Anor [2017] FCCA 1689 Fair Work Ombudsman v Koojedda Carpentry Pty Ltd as Trustee For The Gumley Trust & Ors (No.2) [2017] FCCA 2577 Fair Work Ombudsman v Lohr [2018] FCA 5 Fair Work Ombudsman v Mai Pty Ltd & Anor [2016] FCCA 1481 Fair Work Ombudsman v Samurais Paradise Pty Ltd [2017] FCA 2013 Fair Work Ombudsman v Siner Enterprises Pty Ltd (No.2) [2018] FCCA 589 Fair Work Ombudsman v South Jin Pty Ltd (No.2) [2016] FCA 832 Kelly v Fitzpatrick [2007] FCA 1080 Markarian v R [2005] HCA 25 Mason v Harrington Corp Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7 Mornington Inn Pty Ltd v Jordan (2008) 68 FCR 367 Pearce v the Queen (1998) 194 CLR 610 Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union (2008) 171 FCR 357 Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153 | ||
| Applicant: | FAIR WORK OMBUDSMAN | |
| First Respondent: | XIA JING QI PTY LTD |
| Second Respondent: | AI LING LIN |
| File Number: | MLG 2687 of 2017 |
| Judgment of: | Judge Hartnett |
| Hearing date: | 5 October 2018 |
| Delivered at: | Melbourne |
| Delivered on: | 18 January 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms Knowles |
| Solicitors for the Applicant: | Fair Work Ombudsman |
| Counsel for the First Respondent: | Mr D’Abaco |
| Solicitors for the First Respondent: | Accuro Legal |
| Counsel for the Second Respondent: | Mr Howard |
| Solicitors for the Second Respondent: | Sabelberg Morcos Lawyers |
DECLARATIONS, BY CONSENT:
The First Respondent contravened the following civil remedy provisions:-
(a)section 45 of the Fair Work Act 2009 (Cth) (‘the FW Act’) by failing to pay Jin Qiao Wang, Chen Qu and Yang Liu (‘the employees’) the minimum hourly rate for ordinary hours of work as required by cl.17 of the General Retail Industry Award 2010 (Cth) (‘the Award’);
(b)section 45 of the FW Act by failing to pay the employees casual loading as required by cl.13.2 of the Award;
(c)section 45 of the FW Act by failing to pay the employees the Saturday penalty rate as required by cl.29.4(b) of the Award;
(d)section 45 of the FW Act by failing to pay the employees the Sunday penalty rate as required by cl.29.4(c) of the Award;
(e)section 45 of the FW Act by failing to pay the Chen Qu and Jin Qiao Wang the public holiday rate as required by cl.29.4(d) of the Award;
(f)regulation 3.44(1) of the Fair Work Regulations 2009 (Cth) (‘the Regulations’) by failing to ensure that the records it was required to keep under the Act and the Regulations in respect of each of the employees were not false or misleading to its knowledge;
(g)regulation 3.44(6) of the Regulations by making use of entries in an employee record made and kept by the First Respondent for subdivision 1 of Chapter 3, Part 3-6, Division 3 of the Regulations, knowing that the entries were false and misleading;
(h)section 535(1) of the FW Act by failing to make and keep a record of the actual rate of remuneration paid to the employees and the actual gross and net amounts paid to employees in accordance with regulations 3.33(1)(a) and 3.33(1)(b) of the Regulations; and
(i)section 325(1) of the FW Act by requiring the employees to spend an amount of the employees’ money in relation to the performance of work where the requirement to spend was unreasonable in the circumstances.
The Second Respondent was involved in each of the contraventions of the First Respondent set out in declaration 1(a) to (f) and (h) to (i) above, pursuant s.550(2) of the FW Act.
ORDERS
Pursuant to s.546(1) of the FW Act, the First Respondent pay pecuniary penalties in the amount of $154,225 in respect of the contraventions referred to in declaration 1 above.
Pursuant to s.546(1) of the FW Act, the Second Respondent pay pecuniary penalties in the amount of $9,590 in respect of the contraventions referred to in declaration 2 above.
Pursuant to s.546(3)(a) of the FW Act any pecuniary penalties ordered to be paid by the Respondents be paid to the Consolidated Revenue Fund of the Commonwealth within 60 days of the Court’s orders.
There is liberty for the Applicant to apply to the Court on seven days’ notice for the matter to be re-listed in the event that any of the preceding orders are not complied with.
Otherwise the proceedings are dismissed and removed from the list.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2687 of 2017
| FAIR WORK OMBUDSMAN |
Applicant
And
| XIA JING QI PTY LTD |
First Respondent
| AI LING LIN |
Second Respondent
REASONS FOR JUDGMENT
These reasons go to the contravening conduct of, and imposition of penalties to be imposed on the First and Second Respondents in relation to three former casual employees of the First Respondent.
Background
From December 2008 to around March 2017, the First Respondent operated a 7-Eleven convenience franchise business (‘the 7-Eleven store’) located at 261 William Street Melbourne in the State of Victoria. The First Respondent’s business activities were within the coverage of the General Retail Industry Award 2010 (‘the Award’).
The company’s sole director is Ms Jing Qi Xia. At all relevant times, Ms Xia was:-
a)by reason of s.793(1) of the Fair Work Act 2009 (Cth) (‘the FW Act’), a person whose conduct was conduct engaged in by the Company, as it was engaged in on behalf of the Company and was within the scope of her actual or apparent authority; and
b)by reason of s.793(2) of the FW Act, a person whose state of mind was the state of mind of the Company, for conduct engaged in within the scope of her actual or apparent authority.
The Second Respondent, Ms Ai Ling Lin, is 29 years old. She arrived in Australia in 2013 from Taiwan. Ms Lin was the manager of the 7-Eleven store and responsible for the day-to-day management and supervision of the 7-Eleven store’s operations. At all relevant times, Ms Lin was:-
a)by reason of s.793(1) of the FW Act, a person whose conduct was conduct engaged in by the Company, as it was engaged in on behalf of the company and was within the scope of her actual or apparent authority; and
b)by reason of s.793(2) of the FW Act, a person whose state of mind was the state of mind of the company, for conduct engaged in within the scope of her actual or apparent authority.
The First Respondent employed, on a casual basis, Mr Chen Qu from 2 November 2015 to 27 March 2016; Mr Yang Liu from 18 January 2016 to 17 April 2016; and Mr Jing Qiao Wang from 22 February 2016 to 30 October 2016 (‘the assessment periods’). Each of the employees was classified as a “Retail Employees Level 1” under the Award. The employees were in Australia on student (subclass 573) visas at the time they were employed by the First Respondent.
During the assessment periods, the employees’ hours were recorded as follows:-
a)prior to August 2016, the Second Respondent, on behalf of the First Respondent, manually entered the payroll data for the employees into the 7-Eleven payroll system;
b)thereafter, from on or after August 2016, the First Respondent used a biometric workforce management system, which recorded the employees’ hours of work by requiring them to sign in and out of work by scanning their fingerprint.
Once recorded, the payroll data for the 7-Eleven store was processed by the franchisor, 7-Eleven Stores Pty Ltd, using rates of pay (including penalty rates) equal to the applicable minimum rates contained in the Award, and an electronic funds transfer of their wages was made to the employees’ respective bank accounts.
In or around late 2015, the First Respondent implemented a cash back scheme. The Second Respondent communicated to each of the employees via the app WeChat that their wage would be $15 per hour and they would need to return to the First Respondent the portion of their 7-Eleven wages received by electronic transfer, which was in excess of $15 per hour. Save for some limited pay periods (as set out in paragraph 35 of the statement of agreed facts), the cash back amounts were calculated by multiplying the employees’ weekly hours of work by $15.00 per hour and calculating the difference between this amount and the net amount of the 7-Eleven wages paid to the employees.
The Second Respondent requested the employees return the cash back amounts to the safe drop box located in the 7-Eleven store. On occasion Mr Qu and Mr Wang transferred the amounts directly to the Second Respondent’s bank account. These amounts were then withdrawn by the Second Respondent and provided by her to the First Respondent. Following the cash back amounts being returned by the employees, the company did not alter the pay records.
On 1 December 2016, the Applicant issued two Notices to Produce Records or Documents pursuant to s.712 of the FW Act (‘the notices’) to the First Respondent, requiring the First Respondent to produce the requested documents by 19 December 2016. On 19 December 2016 Ms Xia provided Fair Work Inspector Chum with the First Respondent’s response.
The pay records produced by the First Respondent inaccurately recorded the rate of remuneration paid to the employees and the gross and/or net amounts effectively paid to the employees, in that they:-
a)recorded the 7-Eleven wages initially paid to the employees;
b)did not record the cash back amounts required to be returned by the employees; and
c)did not record the actual hourly rates or the actual weekly paid amount.
The pay records produced by the First Respondent were false and misleading, a fact, at all relevant times, known to the Second Respondent and the First Respondent. The First Respondent then made use of the entries in the pay records, knowing them to be false and misleading, by producing them to Fair Work Inspector Chum on 19 December 2016 in response to the notices.
The First Respondent underpaid the employees a total of $6,674.41 gross during the assessment periods by failing to pay the minimum hourly wages, casual loading, Saturday penalty, Sunday penalty and the public holiday penalty rates. Mr Qu was underpaid a total of $4,216.23, Mr Liu was underpaid a total of $1,107.60 and Mr Wang was underpaid a total of $1,350.58
By way of letter dated 28 July 2017, and entitled “Findings of Contravention” the Applicant wrote to the First Respondent advising that it was required to pay the employees the total underpayment amount by 14 August 2017.
On 14 August 2017 the First Respondent rectified the underpayment to the employees in the amount of $6,674.41.
The proceedings
On 8 December 2017 the Applicant commenced proceedings against the Respondents alleging contraventions of the FW Act and the Fair Work Regulations 2009 (Cth) (‘the Regulations’).
On 20 February 2018 the Court ordered, relevantly, for the parties to file an agreed statement of facts, evidence and submissions on penalty and for this proceeding to be heard concurrently with related proceeding number MLG2686/2017.
On 22 March 2018, the Applicant and Respondents entered into a statement of agreed facts pursuant to which the Respondents agreed to Declarations of contravention being made and orders that they pay pecuniary penalties in respect of the admitted contraventions.
The First Respondent admitted to contravening the following civil remedy provisions:-
a)section 45 of the Act by virtue of contravening cl.17 of the award by failing to pay the employees the minimum hourly wages;
b)section 45 of the Act by virtue contravening of cl.13.2 of the award by failing to pay the employees the casual loading;
c)section 45 of the Act by virtue of contravening cl.29.4(b) of the award by failing to pay the employees the Saturday penalty;
d)section 45 of the Act by virtue of contravening cl.29.4(c) of the Award by failing to pay the employees the Sunday penalty;
e)section 45 of the Act by virtue of contravening cl.29.4(d)(i) of the Award by failing to pay the employees the public holiday penalty;
f)regulation 3.44(1) of the Regulations by failing to ensure that the records it was required to keep under the Act and Regulations in respect of each of the employees were not false or misleading to its knowledge;
g)regulation 3.44(6) of the Regulations by making use of entries in an employee record made and kept by the First Respondent for Subdivision 1 of Chapter 3, Part 3−6, Division 3 of the Regulations, knowing that the entries were false and misleading;
h)section 535(1) of the Act by failing to make and keep a record of the actual rate of remuneration paid to the employees and the actual gross and net amounts paid to employees in accordance with regs. 3.33(1)(a) and 3.33(1)(b) of the Regulations; and
i)section 325(1) of the Act by requiring the Employees to spend an amount of the Employees’ money in relation to the performance of work where the requirement to spend was unreasonable in the circumstances and the payment directly benefited the employer.
The Second Respondent admitted that she was involved in each of the contraventions of the First Respondent, save for the First Respondent making use of false and misleading entries in an employee record (it was not alleged that the Second Respondent was involved in this contravention in circumstances where she did not produce the false records to the Applicant.)
The Applicant relied upon the following documents:-
a)amended application and statement of claim filed 5 April 2018;
b)statement of agreed facts filed 22 March 2018;
c)affidavits of Kim Nhu Chum affirmed 20 April 2018 and 7 June 2018;
d)affidavit of Rita Sze affirmed 24 April 2018;
e)affidavit of Jin Qiao Wang affirmed 26 April 2018;
f)affidavit of Yang Liu affirmed 17 April 2018;
g)submissions on penalty filed 19 July 2018; and
h)reply submissions on penalty filed 3 September 2018.
The First Respondent relied upon the following documents:-
a)statement of agreed facts filed 22 March 2018;
b)affidavit of Jing Qi Xia affirmed 22 May 2018; and
c)submissions on penalty filed 16 August 2018.
The Second Respondent relied upon the following documents:-
a)statement of agreed facts filed 22 March 2018;
b)affidavit of Ai Ling Lin affirmed 24 May 2018; and
c)submissions on penalty filed 20 August 2018.
Imposition of Penalty
The Applicant seeks that the Court impose pecuniary penalties on the First Respondent for contravening ss.45, 535 and 325 of the FW Act and reg.3.44 of the Regulations, and the Second Respondent for being involved in each of the contraventions of the First Respondent to the extent admitted by the Second Respondent, pursuant to s.550(2) of the FW Act.
The Court may impose penalties on the First and Second Respondents pursuant to sub-s.546(1) of the Act as a result of the contraventions declared by the Court. Section 557 of the Act provides that, for specified contraventions of the FW Act, which relevantly includes ss.45 and 535 of the FW Act, two or more contraventions of the same civil remedy provision will be treated as a single contravention where that contravention was committed by the same person, and arose from the same course of conduct. Relevantly, each term of an award that has been contravened, is a separate civil remedy provision for the purposes of s.557(1) of the FW Act.[1]
[1] Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153.
Course of Conduct and Grouping
The Applicant accepts that the Respondents are entitled to the benefit of s.557 of the FW Act in respect of the repeated underpayment contraventions which affected the three employees, such that there is a single contravention for each term of the Award that was contravened in respect of these employees. In like manner, the Applicant accepts that the repeated contraventions in respect of the failure to make and keep a record of the actual rate of remuneration paid to the employees under s.535(1) of the Act can be treated as a single contravention, as can each of the repeated contraventions of regs.3.44(1) and 3.44(6) of the Regulations.
It is open to the Court to group separate contraventions where the contraventions can be said to overlap with each other or where, if they were treated separately, this would potentially penalise the Respondents twice for substantially the same conduct.[2]
[2] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560, 46; Pearce v the Queen (1998) 194 CLR 610,40.
The Applicant submits that it is appropriate for the Court to group the contraventions relating to s.535(1) of the Act and reg.3.44(1) of the Regulations together as they arise from overlapping conduct, being the overall failure to make and keep accurate records of the employees’ rates of remuneration. Similarly, contravention of reg.3.44(6) of the Regulations, which relates to the making and use of false and misleading entries in an employee record through the production of these records to the Applicant, should be treated as a single contravention.
Section 535(1) of the Act and reg.3.44(1) of the Regulations attract different maximum penalties. The former attracts a maximum penalty of 30 penalty units (for an individual) whereas the latter attracts a maximum penalty of 20 units (for an individual). This Court has previously accepted that the Court may properly treat the group as attracting the maximum penalty of 30 penalty units.[3]
[3] Fair Work Ombudsman v Mai Pty Ltd & Anor [2016] FCCA 1481, 98; Fair Work Ombudsman v JS Top Pty Ltd & Anor [2017] FCCA 1689, 67.
There is no reason for judicial comity not to apply.
The Applicant submits there are eight contraventions for which the Court may impose penalties against the First Respondent and seven contraventions for which the Court may impose penalties against the Second Respondent.
The First Respondent submits that, contrary to the Applicant’s submission of there being eight contraventions, there are only six contraventions for which the Court may impose penalties against the First Respondent. The First Respondent submits that the characterisation of the failure to pay Saturday penalty rates, Sunday penalty rates and public holiday penalty rates as three separate contraventions is erroneous. The First Respondent argues that as the offending conduct is of the same nature, namely that all three contraventions involve a failure to pay penalty rates when work was performed on specific days, the contraventions should be treated as one.
The Applicant opposes this as each form of penalty rate arises in different circumstances, requires a different amount to be paid, and this it is submitted, does not overlap.[4]
[4] Fair Work Ombudsman v Lohr [2018] FCA 5, 29-34; Fair Work Ombudsman v Siner Enterprises Pty Ltd (No.2) [2018] FCCA 589, 16-18; Fair Work Ombudsman v Koojedda Carpentry Pty Ltd as Trustee For The Gumley Trust & Ors (No.2) [2017] FCCA 2527.
The Second Respondent does not oppose the Applicant’s proposed grouping of contraventions.
The First Respondent’s proposed grouping of the contraventions is rejected by the Court. Each form of penalty rate arose in different circumstances, requiring a different wage rate to be paid. The contraventions could not be said to overlap with each other.[5] The Court finds that there are eight contraventions existing in respect of the First Respondent.
[5] Fair Work Ombudsman v Lohr [2018] FCA 5, 29-34; Fair Work Ombudsman v Siner Enterprises Pty Ltd (No.2) [2018] FCCA 589, 16-1; Fair Work Ombudsman v Koojedda Carpentry Pty Ltd as Trustee For The Gumley Trust (No.2) [2017] FCCA 2577.
Quantum of Penalty
It is appropriate for the Court to consider the maximum penalties that could be imposed on each of the Respondents, as an indication of the legislature’s view of the conduct, and as part of the comparative exercise of determining where the contraventions sit as against the maximum “yardstick”.[6]
[6] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560; Markarian v R [2005] HCA 25, 31.
The maximum penalties which the Court could impose are:-
a)$369,000 for the First Respondent; and
b)$75,600 for the Second Respondent.
The Applicant submits that the contraventions of the Respondents are serious in nature and that significant penalties should be imposed to reflect the following:-
a)the Respondents’ limited co-operation with the Applicant during its investigations;
b)the Respondents’ lack of contrition;
c)the effect of the wilful exploitation of vulnerable employees over an extended period of time; and
d)the strong need for both specific and general deterrence.
The Applicant submits a proposed penalty range between $154,225 and $180,792 in respect of the total penalty to be imposed on the First Respondent is appropriate. The First Respondent submits that the Applicant’s proposed penalty range is excessive and does not accord with the surrounding circumstances. The First Respondent submits that the Court should impose penalties at the lower to lower-middle end of the range and proposes a total maximum penalty range from $33,696 to $60,048 based on a finding of eight contraventions.
The Applicant submits a proposed penalty range between $19,181 and $22,550 in respect of the total penalty to be imposed on the Second Respondent is appropriate. The Second Respondent submits that the Applicant’s proposed penalty is disproportionate to the Second Respondent’s individual culpability and is crushing. Instead, the Second Respondent submits a penalty of $1,790.10 is appropriate. This proposed penalty represents just 2% of the maximum penalties available in respect of the contraventions by the Second Respondent.
Principles relevant to the determination of penalty
In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476, the High Court of Australia explained the purpose for the imposition of civil penalties as follows:-
“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.”
A non-exhaustive list of factors relevant to the imposition of a penalty was summarised by Mowbray FM (as he then was) in Mason v Harrington Corp Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7. Those factors include:-
a)the nature and extent of the conduct which led to the breaches;
b)the circumstances in which that conduct took place;
c)the nature and extent of any loss or damage sustained as a result of the breaches;
d)whether there has been similar previous conduct by the respondent;
e)whether the breaches were properly distinct or arose out of the one course of action;
f)the size of the business enterprise involved;
g)whether or not the breaches were deliberate;
h)whether senior management was involved in the breaches;
i)whether the party committing the breach had exhibited contrition, taken corrective action and cooperated with the enforcement authorities;
j)the need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
k)the need for specific and general deterrence.
This summary was adopted by Tracey J in Kelly v Fitzpatrick [2007] FCA 1080 (‘Kelly’). While the summary is a convenient check list, it does not prescribe or restrict the matters which may be taken into account in the exercise of the Court’s discretion.[7]
[7] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560, 91.
Nature, extent and circumstances of the contravening conduct
The underpayments occurred because the Respondents required the employees to pay cash back amounts to the First Respondent. The employees were prepared to do so as, the evidence disclosed, they had initially been in receipt of $11 an hour, and the offer to increase this to $15 an hour was dependent on these vulnerable employees agreeing to the cash back scheme.
This cash back scheme resulted in the employees rate of pay not meeting the Award minimums and instead each employee being paid approximately $15 an hour. The Applicant submits that the Respondents’ culpability is exacerbated by the fact that the company director, Ms Xia, and the Second Respondent had knowledge of the Award and had resources available to them from the franchisor that could have assisted them in paying the correct minimum wages.
Ms Xia received training from 7-Eleven head office after the company started operating the 7-Eleven Store in December 2008, during which she was trained in payroll, Award conditions and employment legislation. Furthermore, both Ms Xia and the Second Respondent had undertaken training in or around December 2015 in respect of basic employment conditions, wages, reading payslips, the Award, and employee entitlements. Such training was provided by 7-Eleven head office. The Respondents thereafter had access to the 7-Eleven online portal, which contained information about the Award and pay rates.
At the time the contraventions occurred, the Second Respondent:-
a)had been the manager of the 7-Eleven Store since January 2014;
b)was a person responsible for the day-to-day management and supervision of the 7-Eleven Store’s operations;
c)knew that there were minimum Award rates of pay applicable to the Employees and that the Award contained different rates of pay which applied at various times including, casual loading and penalty rates;
d)knew that the requirement to pay the cash back amounts was imposed for the purpose of paying the employees $15 per hour;
e)knew that the pay records recorded the 7-Eleven Wages and that they were not corrected, following the cash back amounts being repaid, to record the actual hourly rates; and
f)was responsible for submitting the employees’ hours of work each week in the 7-Eleven payroll system (prior to August 2016) and/or the Kronos system (which, after August 2016, recorded employees’ hours of work by requiring them to sign in and out of work by scanning their fingerprint). Information about the employees’ hours of work was then sent to 7-Eleven Head Office for processing;
The Court notes all of the above but importantly also notes that the Second Respondent received no financial benefit from the cash back scheme herself.
It can be inferred on the evidence that the steps which the Respondents took in respect of the cash back scheme were in response to the 7-Eleven “scandal” that had earlier received significant media coverage, and to the further measures which the 7-Eleven Head Office took to ensure that employees received their correct entitlements, including by implementing the fingerprint Kronos time recording system.
The contravening conduct of the Respondents continued for at least the duration of the assessment periods and during this time the First Respondent failed to keep the records it was obliged to keep, and knowingly produced false and misleading records to the Applicant. This offending the Applicant submits, not only frustrates the ability for employees to know and hold an employer to account for their minimum entitlements, but also frustrates the ability of the regulator to investigate the employees entitlements, requiring significant public monies to be expended. Both those issues were engaged here.
The Applicant submits, and the Court accepts, the decision to provide false or misleading records to a regulator in the course of an investigation involves a deliberate obfuscation which warrants a significant penalty.
The First Respondent acknowledges and accepts that the contraventions are extremely serious matters. Its implementation of the cash back scheme was particularly egregious, as it involved a deception of 7-Eleven head office and circumvented attempts by head office to stamp out the underpayment of employees by 7-Eleven franchisees. Further, the First Respondent failed to keep accurate and proper employment records. In these circumstances, the First Respondent concedes that the Court should impose penalties of a real and substantial nature upon the First Respondent in respect of this contravention.
Nevertheless, the First Respondent submits that the penalties sought by the Applicant are excessive vis-à-vis the individual underpayment amounts the contraventions relate to. The underpayments in respect of each of the three employees is $4,216.23, $1,107.60 and $1,350.58. These are amounts which the First Respondent submits “are not overly large”. The First Respondent submits further that once the Applicant informed the First Respondent of the underpayments and demanded rectification, the First Respondent did so. Whilst rectification is important and relevant to the imposition of penalty and its quantum, the size of the underpayments is of less relevance in an ameliorative sense, as referred to in paragraph 54 below.
Nature and extent of loss
The employees were all young, recent arrivals to Australia from China on student visas. Mr Wang describes needing financial support from his family in China to survive in Australia, while Mr Liu’s evidence is he just felt “lucky to have a job” as it was hard to find one as an international student.[8] The amounts underpaid to the employees may have had a greater impact on the employees, being international students, than they may have on the average worker.
[8] Affidavit of Ms Yang Liu affirmed 18 April 2018, 22.
The underpayments suffered by the employees were sizeable for award dependent employees and given the time in which they occurred. Mr Qu’s underpayment of $4,216.23 in just a five month period is particularly significant. Mr Qu was paid just 63% of the minimum amounts he was entitled to under the Award; Mr Wang received 67%, and Mr Liu received 68%. The underpayments are also viewed in the context of the employees’ classification as Level 1 under the Award, their reliance on minimum wages and unskilled work, and the need to support themselves as students.
The employees were vulnerable to exploitation in the workplace and the Respondents exploited this vulnerability. The employees did not know their lawful rates of pay. This is an aggravating factor in the consideration of penalty.
Size and financial circumstances of the business
Small businesses have the same obligation as larger employees to meet minimum employment standards.[9]
[9] Kelly, 28.
The current financial circumstances of the First Respondent is a relevant consideration in determining the appropriate penalty. It is difficult for the Court, however, to determine an appropriate discount in this regard as the First Respondent has not placed before the Court evidence as to its financial circumstances.
The financial circumstances of the Second Respondent are limited. The Second Respondent has given evidence that she works part-time as a cook and earns $23.23 per hour working approximately 20 hours per week. The only substantial asset she has is a second-hand vehicle jointly owned by her and her partner. The Second Respondent resides in rental accommodation with her partner for which the rent is $400 per week. The Applicant accepts that the Second Respondent has provided evidence of her financial circumstances, which are limited. Indeed, extremely limited.
Deliberateness of contraventions
The Applicant asserts the nature of the Respondents’ conduct was highly deceptive, deliberate and deceitful as it was only in circumstances where the Applicant had independently uncovered the truth, that the Respondents admitted to the cash back scheme. The Respondents deliberately and deceitfully concealed the employees’ repayment of the cash back amounts. This included, by the First Respondent, providing the Fair Work Inspector with misleading records. The Second Respondent stated to the Fair Work Inspector that she did not know about a cash back scheme and that she had not asked employees to return money to her. The Second Respondent’s evidence was that she was simply following directions from her employer and that she assumed Ms Xia was circumventing the rules but “it was not in her nature to question her superiors”.[10] Her evidence was that she did not know what would happen if she did question Ms Xia but thought that she might have been demoted. She admits however that she was an intentional participant in the factual matters which comprise the contraventions admitted by the First Respondent.
[10] Affidavit of Ms Ai Ling Lin affirmed 24 May 2018, 22.
As the Applicant submitted, in its reply, the evidence established that the Second Respondent did not object to carrying out the cash back scheme or report the conduct to the Applicant even when she knew that the “staff had to be paid higher rates of pay under the Award”; she had undertaken training on Award rates at around the time the cash back scheme was implemented; and furthermore, she knew it was wrong because it happened in response to the 7-Eleven “scandal” in the media.
The fact that the Second Respondent may have been following directions from her employer and been on a visa herself, are not excuses for providing false information to a Fair Work Inspector or for being involved in contraventions of the FW Act. That the Second Respondent was herself an employee of 7-Eleven who was underpaid, a terrible and illegal position for her to be placed in, and which goes to her very poor financial circumstances, unfortunately does not ameliorate her responsibility for perpetuating underpayments, including by involvement in cash back schemes.
Contrition and Co-operation
There are circumstances where admissions of contraventions will give rise to a discount on penalty. As stated by Gyles, Stone and Buchanan JJ in Mornington Inn Pty Ltd v Jordan (2008) 68 FCR 367 (‘Mornington Inn’) at paragraph 76:-
“the benefit of such a discount should be reserved for cases where it can be fairly said that an admission of liability: (a) has indicated an acceptance of wrongdoing and a suitable and credible expression of regret; and/or (b) has indicated a willingness to facilitate the course of justice.”
Both Ms Xia and the Second Respondent have offered apologies to the employees, and the Court accepts those as genuine.
The Respondents admitted liability at an early stage and the First Respondent co-operated by rectifying the underpayments owed to the employees on the date demanded by the Applicant. This has obviated the need for a liability hearing and has facilitated the course of justice. However, the Court is mindful that the employment records actually produced by the First Respondent in the early stages of the investigation were misleading and deceptive in nature. Further, the Court finds on the evidence that the Second Respondent did not co-operate early on in the investigation by choosing to not engage with, and then mislead, the Fair Work Investigator.
No evidence was led on behalf of the First Respondent about the instigation of the cash back scheme. The Second Respondent’s evidence is that this occurred at the direction of Ms Xia and the Court accepts that evidence.
Need to ensure compliance with minimum standards
A principle objective of the Act is the preservation of an effective safety net for employee entitlements and effective enforcement mechanisms.[11]
[11] Fair Work Act 2009 (Cth), s.3
Failure to provide accurate records adversely impacts the regulator’s ability to investigate employee claims,[12] and is the “bedrock of compliance” with the Act.[13]
[12] Fair Work Ombudsman v Samurais Paradise Pty Ltd [2017] FCA 2013, 47.
[13] Fair Work Ombudsman v Dosanjh [2016] FCCA 923, 46.
The Applicant submits that ensuring compliance with minimum standards is a very important consideration in this case. The Court recognises that conduct such as implementing a system requiring employees to repay wages they are owed, and making, keeping and producing false records to disguise employees’ true employment situation, is reprehensible conduct and denies to all employees the minimum wage standards that they, in Australia, should expect and are entitled to.
The Court accepts the Applicant’s submission that the deliberate attempt to disguise the true cost of employing staff in franchise businesses has a flow on effect on incoming franchisees. Incoming franchisees may enter into franchise agreements with a mistaken belief as to their level of profitability in circumstances where those profits are being deliberately concealed through non-compliance with industrial law obligations. The imposition of a significant penalty in the circumstances will assist in ensuring other employers in the retail sector, and particularly within 7-Eleven, are operating within an “even playing field” by complying with their obligations.[14]
Deterrence
[14] Fair Work Ombudsman v Garfield Berry Farm Pty Ltd & Anor [2012] FMCA 103, 20.
Specific
In assessing the relevance of specific deterrence to appropriate penalties, the Court looks to any remorse or contrition expressed, and any steps which have been taken to ensure that no future breaches will occur.[15]
[15] Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union (2008) 171 FCR 357, 37.
After bringing this proceeding against the First Respondent, and in accordance with its customary practice, the Applicant issued a press release about the proceeding and it became public knowledge in the Chinese community in Melbourne. As a consequence, the First Respondent and its director, Ms Xia, have been criticised on social media forums such as Facebook, Yeeji.com and WeChat. Friends and family members of Ms Xia have seen these messages and mentioned them to her.
The First Respondent argues specific deterrence is not necessary as the First Respondent no longer operates the 7-Eleven business and in any event, specific deterrence was achieved following the Applicant’s press release about the proceeding, which caused Ms Xia to be “deeply embarrassed and ashamed by what… occurred”.[16] If that is so, and the Court accepts the evidence of Ms Xia, then the use of an accurate and fair media release in the factual circumstances of this case has usefully deterred future misconduct.[17] Publicity and embarrassment resulting from a media release are not relevant to the assessment of the appropriate penalty, and are the “mere and foreseeable consequences of the conduct engaged in”.[18]
[16] Affidavit of Ms Jing Qi Xia affirmed 22 May 2018, 17.
[17] Fair Work Ombudsman v South Jin Pty Ltd (No.2) [2016] FCA 832, 82.
[18] Cousins v Merringtons Pty Ltd (No.2) [2008] VSC 340, 59-65.
There is a strong need for specific deterrence in respect of the First Respondent.
The Second Respondent also submits that specific deterrence has already been achieved through the press release, which caused her to become “distraught, ashamed and humiliated” and further that there is little utility in pursuing a penalty against her.
The Second Respondent demonstrates a fuller and more frank acknowledgement of her wrong doing than Ms Xia. Her evidence is that she no longer manages staff and is working part time as a cook in the restaurant. The Applicant acknowledges that there is not currently a strong need for specific deterrence in respect of the Second Respondent. The Court finds there is no great need for specific deterrence in respect of the Second Respondent.
General
The Applicant submits that there is also a need for general deterrence in this proceeding to send a message to other employers in the community, particularly those:-
a)who operate 7-Eleven stores; and
b)who employ workers subject to student visa conditions, where these employees may be vulnerable due to their age and limited language skills.
The First Respondent submits that in recent years proceedings relating to 7-Eleven franchises have garnered much media attention, and that due to the penalties imposed in such cases “there cannot be an employer in Australia, including all 7-Eleven franchisees, who is not now aware that if it does not provide employees with their lawful entitlements, they run the real risk of being caught and severely penalised”.[19] Therefore, the need for general deterrence is not as critical.
[19] First Respondent’s submissions dated 16 August 2018, 25.
The Second Respondent suggests that there is no utility, in terms of general deterrence, in imposing a penalty on her, as she was “following directions” from her superior.
Every accessory to a contravention may variously claim by reason of organisational hierarchy, loyalty or self-interest that their conduct could be excused away because they were acting under direction. What is relevant in determining accessorial liability in such cases is whether the alleged accessory had actual knowledge of the facts giving rise to the contravention and whether there was also (i) active participation in the conduct in issue, or (ii) otherwise a “practical connection” or “close connection” to the conduct, or (iii) the individual assented to the conduct.[20]
[20] Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301
The Applicant submits contraventions of the Act are likely to be greatly reduced if employees and managers did not enable their employer’s contraventions of the Act. The need for general deterrence in the present case is particularly high. The First Respondent’s compliance activities suggest an especially high need for general deterrence in the retail industry, specifically, in relation to 7-Eleven franchises.
Consideration
The penalty imposed must not be crushing or oppressive,[21] however it must reflect the seriousness of the conduct engaged in by the Respondents.[22] The penalty imposed should be imposed on a meaningful level.[23]
[21] Kelly, 30.
[22] Fair Work Ombudsman v Promoting U Pty Ltd [2012] FMCA 58.
[23] Kelly, 28.
The Applicant’s proposed penalty range would have a crushing effect on the Second Respondent. The Court considers, amongst other considerations as discussed above, the totality discount set by the Applicant is insufficient by reference to the Applicant’s proposed penalty ranges. The Court determines a pecuniary penalty of $9,590 is appropriate.
The Applicant’s proposed penalty range at the lower end is an appropriate pecuniary penalty to impose in respect of the conduct of the First Respondent.
In the exercise of its discretion the Court makes orders as set out herein.
I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of Judge Hartnett
Associate:
Date: 18 January 2019
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