Fair Work Ombudsman v Yang
[2021] FedCFamC2G 247
•11 November 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Fair Work Ombudsman v Yang [2021] FedCFamC2G 247
File number(s): ADG 298 of 2020 Judgment of: JUDGE BROWN Date of judgment: 11 November 2021 Catchwords: INDUSTRIAL LAW – FAIR WORK – Underpayment of two employees – Compliance Notice – penalty hearing – where respondent’s admit to the charges against them – calculation of penalty – first time offender – intuitive synthesis. Legislation: Crimes Act 1914 (Cth), s 4AA
Evidence Act 1995 (Cth), s 191
Fair Work 2009 (Cth), ss 539, 546, 557, 701, 706, 712, 716, 717
Hair & Beauty Industry Award 2010Cases cited: ACE Insurance Limited v Trifunovski (No 2) [2012] FCA 793.
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCA 8.
Blandy v Coverdale NT Pty Ltd [2008] FCA 1533.
Fair Work Ombudsman v Darna Pty Ltd [2015] FCCA 709.
Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3) [2011] FCA 579.
Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151.
Fair Work Ombudsman v Matcraft Pty Ltd & Ors [2021] FCCA 272.
Kelly v Fitzpatrick [2007] FCA 1080 at [14]. (Tracey J).
Mason v Harrington Corporation Pty Ltd [2007] FMCA 7.
Minister for Immigration & Citizenship v Li (2013) 249 CLR 332.
Mornington Inn v Jordan [2008] FCAFC 70.
Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412.
Veen v R (No 2) (1988) 164 CLR 465.Division: Division 2 General Federal Law Number of paragraphs: 119 Date of hearing: 21 June 2021 Place: Adelaide Counsel for the Applicant: Ms Makris Solicitor for the Applicant: Office of the Fair Work Ombudsman Counsel for the Respondents: Mr Healy Solicitor for the Respondents: Starke Lawyers ORDERS
ADG 298 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FAIR WORK OMBUNDSMAN
Applicant
AND: YI YANG ATF THE TRUSTEE FOR THE BESTIE HOUSE TRUST
First Respondent
XURUI ZHANG ATF THE TRUSTEE FOR THE BESTIE HOUSE TRUST
Second Respondent
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
11 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The first respondent, Yi Yang and the second respondent, Xurui Zhang (hereinafter referred to as “the first respondent” and “the second respondent” respectively, and collectively referred to as “the respondents”) have contravened section 716(5) of the Fair Work Act 2009 (Cth) (hereinafter referred to as “the Act”) by failing to comply with the Compliance Notice issued by the applicant, the Fair Work Ombudsman (hereinafter referred to as “the applicant”) on or about 7 April 2020.
2.The first respondent pay a total penalty of $3,000.00 pursuant to subsection 546(1) of the Act for its contraventions set out in order (1) above.
3.The second respondent pay a total penalty of $3,000.00 pursuant to subsection 546(1) of the Act for its contraventions set out in order (1) above.
4.Pursuant to section 546(3) of the Act, that the pecuniary penalties ordered to be paid by the respondents in orders (2) and (3) above are paid to the Commonwealth within twenty-eight (28) days of the date of this order.
5.The applicant has liberty to apply.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION:
The Fair Work Ombudsman[1] commenced these proceedings against Yi Yang[2] and Xurui Zhang[3] on 3 September 2020. The proceedings are instituted pursuant to the provisions of the Fair Work Act 2009 (Cth).[4]
[1] Hereinafter referred to as the “FWO” or “the Ombudsman”.
[2] Hereinafter referred to as “Ms Yang”.
[3] Hereinafter referred to as “Ms Zhang”.
[4] Hereinafter referred to as “the FWA” or “the Act”.
These reasons for judgment relate to what monetary penalty should be imposed upon Ms Yang and Ms Zhang as a consequence of their admitted breach of the provisions of section 716(5) of the FWA for failing to comply with a Compliance Notice issued to them by the FWO.
In broad terms, the relevant Compliance Notice, dated 7 April 2020, required Ms Yang and Ms Zhang to rectify underpayments made to two of their employees on or before 26 May 2020 and provide written proof to the Ombudsman that they had done so prior to that date.
Ms Yang and Ms Zhang have formally admitted that they did not comply with this Notice and, as a consequence, the FWO commenced these proceedings against them, in this court. However, neither Ms Yang nor Ms Zhang have challenged the Compliance Notice, as they are entitled to do pursuant to the provisions of section 717 of the Act, nor do they dispute that the employees concerned were underpaid, as alleged by the FWO.
Accordingly, in the jargon of industrial lawyers, these reasons for judgment relate to a penalty hearing – that is what monetary penalty should be imposed by the court and what other orders should be made, in respect of this admitted contravention, arising as a consequence of non-compliance with the relevant Notice.
At relevant times, between mid-September 2018 and early-June 2019, Ms Yang and Ms Zhang were the co-trustees of the Bestie House Trust,[5] which operated a hair and beauty salon in central Adelaide. Bestie House employed Jingyi Han[6] and Yunqian Shen,[7] in its hair and beauty salon. Ms Han was a nail technician and Ms Shen was an eyelash extension technician.
[5] Hereinafter referred to as “Bestie House”.
[6] Hereinafter referred to as “Ms Han”.
[7] Hereinafter referred to as “Ms Shen”.
As a consequence of the nature of their employment, Ms Han and Ms Shen’s terms, conditions and rates of pay were covered by a modern award – the Hair and Beauty Industry Award 2010.[8] In June 2019, Ms Han and Ms Shen contacted the office of the FWO seeking assistance as each believed she had been underpaid by Bestie House.
[8] Hereinafter referred to as “the Hair and Beauty Industry Award” or “the Award”.
Following Ms Han and Ms Shen’s enquiries to it, the FWO directed Fortina Colalancia,[9] a Fair Work Inspector, to investigate their complaints and ascertain whether there had been any breaches of the relevant modern Award insofar as their employment was concerned.
[9] Hereinafter referred to as “Ms Colalancia”.
During her investigations, Ms Colalancia corresponded with solicitors engaged by Ms Yang and Ms Zhang and was provided with employment records in respect of Ms Han and Ms Shen by the respondents. Ms Colalancia also made enquiries regarding the level of experience and relevant qualifications of the two employees concerned in order to determine their appropriate level of remuneration.
As a consequence of her investigation, Ms Colalancia formed the view that Bestie House had breached the provisions of the Hair and Beauty Industry Award, in respect of its employment of Ms Han and Ms Shen by failing to pay them their entitlements in respect of the following matters:
·casual minimum wage;
·casual weekday loading;
·casual Saturday loading;
·casual Sunday loading;
·casual public holiday loading; and
·casual Saturday penalty.
Essentially, Ms Colalancia concluded that neither Ms Han nor Ms Shen had been paid the minimum hourly rate for casual employees in the beauty industry, and had not received additional penalties, to which they were entitled, for working on weekends and public holidays.
Ms Colalancia’s belief that Bestie House had breached the Award, insofar as its obligation to pay Ms Han and Ms Shen the casual rate of pay and penalties, led her to issue the relevant Compliance Notice to Ms Yang and Ms Zhang, as the co-trustees of the trust operating the Bestie House Beauty Salon.
The Compliance Notice required Ms Yang and Ms Zhang to take action, no later than 5.00pm on Friday 15 May 2020, to remedy the underpayments to Ms Han and Ms Shen, by doing the following:
·Identify the number of hours worked by and the amounts actually paid to Ms Han and Ms Shen;
·Thereafter calculate the amounts the two women should have been paid according to the Hair and Beauty Industry Award provision relevant to them;
·Make the payments so calculated to Ms Han and Ms Shen;
·Make a written reconciliation – underpayment rectification information – of the amounts initially paid to Ms Han and Ms Shen and the amounts to which they were actually entitled and provide it to the two women concerned;
·Calculate the superannuation contributions to which the two women were entitled;
·Pay the superannuation entitlements to the women’s relevant superannuation fund.
As previously indicated, it is a significant aspect of such a Compliance Notice, that the relevant recipients of such a Notice provide documentary evidence that they have complied with the Notice served upon them.
It is common ground between the parties and formally admitted by Ms Yang and Ms Zhang that they have not complied with the Notice in question. As at the date of hearing, no proof of rectification has been provided by them, and Ms Han and Ms Shen’s entitlements remain outstanding.
THE CONDUCT OF THE PROCEEDINGS
The FWO commenced these proceedings, by way of a Statement of Claim, filed on 3 September 2020. The respondent’s, Ms Yang and Ms Zhang, responded to the application on 9 October 2020 and in their Response contested some aspects of the claim made against them.
In particular, emphasis was placed on the fact that neither spoke English with fluency as each spoke Mandarin as their first language; they operated a small business, which did not have any extensive administrative support; the business had been impacted by the Coronavirus pandemic; and, it was necessary for an accountant to be engaged to make the necessary calculations.
In all these circumstances, it was contended that it was not legally reasonable for the FWO to expect them to comply with the relevant Notice in the timeframe stipulated, given their idiosyncratic circumstances, which were known to the FWO. As a consequence, each asserted that they had not incurred any penal liability in respect of their non-compliance.
Significantly, in their Response,[10] the respondents asserted that they had engaged an accountant to calculate the payments due to Ms Han and Ms Shen and those calculations had been completed on 14 September 2020. The implication being that it was administratively premature for the Notice to have been issued.
[10] See the Response of the respondents filed 8 October 2020 at [11].
In these circumstances, each respondent admitted having underpaid the two employees concerned but the relevant portion of the Response, in which the underpayment had been calculated was left blank. It does, however, appear to be their joint position that significant steps had been taken to calculate what was due.
The matter first came into court on 30 November 2020 when the court was told that liability, in respect of the allegation of the breach of the Compliance Notice, remained in dispute. As a consequence, the following orders were made:
1.The Applicant shall file and serve any affidavit material on the issue of liability and an outline of submissions by 29 January 2021.
2.The Respondents shall file and serve any affidavit material on the issue of liability and an outline of submissions by 5 March 2021.
3.The matter be listed for hearing on liability on 21 June 2021 at 2.15pm.
4.The parties have liberty to apply.[11]
[11] Orders of Judge Brown dated 13 November 2020.
On 28 January 2021, Ms Colalancia deposed a lengthy Affidavit, in which she set out her dealings with Ms Han and Ms Shen and subsequently with Ms Yang and Ms Zhang and their solicitor, Mr Starke.
In addition, on 29 January 2021, the solicitor for the FWO filed written submissions in support of its claim that the respondents were liable for failing to comply with the Compliance Notice served upon them, in anticipation of the liability hearing scheduled by the court for 21 June 2021.
On 24 March 2021, Mr Starke filed an Affidavit, deposed by him, on behalf of the respondents. In this Affidavit, he deposed as to discussions, which had occurred between his office and that of the FWO, following the Ombudsman’s involvement in the matter from mid-June 2019.
It is common ground that the FWO issued an earlier Compliance Notice, which was withdrawn on 6 April 2020. Essentially, it was Mr Starke’s position that his clients wished to be compliant and had provided as much information as they were able to do, given their English language proficiency and lack of administrative and accounting support, at an early stage following the FWO raising of Ms Han and Ms Shen’s complaint with them.
Mr Starke further deposed that an accountant had been retained, on behalf of Ms Yang and Ms Zhang, to analyse relevant records with a view to narrowing issues between them and the FWO. It was apparently in this context that the first Compliance Notice was withdrawn.
On 31 May 2021, Caroline Braithwaite, a solicitor employed by the FWO deposed an Affidavit in which she outlined her involvement with the matter, particularly the context of her discussions with Mr Starke.
She confirmed that she had received correspondence, from Mr Starke, in which a spreadsheet of calculations had been provided. These calculations apparently delineate the respondents’ view of what wages should have been provided to Ms Han and Ms Shen and was provided in early November of 2020.
Thereafter, Ms Braithwaite confirmed that a meeting had been convened between her, Mr Starke and the respondents to discuss the contents of the spreadsheet and presumably to see if issues between the parties could be resolved without further litigation. The meeting took place on 10 November 2020, following the issue of the second Compliance Notice, on 7 April 2020.
Following this meeting, Ms Braithwaite wrote to Mr Starke on 11 November 2020. In her letter, she indicated the FWO’s position that the calculations provided did not comply with the action required by the Compliance Notice of 7 April 2020.
In particular, Ms Braithwaite indicated the FWO’s position that the calculations provided did not relate to the relevant underpayments arising from each of the contraventions of the relevant Award, which Ms Colalancia had identified.
In addition, Ms Braithwaite deposed that, as at the date of the letter, no evidence had been provided by the respondents that the restitution payments had been made to Ms Han and Ms Shen. In these circumstances, Ms Braithwaite indicated that the FWO was not prepared to withdraw the relevant Compliance Notice or discontinue the relevant proceedings.
In her letter to Mr Starke, Ms Braithwaite wrote as follows:
[B]y inserting the rates a Casual Hair and Beauty Employee Level 2 was entitled to in the Calculations, the FWO is able to estimate a payment in excess of $3,800 gross will be likely required to be paid to Ms Han and a payment in excess of $5,000 gross will likely be required to be paid to Ms Shen to address the contraventions identified in the Compliance Notice.[12]
[12] See the Affidavit of Caroline Braithewaite filed 31 May 2021 at annexure CAEB-3.
Against this background, when the matter returned to court on 21 June 2021, counsel for the respondents, Mr Healy, indicated that his clients would no longer be contesting liability in respect of the allegation of non-compliance with the Compliance Notice. In these circumstances, the following orders were made:
1.The parties file and serve a Statement of Agreed Facts by 28 June 2021.
2.The issue of penalty is to be determined on the papers.
3.The Applicant file and serve submissions and any affidavit material in respect of penalty by 5 July 2021.
4.The Respondents file and serve submissions of any affidavit material in respect of penalty by 12 July 2021.
5.The Applicant file and serve submissions in reply by 19 July 2021.
6.Pursuant to section 545(1) of the Fair Work Act 2009 (Cth) (FW Act), the Respondents, on a joint and several basis, take the following steps that were required by the compliance notice issued on 7 April 2020 by 21 July 2021:
a.calculate the outstanding entitlements they were required to pay Ms Jingyi Han and Ms Yunqian Shen, including any additional superannuation contributions required to be paid; and
b.prepare a schedule to the Applicant outlining the calculation of the outstanding entitlements it was required to pay Ms Han and Ms Shen.
7.Pursuant to section 545(1) of the FW Act, the Respondents, on a joint and several basis, take the following steps that were required by the compliance notice issued on 7 April 2020 by 16 August 2021:
a.pay the outstanding entitlements they were required to pay to Ms Han and Ms Shen referred to in Order 6(a); and
b.provide evidence of this payment to the Applicant.
8.That the matter be adjourned for a date and time to be advised for the publication of the decision.[13]
[13] Orders of Judge Brown dated 21 June 2021.
The Statement of Agreed Facts was filed on 25 June 2021. Pursuant to section 191 of the Evidence Act 1995 (Cth) the matters set out in this document are taken not to be in dispute between the parties. As such, they form the evidentiary basis for the court’s necessary findings of fact in the case.
THE AFFIDAVIT MATERIAL RELIED UPON
The FWO relies on the following Affidavit evidence:
·The Affidavit of Fortina Colalancia filed 28 January 2021;
·The Affidavit of Caroline Braithwaite filed 31 May 2021.
The respondents rely on the following Affidavits:
·The Affidavit of Yi Yang filed 12 July 2021;
·The Affidavit of Xurui Zhang filed 12 July 2021;
·The Affidavit of David Altamura filed 26 July 2021.
Mr Altamura is a book keeper, who deposes that he has prepared a spreadsheet of the monies paid by Bestie House to Ms Han and Ms Shen and compared those amounts with a pay guide prepared by the FWO in respect of the Hair and Beauty Industry Award 2010.
As a consequence he has calculated that Ms Han was underpaid an amount of $2,555.15 and was entitled to superannuation in an amount of $298.33 and Ms Shen was underpaid an amount of $3,139.49 and was entitled to a further amount of superannuation in an amount of $729.38.
RELEVANT LEGISLATIVE PROVISIONS
The objects of the FWA are contained in section 3. They include the provision of an industrial safety net, for Australian employees, which is maintained through the the enforcement of a system of minimum terms and conditions specified in the modern Award system.
The Office of the Fair Work Ombudsman is created by section 682 of the FWA. One of the functions of the Ombudsman is to enforce compliance with the Act, including any workplace obligations residing on employers, as a consequence of relevant industrial Awards, which mandate rates of pay and conditions of employment.
In turn, the FWO may appoint Fair Work Inspectors, who are authorised to utilise what are characterised as compliance powers.[14] In general terms, inspectors are directed to investigate complaints in respect of breaches of the industrial law and are authorised to enter workplaces to determine whether an employer has contravened the law, including in respect of the application of any relevant modern Award or otherwise failed to comply with the industrial safety net.
[14] See Fair Work Act 2009 (Cth) s 706.
In addition, the FWO has a responsibility to educate, advise, and assist both employers and employees, in respect of their respective obligations, arising under the Act and, if necessary, commence proceedings, in appropriate courts, to enforce the provisions of the FWA.
Pursuant to section 701 of the Act, the FWO is also a Fair Work Inspector. The FWA empowers the Ombudsman to delegate its statutory responsibilities to Fair Work Inspectors. The Act confers upon such inspectors a number of powers in order to ensure compliance with the provisions of the Act. Among other things, inspectors can enter work premises and require the production of employee records.[15]
[15] Ibid s 712(1).
In addition, the FWO, as a consequence of its status as a Fair Work Inspector, has statutory authority to bring proceedings under the Act and seek the imposition of penalties, if breaches of the FWA are established.[16]
[16] Ibid s 539(2).
Section 716 of the Act provides that, if an inspector believes, on reasonable grounds, that a person has contravened a term of a modern Award, the inspector concerned may issue that person with a ‘Compliance Notice’ requiring the person nominated to take action to remedy the contravention in question.
There is no controversy between the parties, in the current matter, that the Hair and Beauty Industry Award 2010 was such a modern Award, which covered and applied to each of the respondents in respect of their employment at Bestie House, between 15 September 2018 to 30 November 2018, and 9 March 2019 to 1 June 2019, insofar as Ms Han was concerned; and between 16 September 2018 to 4 June 2019, insofar as Ms Shen was concerned.[17]
[17] See Statement of Agreed Facts filed 25 June 2021 at [13].
Pursuant to the applicable legislation, any Compliance Notice must provide particulars of the contraventions of the Act alleged and outline any rights of review that arise under the Act. There is no issue in the present case that the Compliance Notice in question does not comply with the provisions contained in sections 716(2) and (3) of the FWA.
Section 716(1) and (2) of the Act delineates the criteria, which must be satisfied before an inspector may issue a Compliance Notice. Firstly, the power itself is a discretionary one and like all administrative decisions, must be exercised reasonably.
Whether a discretion, conferred by statute, is exercised in a legally reasonable manner, it must be determined by reference to the statute itself, particularly its ‘subject-matter, scope and purpose’.[18] In this particular case, as indicated above, one of the purposes of the FWO is to provide an industrial safety net, for workers, so far as the application of industrial awards is concerned, as well as to educate employers in regard to their industrial responsibilities.
[18] See Minister for Immigration & Citizenship v Li (2013) 249 CLR 332, 370-1 [90] (Gageler J).
Secondly, the discretion may be exercised only once a reasonable belief is formed by the relevant inspector. The discretion must be exercised appropriately and not in an arbitrary, illogical or capricious manner. The exercise of the relevant discretion cannot be disproportionate to the issue raised. To be exercised reasonably, it must be possible to glean from the relevant decision record ‘an evident and intelligible justification’ for the pertinent decision.[19]
[19] Ibid at [76] (Hayne, Kiefel and Bell JJ).
Again, in the current matter there is no issue regarding the reasonableness of Ms Colalancia’s belief that the respondents had breached provisions of the relevant Award and she was therefore entitled to issue the Compliance Notice, which she did.
In addition, in the light of the educative role and obligation to promote cooperative workplace relations[20] it was, in my view, clearly appropriate for the FWO to engage in correspondence with the respondents and their representatives in order to see whether the underpayment issues could be resolved between the parties without recourse to litigation.
[20] See Fair Work Act 2009 (Cth) s 682(1)(a).
In this context, the application of a Compliance Notice issued under section 716 must be considered. In Fair Work Ombudsman v Matcraft Pty Ltd & Ors,[21] Judge Kendall explained the legislative intention of Compliance Notices, as an alternative to litigation, in the following terms:
As explained in the Explanatory Memorandum to the Fair Work Bill 2008 (Cth), the purpose of s 716 of the Act is to provide an alternative to litigation. Section 716 is an informal mechanism whereby the applicant can identify potential contraventions of the Act and seek rectification without an employer having to admit liability.
One of the objects of the Act is to provide accessible and effective procedures to resolve grievances and disputes and provide effective compliance mechanisms. Section 716 encapsulates this objective by allowing employees to make a request for assistance which the applicant can then resolve through the use of s 716.[22]
[21] Fair Work Ombudsman v Matcraft Pty Ltd & Ors [2021] FCCA 272.
[22] Ibid at [34]-[35] (Kendall J).
In a formal sense, each respondent admits that the Compliance Notice in question was legally valid and properly issued and was not complied with, in that neither Ms Yang nor Ms Zhang:
·failed to take the specified action by the date and time specified in it; and
·did not produce to Ms Colalancia or the FWO reasonable evidence of their compliance with the Notice by the date and time specified.
As such, the respondents admit that they failed to comply with the Compliance Notice.[23]
[23] See Statement of Agreed Facts filed 25 June 2021 at [20]-[21].
This contravention engages the provisions of section 716(5) of the Act, which renders it a civil remedy provision if a person fails to comply with a Compliance Notice.
Pursuant to section 539, a breach of section 716(5) potentially attracts a fine of up to 30 penalty units. At relevant times, a penalty unit amounted to $210.00.[24] Accordingly the maximum penalty liable to be imposed on each of the respondents is one of $6,300.00.
[24] See Crimes Act 1914 (Cth) s 4AA.
It is the submission of the FWO that the respondent’s admitted conduct warrants a penalty in the range of between 60% and 70% of the maximum penalty, which should not be discounted to recognise the admission of liability, given the relevant admissions were made late in the piece.
In support of this submission, the FWO points to the following factors:
·The court needs to set penalties at a meaningful level to ensure that both the respondents concerned and other employers are aware of the gravity of any failure to comply with Compliance Notices issued to them;
·In the current matter, the respondents’ failure to comply with the relevant Compliance Notice has the effect of undermining the efficacy of such Compliance Notices as an alternative regulatory enforcement tool to litigation;
·The significant delay in the respondents undertaking the necessary corrective action to back-pay Ms Han and Ms Shen.[25]
[25] See applicant’s Outline of Submissions filed on 22 July 2021 at [5].
In these circumstances, as it is entitled to do, the FWO recommends that the penalty to be imposed on each respondent being fixed in a range of between $3,780.00 and $4,410.00.
On the other hand, counsel for the respondents, Mr Healy, does not contend that any particular percentage of the maximum should be imposed other than that the court should be mindful not to impose a crushing penalty but rather impose one that could be considered merciful.[26]
[26] See respondent’s Outline of Submissions filed 15 July 2021 at [44]-[45].
In support of this submission, Mr Healy points to the following factors, which mitigate the gravity of the contraventions in question:
·The Respondents’ non-English speaking background and lack of prior business experience;
·The poor economic returns provided to the Respondents by the Bestie House business and their straitened means;
·The small scale of the business and its lack of administrative support;
·The fact that the Respondents have indicated that they will not hire staff for the business in future but will provide all services themselves;
·The fact the Respondents sought professional assistance, shortly after they came to the notice of the industrial regulator.
These submissions are fleshed out in the Affidavits, which each of the Respondents has filed. Neither Ms Yang nor Ms Zhang were required for cross-examination by the FWO. In these circumstances, in the absence of any evidence in rebuttal, the Respondents’ Affidavit material is to be accepted by the court, unless it appears inherently unreliable or otherwise unsatisfactory.
THE RESPONDENTS’ EVIDENCE
Ms Yang is a qualified nail technician. She was born in China and came to Australia, in her early-20s, to study marketing. She is single and lives in rented accommodation. Ms Zhang was also born in China and came to Australia, for her secondary education, as a 16 year old. She is a qualified eyelash extension technician.
The parties met in late-2018 and decided to go into business together, given their complementary skills, in the beauty industry. Each of them found it difficult to find other areas of employment. I accept that neither is proficient in English and they did not have business experience, when they commenced Bestie House.
The Respondents divide the profits of the business between them on an equal basis. In its first year of operation, the business generated an operating profit, after tax, of approximately $21,000.00 for each of them.
The clientele of Bestie House is mainly Chinese women, many of whom who are tertiary or advanced education students studying in Adelaide, who speak English as their second language. Ms Yang and Ms Zhang converse with their customers, mostly in Mandarin, but each has some English language skills.
Ms Zhang has deposed that, in the past, she has done the basic administration work for the business, which she does out of hours, as she is needed to be available to provide beauty treatments during regular hours. She does not have any specific book keeping or business skills. It is the Respondents’ evidence that they work long hours to keep the business going.
Ms Zhang also deposed that the business has been severely impacted by the Covid-19 pandemic, as there are no longer any Chinese overseas students utilising its services. Her accountant indicates that her taxable income for the financial year ending 30 June 2020 was just under $11,000.00. Ms Yang’s income was the same. There has been no improvement in the income in the most recently completed year.
Ms Zhang is married and lives in rented accommodation, with her husband, who is a telephone technician earning approximately $45,000.00 per annum. Their rent is $24,960.00 per annum. It is the evidence of both respondents that they are living at a subsistence level.
LEGAL PRINCIPLES APPLICABLE TO PENALTY
The approach, which the court is required to take, in respect of these contravention proceedings, has been delineated in a number of decisions of the Federal Court.[27] The process can be summarised as follows:
·The court should identify each separate contravention, arising from a breach of either the applicable Award or the FWA itself. Pursuant to section 539(2) each such contravention is a distinct incident for penalty purposes;
·The court should determine whether any of these incidents arise in a single course of conduct, within the terms envisaged by section 557(1);
·Then give consideration as to whether any of these contraventions contain elements and factor this into considering what is an appropriate penalty, in all the circumstances, for each contravention;
·Thereafter, the court should fix an appropriate penalty for each single or group contravention, taking into account all relevant circumstances;
·Finally, the court should apply the totality principle. This final step constitutes a review of the aggregate penalty thus far calculated and envisages a consideration of whether such a penalty is an appropriate response to the conduct, which lead to the various contraventions in question. This case has been described as a process of intuitive synthesis.[28]
[27] See Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151 at [42] (Mansfield J), citing Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3) [2011] FCA 579 at [10] (McKerracher J).
[28] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCA 8 at [55] (Graham J).
The totality principle arises when a court is called upon to sentence an individual, as here, in respect of a number of identifiable offences. It is directed to review the penalties imposed, in total, in respect of individual offences to determine whether those penalties, in aggregate, constitute a just and appropriate penalty, in all the circumstances arising. As indicated earlier, it has been characterised as a process of intuitive synthesis best summarised in the well-known line from The Mikado “the punishment must fit the crime.”
Gray J in Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (“Australian Ophthalmic Supplies”) said as follows:
What is required is to determine an appropriate level of penalty for each contravention, as if it were a separate offence, and then look at the aggregate of those penalties in the light of the overall conduct of the [offender], to form a view as to whether that aggregate [is] out of proportion to that overall conduct.[29]
[29] Ibid at [23] (Gray J).
Regardless of these considerations, the fundamental task, for the court, is to determine, from all the factual circumstances arising, the gravity or seriousness of the offending, which it is called upon to penalise. Again there is general agreement between the parties as to the considerations relevant to this task, which has been delineated in a number of decisions of both this court and the Federal Court.[30] The considerations are as follows:
[30] See Mason v Harrington Corporation Pty Ltd [2007] FMCA 7; Kelly v Fitzpatrick [2007] FCA 1080 at [14]. (Tracey J); Blandy v Coverdale NT Pty Ltd [2008] FCA 1533 at [23] (Reeves J).
·The nature and extent of the conduct which led to the breaches;
·The circumstances in which the conduct took place;
·The nature and extent of any loss or damage sustained as a result of the breaches;
·Whether there has been similar previous conduct by the respondent;
·Whether the breaches were properly distinct or arose out of the one course of conduct;
·The size of the business enterprise involved;
·Whether or not the breaches were deliberate;
·Whether senior management was involved in the breaches;
·Whether the party committing the breaches has exhibited contrition;
·Whether the party committing the breaches has taken corrective action;
·Whether the party committing the breaches has cooperated with the enforcement authorities;
·The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
·The need for specific and general deterrence.
The court needs to be careful not to apply a formulaic approach to the imposition of penalties or attempt to extrapolate the penalties imposed in one case to the circumstances of another. Each case involving the imposition of a civil penalty warrants an idiosyncratic approach, and a careful analysis of all relevant circumstances. As was stated in Australian Ophthalmic Supplies:
Penalties are not a matter of precedent. The choice of penalty must be dictated by the individual circumstances of a case, not by a line by line comparison with another case.[31]
[31] Australian Opthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCA 8 at [12] (Graham J).
Clearly, the above check-list is useful. However, it is not to be regarded as an exhaustive list of factors to be considered. The ultimate control on any sentence is that it must be proportionate to the offence committed. A court is not permitted to impose a sentence greater than is warranted by the objective circumstances of the offending.[32]
[32] See Veen v R (No 2) (1988) 164 CLR 465, 472 (Mason CJ, Brennan, Dawson, and Toohey JJ).
However, in the context of the significant interest that the public has in ensuring that employees are paid their proper entitlements, and are accorded the protection of the industrial safety net envisaged by the legislature, the court cannot lose sight of the importance of deterrence, both in a specific and general sense.
Penalties have to be fixed at a meaningful level, not set at a level in which their imposition, on an errant employer, can be seen as an acceptable cost of doing business for the employer. In short, penalties must hurt so that others who are considering cutting corners, so far as the payment and protection of their employees are concerned, will be deterred from doing so. This is particularly important so far as vulnerable employees are concerned, who work in small scale industries, which demand basic entry level skills, such as the hair and beauty industry.
In addition, in this context, the essential purpose of a Compliance Notice must be considered. Prompt compliance with their terms can result in a win/win situation for all concerned. The industrial regulator and the public purse is not put to the expense of a hearing; an underpaid employee can be reimbursed promptly; and an errant employer is spared the bother and embarrassment of public prosecution, and is given an opportunity to learn from and rectify past failings for the good of all concerned.
DISCUSSION
Grouping
There are no issues of grouping arising in this case, and accordingly the application of section 537 is redundant. There is only one specific contravention of section 716(5) applicable to each of the respondents.
Nature and extent of the conduct leading to the breaches
Bestie House came to the notice of the FWO in respect of breaches of the relevant Award relating to Ms Han and Ms Shen in mid-June of 2019. Thereafter, there seems to have been a somewhat protracted and convoluted exchange of correspondence between the respondents’ solicitor and the FWO.
This led to the issue of the first Compliance Notice, in October of 2019, which was subsequently withdrawn. However, in my view, the first Notice delineated to the respondents, and those advising them of the nature of the relevant breaches of the Award, and emphasised the need for a timely response. In my view, this was not an overly complex issue.
After the withdrawal of the first Compliance Notice, the parties continued to engage in discussions with one another, both before and after the issue of the operative Compliance Notice, in April of 2020. Notwithstanding these discussions, the FWO elected to commence proceedings in September of 2020, which ultimately led to the case being listed for a liability hearing.
Although at the aborted liability hearing, the respondents indicated a willingness to quantify and remit the amounts owed by them to Ms Han and Ms Shen, these liabilities, as far as I have been informed, remain outstanding. Accordingly, there has been a period in excess of twelve months since the respondents became aware that the FWO had an interest in their business and the reason for that interest.
The purpose of a Compliance Notice, issued under the FWA, is to promptly bring breaches of the industrial safety net to the attention of the relevant employer. This allows these breaches to be expeditiously rectified, and litigation avoided.
This is obviously of benefit to the general public, as calls on the public purse can be reduced, and any employees can receive their entitlements promptly. This is particularly important so far as modestly paid and vulnerable employees, such as Ms Han and Ms Shen, are concerned.
In addition, given their subsequent admission of liability, it would have been of obvious benefit to Ms Yang and Ms Zhang if they had complied with the Notice. Clearly, they would have spared themselves the anguish and expense of these proceedings.
In this particular case, the application of the Compliance Notice procedure, has been singularly unsuccessful. The employees concerned have been deprived of their entitlements for a lengthy period of time, and litigation has not been avoided.
Given the legislative purpose of a Compliance Notice, in my view, it is a significant matter that compliance with the Notice has remained outstanding for such a protracted period of time. In my view, the FWO clearly indicated the extent of the breaches of the Award involved and the nature of the rectification that was required by the respondents. Nothing, in a material sense, flowed from the Compliance Notice, so far as either Ms Han or Ms Shen were concerned.
However, I acknowledge that it cannot be said that the respondents ignored the FWO. They sought legal and book keeping advice and indicated a desire, which I do not consider hollow, to be compliant. In this context, I accept that neither Ms Yang nor Ms Zhang have any previous experience in dealing with government regulators.
In addition, in my view, it would be fundamentally unfair for the court to not be cognisant of the non-English speaking background of each of the respondents. I accept that neither respondent can be considered to be a sophisticated business person. More significantly, although the under-payment of Ms Han and Ms Shen cannot be excused, in my assessment, the circumstances of this case do not amount to a brazen exploitation of them by the respondents.
In this context, I accept that Ms Yang and Ms Zhang themselves were struggling to make ends meet, whilst working long hours, in what amounts to a cottage industry. This industry is likely to attract women from a non-English background, and is one which has a high potential to be rife with exploitation. This is because it involves the provision of simple personal services to individuals in small premises.
In this context, I am not prepared to find that the respondents deliberately set out to underpay Ms Han and Ms Shen. However, ignorance of the applicable Award and its application to their business does not excuse Ms Yang and Ms Zhang, who are required to know their responsibilities and obligations to their employees, and pay them accordingly.
No doubt there are many employers, such as Ms Yang and Ms Zhang, who speak English as their second language and who have limited, if any, experience of being in business in this country, but either through financial necessity or a desire to get ahead, commence a small businesses in Australia.
This does not abrogate the court’s responsibility to send a strong message, both to them and other members of society, that the provisions of industrial awards must be adhered to and all employees, regardless of their background are entitled to the protections afforded to them by the FWA.
Previous conduct
It is a significant and mitigating factor that neither respondent has any prior involvement with the FWO, and has never been subject to any complaint by a former employee prior to the issues surrounding Ms Han and Ms Shen coming to light.
Contrition, corrective action and cooperation with authorities
The FWO issued its first Compliance Notice, following the complaints of Ms Han and Ms Shen in October 2019. The most concrete manner in which the respondents could have shown contrition, in my view, would have been by a prompt admission that the two women had not been paid correctly and the indication that steps were being taken to rectify this state of affairs.
Similarly, there was no compliance with the second Notice, necessitating these proceedings. Again, notwithstanding the engagement of an accountant to calculate the amounts due, there was no corrective action taken to pay Ms Han and Ms Shen what they were due. Rather, what occurred was that the respondents sought to contest liability on the basis of their lack of comprehension of their obligations and their contention that the issue of the relevant Notice represented some form of unreasonable administrative over-reach on the part of the FWO.
It is true that Mr Starke, on behalf of the respondents, did provide payment details to the FWO and did engage in correspondence to narrow the issues. However, the fact remains that the proceedings were issued; were then initially contested; and the issue of compliance was unsuccessful in achieving its principle objective, namely the correct payment of the two employees concerned without the necessity of proceedings.
It was only on the day fixed for the liability hearing, that the respondents formally indicated that liability would not be contested. I accept that this obviated the need for a lengthy hearing and must necessarily have resulted in less imposition on the public purse. However, the admission came at an extremely late stage and, of itself, demonstrates a limited degree of contrition or cooperation with the FWO. Although, again, I recognise that the respondents are necessarily disadvantaged by their non-English speaking backgrounds in their engagement with authorities.
The FWO resists the application of any discount to the penalties to be imposed because, from its perspective, it was still put to the expense of preparing for the penalty hearing. In this context, it relies on what was said by the Full Court of the Federal Court (Stone and Buchanan JJ) in Mornington Inn v Jordan,[33] namely:
It is important to note that it is not a sufficient basis for a discount that the plea has saved the cost of a contested hearing – that would discriminate against a person who exercised a right to contest the allegations. A discount may be justified, however, if the plea is properly to be seen as willingness to facilitate the course of justice. Remorse and an acceptance of responsibility also merit consideration where they are shown.[34]
[33] Mornington Inn v Jordan [2008] FCAFC 70.
[34] Ibid at [74] (Stone and Buchanan JJ).
Necessarily, the FWO contends that the late indication of acceptance of liability, in the present matter, is not indicative of any desire, on the parts of the respondents, to facilitate the course of justice. Again, in my view, some mitigation must be accorded as a consequence of the idiosyncratic circumstances of each of the respondents. As Mr Healy put it succinctly, what has happened to the respondents represents a steep learning curve for each of them, which has rendered the speedy assimilation of what has occurred, and how they should best respond to it.
Although it has happened belatedly, and in circumstances which may be criticised as lacking in sincerity, Ms Zhang has deposed that she is embarrassed by what has occurred, and has learnt from her experience.[35] Ms Yang has deposed in similar terms.
[35] See Affidavit of Ms Zhang filed 12 July 2021 at [11].
In my view, the most concrete examples of contrition and co-operation, which the respondents could have demonstrated, would have been by paying the monies promptly, which they now concede are due to Ms Han and Mr Shen. This has not occurred as at the date of the penalty hearing. Such a payment would have represented a true demonstration of regret, shame and sympathy on the part of the respondents.[36] It would have also been the most obvious way of making amendments for their conduct. As such, there is limited evidence of any corrective conduct on the part of the respondents and their cooperation with the authorities has been belated.
[36] ACE Insurance Limited v Trifunovski (No 2) [2012] FCA 793 at [113]-[114] (Perram J).
Deterrence
As I have already observed deterrence has two aspects – general deterrence directed towards the community as a whole and specific deterrence directed towards each of the individuals concerned whose conduct is to be sanctioned.
In Fair Work Ombudsman v Darna Pty Ltd,[37] Judge Hartnett said as follows in respect of the importance of the Compliance Notice process in the industrial regulatory system in this county:
The Explanatory Memorandum to the Fair Work Bill 2008 (Cth) provides that compliance notices were designed to be another option to deal with non-compliance instead of pursuing court proceedings. It was to be a less costly and less time consuming procedure. Section 716 of the FW Act allows a person to whom a compliance notice is issued an opportunity to rectify an under payment without being subject to civil remedy provisions. The First Respondent’s failure to comply with the Compliance Notice issued has, in these proceedings, caused the Applicant and the Court to spend time and public funds in dealing with civil remedy proceedings which would not have been necessary had compliance occurred.[38]
[37] Fair Work Ombudsman v Darna Pty Ltd [2015] FCCA 709.
[38] Ibid at [11] (Hartnett J).
As I have already observed, so far as the current matter is concerned, the Compliance Notice procedure has been an abject failure in bringing about a prompt restitution to the two employees concerned, and the saving imposition on the public purse.
Mr Healy submits that there is no great need for specific deterrence so far as the respondents are concerned because they have each learnt a salutary lesson from the case. This has led them to decide not to employ anyone else in their business ever again and rather each will provide the beauty services requested by their clients. I accept these submissions.
Size of business and capacity to pay
I accept that Bestie House must be regarded as a very modest enterprise indeed, which operates at the lower margins of the beauty industry. In these circumstances, the capacity of the respondents to pay a penalty is limited by their respective financial circumstances.
However, it is well established that this is no excuse for an offender to rely on the fact that they are the operator of a small business. To the contrary, the court must bear in mind that small businesses of one form or another represent a large component of employers in this country.
Such small businesses, in areas like the hair and beauty industry, very often employ, as is the case here, members of the community who must be considered vulnerable, such as semi-skilled women from a non-English speaking background.
In these circumstances, I adopt the comments of Driver FM (as his Honour then was) in Rajagopalan v BM Sydney Building Materials Pty Ltd as follows:
Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to the Court’s consideration of penalty.[39]
[39] Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at [27] (Driver FM).
CONCLUSIONS
It has been said that the task of sentencing is one of the most difficult judicial tasks, as it requires the synthesis of competing considerations to arrive at a penalty, which is just and appropriate. Necessarily it is a process of intuitive synthesis. It is useful to think of it in terms of percentages, but sentencing is not a purely arithmetical process.
The penalty to be imposed must be proportionate to the gravity of the offending. This provides the high water mark in respect of the range of penalty to be imposed before turning to any subjective factors which tend to mitigate the objective assessment of the offending.
In my assessment, an appropriate penalty for each respondent is one of $3,000.00. This is a significant sum, in my view. I take into account that for each respondent it was a first offence and when measured against their individual financial circumstances, the penalty will represent a large impost.
At the same time, the breaches represent a failure of the Compliance Notice system to achieve its objectives. As such, a message must be sent to small cottage-type industries of the importance of prompt and complete rectification of any breaches of the industrial safety net. The penalty imposed, in my view, is of sufficient moment to achieve the desired degree of general deterrence required.
This will render each respondent to penalties less than those sought by the FWO, but the penalties in question cannot be regarded, in my view, as being either token or trivial, given the personal circumstance of each of the respondents. Importantly, as indicated above, they are of sufficient magnitude to provide general deterrence.
Pursuant to section 546(3) of the Act, the court may order the payment of any penalty imposed to be paid to the Commonwealth; a particular organisation; or a particular person. In this case, the FWO seeks that the penalties be paid to the Commonwealth. Given the prosecution has been funded by the FWO, it is obviously appropriate that this course should be adopted.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 11 November 2021
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