Fair Work Ombudsman v Z Transport Group Pty Ltd
[2017] FCCA 2660
•31 October 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v Z TRANSPORT GROUP PTY LTD & ORS | [2017] FCCA 2660 |
| Catchwords: INDUSTRIAL LAW – sham contracting – underpayment – failure to provide payslips – bicycle courier paid piece rates – small employer of marginal profitability. |
| Legislation: Fair Work Act 2009, ss.323, 357, 536(2) Fair Work Regulations 2009, reg.3.46 |
| Cases cited: Mason v Harrington Corporation Pty Ltd [2007] FMCA Hollis v Vabu Pty Ltd [2001] HCA 44; 207 CLR 21; 75 ALJR 1356; 106 IR 80; 181 ALR 263 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | Z TRANSPORT GROUP PTY LTD (ACN 144 943 626) |
| Second Respondent: | VINCENT JOHN SMITS |
| Third Respondent: | BOXBAY (ACN 100 450 299) |
| File Number: | MLG 2556 of 2014 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 24 April 2017 |
| Date of Last Submission: | 15 May 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 31 October 2017 |
REPRESENTATION
| Counsel for the Applicant: | Ms Knowles |
| Solicitors for the Applicant: | Office of the Fair Work Ombudsman |
| The Second Respondent appeared In Person |
ORDERS
Pursuant to sub-s.546(1) of the Fair Work Act 2009, the First and Third Respondents each pay a penalty of $36,000.00 into Commonwealth Revenue, within 90 days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2556 of 2014
| FAIR WORK OMBUDSMAN |
Applicant
And
| Z TRANSPORT GROUP PTY LTD (ACN 144 943 626) |
First Respondent
| VINCENT JOHN SMITS |
Second Respondent
| BOXBAY (ACN 100 450 299) |
Third Respondent
REASONS FOR JUDGMENT
The Fair Work Ombudsman (“the FWO”) applies under the Fair Work Act 2009 (“the Act”) for the imposition of pecuniary penalties on the first and third respondents for contraventions of the Act.
The issues relate to the engagement of Mr B as a bicycle courier working for first respondent on behalf of the third respondent between February 2013 and November 2013. The primary contraventions committed by the third respondent were:
a)representing to Mr B that the work he performed was as an independent contractor under a contract for services and not a contract of employment, contrary to s.357(1) of the Act;
b)secondly, failing to pay Mr B his minimum entitlements in accordance with the relevant Award, an offence pursuant to s.323(1) of the Act;
c)thirdly, a breach of s.536(2) of the Act in failing to provide Mr B with payslips that included information relating to his superannuation contributions, contrary to reg.3.46 of the Fair Work Regulations 2009 (“the Regulations”).
The first respondent was knowingly involved in the contraventions by the third respondent.
Background
The first respondent carries out a courier business providing delivery services in various areas of Melbourne. In part, it relies upon a bicycle courier system. The third respondent provides services, including courier services to the first respondent. Mr B was engaged as a bicycle courier to carry out courier deliveries by bicycle around Melbourne.
The maximum penalties applicable for corporations under ss.357 and 323 are $51,000. For a contravention of s.536, the maximum penalty is $25,500. Thus, the total maximum for each of the corporations is $127,500.
The bicycle courier was paid a fee per courier job, which appears to have varied from job to job depending upon what was involved in the job and how much the particular client was being charged (for example, at least one large client appeared to be charged less than clients who had less work for the company).
Mr B became unhappy as he was unsure how his payments were being calculated and found that the amount that he was earning from carrying out the work made it difficult for him to live week to week given the low income. The respondents took the view that Mr B was a contractor relying upon lack of directions to him as to how to complete courier jobs, not providing a uniform and allowing couriers to establish their own priorities. However, they did provide a personal digital assistant to each courier to allow them to mark off jobs and a radio.
It seems some confusion also flowed from the use of an internet tool on the Australian Taxation Office (“the ATO”) website which appears to have been an automated tool that produced an assessment that Mr B was a contractor rather than an employee (a copy of which was provided as annexure “VJS-9” to the second respondent’s affidavit sworn 30 January 2017). It appears from the printout that was annexed to the affidavit that the tool provided by the ATO is particularly simplistic and fails to provide sufficient queries as to the nature of the work and the practical realities that may restrict a particular worker with respect to choosing a system of work or subcontracting.
Whilst choice of system of work and subcontracting were theoretically available to the employee in this case, it was unrealistic to think that those rights could be exercised in a meaningful way at the discretion of the employee and, with respect to the former, certainly not beyond what would normally be expected of an employee courier, in any event.
To the respondents’ credit, they took corrective action between September and December 2014 paying Mr B the amounts for the underpayments and changing the payment arrangements for couriers working for their business. The director of the companies has formally apologised within his affidavit and expressed his regret.
There are a number of factors relevant to determining an appropriate penalty. A non-exhaustive list has been set out by Federal Magistrate Mowbray in Mason v Harrington Corporation Pty Ltd [2007] FMCA at [26] to [59]. I adopt this list of factors to assist in ensuring the relevant consideration are made in determining the penalty in this case, noting that it is not a rigid catalogue that is binding and that it does not limit the considerations that may be relevant in a particular case.
Nature, extent and circumstances of the contravening conduct
The general nature of the contravening conduct is set out above. It is important to note that in this case the amount of the underpayment represented a significant portion of the overall entitlements of the employee (around 28 per cent of all monies to which he was entitled), being a sum of $7,641.78. Mr B worked for approximately 10 months in a position that had an annual salary of a little under $33,000 per annum. In this context, the underpayment is a significant proportion of the income of a relatively low-paid worker. Mr B says that he had a significant credit card bill which he had used for everyday living and by the time that he ceased his employment, which is unsurprising given the low income that he was earning.
Mr B also said that he entered into the arrangement because that was what he was presented with by the employee, again, an unsurprising sequence of events, given the nature of the employment concerned. In the Parliamentary debates about the introduction of the sham contracting provisions, the Minister for Employment and Workplace Relations set out that the Government did not “tolerate the use of sham arrangements and, considers that people found to have knowingly disguised an employment relationship in this way should be subject to penalties” (Hansard, 13 September 2006, page 9).
In this case, it must have been apparent that Mr B was not a contractor given the decision of the High Court in Hollis v Vabu Pty Ltd [2001] HCA 44; 207 CLR 21; 75 ALJR 1356; 106 IR 80; 181 ALR 263 which specifically deals with bicycle couriers. It appears that the respondents were aware of this decision by 2012 through correspondence from the FWO. Given the history of this matter, it appears to fall into the category of deliberate conduct by the respondents despite clear statements from the FWO’s office, that the arrangement was that of employment rather than an arrangement of a contractor. This case follows previous investigation by the FWO where another employee was engaged as a contractor when working as a bicycle courier. However, no further enforcement action was taken in the 2012 case.
Pay slip breaches
I note that the payslip had two entries which made little sense on the face of the pay slip. One was, “bike deduction”, which was the label given to monies paid into a superannuation fund on the employee’s behalf (although the employee was unaware of the superannuation fund arrangements) and the other, “admin deduction”, which appears to have been a hire fee for the personal dispatch system used in the work. Importantly, to the extent that the descriptions were misleading (the “bike deduction” reference), it obscured the fact that payments were being paid for the benefit of the employee, rather than the employer, and, therefore, falls at the less serious end of the scale.
I also note that the pay slips provided were in the nature of remittance advices and not generated with the intention of generating pay slips as a result of the engagement of the employee as a contract. To the extent that the employee was thought to be engaged as a contractor rather than an employee, this variation is explained, and the sham contracting is reflected in the penalty for the sham contracting.
Ensuring compliance with minimum standards
It is well accepted that the Act is intended to ensure an effective safety net of minimum terms and conditions for all employees within Australia. Had the contracting arrangements been sufficiently remunerative, they would have produced an income for the employee similar to or greater than the wage rates that would otherwise be payable under the Award. They did not.
In this case, the overall effect of the arrangements undermined the minimum standards that are set in place by the community for employment. This is not a case where it could reasonably be argued that the nature of the bicycle courier work was such that the courier could be considered to be building up their own business and, thus, prepared to work at a loss or for rates less than would be obtainable on an Award with an eye to potentially greater benefits of developing a business in the future. This is a case where the employee was simply engaged upon a casual basis to perform courier work in circumstances where the rates involved and the nature of the work were not reasonably likely to have led to the courier developing a business of his own.
Previous similar conduct
In this case, there have not been previous prosecutions under the Act. However, as mentioned above, there has been a previous investigation, determination and significant material provided to the employer.
Whilst the ATO automated assessment provides some benefit for the employer to explain the conduct, it is difficult to place any significant weight on this in light of the provision of the decision in Hollis to the respondents by the FWO, which decision covers almost identical facts and circumstances. Whilst these demonstrate a level of intransigence by the first and third respondent companies (and their controlling mind, being the second respondent) I do not completely discount that there was some level of genuine disagreement as to the operation of the law.
However, it is open to a person who has such a disagreement with the FWO to file proceedings in the Federal Circuit Court or the Federal Court seeking declarations as to the nature of the employment. Whilst the filing fee in the Federal Circuit Court is not insignificant ($615), it is not so great as to make it prohibitive in circumstances where significant penalties may be imposed, and there are significant issues relating to an employee’s entitlements.
Notably, the jurisdiction of the court under the Act is a jurisdiction that generally does not result in the order of any costs, making it available to any employer to bring an application, with supporting material setting out the circumstances of the employment, in order to obtain a declaration as to the specific categorisation or award entitlements of the employee. It is, perhaps, unfortunate that the availability of such a process was not made more plain to the respondents in this case, and no doubt in the future where there is a dispute of this type the employer will be given notice that they can bring an application to the court, and if they fail to do so, it will seriously undermine their credibility in alleging that there is a genuine dispute.
Size of the business
In this case, the circumstances involve a relatively small business. The turnover of the business is a little over half a million dollars per annum. The business does not generate significant profits. The payments to the second respondent have been very modest. This is not a case where the respondents were exploiting Mr B for large profits, rather to keep a marginal business going.
As I said in Fair Work Ombudsman v Foure Mile Pty Ltd & Anor [2013] FCCA 682 at [22]:
22. I am not, however, persuaded that in this case the breaches were merely technical or inadvertent. The Second Respondent was concerned that the business was not very profitable, and operated at a marginal level. He appeared to hold the view that he was providing a benefit by way of a job to the employee and that this should be borne in mind. It appears to me that this wholly misconceives the nature of the difference between employment and joint venture. Many persons choose to undertake work for a level of reward less than would be set as the minimum in the various awards, on conditions set out under the legislative scheme for employees in the hope of achieving business growth or the establishment of a business that will be significantly more profitable, or valuable, to them in the long term. It remains every person’s right to operate their own business or trading venture and live off the profits that they can generate as they see fit. In this regard, it is common for persons to join together in partnerships or form companies or joint ventures. Significantly, when a person is not a joint venturer or partner, but working simply as an employee, they have no prospects of sharing in the wealth of the business venture in the future (if this comes to pass). It is for those operating a new or marginal business to make an election as to whether or not to seek partners or joint venturers who may be prepared to work for less than the award in a business operation in the hope of making a significant gain in the future. Alternatively, if workers are to be employed, regardless of the state of the business, the minimum terms and conditions must be remunerated on at least the minimum terms and conditions provided for in the legislation and the awards. For the law to be otherwise would simply create a category of underpaid workers who were being exploited to subsidise inefficient or otherwise unprofitable business operations, or business start-up periods.
The businesses in this case, however, place a further argument before the court. It was said that as a result of the financial crisis significant difficulties were confronted by the business which has attempted to ensure that all employees have been retained rather than have some employees being dismissed as a result of the downturn in business. This results in some level of mitigation of the conduct if it related to an existing employee. However, to underpay a new employee for this purpose tells against this being a significant mitigating factor.
Deliberateness of contraventions
I am persuaded that the contravention in this case was deliberate, and made in circumstances where the true position had clearly been provided to the respondents by the FWO in 2012. To the extent that there was a level of genuine dispute as to the true state of affairs, and proper classification of the employee, it was open to the employer to apply to the court. This is not a case where the events that transpired occurred either by accident, error, negligence or even recklessness.
It is argued that the circumstance by which Mr B’s ABN was placed upon his application form also tells against the respondents. The respondents had alleged that Mr B had completed his application form with the business including his ABN number. It transpired in cross-examination that the ABN number had been added by the second respondent in his handwriting, it seems having been looked up on the internet. Mr B’s version was that he did not have his ABN number with him and so did not fill in that part of the form, and later he was told by the ATO that he didn’t need to provide his ABN number as he would be properly categorised as an employee. Whilst this does represent a change in version by the second respondent in the scheme of the case it does not seem to me that it bears the level of seriousness as suggested by the FWO’s office, even taking into account that it transpires that the ABN number had been deactivated by the ATO.
Contrition, corrective action, cooperation with authorities
The third respondent has rectified the underpayment to Mr B which I take into account as a significant matter. The primary purpose of the legislation is to ensure that employees are paid their minimum entitlements, and as such rectification should be given significant weight in assessing any penalties imposed. In this case there has also been an apology and expression of regret.
The FWO submitted that there continues to be a sense of dispute as to whether or not Mr B was a contractor in the material. I accept that the employer did genuinely dispute the classification of Mr B as discussed above. However, in light of Hollis, it is difficult to see how there can be any dispute as to the current state of the law (whether or not one agreed with the current state of the law) and to this extent continued agitation of this issue is against the respondents.
General and Specific Deterrence
The need for general and specific deterrence is an important factor as identified by Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65 at 93 where his Lander J said:
93. There are three purposes at least for imposing a penalty: punishment; deterrence; and rehabilitation. The punishment must be proportionate to the offence and in accordance with the prevailing standards of punishment: R v Hunter (1984) 36 SASR 101 at 103. Therefore the circumstances of the offence or contravention are especially important. The penalty must recognise the need for deterrence, both personal and general. In regard to personal deterrence, an assessment must be made of the risk of re-offending. In regard to general deterrence, it is assumed that an appropriate penalty will act as a deterrent to others who might be likely to offend: Yardley v Betts (1979) 22 SASR 108. The penalty therefore should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like minded persons or organisations. If the penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor in fixing the penalty: R v Thompson (1975) 11 SASR 217. In some cases, although hardly in this type of contravention, rehabilitation is an important factor.
In this case there does need to be a level of specific deterrence, particularly given the history of the matter with the FWO. There also needs to be some degree of general deterrence given the increasing use of bicycle couriers in the central business district in Australia. It’s also important to reinforce the requirement for pay slips to clearly set out information as to payment rates and items so as to enable employees to obtain advice and assess whether or not they are being properly paid in accordance with Awards and employment agreements.
Totality
It is important in a case such as this to take into account the totality of the circumstances. This is a task that involves some degree of synthesis of the above matters, some of which tell in favour of and some of which tell against the respondents.
Given the nature of the conduct involved and the knowledge of both corporations I find it appropriate that both corporations should have the same penalties imposed. In this case I’m persuaded that the appropriate penalty for sham contracting is the sum of $20,000. With respect to the underpayment I note that it was an incident of the sham contracting, but also that had the sham contracting been carried out with reasonable rates little or no underpayment ought to have resulted. I’m also mindful of the extent to which the underpayment effected the income of an employee on a very low rate of pay. However, I’m particularly mindful of the fact that the underpayment has been rectified. I therefore impose a penalty of $15,000 for the underpayment.
The pay slip offence presents a difficult determination with respect to penalty. Whilst the description of the superannuation contribution was wrong, the money was, in fact, paid into superannuation and, therefore, ultimately, only a nominal penalty is called for in that regard. The other payment properly reflected a payment that was being taken by the employer, which was an incident of the sham contracting and underpayment set out above. In the particular circumstances of this case, I am not persuaded that the appropriate penalties are as significant as sought by the FWO in light of the fact that the real problem was categorising the employee as a contractor, and therefore impose a penalty of $1,000 for the pay slip offence. The same penalties are appropriate for both corporations.
Given the amounts involved and the size of the company, I allow three months for the penalties to be paid to the consolidated revenue.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 31 October 2017
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