Longmire v Murray Clarke Enterprises Pty Ltd

[2008] FMCA 1028

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LONGMIRE v MURRAY CLARKE ENTERPRISES PTY LTD & ANOR [2008] FMCA 1028

INDUSTRIAL LAW – Where breaches of award and Workplace Relations Act admitted – penalty – whether multiple breaches should be considered single course of conduct – application of totality principle.

Workplace Relations Act 1996 (Cth) ss.178 (repealed), 719, 728
Workplace Relations Amendment (Work Choices) Act 2005
Motels Accommodation and Resorts Award 1998

Australasian Meat Industry Employees’ Union v Meneling Station Pty Ltd (1987) 16 IR 245
Australian Competition and Consumer Commission v ABB Transmission & Distribution Limited (2001) ATPR 41-815
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36
Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673
Australian Liquor Hospitality & Miscellaneous Workers Union v Broadlex Cleaning Australia Pty Ltd (1997) 78 IR 464
Australian Ophthalmic Supplies Pty Limited v McAlary-Smith (2008) 156 FCR 291
Clothing and Allied Trade Unions v Snugglerite Industries Pty Ltd (1990) 34 IR 124
Canturi and Another v Sita Coaches Pty Ltd and Another (2002) 116 FCR 276
Cotis v Pow Juice Pty Ltd [2007] FMCA 140
Community and Public Sector Union v Telstra Corporation Limited (2001) 108 IR 228
Gibbs v The Mayor, Councillors and Citizens of the City of Altona (1992) 37 FCR 216
Jarvis v Imposte Pty Ltd (2007) 215 FLR 1
Johnson v The Queen (2004) 78 ALJR 616
Kelly v Fitzpatrick (2007) 166 IR 14
Markarian v The Queen (2005) 228 CLR 357
Mason v Harrington Corporation Pty Limited [2007] FMCA 7
Masters v Highway One Transport Pty Ltd (1990) 33 IR 1
McIver v Healey [2008] FCA 425
Mill v The Queen (1988) 166 CLR 59
Mornington Inn Pty Ltd v Jordan (2008) 171 IR 455
National Tertiary Education Union v Central Queensland University [2008] FCA 481
Pearce v The Queen (1998) 194 CLR 610
Seymour v Stawell Timber Industries Pty Ltd (1985) 9 FCR 241
Smith v Granada Tavern & Ors (No. 3) [2007] FMCA 1548
Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550
Victoria University of Technology v Australian Education Union (1999) 91 IR 96

Applicant: INSPECTOR MATTHEW LONGMIRE

First Respondent: MURRAY CLARKE ENTERPRISES PTY LTD

Second Respondent: MURRAY CLARKE

File Number: SYG 745 of 2008

Judgment of: Barnes FM

Hearing date: 29 May 2008

Delivered at: Sydney

Delivered on: 31 July 2008

REPRESENTATION

Solicitors for the Applicant: Blake Dawson

Respondents: In person

ORDERS

1. The first respondent pay the Commonwealth a penalty of $20,000 for breach of clauses 13.2.2(b) and 17.2 of the Motels Accommodation and Resorts Award 1998 between 1 July 2004 and 9 August 2006. 

2. The second respondent pay the Commonwealth a penalty of $2,000 for breach of clauses 13.2.2(b) and 17.2 of the Motels Accommodation and Resorts Award 1998 between 1 July 2004 and 9 August 2006.

3. No penalty be imposed on either respondent in respect of the breaches of clauses 13.2.2(a), 13.2.2(c) and 13.5.1 of the Award or the breaches of sections 182 and 185 of the Workplace Relations Act 1996.

4. Payment of the penalties is to be made within six calendar months of today’s date.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 745 of 2008

INSPECTOR MATTHEW LONGMIRE

Applicant

And

MURRAY CLARKE ENTERPRISES PTY LTD

First Respondent

MURRAY CLARKE

Second Respondent

REASONS FOR JUDGMENT

Background

1. The applicant, a workplace inspector appointed under the Workplace Relations Act 1996 (Cth) (the Act), seeks that penalties be imposed on each of the respondents for admitted contraventions of the Federal Motels Accommodation and Resorts Award 1998 (the Award) and, in relation to the first respondent, the Australian Fair Pay and Conditions Standard (the Standard). 

2. By application filed on 22 November 2007 in the Federal Court of Australia the applicant sought declarations that the first respondent, a corporation, contravened certain clauses of the Award and ss.182 and 185 of the Act, being terms of the Standard, in relation to fourteen employees of a business conducted by the first respondent known as the Bucketts Way Motel in Gloucester, New South Wales.   

3. The applicant sought that the first respondent pay a penalty pursuant to s.178(1) of the Act as it was prior to the Workplace Relations Amendment (Work Choices) Act 2005 (the Work Choices Act) and/or s.719(1) of the Act for the contraventions and also that it pay each of the fourteen employees a specified amount representing the amount that such employee was underpaid as a result of the first respondent’s contraventions.

4. The second respondent is the sole owner, director and secretary of the first respondent.  The applicant sought a declaration that by reason of the operation of s.728 of the Act the second respondent contravened the applicable provisions of the Award and that he should also pay a penalty. 

5. On 6 February 2008, the first return date of this matter in the Federal Court before Justice Cowdroy, an agreement was reached between the parties that the respondents would make good the underpayments to the 14 employees or former employees identified in Schedule 1 to the application in the total sum of $12,297.05 in two equal instalments to be paid on 15 February 2008 and 15 April 2008.  Each of the respondents (who at that time were legally represented) admitted liability in respect of all of the offences alleged in the application and agreed that the matter should proceed to a penalty hearing on the basis of a mutually agreed statement of facts.  The applicant agreed that in imposing a penalty the Court should take into account the admissions of liability and the rectification of the alleged underpayments as factors in mitigation. 

6. The matter was transferred to this Court solely for determination of the penalty.  I am not asked to make any of the declarations sought in the application.  An agreed statement of facts was filed on 20 May 2008 and also marked as an exhibit.  As discussed further below, one factual matter remained in issue between the parties.  It was addressed in an affidavit of Inspector Longmire affirmed on 19 May 2008 and filed on 20 May 2008 and in oral evidence from the second respondent, Murray Charles Clarke.  The solicitor for the applicant confirmed that the first respondent had made good the underpayment (which had been recalculated to be a total amount of $11,897.05).  

7. It is agreed that the Bucketts Way Motel is a cited respondent to the Federal Motels Accommodation and Resorts Award 1998.  At various times between 1 July 2004 and 9 August 2006 it employed 14 employees whose employment was regulated in whole or in part by the Act and the Award.  Five of the employees were classified as “juniors” under the Award.  Each of these employees was engaged on a casual basis, performing duties within the “Grade 2” classification under clause 4.7.2 of the Award. 

8. The Workplace Ombudsman undertook an audit of the first respondent’s time and wage records and subsequent investigation for the period from 1 July 2004 to 9 August 2006 (the audit period) which led to the institution of the prosecution for breaches of the Award and the Act.  The applicant, as a workplace inspector appointed under s.167(2) of the Act, has standing to apply for a penalty in respect of such breaches (s.718). 

The law

1. Section 719(1) of the Act came into force on 27 March 2006.  An eligible court (which includes the Federal Magistrates Court) may impose a penalty in respect of a breach of an “applicable provision” by a person bound by the provision.  “Applicable provision” is defined in s.717 to include a term of an award and a term of the Australian Fair Pay and Conditions Standard (the Standard) which is constituted by the provisions of Divisions 2 to 6 of Part 7 of the Act (see s.4 and s.171).  Section 719(2) is as follows:

   Subject to subsection (3), where:

   (a)  2 or more breaches of an applicable provision are committed by the same person; and

   (b)  the breaches arose out of a course of conduct by the person;

   the breaches shall, for the purposes of this section, be taken to constitute a single breach of the term.

2. Section 719(4) prescribes maximum penalties for breach of an applicable provision of 60 penalty units for an individual and 300 penalty units for a body corporate. 

3. The breaches occurred both before and after the commencement of s.719 in its present form and the other amendments introduced by the Work Choices Act on 27 March 2006. Prior to that time s.178(1) of the Act relevantly provided:

   Where an organisation or person bound by an award … breaches a term of the award … a penalty may be imposed by the court …

4. Subsection 178(2) was in substantially the same terms as the present s.719(2).

5. Chapter 7, reg. 2.14 of the Workplace Relations Regulations 2006 provides that after the commencement of the Work Choices Act an application may be made to the Court by a workplace inspector for the imposition of a penalty under s.178 in respect of breaches of a federal award which occurred prior to 27 March 2006. It has not been suggested that this Court lacks jurisdiction to hear and determine the matter insofar as it relates to breaches before 27 March 2006 (and see Jarvis v Imposte Pty Ltd (2007) 215 FLR 1).

The applicable maximum penalties

1. Different rates of maximum penalty have been in force during the time in which the breaches in question occurred.  The maximum penalty in force between 1 July 2004 (the commencement of the audit period in which the breaches occurred) and 9 August 2004 was $10,000 for a body corporate and $2,000 for an individual for each breach under paragraph 178(4)(ii) of the WR Act as it then stood.  From 10 August 2004 to 26 March 2006 the maximum penalties for each breach under paragraph 178(4)(A) of the Act were $33,000 for a body corporate and $6,600 for an individual.  The same maximum penalties are applicable for the period from 27 March 2006 to 9 August 2006 by virtue of s.719(4) of the Act. 

2. Six of the fourteen employees were employed by the first respondent prior to 10 August 2004, although only one of those employees ceased employment before the maximum penalty rates changed. 

3. The applicant submitted (without elaboration) that these are the sums against which the discretion to determine a penalty in relation to each breach is to be exercised, but that the maximum penalty the Court may impose should be calculated by reference to the rates of $33,000 and $6,600 that were applicable at the end of the audit period. 

4. On the material before the Court and in light of the fact that the breaches are admitted, it is not possible to determine with accuracy the precise extent to which there were breaches of each term of the award before the maximum was raised.  Rather than proceed on the basis that the maximum penalty should be a specified figure somewhere between the amounts before and after the increase (as Gyles J did in Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 where the increase in the maximum rate occurred approximately half way through the period in issue) I consider it appropriate to have regard to this issue as a factor relevant to the exercise of my discretion.

The admitted breaches

1. The first respondent admitted the breaches of the Award and Standard alleged by the applicant in relation to failing to pay ordinary time wages at the applicable rate and failing to pay applicable casual loadings, penalty rates and junior rates to the employees.  The second respondent admitted he was involved in such contraventions within s.728 of the Act. 

2. The admitted breaches are of clauses 17.2 and 13.2.2 and (in relation to juniors) clause 13.5.1 of the Award and ss.182 and 185 of the Act being terms of the Standard. 

3. I note that while the second respondent admitted involvement in all the contraventions by the first respondent, in the application filed on 22 November 2007 the applicant sought orders against the second respondent in relation to contraventions of the Award only (and not the provisions of the Act being terms of the Standard). 

4. Clause 17.2 of the Award specifies minimum rates of pay for employees at specified levels and classifications.  From 1 July 2004 to 26 March 2006 the first respondent was required to pay but failed to pay the employees at the correct ordinary adult rates of pay resulting in an underpayment and breaches of clause 17.2 of the Award.  From 27 March 2006, under s.208 of the Act, the pay and classification provisions of the Award became a preserved Australian Pay and Classification Scale (APCS).  The first respondent was then required to pay the employees at the applicable APCS rates derived from the Award, but in breach of s.182 of the Act failed to pay the employees at the correct APCS rate of pay, resulting in further underpayment. 

5. The failure to pay the ordinary time rates also occurred in relation to junior casual employees who, by virtue of clause 13.5.1 of the Award, were to be paid a prescribed percentage of the applicable adult employee rate.  From 27 March 2006 the provision of the Award that determines junior rates of pay also became part of the ACPS and in breach of s.182 of the Act the first respondent failed to pay the junior employees at the correct junior rates of pay resulting in an underpayment. 

6. The first respondent was also obliged to pay and failed to pay the employees the applicable casual loading of 25 per cent of the correct ordinary minimum rates of pay for the class of work performed in breach of clause 13.2.2(a) of the Award.  From 27 March 2006 the casual loading provisions of the Award became part of the APCS.  Section 185 of the Act requires that casual employees be paid a “guaranteed casual loading” equivalent to that payable under the APCS.  In breach of s.185 the first respondent failed to pay the employees the guaranteed casual loading resulting in an underpayment.  

7. The Award also requires employers to pay casual employees prescribed penalty loadings for time worked on Saturdays and Sundays (clause 13.2.2(b)) and Public Holidays (clause 13.2.2(c)).  The first respondent failed to pay the employees applicable penalty loadings for all work done by casual employees on a Saturday, Sunday or Public Holiday in accordance with paragraphs (b) and (c) of clause 13.2.2 of the Award resulting in underpayment and breaches of the Award. 

8. It is agreed that the underpayment of the ordinary rate of pay and casual loading payable for ordinary hours worked Monday to Friday occurred throughout the audit period.  The adult casual rate paid by the first respondent in eleven sample weeks between the week ending 7 July 2004 and the week ending 26 April 2006 was $14.97 per hour when the applicable Award or APCS rate was $16.75 per hour, increasing to $17.31 in mid-2005.  In three subsequent sample weeks in the audit period (the weeks ending 26 July 2006, 2 August 2006 and 9 August 2006) the rate paid was $15.94 per hour when the applicable rate was $17.31.  I note that the rate of $14.97 paid for much of the audit period was the adult casual rate of pay under the Award for the period 23 June 2001 to 8 July 2002. 

9. The first respondent admitted all the contraventions alleged by the applicant in relation to failure to pay ordinary time wages at the applicable rate, failure to pay applicable junior rates, applicable casual loadings and applicable penalty rates.  The second respondent admitted that he was involved in the contraventions by the first respondent within the meaning of s.728 of the Act. 

10. At the time the agreed statement of facts was filed on 20 May 2008 the total underpayment as agreed between the parties was the sum of $11,897.05, which amount had been made good by payments by the first respondent on 15 February 2008 and 15 April 2008. 

11. It was agreed that the breaches were of the following provisions of the Award:

    Clause 17.2:  ordinary rates of pay

    Clause 13.2.2(a):  casual loading

    Clause 13.2.2(b):  Saturday and Sunday loadings

    Clause 13.2.2(c):  public holiday loading

    Clause 13.5.1:  junior rates of pay.

12. It was agreed that after 27 March 2006 breaches also arose from two separate provisions of the Act being terms of the Standard:

    Section 182:  guaranteed APCS rates of pay

    Section 185:  guaranteed casual loading

Number of breaches

1. The applicant submitted (and the respondents did not dispute) that the breaches arose from five separate provisions of the Award and two separate provisions of the Act and that each term was breached repeatedly by the first respondent in respect of each of the employees to which it applied over the time of employment of each employee within the audit period. 

2. The applicant accepted that the respondents should have the benefit of s.178(2) of the pre-reform Act and s.719(2) of the Act in relation to repeated breaches of the same term of the Award and the Act. On this basis it was conceded that when two or more breaches of a term of an award or an applicable provision arose out of a common course of conduct they were to be treated for the purposes of imposing a penalty as constituting a single breach of that term or provision. This amounts to an acknowledgement (see Australasian Meat Industry Employees’ Union v Meneling Station Pty Ltd (1987) 16 IR 245) that multiple breaches of particular applicable provisions (or terms) arose out of a course of conduct such that the multiple breaches of each term should be taken to constitute a single breach of that term within s.178(2) and then s.719(2) of the Act.

3. In this case there were separate provisions of the Award in relation to the adult rate of pay, casual loading, weekend loadings, public holiday loading and junior rates of pay that were continually breached over the relevant period of employment of each of the employees to which they applied.  After 27 March 2006 there were also breaches by the first respondent of the terms of the Standard contained in ss.182 and 185 of the Act, albeit the obligations were the same in substance as under equivalent provisions of the Award.  The duties performed by each of the employees fell within the same Grade 2 classification under the Award. 

4. I accept that, as the applicant submitted, I should consider the multiple breaches of each term of the Award and each section of the Act in respect of up to 14 employees over the period in issue to be a single breach of the particular term (see Seymour v Stawell Timber Industries Pty Ltd (1985) 9 FCR 241 at 266; Clothing and Allied Trade Unions v Snugglerite Industries Pty Ltd (1990) 34 IR 124 at 216 and Cotis v Pow Juice Pty Ltd [2007] FMCA 140 at [43] – [44]). On this basis I find that the admitted multiple breaches of each of five separate terms of the award and (in relation to the first respondent) two separate terms of the Standard shall for the purposes of determining penalty be taken to constitute a single breach of each term in question (ss.178(2) and 719(2)).

Categories of breach

1. In addition, the applicant conceded that to the extent that two or more contraventions have common elements, the respondents should not be penalised more than once for the same conduct.  The applicant submitted that the respondents’ breaches could be categorised as constituting two separate courses of conduct, consisting of a failure to pay the correct ordinary time rates for casual adult and junior employees and a failure to pay the correct penalty rates for adult and junior employees.  The applicant made this submission on the basis that the substance of the matter was first that the first respondent had failed to pay the correct rates of pay to the adult employees.  Hence the casual loadings for adults and both the ordinary rates of pay and casual loadings for juniors were calculated based on an incorrect base rate.  Secondly, the first respondent failed to pay the correct penalty rates for adult and junior employees for work done on weekends and public holidays. 

1. Reference was made to Australian Ophthalmic Supplies Pty Limited v McAlary-Smith (2008) 156 FCR 291 in which the Full Court of the Federal Court considered on appeal a decision of a magistrate in which, on the basis of a concession made by the workplace inspector, 22 established contraventions had been grouped into 11 categories. The Magistrate imposed penalties for each category. On appeal no issue was taken with the imposition of separate penalties in respect of 22 breaches of the awards in question by reference to 11 identified categories (Australian Ophthalmic Supplies at [51]).  Rather, the grounds of appeal were whether the Magistrates’ Court had failed to take into account that penalties imposed should not be so great as to be excessive and that the penalties were excessive. 

2. In describing the approach at first instance, Gray J stated that what the Magistrate was required to do “was to determine an appropriate level of penalty for each contravention, as if it were a separate offence, and then to look at the aggregate of those penalties in light of the overall conduct of the appellant, to form a view as to whether that aggregate was out of proportion to that overall conduct” (at [23]), but that her Honour “went about the task in a different way”, in that after acknowledging the totality principle “she then appears to have applied it at the beginning of the process by grouping the 22 contraventions into 11 categories of breaches” (at [24]). 

3. Gray J observed that in reality there were 22 contraventions.  While his Honour did not think the Magistrate had erred in regarding a particular amount “as an appropriate penalty for each of the categories of contravention” (at [24]), he found that she had erred in that she did not “revisit” the application of the totality principle as a final check to form a view as to whether the aggregate of the penalties determined for each contravention as if it were a single offence was out of proportion to the overall conduct (at [23]). 

4. Graham J stated (at [71]) that where there were numerous breaches “the starting point should have been to determine appropriate penalties for each contravention of the statutory norm, due regard being had to the apparent degree of overlap” and that this was what the Magistrate had done. 

5. Buchanan J stated (at [93]) that the Magistrate had “correctly appreciated the need to avoid any form of double punishment for the same conduct” and grouped the 22 established contraventions into “categories of breaches” for which she fixed penalties (rather than for individual contraventions) to accommodate overlapping.  His Honour stated:  “Her approach of avoiding double punishment for common matters in overlapping contraventions was in accordance with authority”, referring to Pearce v The Queen (1998) 194 CLR 610 (at [40]).

6. The solicitor for the applicant suggested that this indicated that the totality principle applied both at the beginning and end of the process of determining penalty and also that penalties could be determined for each “category” of contravention. 

7. In oral submissions the solicitor for the applicant submitted that in addition to the application of s.178(2) or s.719(2) in determining penalty the Court was required to apply the so-called “totality principle” in two ways. It was suggested that this principle should be applied initially so that to the extent that two or more contraventions (assessed as single contraventions under s.178 or s.719) have common elements, the respondent should not be penalised more than once for the same conduct and that the penalties imposed by the Court should be an appropriate response to what was done (Australian Ophthalmic Supplies Pty Limited at [46] per Graham J). It was submitted that the Court should first consider an appropriate penalty to impose in respect of each course of conduct having regard to all of the circumstances of the case. The respondents did not address this issue.

8. The second way in which the court was said to be required to apply the totality principle was that having fixed an appropriate penalty for each course of conduct, the court should take a “final look” at the aggregate penalty to determine whether it was an appropriate response to the conduct which led to the breaches and was not oppressive or crushing as discussed in Kelly v Fitzpatrick (2007) 166 IR 14 at [30] per Tracey J and Australian Ophthalmic Supplies at [23] per Gray J, at [71] per Graham J, and [102] per Buchanan J.  At this stage the court should apply an “instinctive synthesis” in making the assessment (Australian Ophthalmic Supplies at [23] and [27] per Gray J, [55], [71] and [78] per Graham J and [102] per Buchanan J).  This was not disputed.

9. On this basis it was submitted that the Court should for the purposes of penalty treat the admitted breaches of seven provisions in the award and standard in this case as only two separate courses of conduct so that the maximum penalty the Court may impose would be $66,000 in respect of the first respondent and $13,200 in respect of the second respondent, based on the penalties applicable during the later part of the period of time in which the breaches occurred. 

10. Mr Clarke, the second respondent, appeared for himself and for the first respondent in the proceedings before this Court.  He did not take issue with the applicant’s submissions in relation to the applicable principles, number of breaches, maximum penalty or the factors applicable in determining a penalty but, as discussed further below, contended that no penalty at all should be applied. 

11. There is, however, authority that breaches of separate provisions of an award (or agreement) must be treated as separate breaches and cannot be consolidated as a single breach for the purposes of s.178 (and hence s.719) (Masters v Highway One Transport Pty Ltd (1990) 33 IR 1 at 4 and Cotis v Pow Juice at [42]).

12. In Gibbs v The Mayor, Councillors and Citizens of the City of Altona (1992) 37 FCR 216 Gray J stated at 223:

    The object of s 178(2) appears to be that a party bound by an award and pursuing a course of conduct involving repeated acts or omissions, which would ordinarily be regarded as giving rise to a series of separate breaches, should not be punished separately for each of those breaches. If such a party has pursued a course of conduct which gives rise to breaches of several different obligations, there is no reason why it should be treated as immune in respect of its breach of one obligation, merely because it has acted in breach of another. This reasoning leads to the conclusion that each separate obligation found in an award is to be regarded as a "term", for the purposes of s 178 of the Act. The ascertainment of what is a term should depend not on matters of form, such as how the award maker has chosen to designate by numbers or letters the various provisions of an award, but on matters of substance, namely the different obligations which can be spelt out. For these reasons, I incline to the view that each separate obligation imposed by an award is to be regarded as a "term", for the purposes of s 178 of the Act. If the different terms impose cumulative obligations or obligations that substantially overlap, it is possible to take into account the substance of the matter by imposing no penalty, or a nominal penalty, in respect of breaches of some terms, but a substantial penalty in respect of others.

    (See also Kelly v Fitzpatrick (2007) 166 IR 14 at [17]; McIver v Healey [2008] FCA 425 at [16] – [18] and National Tertiary Education Union v Central Queensland University [2008] FCA 481 at [42] – [43]).

13. Thus the admitted breaches are of five separate “terms” or “provisions” of the Award and two provisions or terms of the Standard and cannot simply be treated as two breaches for the purpose of penalty pursuant to s.178(2) or s.719(2).

14. Further, a distinction has been drawn between the totality principle, which is applied to ensure that the final result is not unjust and the principle applicable at the initial stage of determining penalties to avoid double punishment for common matters in relation to overlapping breaches.  In Australian Ophthalmic Supplies Graham J at [46] and Buchanan J at [93] referred to the application at the initial stage of the principle enunciated in Pearce v The Queen at [40] per McHugh, Hayne and Callinan JJ as follows:

    To the extent to which two offences of which an offender stands convicted contain common elements, it would be wrong to punish that offender twice for the commission of the elements that are common. No doubt that general principle must yield to any contrary legislative intention, but the punishment to be exacted should reflect what an offender has done; it should not be affected by the way in which the boundaries of particular offences are drawn. Often those boundaries will be drawn in a way that means that offences overlap. To punish an offender twice if conduct falls in that area of overlap would be to punish offenders according to the accidents of legislative history, rather than according to their just deserts.

    (See also Johnson v The Queen (2004) 78 ALJR 616 at [27] – [34]).

15. In Mornington Inn Pty Ltd v Jordan (2008) 171 IR 455 Stone and Buchanan JJ (at [4]) explained that it was important to distinguish the principle in Pearce from the application of the totality principle as described in Mill v R (1988) 166 CLR 59 at 62 – 63 “which is a final check to be applied to ensure that a final, total or aggregate, penalty is not unjust or out of proportion in the circumstances of the case” (at [42]) (and see Gyles J at [5]). 

16. There is significant overlap in the content of the obligations in issue.  In light of these authorities and in the absence of any submissions on this issue from the respondents, I consider that the appropriate way to reflect the concession of the applicant that the respondents’ breaches should be treated as falling into two categories or as constituting of two courses of conduct is to impose penalties for the breach of clause 17.2 which relates to ordinary rates of pay and the breach of clause 13.2.2(b) which relates to weekend penalty loadings.  These terms reflect the substance of the contravening conduct.  Consistent with the approach in Gibbs, Kelly, McIver and National Tertiary Education Union, no penalty should be imposed in respect of breach of the terms that substantially overlap or impose cumulative obligations. Clause 13.5.1 in relation to the proportionate junior rates of pay, clause 13.2.2(a) in relation to the casual loading calculated as a percentage of the ordinary rate of pay and ss.182 and 185 of the Act which impose the equivalent obligations to pay APCS rates and casual loadings derived from the Award, contain common elements or overlap with the obligations imposed by clause 17.2.  Similarly no penalty should be imposed in respect of clause 13.2.2(c) which relates to penalty loadings and can be said to overlap with clause 13.2.2(c) (on the assumption that these paragraphs of clause 13.2.2 impose separate obligations in the sense considered in Gibbs)). 

17. The applicant seeks that “mid range” penalties for two breaches be imposed on each of the respondents on the basis that the maximum penalty to be imposed in respect of two breaches by the first respondent would be $66,000 (ie $33,000 for each breach) and $13,200 in respect of two breaches by the second respondent ($6,600 for each breach). 

Relevant factors

1. As acknowledged for the applicant, it is appropriate in determining the penalties to have regard to the “non-exhaustive” range of considerations identified by Mowbray FM in Mason v Harrington Corporation Pty Limited [2007] FMCA 7 and adopted by Tracey J in Kelly v Fitzpatrick.  However this list of matters does not prescribe or restrict the matters which may be taken into account in the exercise of the court’s discretion (see Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 at [11] and Australian Ophthalmic Supplies at [91] per Buchanan J). 

2. Those factors are as follows:

   (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 any similar previous conduct by the respondent;

   (e)     Whether the breaches were properly distinct or arose out of the one course of conduct;

   (f)         The size of the business enterprise involved;

   (g)     Whether or not the breaches were deliberate;

   (h)     Whether senior management were involved in the breaches;

   (i)     Whether the party committing the breach had exhibited contrition;

   (j)     Whether the party committing the breach had taken corrective action;

   (k)     Whether the party committing the breach had co-operated with the enforcement authority;

   (l)     The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and

   (m)   The need for specific and general deterrence.

3. While the applicant set out and addressed such factors in written and oral submissions, the evidence from the respondents was very limited.  Most of the factors were not addressed and not supported by evidence for the respondents, despite the fact that Mr Clarke was given the opportunity to give oral evidence on matters relevant to penalty as well as in relation to an issue in dispute about the return of documents by the applicant which had been addressed in an affidavit of the applicant filed on 20 May 2008.

4. The respondents did not dispute that I should have regard to these considerations in exercising my discretion in relation to penalty.  In addition, it is relevant to have regard to any evidence on matters such as the character, antecedents, age, means and physical or mental condition in relation to the second respondent as an individual. 

The nature and extent of the conduct

1. The breaches in question occurred over a two year period and affected the whole of the employees’ financial entitlements.  The employees affected by the breaches performed duties at the Hospitality Services Grade 2 classification under clause 4.7.2 of the Award.  This classification applies to employees who have not received the appropriate level of training and who are engaged in duties at a relatively unskilled and low paid level, such that they could be seen to be vulnerable to exploitation, notwithstanding that Mr Clarke submitted that many of these employees were long-term employees and friends he would not try to “rip off”.  The employees were without their proper entitlements for a period of at least 18 months from the time they fell due.  The breaches represent a failure to provide basic and important wage and condition entitlements under the Award and the Standard. 

The circumstances in which the conduct took place

1. The employees were all employees of the first respondent in connection with operation of a motel in Gloucester, New South Wales.  The second respondent is the sole owner, director and secretary of the first respondent.  The second respondent claimed that the business had been advised by Wage Net and the Hotel Motel Association of Australia (HMAA) to pay the employees under the State Award (the NSW Motels Accommodation and Resorts (State) Award).  Mr Clarke admitted that “they” had probably not kept up with the State Award, having not kept up membership of the HMAA. 

2. On 26 April 2006 the Workplace Ombudsman wrote to the Motel advising of an audit into employers who were respondents to the Federal Award and requesting the production of certain time and wage records.  It is agreed that on 1 May 2006 the second respondent advised the Workplace Ombudsman’s offices that the motel’s employees were paid under the State Award, but was told by a workplace inspector that the motel was a cited Respondent to the Federal Award.  This advice was confirmed by facsimile on 2 May 2006 including a copy of the Federal Award citation page.  Mr Clarke denies receiving the facsimile and did not provide the records by 16 May 2006 as requested.  After a site visit on 10 August 2006 the applicant issued a notice to produce documents, via facsimile.  Documents, including time, wage and payroll records for the period 1 July 2004 and 9 August 2006 were provided to the applicant on or about 25 September 2006. 

3. Even if until 1 May 2006 the second respondent was of the erroneous view that the first respondent’s employees were to be paid under the State and not the Federal Award (a matter discussed below), the employees were paid less than the ordinary casual rates applicable under the State Award during the relevant period. 

Nature and extent of any loss or damage sustained as a result of the breaches

1. It is not possible on the material before the Court to determine the precise amount of underpayment to each employee.  The applicant received the first respondent’s time, wage and payroll records for the period 1 July 2004 to 9 August 2006 in September 2006.  However the original records were sent to the second respondent by registered post on 2 November 2006.  The second respondent denies receiving these records.  It appears from the agreed statement of facts that subsequently the applicant made sample calculations of the underpayments on the basis of records for 14 weeks during the audit period that had been retained by the applicant.  The applicant advised the second respondent that the calculated underpayments would need to be multiplied to reflect the unpaid entitlements over the total audit period.  The second respondent advised that he could not make the calculations without the original records.  The applicant then undertook to do so, based on extrapolations from the sample records and estimates of the underpayments in relation to each employee.  These calculations were provided on 12 March 2007.  The second respondent indicated that he was unable to check the calculations as he did not have his original records. 

2. The nature and extent of the loss or damage was calculated by the applicant by way of extrapolation from the time and wage records for 14 sample weeks in the period between 1 July 2004 and 9 August 2006, apparently on the basis that the first respondent applied a base rate of $14.97 per hour from the start of the period up to at least the week ending on 26 April 2006 and subsequently applied a base rate of $15.94 an hour, at least from the week ending 26 July 2006. 

3. It is obvious that such extrapolation and estimation would not take into account variations in time worked by individual employees in non-sample weeks.  Nonetheless, the Workplace Ombudsman originally had the records for the entire period and the respondents now agree that the total underpayment was $11,897.05 over the period of the audit.  This underpayment has been made good.  This amount is less than the amount specified in the Schedule to the application – which calculated underpayments in relation to each of the 14 employees totalling $12,297.05 for the whole of the period in issue. 

4. It is agreed that the underpayment of the ordinary rate of pay for all hours worked (calculated by reference to the applicable Grade 2 rates) as required under clause 17.2 and s.182 of the Act and the casual loading (clause 13.2.2 of the award and s.185 of the Act) and junior rates in relation to the junior employees (clause 13.5.1 and s.182 of the Act) occurred throughout the audit period.  It is also agreed that owing to underpayment of the ordinary casual rate, the first respondent did not pay the applicable penalty rates for work done on Saturdays, Sundays or Public Holidays in the audit period, resulting in an underpayment.  It is notable that the underpayment of penalty rates reflected underpayment of the ordinary casual rate. 

5. The nature of the underpayment at the time it occurred can be seen by a comparison of the adult casual rates paid and the rates payable under the Federal Award/APCS in the 14 sample weeks.  At the start of the first sample period in issue (pay week ending 7 July 2004) the ordinary casual rate paid by the first respondent was $14.97 per hour.  This increased to $15.94 per hour for the pay period ending 26 July 2006. 

1. It is notable that $14.97 per hour was in fact the adult casual rate of pay under the Federal Award for the period 23 June 2001 to 8 July 2002.  By the start of the period in question the correct rate under the Award was $16.75 per hour (until mid-2005).  It was $17.31 per hour from mid-2005 to the end of the audit period (9 August 2006).  Hence the rates paid in the audit period were at all times less than those provided for in the Award – with a consequential effect on the calculation of other employee entitlements. 

2. Moreover the rates paid by the first respondent in the period in issue at no time accorded with the rates payable under the State Award.  The ordinary casual rate payable to an adult employee under the State Award from 30 October 2003 to 29 October 2004 was $16.13, increasing to $16.75 from 30 October 2004 to 29 October 2005 and to $17.31 from 30 October 2005 to 29 October 2006. 

3. While the underpayments have been made good, the employees were without their proper entitlements for a significant period from the time they fell due and were deprived of the financial benefits which timely payment of the correct wages would have provided to them.  The underpayments varied in relation to individual employees who worked for different periods of time within the audit period.  While the application set out the calculated underpayments to each employee totalling $12,297.05, this amount has been reduced.  The amount of the agreed underpayment is now $11,897.05.  The breaches represented a failure to provide the applicable basic wage and condition entitlements under the Federal Award and the Standard.

Similar previous conduct

1. There is no evidence before the Court that either respondent has previously engaged in or been penalised for similar conduct.  The first respondent was audited in February 2000 in relation to staff employed at the motel and was at that time found to be compliant with the Federal Award. 

Whether the breaches were properly distinct or arose out of the one course of conduct

1. The applicant conceded that the breaches were attributable to a failure to pay the correct ordinary time rates for casual adult and junior employees and a failure to pay the correct penalty rates for casual adult and junior employees.  I accept that this is an accurate description of the nature of the breaches, reflecting what can be characterised as two courses of conduct, albeit five terms of the Award and two sections of the Act being terms of the Standard were breached.  In essence all the breaches flowed primarily from the first respondent’s failure to pay the correct ordinary time rates so that all calculations of entitlements based on a proportion of those rates were incorrect.

Size of the business

1. As the applicant pointed out in written submissions filed on 20 May 2008, there is no evidence before the Court as to the size, structure or financial position of the first respondent’s business, except that it conducts the Bucketts Way Motel in Gloucester, New South Wales and has done so since at least early 2000 when it was audited.  There is no evidence as to whether it conducts any other business.  The second respondent is the sole owner, director and secretary of the first respondent.  While there is no suggestion that the first respondent is a large employer, I have had regard to the fact that an employer is under an obligation to adhere to industrial instruments regardless of its size or financial position.  As Tracey J stated in Kelly at [28]:

   No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction "must be imposed at a meaningful level".

2. Moreover, insofar as the second respondent raised generally in submissions an issue of financial hardship or difficulty paying any penalty, as Lloyd-Jones FM acknowledged in Cotis v Pow Juice [2007] FMCA 140 at [68]:

   Difficulty in paying penalties should not prevent the Court from imposing penalties which are otherwise appropriate… If the circumstances require a substantial penalty to be imposed, the financial difficulty itself will not deter the imposition of a penalty.

Whether the breaches were deliberate

1. The breaches represented systemic underpayments over a long period of time.  The rate paid at the commencement of the period in issue was the rate payable under the Award in the period June 2001 to July 2002. 

2. The respondents were advised of the correct Federal Award rates in a Breach Notice issued on 6 October 2006.  This notice was apparently received by the second respondent, who sought return of the original records supplied to the Workplace Ombudsman and an extension of time to comply with the notice.  I accept Mr Clarke’s evidence that he wanted to check the calculations of underpayments and was unable to do so without the original business records.  However while this is relevant in relation to the response to the Breach Notice, the first respondent did not increase the rates paid to employees until late November 2006.  When it did so it adjusted the wage rate to $16.75 per hour, despite the fact that the applicable APCS rate at that time was $17.31 per hour as had been advised in the 6 October 2006 Breach Notice.  I note also that the equivalent rate payable under the State Award had been $17.31 per hour from 30 October 2005.  The first respondent did not pay the correct rates to the employees until 11 January 2007.  The first respondent did not back-date that increase to 1 December 2006 in compliance with the APCS as adjusted by the Australian Fair Pay Commission’s wage-setting decision of 1 December 2006. 

3. While the second respondent maintained that employees were paid the rate in the State Award on advice from the HMAA and Wage Net, in fact the employees were not paid the applicable rates under the State Award in the period in issue.  Mr Clarke conceded that they “probably” had not kept up to date with the rates in that Award.  It is clear they did not. 

4. Mr Clarke also submitted that the Federal Workplace Authority and HMAA should keep employers advised of their correct obligations and that this had not occurred.  Mr Clarke claimed that since commencing the business he had done all he could to meet his (and the company’s) legal obligations.  He admitted that at some point they had not been paying up-to-date wages, but claimed this was only as they were unable reasonably to obtain up-to-date and accurate wage rates, having cancelled their membership with HMAA.  While the company has now rejoined HMAA, it was not a member at the time.  Nonetheless it was the respondent’s obligation to ascertain and pay the correct rates of pay. 

5. Moreover, notwithstanding these submissions, it is notable that it is agreed that on 1 May 2006 Mr Clarke was advised by a Workplace Inspector that the Motel was a cited Respondent to the Federal Award.  Hence even if he had previously thought that the motel had to pay its employees under the State Award, after this misapprehension was corrected he did not adjust the rates of pay.  Indeed, while I accept that, as he has consistently maintained, Mr Clarke believed the State Award was applicable until informed to the contrary, the first respondent did not pay the correct rates under the State Award during the period in question. 

6. While not persuaded on all the evidence that the breaches were deliberate, I am satisfied that they were the product of negligent disregard for the respondents’ obligations (as was conceded by the second respondent) and, at least from 1 May 2006 when Mr Clarke, the sole director of the first respondent, was advised that the Motel was a cited Respondent to the Federal Award, wilful disregard for the respondents’ obligations. 

Involvement of senior management

1. The second respondent is the sole owner of the business.  He did not suggest that the incorrect rates were the responsibility of any other employee of the company.  He conceded that in his absence the motel manager continued to pay wages at the rate he (Mr Clarke) understood the first respondent was obliged to pay. 

Contrition

1. The respondents (through Mr Clarke) have expressed contrition, albeit in the context of attributing the breaches to incorrect advice from the New South Wales Motels Association, HMAA and Wage Net and difficulty in obtaining information on current wage rates and changes to the Award.  The only evidence before the Court of “incorrect” advice about whether the State Award applied is Mr Clarke’s assertions.  Given that the correct State Award rates were not paid I do not accept that the breaches were attributable to the respondents’ following incorrect advice from any representative body or authority.  It was for the first respondent to obtain up-to-date information on applicable rates of pay. 

2. The applicant accepts that the respondents co-operated with the Workplace Ombudsman during the audit period and that the respondents’ admissions of liability and rectification of the breaches should be taken into account in mitigation. 

Corrective action

1. It is of relevance that the respondents have taken corrective action to remedy the breaches as described above.  In relation to the delay in taking corrective action, the second respondent contended that as he thought he had been paying the appropriate State Award rate, once the audit was under way he sought the return of the original records in order to check the calculations of the underpayment by the applicant.  I accept that he wanted to verify the calculation of underpayment. 

2. The applicant sent the original records by registered post to the second respondent at a particular home address on 2 November 2006.  A copy of a signed delivery confirmation form indicating that the post was delivered on 6 November 2006 was tendered in Court.  The second respondent denies receiving the records and asserts that the signature on the delivery confirmation is not his signature.  At that time he was “between houses”, although there were workmen in each of the houses.  He contended that as he had not received the records he could not verify the applicant’s calculations of the underpayments.  Mr Clarke sought to obtain copies of the records from the applicant.  This is understandable given that the applicant had stated in his letter of 2 November 2006 that he had copied the records – not that he had only retained “sample records” as later advised. 

3. I accept that on 2 November 2006 the applicant posted the original records by registered post to the applicant.  The applicant and Mr Clarke have differing recollections of a telephone conversation on or about 1 November 2006 in relation to return of the records.  They agree that the applicant indicated he was going to send the records to the second respondent at the address to which they were sent and that Mr Clarke told Inspector Longmire that he was in the process of moving to another address.  I accept that while Mr Clarke did not want the records sent at that time to his current address he understood that that is what Inspector Longmire intended to do.  The evidence of this conversation is not such as to establish that Mr Clarke “agreed” that the records should be sent at that time to his current address.  Even if he had “agreed”, what is more important is whether he received the records, as he attributes much of the subsequent delay in rectifying the underpayments to the fact that he could not check the extent of the breaches alleged against the motel records for the period in question. 

4. On all the evidence before the Court I accept that the records were not in fact actually received by Mr Clarke, notwithstanding the copy of the delivery confirmation slip, which bears a somewhat indistinct signature.  Mr Clarke’s subsequent conduct was consistent with his claim that he did not receive the records.  As at 1 December 2006 he claimed he had not received the records.  He sought copies of the records from the applicant.  This claim was reiterated on 23 February 2007, after which time the applicant agreed that the Workplace Ombudsman would undertake to do calculations of what was owed on the respondents’ behalf for the total audit period, based on the sample records retained. 

5. As set out above, from 11 January 2007 the first respondent increased the adult casual rate of pay to the then applicable amount, although the increase was not backdated to the date at which such rate came into effect.  The respondents were still of the view that the records were needed to verify the calculations to make good the underpayments, that they had been lost through no fault of their own and hence that they were unable to check the calculations.  They maintained this view in correspondence with the applicant in 2007, albeit the absence of past records had no relevance in relation to whether the correct rate was paid for the period after the audit. 

6. It is relevant to have regard to the fact that, as set out above, in the absence of the complete records the amount of the actual underpayments could only be calculated by extrapolation and estimate.  Despite the fact that the applicant “calculated” the amount required to remedy the breach, the second respondent continued to maintain (for example in a letter of 23 July 2007) that he could not check the calculations.  His belief that they had done nothing wrong however is not consistent with the fact that at least by May 2006 he had been advised of the application of the Federal Award and the fact that the Motel employees were not, in any event, paid at the State Award rate in the period in issue. 

7. A Final Notice was sent to the respondents on 27 July 2007.  These proceedings were commenced on 22 November 2007.  The underpayments were made good after agreement was reached on the first court date. 

8. The absence of the records is a partial explanation for the time taken by the respondents to take corrective action.  The amount of the underpayment had to be estimated by the applicant based on sample records and could not be checked in relation to actual hours worked and amounts paid throughout.  It was nonetheless made clear to Mr Clarke at least by the time the applicant advised of the correct pay rates (October 2006) that some corrective action was necessary. 

Co-operation with the enforcement authorities

1. The Workplace Ombudsman considers, and I accept, that the respondents were generally co-operative and responsive with regards to the audit.  The Workplace Ombudsman considers however that the respondents adopted an unco-operative approach in relation to rectifying the breaches prior to commencement of these proceedings.  The respondents rely on their alleged inability to verify the calculations made by the applicant. 

2. As indicated I accept that Mr Clarke did not personally receive the documents posted to him on 2 November 2006.  This mitigates to some extent the respondents’ delay after the audit period and receipt of the notices, in particular the final notice of 27 July 2007, although I also note that the first respondent failed to backdate payments for the period between 9 August 2006 and 11 January 2007, a period for which the incorrect rate was paid and the respondents were in possession of full records. 

3. Since these proceedings commenced the respondents have adopted a co-operative approach to resolving these proceedings, having rectified the breaches.  Importantly, they have admitted the contraventions alleged by the applicant in these proceedings and agreed to the statement of agreed facts.  They have done so notwithstanding that the amount of the agreed underpayment was calculated by extrapolation and estimation. 

Ensuring compliance with minimum standards

1. This matter involves a failure to provide minimum entitlements in accordance with the object of the Act to maintain a safety net of minimum terms and conditions of employment.  As Tracey J stated in Kelly v Fitzpatrick at [27]:

   One of the principal objects of the Act is the maintenance of a safety net of minimum terms and conditions of employment and effective enforcement of the obligations imposed by awards and other industrial instruments.  To this end the Act makes provision for the investigation of alleged breaches of obligations imposed by industrial instruments and the imposition of penalties where it is established that breaches have occurred. 

2. It is also relevant to note that the maximum penalties were significantly increased by Parliament in 2004.  This indicates that underpayment of wages and entitlements is a matter regarded seriously by Parliament. 

Deterrence

1. Penalties for breaches of this nature are intended to reflect the need for both specific and general deterrence.  In relation to specific deterrence, the respondents have been generally co-operative and have admitted the breaches and rectified them.  They are undoubtedly now aware of the applicable obligations and have taken steps to keep up to date with changes to applicable rates.  Nevertheless, the fact that underpayments continued after the respondents were informed of the correct applicable rates, indicates that there is some need for specific deterrence to ensure compliance with obligations in future. 

2. In relation to general deterrence, as Finkelstein J said in Community and Public Sector Union v Telstra Corporation Limited (2001) 108 IR 228 at 231:

   Even if there be no need for specific deterrence, there will be occasions when general deterrence must take priority, and in that case a penalty should be imposed to mark the law's disapproval of the conduct in question, and to act as a warning to others not to engage in similar conduct …

3. The imposition of penalties acts as a warning to other employers and reinforces the seriousness with which the courts treat the underpayment of employee entitlement.  The need for such general deterrence is especially high in industries that employ low-paid labour.  As indicated above, small businesses as well as large businesses have an obligation to meet minimum employment standards and their employees have an expectation that this will occur.  If it does not it will normally be necessary to “mark the failure by imposing an appropriate monetary sanction” at a “‘meaningful level’” (see Kelly v Fitzpatrick at [28] and Australian Competition and Consumer Commission v ABB Transmission & Distribution Limited (2001) ATPR 41-815 at 13).

Attributes of the second respondent

1. It can be relevant to have regard to matters such as the character, antecedents, age, means and physical or mental condition of an individual respondent in assessing a penalty.  However there is no such evidence before the Court.  There is also no suggestion that the second respondent has previously engaged in such conduct.  He has admitted his involvement in the conduct of the first respondent.  He is the sole owner, director and secretary of the first respondent and was the person with whom the applicant dealt after the initial visit to the motel.  There is no suggestion that there was active involvement of any others in relation to the breaches in issue.  In other words Mr Clarke was the moving force in all the relevant conduct of the first respondent. 

Additional considerations

1. Mr Clarke submitted that in this case no penalties should be imposed on either respondent, apparently on the basis that in his view the contraventions were inadvertent and that the delay in making the back-payment reflected an inability to check the calculations of the applicant and because since commencing the business he had done all he could to meet his legal obligations (although there was no evidence to support this contention).  He admitted that at some point they had not been paying up-to-date wage rates but submitted that this was because they were unable “reasonably” to get up-to-date and accurate wage rates. 

1. I acknowledge the impact of the difficulties of verifying the applicant’s calculations.  However that fact and the fact that the underpayments have now been made good, are not such as to satisfy me that no penalty is appropriate.  This is not a case in which can be said that no harm has been done, as the employees were without the benefit of the correct wages for a significant period of time.  Moreover, while the second respondent contended that the Motel was paying the correct State Award rate, that was not in fact the case. 

2. While the court has a discretion not to impose a penalty (see for example Australian Liquor Hospitality & Miscellaneous Workers Union v Broadlex Cleaning Australia Pty Ltd (1997) 78 IR 464 I am unable to find that either respondent had a “genuine misunderstanding” (ibid at 467) about which award was applicable such as to explain the non-compliance – given that the correct State Award rates were not paid.  Nor, given this fact and the fact that in May 2006 the second respondent was informed of the application of the Federal Award, am I persuaded that throughout the period in question the fact that the respondents sought to and could not verify the precise extent of the underpayments is such that no penalty should be imposed. 

Determination

1. I find that the first respondent breached each of the seven applicable provisions set out above and that the second respondent was involved in each contravention of the Award.  I have had regard to the fact that in the application filed on 22 November 2007 the penalty sought by the applicant in relation to the second respondent related only to contraventions of the applicable provisions of the Motels Award, not to the provisions in the Act constituting terms of the Standard. 

2. Consistent with the approach taken by Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 53 approved in Australian Ophthalmic Supplies per Gray J at [23] and per Buchanan J (at [97]) it is appropriate first to calculate an appropriate level of penalty for each respondent in relation to each of the breaches having regard to the above factors.  The totality principle should then be applied as a final check at the end of the process by considering the aggregate of the penalties in relation to each respondent in light of the overall conduct to form a view as to whether that aggregate is out of proportion to the overall conduct (Australian Ophthalmic Supplies at [23] and [96]). 

3. As discussed above, I consider it appropriate that the applicant’s concession that there were only two courses of conduct should be recognised by the imposition of penalties for breach of clauses 17.2 and 13.2.2(b), but not for the other breaches. 

4. The applicant suggested that two mid-range penalties (calculated as “mid-range” by reference to maximum penalties of $66,000 for two breaches in respect of the first respondent and $13,200 for two breaches in respect of the second respondent) ought to be imposed on each of the respondents.  It was contended that this was not a case in which a nominal penalty only should be imposed, having regard to the fact that the respondents failed to pay the employees their minimum entitlements over an extensive period and as the imposition of a penalty would send a deterrent message to both the respondents and to other employers.  The respondents submitted that no penalties should be imposed on either respondent, on the basis that they had acted on incorrect advice as to the applicability of the State Award, had had difficulty obtaining information on applicable rates of pay and because the delay in rectification was essentially because the extent of the underpayment could not be checked. 

5. I have had regard to the evidence before me, all the above considerations and the submissions of the parties.  I bear in mind that there were repeated breaches of each of the terms of the award (and of the Standard when it came into effect) over a period in excess of two years and that for most of that time (from 10 August 2004) the maximum penalty for a breach by a body corporate was $33,000 and $6,600 for a breach by an individual.  The essence of the breaches was a failure to pay the correct ordinary hourly rates and to calculate other entitlements (including penalty loadings) on that basis.  The breaches cannot be considered trivial or technical (cf Victoria University of Technology v Australian Education Union (1999) 91 IR 96).

6. I accept the applicant’s submission that only two penalties should be imposed on the first respondent.  On this basis the maximum aggregate penalty would be $66,000 for the first respondent as the penalties stood for most of the period of time in issue.

7. The failure to pay the correct ordinary rates of pay in breach of clause 17.2 of the Award is at the heart of the conduct in question.  In all the circumstances I consider that as a starting point a penalty of $16,000 should be imposed on the first respondent in respect of that breach and $12,000 in respect of the breach of clause 13.2.2(b) in relation to penalty rates, but that no penalties should be imposed in respect of the other admitted breaches, in recognition of the overlap between the breaches and the two courses of conduct involved, as conceded by the applicant. 

8. In setting appropriate penalties I have had regard to the fact that the breaches represented a failure to provide basic and important wage and condition entitlements which continued for a significant period of time, being systemic underpayments which involved at the least negligent disregard for the respondents’ obligations and which took some time to correct.  The seriousness of that delay is to some extent ameliorated by the fact that the respondents could not verify the calculation of underpayment.  There is no evidence of any similar previous conduct.  In relation to the first respondent there is no evidence before me as to its size or financial position, except that the second respondent is the sole owner, director and secretary.  I accept that the respondents have taken steps to ensure that no further breaches occur as the company has joined the HMAA in order to be kept up-to-date with award rates.  I have also borne in mind that the breaches all flowed in essence from an underlying failure to pay the correct ordinary time rates. 

9. The penalty should reflect the need for some specific deterrence and for general deterrence, reinforcing the seriousness with which the courts treat the underpayments of employee entitlements.  The amount of the penalty should, however, be mitigated by the contrition shown and the co-operation of the respondents, with regard to the audit and since commencement of these proceedings.  I have had regard to the fact that rectification of the underpayments as calculated by the applicant occurred notwithstanding that the accuracy of the calculations by extrapolation and estimate could not be verified.  The respondents admitted liability.  There is evidence of contrition, acceptance of responsibility and a willingness to facilitate the course of justice as discussed in Mornington Inn at [73] – [75]. The applicant was spared the expense of preparation for a trial on liability and the penalty hearing proceeded on the basis of an agreed statement of facts.

10. On all the evidence and in light of the matters discussed above I consider that a reduction in the order of 25 per cent should be allowed in relation to each penalty in recognition of the first respondent’s admission of liability, acceptance of wrongdoing and contrition and the fact that the respondents facilitated the course of justice at least after the first court date.  (See Australian Ophthalmic Supplies and Mornington Inn at [72] – [77]). The individual penalties in relation to the first respondent should be reduced to $12,000 in relation to the breach of clause 17.2 of the Award and $9,000 in relation to the breach of clause 13.2.2(b) of the Award, that is a total of $21,000.

Totality principle

1. As a final check I have had regard to the totality principle and considered whether an aggregate penalty of $21,000 for the first respondent is just, appropriate and not excessive (see Australian Ophthalmic Supplies at [102] per Buchanan J) for the total conduct involved (see Mill v The Queen (1988) 166 CLR 59). Proceeding by “instinctive synthesis” (see Australian Ophthalmic Supplies at [27] per Gray J and Markarian v The Queen (2005) 228 CLR 357 at [37]) I am satisfied that a just and appropriate aggregate figure for the overall penalty to be imposed on the first respondent is the sum of $20,000.

The second respondent

1. The second respondent, Mr Clarke, is the only individual said to be involved in the breaches by the Motel, albeit he told the Court that there were Motel managers.  As Burchardt FM recognised in Smith v Granada Tavern 7 Ors (No. 3) [2007] FMCA 1548 at [22]: “There is nothing in the Act which suggests that proprietary limited companies and their directors cannot both be made liable for penalties in these sorts of circumstances”.  The maximum penalty for breach by an individual was $6,600 ($13,200 for two breaches) for most of the period in issue. 

2. As stated in relation to of penalties under the Trade Practices Act 1974 (Cth) “it is legitimate to avoid double counting where an individual contravenor is an owner of a corporate contravenor” (Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [294] per Heerey J and see Canturi and Another v Sita Coaches Pty Ltd and Another (2002) 116 FCR 276). Mr Clarke did not submit that any penalty should be imposed only on the company on the basis that the burden of such penalty would fall on him personally. Such a possibility was not addressed by the applicant, who sought the imposition of two mid-range penalties on the second respondent. There is no evidence before the Court about Mr Clarke’s situation or the size or attributes of the first respondent (except that it operates the Motel) and that Mr Clarke is the “sole owner”, director and secretary of the first respondent. 

3. On the limited evidence before me I consider that the involvement of Mr Clarke in the company and in the breaches, his failure to inform himself of the requirements of the applicable award and to ensure that they were observed and the need for specific deterrence is such that a penalty should be imposed on him personally.  However it should be such as to recognise the relationship between the respondents.  This warrants the imposition of a lower penalty on the second respondent than would otherwise be merited.  Taking all the above factors into account I consider that as a starting point a penalty of $1,600 should be imposed on the first respondent for the breach of clause 17.2 of the Award and $1,200 for breach of clause 3.2.2(b) and that no penalty should be imposed for the other admitted breaches, but that as in respect of the first respondent (and for the same reasons), these penalties should be reduced by 25 per cent in light of the admission of liability and related issues to $1,200 and $900 respectively, that is to a total of $2,100. 

4. Applying the totality principle as set out above on the evidence before me I consider that a just and not excessive total penalty for the second respondent is the sum of $2,000. 

5. I consider that the aggregate penalties of $20,000 and $2,000 on the first and second respondents respectively are not out of proportion to the overall conduct of each respondent (see Australian Ophthalmic Supplies at [23] per Gray J).  They are just and appropriate (per Graham J at [73]) and are not in all the circumstances excessive. 

6. Accordingly the penalties to be imposed are as follows:

   $20,000 for breach of clause 17.2 and clause 13.2.2(b) of the Award by the first respondent; and

   $2,000 for breach of clause 17.2 and clause 13.2.2(b) of the Award by the second respondent.  

   No penalties should be imposed on either respondent in respect of the other admitted breaches.  The penalties should be paid to the Commonwealth within six months as sought by the applicant. 

I certify that the preceding one hundred and seventeen (117) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  31 July 2008