The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.9)
[2014] FCCA 1124
•20 June 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| THE DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE v LINKHILL PTY LTD (No.9) | [2014] FCCA 1124 |
| Catchwords: INDUSTRIAL LAW – Penalty hearing – breaches of the Workplace Relations Act 1996 and the Fair Work Act 2009 – sham contracting – failure to pay award entitlements – relevant considerations – appropriate penalty. |
| Legislation: Fair Work Act 2009 (Cth), ss.45, 87(2), 90(2), 96, 357, 535, 539(2), 545(1), 557(1) 559(1) |
| The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.1) [2013] FMCA 163 Construction, Forestry, Mining & Energy Union v Employment Advocate [2001] FCA 1442 Warramunda Village Inc v Pryde [2002] FCAFC 58 Kelly v Fitzpatrick (2007) 166 IR 14 The Community and Public Sector Union v Telstra Corporation Ltd (2001) 108 IR 228 Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union [2008] FCAFC 170 Murrihy v Betezy.com.au Pty Ltd (No.2) [2013] FCA 1146 Fair Work Ombudsman v Australian Shooting Academy Pty Ltd [2011] FCA 1064 |
| Applicant: | THE DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
| Respondent: | LINKHILL PTY LTD |
| File Number: | MLG 1514 of 2014 |
| Judgment of: | Judge O’Sullivan |
| Hearing date: | 15 May 2014 |
| Date of Last Submission: | 15 May 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 20 June 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr S. Moore |
| Solicitors for the Applicant: | Clayton Utz |
| Counsel for the Respondent: | Mr J. Isles |
| Solicitors for the Respondent: | At Work Law |
ORDERS
A combined penalty of $313,500 is imposed on the respondent for the contraventions declared in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225 for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097.
The penalty referred to in paragraph (1) is to be paid into Consolidated Revenue within 30 days of the date of this order.
| FEDERAL CIRCUIT COURT AT MELBOURNE |
MLG 1514 of 2014
| THE DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
Applicant
And
| LINKHILL PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
In these proceedings the Director of the Fair Work Building Industry Inspectorate (“the applicant”) alleged inter alia that Linkhill Pty Ltd (“the respondent”) engaged in sham contracting in relation to 10 workers engaged over different periods between 2007 and 2010, thereby contravening the Workplace Relations Act 2006 (“the WR Act”) and the Fair Work Act 2009 (“the FW Act”).
On 20 December 2013 in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 the Court found that respondent had contravened various provisions of the WR Act and the FW Act and a number of industrial instruments made under that legislation.
On 12 February 2014 and for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225, the Court made declarations and orders necessary to give effect to the findings made in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097. The proceedings were then adjourned for a penalty hearing on 15 May 2014.
The function of these reasons for judgment (which should be read in conjunction with The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 and The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225) is to determine the pecuniary penalties which the respondent should be ordered to pay by reason of its contravening conduct.[1]
[1] As found for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097
Background to the proceedings
The background to these proceedings is set out in a number of decisions of the Court reported as The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.1) [2013] FMCA163; The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.2) [2013] FMCA164; The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.3) [2013] FMCA165; The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.4) (2013) FMCA182; The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.5) [2013] FCCA 476, The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.6) [2013] FCCA477, The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 and
The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225.The respondent has appealed the orders made in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225 for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097.[2]
[2] The appeal was filed on 26 February 2014. However the respondent only applied to stay those orders on 13 May 2014. On 23 May 2014 the Federal Court made orders in relation to the latter application.
The parties had agreed to split the liability and penalty phases of the proceedings. In the face of the respondent’s appeal from the liability phase of the proceedings, an issue arose as to whether the penalty hearing should be adjourned pending the outcome of that appeal.
The matter was listed for mention on 12 March 2014 to hear from the parties on that issue. The applicant indicated the matter should proceed to a penalty hearing notwithstanding the institution of the appeal. The respondent indicated that given the view that the declarations and orders made in the liability phase were likely to be found to be interlocutory (and the applicant’s refusal to consent to any application for leave to appeal in the event they were) the penalty hearing would need to proceed.
The issue of a split trial and an appeal from a declaratory judgment has been the subject of a number of Full Court decisions. (see Construction, Forestry, Mining & Energy Union v Employment Advocate [2001] FCA 1442 at [4]-[9]). The issue of whether orders (such as those made in these proceedings) were interlocutory or final was considered by Finkelstein J in Warramunda Village Inc v Pryde [2002] FCAFC 58 at [64]-[70] who at paragraph [69] conceded finding himself overwhelmed by the many Full Court decisions holding that a declaration made at the end of the first part of a split case is interlocutory despite what His Honour saw was the contradiction inherent in a finding that a declaratory judgment was interlocutory.
In The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225 the Court had made directions for the parties to file material for the penalty hearing. In light of the prevailing authority referred to above, the parties filed their material for the penalty hearing on 15 May 2014.
However in the week preceding that hearing both parties filed an application in a case which were each heard and determined before the start of the penalty hearing on 15 May 2014. At the time the Court gave brief reasons for doing so and indicated they would be supplemented by written reasons as part of this decision.
Respondent’s application in case
The respondent filed an application in a case on 14 May 2014 (which was the day before the penalty hearing) notwithstanding the directions made on 12 February 2014 in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225.
In its application in a case the respondent sought the following orders:
“1.That paragraphs nos. 52 to 67 set out in the judgment made 12 February 2014 in this proceedings [2014] FCCA 225 be set aside under Rule 16.05(2)(e) of the Federal Circuit Court Rules 2001 in accordance with the calculations made by James Andrew Walllace in his affidavit sworn 13 May 2014; and
2.Such further or other orders as the Court deems appropriate.”
The applicant’s position was that the respondent’s application in a case should be dismissed. The applicant’s written submissions filed without objection on 15 May 2014 at paragraphs [2] to [20] provided detailed reasons for why the Court should order accordingly. I accepted those submissions.
The respondent’s submissions before the Court in support of the orders in the above mentioned application in a case did not appear to have considered Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd [2002] FCA 1406 and the discussion contained therein by Goldberg J about contracting out of an award (at paragraphs [23] to [35]) and the question of whether any over award payments could be set off against any award underpayments (at paragraphs [53] to [65]).
I accepted the submissions made by the applicant for refusing the orders sought by the respondent. In my view, given the claims made in support of the orders sought by the respondent (and the provisions of the relevant Federal Circuit Court of Australia Rules 2001 (“the Rules”) on which it relied for those orders) the most fundamental of the reasons for refusing the orders sought was the principle that the rules cannot be invoked by the respondent as a mechanism to simply ask the Court to revisit a question already determined. Detailed findings were made in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 upon which orders were made in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225. Accordingly the respondent’s application in a case was dismissed.
Applicant’s application in a case
The applicant had also filed an application in a case but on 9 May 2014. The applicant sought the orders contained therein and relied on the affidavits of Ms Shannon, Solicitor filed 7 May 2014 and 9 May 2014. The orders the applicant sought were:
“1.Order 68 of the Order made on 12 February 2014 be set aside.
2.Pursuant to s.545(1) of the Fair Work Act 2009 (Cth) (FW Act), within 28 days of the date of this Order, the Respondent pay Alex Najdoski (Najdoski) the amount of $4,293.85 in respect of unpaid accrued annual leave under the Building and Construction General On-Site Award 2010 and the FW Act.
3.In the event that the Respondent is unable to locate Najdoski, pursuant to s.725(1) of the WR Act and s.559(1) of the FW Act, the Respondent shall pay any monies owing to Najdoski to the Commonwealth.
4.Any amounts payable to the Commonwealth pursuant to Order 3 will be paid within 30 days of the date of this Order and will be way of cheque made out to the “Collector of Public Monies”.
5.The Respondent pay the Applicant’s costs of, and incidental to, this application in the amount of $1,885.00.”
At paragraph 12 of Ms Shannon’s affidavit filed 7 May 2014 she deposed that:
“On 7 May 2014, I sent by email to Mr Yeatman a letter from Clayton Utz regarding the Respondent’s inability to comply with Order 68 in circumstances where Mr Najdoski ceased employment with the Respondent on 30 January 2014. This letter stated, amongst other things that:
(a)the Applicant has confirmed with Mr Najdoski that he resigned from his employment with the Respondent on or about 7 February 2014;
(b)it is therefore apparent that Order 68 has been made in error on the incorrect assumption by the Applicant that Mr Najdoski was still employed by the Respondent as at the date of the Order;
(c)the most appropriate course is to seek to vary the Order by setting aside Order 68 and replacing it with a further order requiring the Respondent to pay Mr Najdoski his accrued annual leave entitlements and attached a Proposed Minute of Order to this effect); and
(d)the Applicant required confirmation from the Respondent by no later than midday on Friday, 9 May 2014 that it would not oppose the making of the orders in those terms; and
(e)if no response was received by that time, the Applicant will make an application to the Court seeking that the Order be varied in the terms proposed.
Now produced and shown to me and marked “ACD-5” is a true copy of the email I sent to Mr Yeatman dated 7 May 2014 attaching the letter from Clayton Utz and Proposed Minute of Order.”
Ms Shannon’s affidavit filed 7 May 2014 also annexed correspondence to the respondent’s solicitor. That correspondence noted that the order the applicant sought to correct had been made in error on the incorrect assumption that Mr Najdoski was still employed by the respondent as 12 February 2014 in circumstances where:
·a copy of the applicant’s proposed Minute of Order containing order 68 was provided to the respondent on 24 January 2014 requesting that it let the applicant know by 12.00 pm on Wednesday, 5 February 2014, if there were any issues with the proposed Minute of Order;
·the respondent did not advise the applicant of any issues with the proposed Minute of Order (including order 68) within that timeframe or at any time prior to 12 February 2014 when the Order was made; and
·this issue was not raised at the mention on 12 February 2014 at which time Counsel appeared on behalf of the respondent and the Court was not told that Mr Najdoski ceased employment with the respondent 5 days prior.
Ms Shannon’s affidavit filed 9 May 2014 made clear the respondent had not replied to the applicant’s requests.
Counsel for the applicant relied on paragraphs [21] to [29] of the applicant’s written submissions filed without objection on 15 May 2014. In submissions before the Court on the same day Counsel for the applicant elaborated on why the orders sought were necessary and should be made to reflect the intention of the Court as set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 and The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225.
Whilst resisting the order sought by the applicant, Counsel for the respondent couldn’t take issue with the applicant’s written submissions at paragraph [21] to [29].
The applicant relied on the authority referred to in the written submissions as making clear, the Court had the power to make the orders sought in its application in a case filed 9 May 2014. Counsel for the applicant also referred to the decision of Flick J in Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No.7) [2011] FCA 715 at paragraph [22] (“Pharm-a-Care”) and the decision of Merkel J in Australian Securities & Investments Commissions v Yandal Gold [2003] FCA 77.
In the Pharm-a-Care decision having referred to paragraph [22] of Merkel J’s decision mentioned above Flick J said:
“…It is not considered that Merkel J was confining the operation of r. 7(2)(f) to those circumstances where there had been an “unintended operation of certain orders.” Other cases in which the rule has been invoked have not so confined the rule: e.g., BHP Steel (AIS) Pty Ltd v Construction, Forestry, Mining and Energy Union [2001] FCA 336 at [18] per Kiefel J.”
In this case the orders sought by the applicant in the application in a case are necessary as having declared the affected worker’s entitlement to outstanding annual leave (and the Court not having been told he was no longer employed) such a change was necessary to reflect the intention of the Court that he get it. It was also to deal adequately with the matters raised in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 and The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225 in circumstances where the respondent knew Mr Najdoski was no longer employed.[3]
[3] see Maritime Union of Australia v Geraldton Port Authority [2001] FCA 236
As indicated at the time, the Court was persuaded on the basis of and for the reasons set out in the applicant’s submissions, that orders should be made as sought in the application in a case filed 9 May 2014. It was for the above reasons, the orders were made on 15 May 2014.
Penalty Hearing
Having with the agreement of the parties dealt with the applications in a case filed by each of the parties first the Court turned to the purpose of the hearing that day and the parties identified the material they relied on for that purpose.
For the purposes of the penalty hearing, the applicant relied on the submissions filed on 12 March 2014 and 15 May 2014. The respondent filed written submissions on 16 April 2014 and an ‘outline’ on 15 May 2014. In addition to those submissions, the respondent sought to rely on the affidavit of Mr Morgan sworn 28 February 2013, the affidavit of Ms Levine sworn 27 February 2013 and the affidavit of Mr Wallace sworn 27 February 2013 (all filed on 16 April 2014). The respondent was content, in the face of objections to their admission, for the Court to take that evidence into account but only to the extent it was relevant to the question of penalty.[4]
[4] see also para 6 per Merkel J in Finance Sector Union v Commonwealth Bank (2005) FCA 1847
Unfortunately the respondent’s written submissions filed 16 April 2014 belied the claim (subsequently made on its behalf) of contrition.[5]
This was illustrated by the repetition of the claim (also made repeatedly during the liability stage of the proceedings) that the applicant had not behaved as a model litigant and instead had pursued a vendetta against the respondent and its officers.
[5] see for eg. paras 7, 36 and 37 of written submissions filed 16 April 2014
The applicant’s submissions filed 15 May 2014 comprehensively addressed those allegations and for the reasons set out at inter alia paragraphs 41-43 of those submissions I reject the respondent’s claims in that regard. I also note that compliance with the directions applying to model litigants cannot be raised in any proceeding other than by or on behalf of the Commonwealth (see Croker v Commonwealth of Australia [2011] FCAFC 25 at [19]).
Before turning to the approach to determining what penalty should be imposed on the respondent and consideration of what the parties submissions were on the relevant matters for that purpose it is timely to summarise the parties respective cases.
Applicant’s position
In summary, the applicant’s position was:
·the circumstances, extent and number of contraventions found by the Court call for something substantially greater than normal penalties;
·the contraventions stemmed from the fact that the respondent mistakenly and recklessly misrepresented to 10 workers that they were independent contractors rather than employees and then treated all of the workers as independent contractors and not as employees, thereby denying them various and numerous legislative and award entitlements;
·the sham contracting contraventions were the most serious and central contraventions and at the core of the respondent’s offending conduct; and
·
the offending conduct was extensive and of long duration.
It extended over a period of just over 3 years and resulted in 10 workers being underpaid a total of $152,865.21.
Respondent’s position
In summary the respondent’s position was:
·the applicant should never have commenced these proceedings against it and any decision on penalty should be arrived at in light of the applicant’s conduct and the actual detriment caused by the respondent’s conduct;
·in relation to the sham contracting contraventions, the respondent made a call as to whether or not at the time the workers were engaged as independent contractors and made the wrong call; and
·in relation to the underpayment contraventions the workers should not (as the respondent alleged they would be if the orders for compensation were upheld) be unjustly enriched.
Approach to penalty proceedings
The authorities establish that the appropriate penalties are to be determined as follows.
The first step for the Court is to identify the separate contraventions involved. Each contravention of each separate obligation found in the WR Act and FW Act is a separate contravention of an applicable or civil remedy provision.[6] However both the WR Act and FW Act provide for treating multiple contraventions of the same provision, involved in a course of conduct, as a single contravention.[7]
[6] Gibbs v The Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216 at 223 (Gibbs); McIver v Healey [2008] FCA 425 at [16] (unreported, Federal Court of Australia, 7 April 2008, Marshall J) (McIver)
[7] see Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC62
Second, to the extent that two or more contraventions have common elements, this should be taken into account in considering what an appropriate penalty is in all the circumstances for each contravention. The respondent should not be penalised more than once for the same conduct. The penalties imposed by the Court should be an appropriate response to what the respondent did.[8] This task is distinct from and in addition to the final application of the “totality principle”.[9]
[8] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 at 571 [46] (Graham J) (Merringtons).
[9] Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [41]-[46] (Stone and Buchanan JJ) (Mornington Inn).
Third, the Court will consider an appropriate penalty to impose in respect of each contravention, whether a single contravention, a course of conduct or group of contraventions, having regard to all of the circumstances of the case.
Finally, having fixed an appropriate penalty for each contravention, the Court should take a final look at the aggregate penalty, to determine whether it is an appropriate response to the contravening conduct.[10]
The Court should apply an “instinctive synthesis” in making this assessment.[11] This is known as the “totality principle”.
[10] See Kelly v Fitzpatrick (2007) 166 IR 14 at [30] (Tracey J) (Kelly); Merringtons, supra at [23] (Gray J), [71] (Graham J) and [102] (Buchanan J).
[11] Merringtons, supra at [27] (Gray J) and [55] and [78] (Graham J).
As the applicant noted in the course of its submissions the following factors identified by Tracey J in Kelly v Fitzpatrick[12] have been described as a helpful list of considerations that are relevant to the determination of penalty in matters such as those presently before the Court:[13]
[12] (2007) 166 IR 14 (Kelly) at [14].
[13]Fair Work Ombudsman v Australian Shooting Academy Pty Ltd [2011] FCA 1064 Logan J at [34].
a)the nature and extent of the conduct which led to the breaches;
b)the circumstances in which that relevant conduct took place;
c)the nature and extent of any loss or damage sustained as a result of the breaches;
d)whether there had been 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 was 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 cooperated with the enforcement authorities;
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.[14]
[14] Kelly at [14] per Tracey J.
While the summary is a convenient checklist, it does not prescribe or restrict the matters which may be taken into account in the exercise of the Court’s discretion. Before turning to the matters that are material to this matter and the question of appropriate penalties it is necessary to address the contraventions and how they should be grouped.
The contraventions
In The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 the Court found there had been 139 contraventions of the WR Act, the FW Act and a number of applicable industrial instruments. These were summarised correctly in the applicant’s submissions as follows:
“2.The Court found that the Respondent had committed a total of 139 contraventions of the WR Act, the FW Act and certain industrial awards comprised of the following:
A.18 contraventions of the WR Act, namely:
(a) 8 contraventions of s900(1), being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery, Hunter, Gillen and Darrigrand;
(b) 8 contraventions of ss232(2) and 234(2) (the s234(2) contraventions),[15] being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery, Gillen, Hunter and Darrigrand; and
[15] The terms of ss.232(2) and 234(2) and their interrelationship is such that, for the purposes of consideration of penalty, the contraventions of those provisions in respect of each of the above named individuals should be treated as one rather than two contraventions.
(c) 2 contraventions of ss246(2) and 246(4) (the s246(4) contraventions),[16] being contraventions in respect of Najdoski and Lowery.
[16] The terms of ss.246(2) and 246(4) and their interrelationship is such that, for the purposes of consideration of penalty, the contraventions of those provisions in respect of each of the above named individuals should be treated as one rather than two contraventions.
B.77 contraventions of the FW Act, namely:
(a) 9 contraventions of s357 being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge, Elliott, Lowery, Hunter, and Darrigrand;
(b) 9 contraventions of ss87(2) and 90(2) (the s90(2) contraventions),[17] being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge, Elliott, Lowery, Hunter and Darrigrand;
[17] The terms of ss.87(2) and 90(2) and their interrelationship is such that, for the purposes of consideration of penalty, the contraventions of those provisions in respect of each of the above named individuals should be treated as one rather than two contraventions.
(c) 2 contraventions of s96 being contraventions in respect of Najdoski and Lowery;
(d) 9 contraventions of s535 and Regulation 3.36 of the Fair Work Regulations 2009, being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge, Elliott, Lowery, Hunter and Darrigrand; and
(e) 48 contraventions of s45 comprised of:
(i)6 contraventions of clause 20.2 of the Building and Construction General On-Site Award 2010 (the 2010 Award) being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge and Elliott;
(ii)6 contraventions of clause 32 of the 2010 Award being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge and Elliott;
(iii)6 contraventions of clause 36.2 of the 2010 Award being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge and Elliott;
(iv)6 contraventions of clause 37 of the 2010 Award being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge and Elliott;
(v)5 contraventions of clause 37.7 of the 2010 Award being contraventions in respect of Najdoski, Lovell, Walker, Etheredge and Elliott;
(vi)6 contraventions of clause 25 of the 2010 Award being contraventions in respect of Najdoski, Cabrera, Lovell, Walker, Etheredge and Elliott;
(vii)7 contraventions of clause 38.2 of the 2010 Award being contraventions in respect of Najdoski, Cabrera (two contraventions), Lovell, Walker, Etheredge and Elliott;
(viii)5 contraventions of clause 17 of the 2010 Award being contraventions in respect of Cabrera Lovell, Walker, Etheredge and Elliott; and
(ix)1 contravention of clause 41 of the Manufacturing and Associated Industries and Occupations Award 2010 (the Manufacturing Award) being in respect of Hunter;
C.43 contraventions of the National Building and Construction Industry Award 2000 (the 2000 Award), namely:
(a) 6 contraventions of clause 24.9.1 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery, and Gillen;
(b) 6 contraventions of clause 26 Award being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(c) 6 contraventions of clause 29 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(d) 6 contraventions of clause 31 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(e) 6 contraventions of clause 31.7 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(f) 6 contraventions of clause 38 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(g) 6 contraventions of clause 32.7.2 being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery and Gillen;
(h) 1 contravention of clause 16 being in respect of Gillen.
D.1 contravention of clause 7.1.4 of the Metal, Engineering and Associated Industries Award 1998 (the 1998 Award) being in respect of Hunter.”
Grouping and course of conduct
Both parties made submissions as to how those separate contraventions should be grouped.[18]
[18]The WR Act and FW Act set out that whether multiple breaches of particular provisions may, depending upon the particular circumstances, attract the operation of the course of conduct provisions. The course of conduct provisions are not however applicable to contraventions of s.900 of the WR Act and s.357 of the FW Act.
Accordingly it is convenient to deal with how the contraventions of those provisions as found in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 should be dealt with for the purposes of penalty first.
As set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 there are
8 contraventions of s.900(1) of the WR Act in relation to Najdoski, Lovell, Etheredge, Elliott, Lowery, Hunter, Gillen and Darrigrand and 9 of s.357 of the FW Act in relation to Najdoski, Caberra, Lovell, Walker, Etheredge, Elliott, Lowery, Hunter and Darrigrand.
Whilst the applicant accepted the respondent should only be penalised for that conduct once for each worker (despite the change in legislation) the applicant contended each of the 10 sham contracting contraventions for the workers should be treated as a separate contravention. However the respondent contended they should be treated as a single course of conduct. The applicant make the following submissions:
“Sham contacting” contraventions: s 900(1) of the WR Act & s 357 of the FW Act
36.The Court found that the Respondent committed
8 contraventions of s 900(1) of the WR Act and
9 contraventions of s 357 of the FW Act. As noted above, even if these contraventions arose out of a single course of conduct (which is denied as explained below), the provisions of the WR Act and the FW Act do not require the Court to treat any or all of those contraventions as a single contravention.
37.The Applicant accepts however that, insofar as the Respondent contravened s 900(1) of the WR Act and s 357 of the FW Act in respect of the same individual worker, those two contraventions should be treated as a single contravention for the purposes of penalty as they arose from a single course of conduct; the Respondent’s contravening conduct is the same, it has merely occurred over two equivalent statutory regimes.
38.As summarised in Part A of these submissions, the Court found a total of 8 contraventions of s 900(1) of the WR Act and a total of 9 contraventions of s 357 of the FW Act. For the purposes of penalty, these contraventions should be grouped into a total of 10 contraventions (the sham contracting contraventions) comprised of:
(a)7 separate contraventions being contraventions in respect of Najdoski, Lovell, Etheredge, Elliott, Lowery, Hunter and Darrigrand, in relation to whom the Respondent contravened both s 900(1) of the WR Act and s 357 of the FW Act;
(b)2 separate contraventions of s 357 of the FW Act, being contraventions in respect of Cabrera and Walker;[19] and
[19] The period of employment of Cabrera and Walker was wholly confined to the period of operation of the FW Act.
(c)1 contravention of s 900(1) of the WR Act, being in respect of Gillen.[20]
[20] Gillen’s period of employment was wholly confined to the period of operation of the WR Act.
39.Each of the 10 sham contracting contraventions referred to above should be considered as a separate contravention and not treated as a single course of conduct. Although the Court found in the Decision that the Respondent “engaged in [sic] orchestrated pattern of conduct over a sustained period where it imposed on each of the workers a system of engagement and payment” which constituted the requisite representations to each of the workers,[21] the contraventions were in respect of each individual worker and were in part constituted by representations made to each of them that they would need to provide an ABN. These representations were made at various times, namely, when each of the individual workers was first engaged by the Respondent.
[21] Decision at [316].
40.This is consistent with the approach adopted in Fair Work Ombudsman v Contracting Plus Pty Ltd.[22] Burnett FM was required to consider the imposition of penalties for admitted contraventions of s 900(1) of the WR Act in respect of five different employees. The Court stated that it was appropriate to treat each breach as a separate and distinct course of conduct:[23]
[22] [2011] FMCA 191.
[23] At [80]-[81].
… because in this instance each individual was engaged on different terms and conditions at different times and involved the Respondents’ exercise of distinct and discrete powers in relation to their engagement.
In my view, the breaches clearly did not stem from one course of conduct. It may have been different if each individual had been engaged at the same time or all on the same terms and conditions. That might invite an inference that there was one course of conduct. However, in this instance, the evidence clearly demonstrates that on each occasion the Respondent turned its mind discretely to the issue of engagement and in each instance, it seems to me, each engagement constituted a distinct and separate contravention.
41.The above observations were referred to with approval and applied by Jarrett FM in Fair Work Ombudsman v Beddington.[24] In that matter the Court refused to accept an agreed submission put by the parties that seven contraventions of s 357 (being contraventions in relation to seven employees) could be treated as one contravention for the purposes of determining penalty.[25] The Court stated:[26]
In my view, to treat all of the breaches of s 357 of the Act as arising out of the same course of conduct would be to disregard the fact that a separate course of offending conduct occurred in respect of each employee. As a generality it might be said that the conduct in respect of each employee was the same of the same character, but that does nothing to recognise that the conduct was repeated multiple times in respect of each employee, seemingly on different occasions and in different contexts. The multiple misrepresentations said to have been made during the recruitment of each employee to him or her might properly be treated as a single contravention. But in my view it would be erroneous to treat as a single contravention all of the misrepresentations to all of the employees irrespective of the individual circumstances attendant upon the recruitment of each employee.
42.Further to the above submissions, even if the Court determines that the 10 sham contracting contraventions arose from a single course of conduct, the inapplicability of s 719(2) of the WR Act and s 557 of the FW Act to those contraventions has the consequence that the Court is not bound to treat those contraventions as a single contravention for the purposes of penalty. This approach was adopted by Marshall J in Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2).[27] Having found that two contraventions (in relation to two employees) of s 900(1) of the WR Act arose from a single course of conduct, the Court nonetheless determined to treat each contravention as a separate contravention. Marshall J stated:[28]
Maclean Bay submits that its contraventions of s 900(1) in respect of Janette and Alison Kubank should be treated as one contravention on the basis that they were committed in a single course of conduct. The applicant concedes that these contraventions arose out of a single course of conduct but says the court should treat them as two separate contraventions nonetheless. The applicant points to authority dealing with s 792 where the court has considered that where the conduct affects more than one employee, a separate contravention is considered to have occurred regarding each employee; see Finance Sector Union v Commonwealth Bank of Australia (2005) 224 ALR 467 at [7] per Merkel J and the authorities there cited.
Applying those authorities, each breach of a civil penalty provision of the Act affecting each person, where workplace rights have been transgressed, is properly considered as a separate contravention, notwithstanding that it arose out of a single course of conduct. Whether or not the transgressor is punished for each such contravention is a matter to be taken into account when assessing the appropriate penalty to be imposed.
Each Kubank contravention is to be treated as a separate contravention, but whether the same punishment is imposed for each is a matter for later consideration.
43.This approach was endorsed by Lander J in Fair Work Ombudsman v Contracting Solutions Pty Ltd.[29] In referring to Marshall J’s observations above, Lander J stated:[30]
Section 900 of the WR Act is concerned with conduct directed at an individual employee, and each breach is a separate contravention, notwithstanding that it arose out of a single course of conduct …”
[24] [2012] FMCA 1133 at [68]-[69].
[25] See at [54].
[26] At [67].
[27] [2012] FCA 557.
[28] At [17]-[19].
[29] [2013] FCA 7.
[30] At [97].
The respondents submissions on grouping[31] having referred to Fair Work Ombudsman v New Image Photographies Pty Ltd and Anor (No.2) [2013] FCA 209 and Fair Work Ombudsman v Investment Group Pty Ltd [2013] FCCA 208 were to the effect that:
a)the contraventions under s.900 of the WR Act and s.357 of the FW Act should be treated as one contravention;
b)the “award contraventions” should be considered as a separate offence; and
c)any penalty should be assessed on the basis of there being two courses of conduct (i.e. (a) and (b) above).
[31] See paragraphs 4-7 of written submissions filed.
Whilst the respondent submitted the “award contraventions” should be treated as one course of conduct the applicants submissions painstakingly analysed how having regard to the relevant statutory course of conduct provisions the remaining 122 underpayment contraventions should be treated.[32]
[32] See paragraphs 45-51 of applicant’s submissions.
I accept the applicant’s submissions on this issue. As was noted in those submissions the evidence in this case as set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 demonstrates there was a separate course of offending conduct regarding sham contracting in relation to each of the 10 workers.[33]
[33] see similar approach in Fair Work Ombudsman v MacLean Bay Pty Ltd (No.2) [2012] FCA 557
In relation to the remaining 122 separate contraventions the applicant accepted that in addition to applying the course of conduct provisions the award contraventions had common elements and this should be taken into account to ensure the respondent is not punished more than once for the same or substantially similar conduct. Both parties made submissions as to how those contraventions should be grouped.
I accept the applicant’s submissions that the Court should group the contraventions as follows:
“Categories of contraventions by the Respondent
51.In light of the above analysis and grouping of the contraventions found by the Court, the Applicant submits that the Court should impose a penalty in respect of each of the following 19 contraventions or groups of contraventions:
(a)the 10 separate sham contracting contraventions;
(b)the annual leave contravention;
(c)the personal/carer’s leave contravention;
(d)the meal allowance contravention;
(e)the superannuation contravention;
(f)the overtime contravention;
(g)the weekend penalty contravention;
(h)the crib time contravention;
(i)the travel allowance contravention; and
(j)the redundancy/severance contravention.”
This results in a maximum possible penalty of $627,000.
Factors material to determining penalty in this case
The list of factors the Court should take into account in determining an appropriate penalty for contravention of the WR and FW Act were set out earlier. The submissions of both parties to which I will turn approached the matter on that basis.
The nature and extent of the conduct which leads to the breach
The applicant submitted:
“55.In the Applicant’s submission, for the reasons articulated below, the sham contracting contraventions are properly viewed as being at the more serious end of the spectrum.
56.In a broad sense, the sham contracting contraventions gave rise to and resulted in the Respondent’s extensive and numerous breaches of award and other statutory minimum which applied to the workers. The sham contracting contraventions are therefore properly viewed as being at the core of the Respondent’s offending conduct.
57.That offending conduct was extensive and of long duration. It extended over a period of just over 3 years and resulted in 10 workers being underpaid a total of $152,865.21.
58.The contraventions were not isolated or one-off incidents of non-compliance with minimum employment standards. They were instead the product of a deliberate strategy recklessly pursued by the Respondent to engage the workers as independent contractors rather than as employees.
59.The seriousness of sham contracting contraventions has been recognised by the Federal Court. In Australian Building and Construction Commissioner v Inner Strength Steel Fixing Pty Ltd,[34] Gilmour J stated:[35]
[34] [2012] FCA 499.
[35] At [14]-[15].
The legislature has prohibited the practice of sham contracting because it undermines the protections afforded to employees by Australian industrial relations laws and instruments. Sham contracting arrangements enable employers to avoid legal obligations such as payment of payroll tax, workers compensation premiums, employee entitlements and superannuation contributions.
The penalty regime established for sham contracting arrangements that contravene ss900 and 902 of the WR Act and s357 of the FW Act is indicative of the seriousness with which the legislature views this type of conduct.
60Similarly, in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (No 2),[36] McKerracher J stated that the “vice” of sham contracting was that:[37]
[36] [2013] FCA 582.
[37] At [2].
…it unfairly deprives workers of the benefits of employment and undermines the effective operation of the system established by the Fair Work Act 2009 (Cth) and other industrial legislation. Additionally, it arguably distorts competition to the disadvantage of employers who honour their statutory obligations.
61.In the Federal Magistrates’ Court, it has been observed a similar case involving the contravention of s357 of the FW Act in relation to a number of employees and the consequent failure by the employer to afford various award and statutory obligations that such contraventions:[38]
[38] Fair Work Ombudsman v Beddington [2012] FMCA 1133 at [70] per Cameron FM.
…represent a failure to provide basic and important entitlements under workplace relations legislation.
The purpose of the legislation is to provide a safety net which ensures adequate minimum entitlements to employees, particularly those who are vulnerable or on low income roles. The legislation is also designed to provide an even playing field for all employers with regard to employment costs. I accept that the contraventions of these fundamental entitlements undermine the workplace relations regime as a whole and demonstrate a disregard for the statutory obligations cast upon New Image and Mr Beddington who controlled it.62.In Director, Fair Work Building Industry Inspectorate v Supernova Contractors Pty Ltd,[39] Jarrett FM accepted that sham contracting permits an employer to avoid legal obligations such as payment of payroll tax, workers compensation premium and employee entitlements such as annual leave, sick leave, redundancy payments, superannuation contributions and that it has the consequence of employees are denied various and numerous protections they would otherwise have available to them.[40] Jarrett FM stated that:[41]
[39] [2012] FMCA 935.
[40] At [10]-[11].
[41] At [12].
I accept the applicant’s submissions that the avoidance of the above legal obligations and protections involves a direct loss (or the risk of direct loss) to employees. Some also involve potential damage to the community more generally and others involve undermining the system of industrial regulation and protection of employee entitlements. For example, the inability to access workers’ compensation premiums means that workers would be uninsured in the event of injury at work (absent their own insurance at their own cost). Sham contracting also potentially undermines award and agreement conditions.
I accept that the fact that the legislature has provided relatively large maximum penalties ($33,000 for a corporation and $6,600 for an individual) indicates that the contraventions are considered serious.
63.The other contraventions founds by the Court relating to breaches of minimum statutory and award entitlements are also able to be categorised according to the gravity of the breaches involved. Having regard to the nature and importance of the entitlements to which the contraventions relate and the extent and nature of the contraventions involved, those contraventions can broadly be categorised as follows:
Most serious contraventions
(a) The annual leave contravention
· Total underpayments of $44,360.71 in relation to all 10 workers.
(b) The superannuation contravention
· Total underpayments of $35,387.57 in relation to eight of the workers.
(c) The travel allowance contravention
· Total underpayments of $39,179.80 in relation to eight of the workers.
Serious contraventions
(a) The meal allowance contravention
· Total underpayments of $6,452.40 in relation to eight of the workers.
(b) The overtime contravention
· Total underpayments of $4,931.22 in relation to eight of the workers.
(c) The weekend penalty contravention
· Total underpayments of $9,577.01 in relation to eight of the workers.
(d) The redundancy/severance contravention
· Total underpayments of $11,820.30 in relation to six of the workers.
Less serious contraventions
(a) The personal/carer’s leave contravention
· In relation to two workers.
(b) The crib time contravention
· Total underpayments of $1,156.20 in relation to seven of the workers.”
The respondent in submissions filed 16 April 2014 submitted:
“22.Nature and extent of conduct which lead to the breaches: Mr Morgan’s evidence was that he believed that the approach to engaging contractors as he did was legal and appropriate, given that the work to be performed was of a type that is frequently performed by contractors. Mr Morgan gave evidence that he had received legal advice in relation to the distinction between employees and contractors. In 2011 the Victorian Court of Appeal overturned a 2010 finding by the Victorian Supreme Court that a worker engaged by Elazac Pty Ltd (a company of which Mr Morgan is a director) on similar terms and on a similar basis to which the workers in this case were engaged, was an employee (Shireff v Elazac Pty Ltd [2011] VSCA 405).
23.It is submitted that the law in relation to the determination of who is an independent contractor and who is an employee is complex and also has been quite dynamic in recent times, and employers cannot, and should not, be expected to be fully informed as to the current state of the law at all times. Mr Morgan was reasonably well informed on this subject and made his decisions accordingly. He has been the recipient of decisions by the Courts both in his favour and against his favour in relation to who is an independent contractor and who is an employee.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“10.The first observation to be made is that there are a series of duplicated offences covering the period of time prior to the repeal of the Workplace Relations Act and after the commencement of the Fair Work Act. It is submitted that although there are in theory separate offences the contraventions in respect of the same or similar sections of the Workplace Relations Act and the Fair Work Act should be seen as one offence. Were it not for the repeal of the Workplace Relations Act there would not have been a duplication of offences. An example is section 900 of the Workplace Relations Act is in essence the same offence as section 357 of the Fair Work Act.
11.The offences under section 900 of the WR Act and section 357 of the Fair Work Act maybe seen to be the most serious.
12.The court must bear in mind that the test for determining whether someone is an employee or independent contractor is complex for a lawyer to grapple. This matter is even more complex for a layman. It has to be appreciated that the Court took 70 pages of the judgement being pages 133 to 203 (paragraphs 228 to 288) to analyse the relevant legal principles dealing with the distinction between employee or independent contractor. How, therefore, could a layman make an accurate assessment. It should be remembered that the difficulty in this area is illustrated by Stevens v. Brodribb Sawmilling Company Proprietary Limited; Gray v. Brodribb Sawmilling Company Proprietary Limited (1986) 160 CLR 16. In the Full Court of the Supreme Court of Victoria Starke J. dissented and agreed with the primary judge that Stevens and Gray were servants of Brodribb. The majority, in the Full Court, (Kaye and Brooking JJ) held that Stevens and Gray were independent contractors. The High Court agreed with Starke J. and restored the trial judges verdict that they were servants.
13.The respondent would ask that the Court to have regard to the following considerations:
(a)Linkhill is a holding company for the real properties held in the Roy Morgan Group;
(b)It is a trustee company of a unit trust;
(c)The core businesses of the Roy Morgan Group relate to its core business activities being research marketing and mining. (The description of the respondent is set out in paragraph 8 of the decision.)
(d)The employment of the ten persons were not engaged in business central to the core functions of the Roy Morgan Group but were engaged in respect to "one off" or transitory work in the nature of carrying out renovations and fit-out work at various city buildings owned by the respondent which was typical of the type of work performed by contractors.
(e)A significant amount of work was carried out at a property at 386 Flinders Lane, Melbourne which pursuant to the affidavit of Michelle Levine sworn 27 February 2013 was purchased by her by contract dated 28 March 2007 which settled on 14 August 2008 (paragraph 4 of the Levine Affidavit).
(f)The type of building work for which the ten workers were retained are not uncommonly done by contractors, the nature of the work was one of work and therefore not likely to be repeated. These comments are also applicable to the other offences relating to the alleged underpayment of various award entitlements.
(g)As the workers were not engaged in core business activities it did not give the respondent an unfair advantage over competitors and distort the market and they were paid substantially over the award in any event.”
The contraventions as appropriately grouped given the statutory course of conduct provisions and taking into account the changes to legislation have been set out earlier. The sham contracting contraventions meant that the 10 workers were deprived of their minimum entitlements under the WR and FW Acts as a result of the respondent’s misrepresentation that their employment relationship (as found in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097) was one under which they performed work as independent contractors.
The rest of the contraventions represent a failure by the respondent to provide the workers with their minimum statutory entitlements to annual leave, superannuation, travel allowance, meal allowance, overtime, weekend penalty rates, redundancy and crib breaks. These contraventions led to a total underpayment of $152,865.21.
The circumstances in which the conduct took place
The applicant submitted:
“53.The contraventions found by the Court stemmed from the fact that the Respondent mistakenly and recklessly misrepresented to the 10 workers that they were independent contractors rather than employees. Consistent with that misrepresentation, the Respondent then treated all of the workers as independent contractors and not as employees, thereby denying them various and numerous legislative and award entitlements.”
In written submissions filed 16 April 2014 the respondent submitted:
“24.Circumstances in which the conduct took place: The conduct took place in relation to work to be performed of uncertain duration and scope. At the time the contractors were engaged, the Respondent could not reasonably foresee that it wanted, or needed, or could provide sufficient work to permanent full time employees.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“14.It is submitted that the engagement of the ten employees although at various difference times was an engagement made on an erroneous and as the Court has found reckless assumption that they were contractors when the respondent ought to have known they were employees. It is submitted that the Court should find that the conduct of the employees was reckless but based on an erroneous assumption.
15.If regard is had to the overpayments which have been made there is no seriousness in the contraventions given that the workers were substantially better off than had the respondent paid the award rates. Accordingly principles considered by Justice Gilmour in Australian Building & Construction Commissioner v Inner Strength Steel Fixing Pty Ltd (2012) FCA 499 have no application as the respondent was not seeking to avoid legal obligations such as the payment of employee entitlements. Employees were paid more than their just desserts. The workers were covered by Workers’ Compensation insurance and therefore the comments of Jarrett FM in Director Fair Work Building Industry Inspectorate v Supernova Contractors Pty Ltd. (2012) FMCA 935 have no application. (see affidavit of James Wallace sworn 14 May 2014).”
As found in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 the respondent and its senior management was responsible for determining terms and conditions upon which the workers were engaged and responsible for implementing a system of work whereby it purported to engage each of the 10 workers as independent contractors, when they were in fact and in law employees.
Nature and extent of the loss sustained as a result of the breaches
The applicant submitted:
“67.The workers sustained substantial loss and damage as a consequence of the Respondent’s contraventions. As has been noted, the total of the underpayments awarded by the Court (exclusive of interest) was $152,865.21. On any measure this is a large sum. It is particularly so having regard to the fact that it relates to only 10 workers and a period of approximately three years and three months.
68.As of the date of the filing of these submissions, the Respondent had not made good these losses by making the underpayments ordered by the Court. The Applicant reserves the right to file further affidavit material on the question of the Respondent’s compliance with the Court’s orders.”
In written submissions filed 16 April 2014 the respondent submitted:
“25.Nature and extent of any loss or damage sustained as a result of the breaches: the workers were paid a total remuneration over the period of their engagement that was more than they would have received if they had been employed under the relevant industrial awards. The workers were all covered by the respondent’s workers compensation insurance whilst engaged by the Respondent.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim, it was submitted:
“16.The applicant contends that there has been an underpayment totalling $152,865.20. However this is entirely expunged if you take into account the over award payments made by the respondent.
17.The respondent disputes this. The fact that the Respondent is appealing this matter and these payments have not been paid for a second time should not be seen as exacerbating conduct.”
The actions of the respondent led (as set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097) to a significant underpayment to the 10 workers. The respondent’s submissions (and some of the evidence upon which it sought to rely) takes issue with this however as noted earlier those submissions haven’t considered what the authorities such as Textile Clothing and Footwear Union of Australia v Givoni Pty Ltd [2002] FCA 1406 at paragraphs [53] to [65] say in relation to those matters and were not in any event made out for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097.
Similar previous conduct
The applicant made no submissions on this factor.
In written submissions filed 16 April 2014 the respondent submitted:
“26.Whether there had been similar previous conduct by the Respondent: The Respondent has not been prosecuted for sham contracting previously.”
In submissions before the Court the respondent noted the applicant did not contend there had been similar previous conduct.
The applicant has not submitted that there is any previous finding by a Court that the respondent has contravened workplace laws. This is a matter that will be taken into account is arriving at an appropriate penalty.
Whether breaches were distinct
As set out earlier the parties made submissions relevant to this factor in the context of the issue of how the 139 contraventions should be grouped. Addressing this factor in particular, the applicant submitted:
“69.As outlined in Part C of these submissions, each of the
19 contraventions in relation to which the Applicant submits a penalty should be imposed clearly arose from and represent a course of conduct engaged in by the Respondent. A contravention constituted by a course of conduct that endured for the period of time here in issue must be viewed more seriously than an isolated contravention.[42] It should also not be overlooked that the 19 contraventions which the Applicant contends should be the subject of determination for penalty, each relate to multiple contraventions in respect of multiple employees.”
[42] As recognised by Jessup J in Murrihy v Betezy.com.au Pty Ltd (No.2) [2013] FCA 1146 at [58] in relation to a contravention of s.323 of the FW Act.
The respondent in submissions filed 16 April 2014 submitted:
“27.Whether the breaches were properly distinct or arose out of the one course of conduct: The Respondent submits the breaches occurred from the same course of conduct. The instructions given to Mr Darrigrand and Mr Lowery were consistent throughout the relevant period and all within the same context. Aside from hourly rates, the workers were engaged on similar terms.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“20.It is submitted that because of the nature of the work being “one of” renovation and refitting work that the engagement of the ten workers should be seen as one course of conduct.”
The submissions of the parties on this issue have been set out and dealt with earlier. I accept there are 19 different contraventions for which the Court must determine an appropriate penalty.
Size of the business
The applicant submitted:
“87.The Respondent is part of the Roy Morgan Group and is the operating company that manages the building used by the Roy Morgan Group.
88.The Roy Morgan Group has diverse and substantial business interests throughout Australia as well as globally[43]. The Roy Morgan Group includes a number of different companies including Roy Morgan Research Ltd, a public company which has been registered since 1988 and which has paid up capital in excess of $4,000,000.00.[44] In addition, the total sales revenue for Roy Morgan Research Ltd and its controlled entities for the 2012 financial year was $57,700,000.00.[45]
[43] Affidavit of Allison Clare Shannon sworn 12 March 2014, para 7 and Exhibit ACS-4.
[44] Exhibit A26.
[45] Exhibit ACS-5 to the Affidavit of Allison Clare Shannon sworn 12 March 2014.
The respondent in written submissions filed 16 April 2014 submitted:
“28.Size of the business enterprise involved: The Respondent, whilst part of the Roy Morgan group of companies, is not a large business. It would not be fair or equitable for the Court to punish other companies within the group for the misdemeanours of the Respondent. The Applicant’s submissions and evidence on the assets of the group on this point should be entirely disregarded.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“21.The respondent is a trustee of a unit trust. According to the profit and loss statement of Linkhill for 2011/2012 it has respective losses of $470,764 & $545,062 (see exhibit JW-6 to the affidavit of James Wallace sworn 14 May 2014.) The evidence concerning the value of the Roy Morgan Group of Companies is irrelevant as the contravention has been committed by Linkhill Pty Ltd.”
Regardless of the size of the business or its financial position, an employer cannot be absolved of its legal responsibilities to comply with the law in relation to the employment of employees. I refer in particular to the decisions of Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14 and the decision of Driver FM, as His Honour then was, in Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412. Further, the respondent cannot hope to have its conduct, in effect, exonerated by the Court merely because of claims made regarding the size and finances of the business (Fair Work Ombudsman v Promoting U Pty Ltd & Anor [2012] FMCA 58).
In Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306 Keely J said:
“In this connection it is important that the respondent – and other employers bound by the award or by other awards under the Act – understand the importance of complying with an award and it follows that any decision taken by them which is regards as affecting their obligation to comply with particular provisions of the award for the award generally should only be taken after careful consideration. They must not be left under the impression that in times of financial difficulty they can breach an award made under the Act either with impunity or in the belief that no substantial penalty will be imposed in respect of a breach found by a court to have been committed.”
I accept notwithstanding the respondent’s financial circumstances and the claims made about its size the Court should mark the disapproval of the contravening conduct by setting a penalty at a meaningful level.
Whether the breaches were deliberate
The applicant submitted:
“64.The Court should find that the sham contracting contraventions were deliberate in the following sense. First, it is clear that Morgan intended to engage the workers as independent contractors. As such, the making of the requisite representations were deliberate acts. Secondly, the Court has found that Morgan was or should have been aware that there was a real risk that the contracts by which the workers were engaged were contracts of employment.[46] As such, as the Court has accepted that, in making the representations to the workers, Morgan acted in a manner that was careless or incautious as to the true nature of the contracts.[47]
65.Thus the sham contracting contraventions are properly regarded as deliberate contraventions because they are constituted by positive acts by the Respondent taken with reckless disregard about the true status of the contracts by which the workers would be engaged.
66.The other breaches of minimum award and statutory entitlements may also be viewed as being deliberate in the broadest sense; the Respondent plainly did not intend on complying with those obligations because of its desire to treat the workers as contractors.”
[46] Decision at [327].
[47] Decision at [326].
The respondent in written submissions filed 16 April 2014 submitted:
“29.Whether or not the breaches were deliberate: A breach of the sham contracting laws is not required to be deliberate. It can occur as a result of negligence or recklessness. It is submitted that Mr Morgan did not set out to misrepresent the nature of the engagement to the workers in this proceeding, and that the conduct found to have resulted in the contraventions was not intended to breach the sham contracting provisions.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“22.The Court has found that the sham contracting and underpayment of the awards was as a result of recklessness. However having regard to the flexible nature of the work that was engaged in and the fact that this was one of renovation work of a type which can be done by contractors. Although finding that it is reckless it should be characterised as mistaken behaviour.”
The applicant submitted the breaches were deliberate and I accept that submission. I reject the submissions by the respondent that its behaviour was “mistaken”. The conduct engaged in was part of a deliberate decision taken by and on behalf of the respondent as to how it would engage the workers and run its business. The sham contracting contraventions are properly regarded as deliberate contraventions “constituted by positive acts” taken with “reckless disregard to the true status of the contracts” of the workers as in fact and in law (as found in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097) as employees.
The rest of the contraventions can also be regarded as deliberate in the sense that the respondent did not intend to comply with those because it chose to treat the workers as independent contractors when they were in fact and in law employees entitled to the benefit of those provisions for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097.
Involvement of Senior Management in the breaches
The applicant submitted:
“70.Morgan was the directing mind of the Respondent.[48]
[48] Decision at [324].
The evidence and findings of the Court also establish that, as the directing mind of the Respondent, Morgan was directly involved in the sham contracting contraventions. In particular:
(a)Morgan’s evidence was that he made the decision to engage the “contractors”.[49]
(b)Morgan’s own evidence was that he was often present at 386 Flinders Lane and generally gave instructions as to what work was to be performed on any given day.[50]
(c)The uncontested evidence, as found by the Court, was that everything done at 386 Flinders Lane was done at Morgan’s direction and that he approved the work to be undertaken at the site.[51]
71.Beyond the fundamental way in which Morgan was directly involved in the contraventions as set out above, his involvement also extended to the minutiae of the work actually performed by the contractors including directing some of them from time to time as to the work they were to do; being notified by some of the workers when they wanted to have time off;[53] and even making directions as to the length of the smoko break.[54]
72.It is plain from the above that the most senior officer of the Respondent was closely and directly involved in the conduct which constituted the sham contracting contraventions. This is a matter which weighs in favour of the fixing of a more substantial penalty in relation to those contraventions.
73.In Murrihy v Betezy.com.au Pty Ltd (No.2),[55] Jessup J identified a distinction between contraventions caused by a failure of management considered as a “process” and those cases involving a failure by management.[56] The latter case arises where, as here, the contraventions occur as a result of the acts or omissions of senior management of a respondent. In such circumstances, Jessup J observed that a respondent cannot expect a court to take a lenient view of such “transgressions”.[57]”
[49] Decision at [222].
[50] Decision at [222]. [225].
[51] Decision at [173], [189].
[53] Decision at [63], [177], [193].
[54] Decision at [151].
[55] [2013] FCA 1146
[56] At [37].
[57] At [37].
In written submissions filed 16 April 2014 the respondent submitted:
“30.Whether senior management was involved in the breaches: Mr Morgan was involved in the breaches. Mr Darrigrand and Mr Lowery followed the directions given to them in respect of the engagement of the workers.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“23.It is clear that Mr Morgan was involved in the breaches and he is the director and shareholder of Linkhill. However in respect of conduct occurring at the Flinders Lane property after settlement of the purchase of that property by Michelle Levine in 14 August 2008. She was present and gave directions to the workers on that site after this date.”
The breaches clearly involved senior management and the director of the business. I accept the applicant’s submissions that given Mr Morgan’s close and direct involvement as the director of the respondent in the conduct that constituted the sham contracting contraventions this is a matter that weighs in favour of a more substantial penalty for those contraventions. The claims made about Ms Levine’s involvement don’t detract from that when her own evidence was the respondent offered a shared services arrangement.
Contrition, Corrective Action and Co-operation
The applicant submitted:
“90.The Applicant acknowledges that the Respondent was generally co-operative in the investigation which preceded this proceeding.
91.Notwithstanding the above, the Applicant submits that no discount in penalty should be afforded to the Respondents in relation to their conduct throughout this proceeding and the prior investigation.
(a)The Respondents chose to fully contest each and every allegation made against them by the Applicant. All of the Applicant’s claims were in issue until the Respondent filed its submissions on liability. At that point, while the Respondent continued to contest liability on all counts, various controversies relating to the application of the awards were abandoned.
(b)The approach adopted by the Respondents in this proceeding has placed a considerable call on the public purse in the Applicant bringing this proceeding and has also placed a significant demand on the Court’s resources and time. The Applicant was put to its proofs on all of its claims, including detailed and complex matters relating to the application of the awards and the calculation of underpayments, many of which objections were ultimately abandoned or not pressed.
(c)Further, as demonstrated by the Court’s numerous interlocutory decisions in this matter, the Respondent has failed to conduct its case efficiently and with due diligence. This has resulted in many delays, adjournments and costs to the Applicant and the Court.
(d)The Respondent has not expressed any contrition, regret or remorse for its unlawful conduct. Public statements by Morgan since the publication of the Decision indicate that he remains defiant in the face of the proceedings and the Court’s findings.[58] The Applicant is unaware of any attempt by the Respondent to apologize to the workers in relation to its contraventions.”
[58] Affidavit of Allison Clare Shannon sworn 12 March 2014, paras 3 to 5 and Exhibits ACS-1 to ACS-3.
In written submissions filed 16 April 2014 the respondent submitted:
“31.Whether the party committing the breach had exhibited contrition: Upon being informed by the Applicant that it had formed the view that the workers were in fact employees, the Respondent, as means of “making good” offered the workers the opportunity to become employees of the Respondent.
32.Whether the party committing the breach had taken corrective action: See par. 31. The Respondent has not engaged contractors in this manner since being notified of the results of the Applicant’s investigation.
33.Whether the party committing the breach had co-operated with the enforcement authorities: The Applicant acknowledges that the Respondent co-operated with the enforcement authorities until such time as the proceedings were commenced. The Respondent submits that it should not be penalised for putting the Applicant to proof on complex legal assertions with which it strongly disagrees, once proceedings are commenced.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“Whether the party committing the breach has exhibited contrition.
24.If the Court acknowledges that there has been overpayment then it is not appropriate that the Court has regard to whether the respondent is contrite given that it has paid the applicants more that they are entitled.
25.It is submitted that the respondent offered the ten workers the opportunity to become employees of the respondent consequent upon the investigation of this matter.
26.The applicant’s submissions in respect of Mr Morgan’s conduct are not relevant. The applicant has chosen not to prosecute Mr Morgan.
Whether the party committing the breach has taken corrective action.
27.The respondent has not engaged contractors in this manner since being notified of the results of the applicant’s investigation and all persons doing building work of the type engagement by the ten employees have been retained as employees.
Whether the party committing the breach had cooperated with the enforcement authorities.
28.Paragraph 90 of the applicant’s submissions. The applicant concedes that the respondent was “generally cooperative in the investigation which preceded this proceeding.
29.It is accepted that the respondent has strongly opposed the prosecution of this matter by the applicant but this should not be used to exacerbate the penalty. A plea in some cases has been used as a discounting factor to discount the appropriate penalty but the converse is not true that is to say a strong opposition to a prosecution should not bring about an exacerbation of the penalty.”
The respondent has shown no contrition with respect to its actions.
In my view, the respondent has shown a remarkable lack of insight into its behaviour and its impact. The respondent has taken no corrective action. I accept the applicant’s submissions about the conduct of the respondent since the proceedings were commenced. The matters referred to therein and indeed the submissions made by the respondent, at this stage of the proceedings, mitigate against any discount for the respondent on the basis of these matters.
Compliance with minimum standards and general deterrence
The applicant submitted:
“77.The importance of ensuring compliance with Australia’s workplace laws should not be underestimated and be given appropriate weight in considering what penalties should be imposed for contraventions of the Act. Recently, McKerracher J in Fair Work Ombudsman v Kentwood Industries Pty Ltd (No.3) [2011] FCA 579 said:
In imposing a penalty against the respondents, it is necessary for the court to set the penalty in a range that reinforces the fundamental importance of compliance with the employment standards enshrined in Commonwealth workplace laws.[59]
78.These sentiments and principles have more recently been recognised as applicable in the context of sham contracting contraventions. In Fair Work Ombudsman v Maclean Bay Pty Ltd (No 2)[60] Marshall J stated that:[61]
It is important to ensure that the protections provided by the Act to employees are real and effective and properly enforced. The need for general deterrence cannot be understated. Rights are a mere shell unless they are respected.”
[59] Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 3) [2011] FCA 579 at [36] per McKerracher J.
[60] [2012] FCA 557.
[61] At [29].
In written submissions filed 16 April 2014 the respondent submitted:
“34.Need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements: The Respondent submits that this is not a case where workers were not provided with conditions that undercut minimum standards. It also submits that this was not a case where the respondent terminated the employment of any worker, or set out to avoid industrial law. This is a case where workers were paid and treated fairly, and at a level above award rates.
The Respondent submits that this is not the type of case the Applicant should have pursued and expended considerable (in fact, out of all proportion) amount of taxpayer money and resources.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“Need to ensure compliance with minimum standards by a provision of an effective means for investigation and enforcement of an employee’s entitlement.
30.It is submitted that the respondent did not try and obtain an unfair market advantage in respect of its core business activities. The respondent paid a rate which was above award rates and the workers were better off than if they had been paid under the award.”
The WR and FW Acts represent a safety net of employment conditions. The Court has a responsibility to ensure that those conditions are observed and industrial instruments are enforced.
In Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543, Lander J said the following with respect to the role of general deterrence:
“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 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 this 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.[62]”[62] (2007) 158 FCR 543 at pp.559-560
Similarly, in the decision of the Community and Public Sector Union v Telstra Corporation Ltd (2001) 108 IR 228, Finkelstein J said:
“…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: R v Thompson (1975) 11 SASR 217.”[63]
[63] (2001) 108 IR 228 at pp.231-232
One of the principal objects of the WR and FW Acts has been the maintenance of an effective safety net and effective enforcement mechanisms. The respondent misrepresented to the 10 workers that the contracts were contracts for services when they were in fact and in law contracts of employment for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097. The effect of these sham contracting contraventions was that the 10 workers did not receive the minimum terms and conditions under the WR and FW Act.
Given the statements such as those in the decision of Australian Building and Construction Commissioner v Inner Strength Steel Fixing Pty Ltd [2012] FCA 499 at [30] penalties in this case should be imposed at a meaningful level so as to deter other employers from committing similar contraventions and to send a message to the community that all employers must comply with minimum terms and conditions for employees.
Specific deterrence
The applicant submitted:
“83.In relation to specific deterrence, it is relevant to note the following observation by Gray J in Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union:[64]
[64] (2008) 170 FCR 357 at [37].
Specific deterrence focuses on the party on whom the penalty is to be imposed and the likelihood of that party being involved in a similar breach in the future. Much will depend on the attitude expressed by that party as to things like remorse and steps taken to ensure that no future breach will occur.
84.The Court should also note the observation by Finkelstein J in CPSU v Telstra Corporation Limited that it is important to remember that “proscribed conduct is often engaged in because it is profitable, or will enhance the profitability of the company. To deter conduct engaged in with that purpose, any penalty imposed must have the potential to render the conduct unprofitable”.[65]
85.The Applicant considers that there is a strong need for specific deterrence in this case.
(a)A substantial number of people work or provide their services to the Roy Morgan Group of which the Respondent is part. Morgan’s evidence was that the Roy Morgan Group engages between 1,000 and 2,000 interviewers.[66] As such, the question of compliance with workplace laws by companies within the Roy Morgan Group including Linkhill is of real and practical relevance.
(b)As accepted by Morgan in his evidence, there has been very substantial and extensive litigation over the past 20 years between companies in the Roy Morgan Group and various State and Federal Government agencies. In that litigation, companies in the Roy Morgan group have prosecuted the view that certain workers (interviewers) were independent contractors and not employees. It is abundantly clear from Morgan’s evidence that the distinction between contractors and employees is a matter of real concern to him and that, at least in many circumstances, his strong preference is for persons to be engaged as independent contractors rather than employees. As stated in his evidence “engaging employees is pretty rough, pretty hard and hard to get rid of them”. Morgan also stated:[68]
Also understand that relevant consideration is whether or not the person is in truth performing work in their own business or performing work in the business of another?‑‑‑That’s complicated to answer because when a person like, the plumber on a city building site, goes out and works for cash on a weekend, he’s running his own business on the weekend. So, he doesn’t pay tax, of course, the whole of Australia does that. So, you’ve got probably half a million people every weekend working somewhere for cash and not paying tax and they’re running their own business. So, you have a situation where the whole country’s been taken for break because of certain criteria under the Act of whether you’re running your own business or not running your own business and if they were running their own business they would have to behave one way and, if they weren’t running their own business they would have to behave another way but they all believe they’re running their own business. And so, you’ve got a – people obviously don’t tell you the truth of what they’re doing because, if they did, they’d be jail and the jails wouldn’t be able to take them all, there’s so many. Mind you, weren’t hurt to put a few in. But, the issue is people running – everyone wants to run their own business. That’s human nature and these people want to do their own work and run their own lives and have more freedom from government and institutions and people trying to tell them what to do. So, they are trying to run their own business, everyone is. …
(c)To date the Respondent has not indicated any acknowledgment of its wrongdoing in this case or an acceptance that the workers were employees. The import of Morgan’s evidence was to convey to the Court a position of defiance in the face of the claims brought against it.
86.In light of the above matters, the Court should find that there is a real risk of the Respondent re-offending. It is important that in the future the Respondent is deterred from contravening s.357 of the FW Act and from disregarding minimum employment obligations prescribed by the FW Act and awards made thereunder.”
[65] Community and Public Sector Union v Telstra Corporation Limited (2001) 108 IR 228 at [9].
[66] Transcript 17 June 2013, page 5 at 22.
[68] Transcript 17 June 2013, page 24 at 3-21.
In written submissions filed 16 April 2014 the respondent submitted:
“35.Need for specific and general deterrence: The Respondent no longer engages contractors. It requires no deterrence in relation to future conduct. The submissions of the Applicant in this regard are vexatious and without any real substance. They focus on the personality of Mr Morgan and not his conduct or the conduct of the Respondent since the Applicant’s investigation.
36.The Respondent submits that a further factor for consideration by the Court should be the conduct of the Applicant. The Respondent submits that the Applicant proceeded with this prosecution knowing full well that the workers in this case had not, in fact, suffered any genuine financial hardship as a result of their engagement as independent contractors. This fact was conveniently avoided by the Applicant at all times during the proceeding, and the Applicant’s tables of alleged underpayments also mislead the Court in that they failed to show the Court the significant gap between the amounts the workers were actually paid when compared to the amounts of underpayments asserted by the Applicant.
37.The Applicant also engaged in sharp practice in relation to the obtaining of statements from witnesses.
38.Further, the Respondent submits that the jurisdiction conferred on the Court to order underpayments is not one through which workers should be unjustly enriched. The underpayment jurisdiction is to ensure that workers are compensated for amounts they were not paid that they should have received. The Respondent submits that in this case, no worker was underpaid and that the effect of the Court’s orders was to enrich the workers to a level of remuneration well above any reasonable level.
39.The Respondent submits that the Court should now take into account the evidence of Mr Morgan, Ms Levine, Mr Wallace that it refused to take into account in the hearing of the liability case.”
In the respondent’s (further) written submissions handed to the Court at the penalty hearing which Counsel addressed seriatim it was submitted:
“Need for specific or general deterrents.
31.It is submitted that there is no need for specific deterrents.
If the Court accepts that there has been an overpayment then there is no necessity for general deterrents or specific deterrents. In fact if the Court accepts that there has been an overpayment then the orders made for compensation will provide adequate penalty because they has in effect been a double payment of this sum.”
In Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union [2008] FCAFC 170 at [37] it was said:
“Specific deterrence focuses on the party on whom the penalty is to be imposed and the likelihood of that party being involved in a similar breach in the future. Much will depend on the attitude expressed by that party as to things like remorse and steps taken to ensure that no future breach will occur.”
On any description of the respondent’s attitude (manifested by in particular its submissions (including those referred to above) made at the penalty stage) I accept the applicant’s submissions there is a strong need for specific deterrence in this case to reduce risk of re-offending.
Totality principle
The applicant’s submissions in relation to the issue of the totality principle noted the respondent had had the benefit of the statutory course of conduct provisions and the grouping referred to earlier. Given this it was submitted this reinforced the need to ensure that the total of the penalties was appropriate having regard to the totality of the conduct. The respondent made no submissions on the application of the totality principle.
The application of the totality principle is to ensure that any penalty imposed is not oppressive or crushing, but appropriate in all the circumstances. The application of the totality principle does not mean the penalties arrived at before its application must be reduced.
Any penalties imposed should reflect the circumstances and be just and appropriate in the circumstances.
Appropriate penalty
The parties’ written and oral submissions traversed a considerable number of matters said to be directly relevant to matters of penalty.
I do not propose to traverse each and every one. However it is necessary to mention those that have particular force in arriving at the appropriate penalty.
The conduct that led to the contraventions is set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 as was the circumstances in which that conduct took place and the nature and extent of the loss occasioned.
In its submissions the applicant referred to Australian Building and Construction Commissioner v Inner Strength Steel Fixing Pty Ltd [2012] FCA 499, Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (No.2) [2013] FCA 582, Fair Work Ombudsman v Bedington [2012] FMCA 1133, Director, Fair Work Building Industry Inspectorate v Supernova Contractors Pty Ltd & Anor [2012] FMCA 935.
These decisions make clear that the contraventions of the sham contracting provisions of the WR Act and FW Act found for the reasons set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097 are objectively very serious and regarded by the Courts as such. As was stated in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (No.2) [2013] FCA 582 the issue of sham contracting that warrants sanction is that it unfairly deprives workers of the benefits of employment, undermines the effective operation of the industrial legislation and arguably distorts competition to the disadvantage of employers who honour their statutory obligations.
I accept that the nature of the contravening conduct (and the loss suffered by the workers as a result of the respondent’s contravening conduct) is a relevant consideration. The evidence and findings in relation to this was set out in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.7) [2013] FCCA 1097.
The respondent’s submissions have sought to impermissibility argue the toss on those findings and do so at the penalty phase.
To argue as the respondent has done that no penalty should be imposed in light of the orders made by the Court in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.8) [2014] FCCA 225 for compensation to the workers for the underpayments is to ignore the sentencing task for the Court at the penalty phase.
The contraventions that have been proved are not trivial or merely technical and to impose no penalty would be regarded as unwarrantably condoning such breaches (see Victoria University of Technology v Australian Education Union [1999] FCA 1065 at [33]).
The other contraventions of the WR Act and the FW Act were the product of a deliberate strategy recklessly pursued to (attempt to) engage the
10 workers as independent contractors rather than as what they were in fact and in law employees.As the applicant noted on any measure the underpayments that arose as a result of this strategy of almost $153,000 make clear the nature of the contraventions and the loss that flowed mean that penalties at the upper end of the scale are called for most of grouped contraventions.
There is no evidence of similar previous conduct by the respondent.
In my view, it would be wrong to treat the respondent as some minor small business in which the imposition of fines on which would cause hardship. As noted above the contraventions were deliberate and senior management directed the conduct. There is no evidence that the respondent has taken corrective action to rectify the contraventions.
The findings in relation to the course of conduct and grouping of the contraventions have been set out above. The respondent has the benefit of those provisions, which reduce the 139 contraventions to those set out above.
I accept given the objects of the legislation that penalties should be imposed at a meaningful level to ensure compliance with minimum standards. I accept the applicant’s submission there is the need for both specific and general deterrence in this case and respectfully adopt the observations of Gilmour J in Australian Building & Construction Commissioner v Inner Strength Steel Fixing Pty Ltd [2012] FCA 499 at [13]-[15] in relation to sham contracting as follows:
“SHAM CONTRACTING
13.The purpose of ss 900 and 902 of the WR Act and s 357 of the FW Act is to prohibit a practice commonly referred to as “sham contracting”. The practice occurs where an employer disguises an employment relationship as an independent contracting relationship.
14.The legislature has prohibited the practice of sham contracting because it undermines the protections afforded to employees by Australian industrial relations laws and instruments. Sham contracting arrangements enable employers to avoid legal obligations such as payment of payroll tax, workers compensation premiums, employee entitlements and superannuation contributions.
15.The penalty regime established for sham contracting arrangements that contravene ss 900 and 902 of the WR Act and s 357 of the FW Act is indicative of the seriousness with which the legislature views this type of conduct.”
The sham contracting contraventions are at the upper end of the scale of offending conduct. Of the remaining contraventions, the annual leave and superannuation are the most serious contraventions.
Contrary to the applicant’s submissions, whilst the travel allowance contravention involved underpayments of over $30,000 to 10 workers,
I am not satisfied the issue of quantum in and of itself warrants finding it is at the most serious end of the offending conduct. However with the exception of this, I accept the applicant’s submissions on how the seriousness of the contraventions should be approached.
The other contraventions found by the Court relating to breaches of minimum statutory and award entitlements are also able to be categorised according to the gravity of the breaches involved.
I have given consideration to the respondent’s submissions. I am however persuaded that the fact that the respondent has consistently denied their liability and continue with a belief that the applicant is the one at fault should cause me to consider that the penalties imposed should be meaningful ones.
Findings on appropriate penalty for offending conduct
For the reasons set out above having regard to the nature and importance of the entitlements to which the contraventions relate and the extent and nature of the contraventions involved, those contraventions (as grouped above) can be categorised as follows:
Most serious contraventions
(a)10 sham contracting contraventions at 70% of maximum - $23,100 x 10;
(b) The annual leave contravention at 70% of maximum - $23,100;
(b)The superannuation contravention at 70% of maximum - $23,100.
Serious contraventions
(a)The travel allowance contravention at 45% of maximum - $14,850;
(b)The meal allowance contravention at 45% of maximum - $14,850;
(c)The overtime contravention at 45% of maximum - $14,850;
(d)The weekend penalty contravention at 45% of maximum - $14,850;
(e)The redundancy/severance contravention at 45% of maximum - $14,850.
Less serious contraventions
(a)The personal/carer’s leave contravention at 20% of maximum - $6,600;
(b)The crib time contravention at 20% of maximum - $6,600.
In Fair Work Ombudsman v Maclean Bay Pty Ltd (No.2) [2012] FCA 557 Marshall J after referring to Markarian v The Queen (2005) 228 CLR 351 noted at paragraph 49 the essential question to ask in relation to the application of the totality principle is whether the total penalties are appropriate having regard to the potential maximum.
In respect of the 139 contraventions found by the Court to have been committed by the respondent, the maximum penalty the Court could impose would be $4,438,500.00.[69] However by reason of the matters set out above the total maximum penalty for the 19 different grouped contraventions is $627,000. As a result of the findings made above a total penalty of $364,650 or 58% of the maximum that could be imposed on the respondent has been arrived at. The Court now applies the process described as instinctive synthesis to the total penalty it has considered and in doing so assesses 50% of the potential maximum as a sum which is proper to be imposed as a penalty on the respondent in all the circumstances for the contravening conduct. That results in a total penalty of $313,500 which subject to any appeal from these orders should be payable within 30 days.
[69] Calculated at $33,000.00 per contravention, save for the (9) contraventions of s 535 of the FW Act which are calculated at $16,500.00 each.
Conclusion
Therefore, as the Court:
·is directed by the relevant authorities to consider what is appropriate in all the circumstances of this case;[70] and
[70] see Construction Forestry Mining & Energy Union v Coal & Allied Operations Pty Ltd (No.2) (1999) 94 IR 231
·in its discretion in relation to penalty is not fettered by a checklist of mandatory criteria;[71] and
[71] see Australian Ophthalmic Supplies Pty Limited v McAlary-Smith [2008] FCAFC 8
·is satisfied the individual and aggregate penalty for the whole of the contravening conduct is appropriate;
there will be orders as set out at the beginning of these reasons for decision.
I certify that the preceding one hundred and twenty-six (126) paragraphs are a true copy of the reasons for judgment of Judge O’Sullivan
Associate:
Date: 20 June 2014
see applicant’s submissions filed 12 March 2014 at Part A & B and the respondents outline filed
15 May 2014 at paras 6-7
[52] Decision at [59], [147], [150], [169], [189].
[67] Transcript 17 June 2013, page 42 at 32.
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