I appeared for the First and Second Respondents in the penalty hearing. It proceeded on the basis of the First Respondent admitting that it contravened clauses 6.3, 6.7, 6.8 and 7.8 of the relevant NAPSA and s.185 (2) of Workplace Relations Act 1996 (“the Act”) in not paying the amount of $46,205.21 to 32 employees over a period of about 2 years. The Second Respondent admitted that he was involved in the contravention of the NAPSA clauses and s.185 (2) of the Act, by virtue of s.728 of the Act, as the sole Director of the First Respondent.
The hearing proceeded to determine the appropriate penalty.
Section 719 of the Act governs the civil remedy provision and by virtue of s.719(4) of the Act, the maximum penalty that could be imposed for a breach of each applicable NAPSA provisions and the Act is:
(a) $33,000.00 for the First Respondent; and
(b) $6,600.00 for the Second Respondent.
That pursuant to section 719(1) of the WR Act, the First Respondent pay a penalty of $16,912.50 in respect of the contravention identified at paragraph 1 above, which may be broken down as follows:
- (a) $2,887.50 for its contravention of section 185(2) of the WR Act;
- (b) $3,712.50 for its contravention of clause 6.3 (overtime) of the NAPSA;
- (c) $3,712.50 for its contravention of clause 6.7 (shift allowances) of the NAPSA;
- (d) $3,712.50 for its contravention of clause 6.8 (weekend penalty rates) of the NAPSA; and
- (e) $2,887.50 for its contravention of clause 7.6 (public holiday penalty rates) of the NAPSA
That pursuant to section 719(1) of the WR Act, the Second Respondent pay a penalty of $3,382.50 in respect of the contravention identified at paragraph 2 above, which may be broken down as follows:
- (a) $577.50 for his contravention of section 185(2) of the WR Act;
- (b) $742.50 for his contravention of clause 6.3 (overtime) of the NAPSA;
- (c) $742.50 for his contravention of clause 6.7 (shift allowances) of the NAPSA;
- (d) $742.50 for his contravention of clause 6.8 (weekend penalty rates) of the NAPSA; and
- (e) $577.50 for his contravention of clause 7.6 (public holiday penalty rates) of the NAPSA.
So far as assessment of penalty is concerned, it requires consideration of a number of issues which are now well settled. See generally discussion in Mason v Harrington Corporation Pty Ltd trading as Pangaea Restaurant and Bar  FMCA 7, where the principal factors for consideration were identified as the nature and extent of the conduct, the circumstances in which the conduct took place, the nature and extent of any loss or damage, the similar previous conduct and whether the breaches were properly distinct or arose out of one course of conduct, the size of the company, deliberateness of the breach and involvement of senior management, corporation’s contrition, corrective management and cooperation with the enforcement authorities and the need to ensure compliance with minimum standards by providing effective means for investigation, enforcement of employee entitlements and finally deterrence both specific and general.
Dealing then with each of those factors as is relevant to this case. First the nature and extent of the conduct and the circumstances in which the conduct took place; compliance with the minimum entitlements contained in the AFPCS and the NAPSA is important and should not be ignored by employers. In this instance, there were underpayments made to 32 employees in total and this conduct occurred over a period of approximately two years. The quantum of the underpayment is significant. It totalled $46,205.21. The contraventions occurred in circumstances where the respondent determined the amounts that would be paid to employees arguably with little regard to the employer’s obligations under law, and it follows that the employees were disadvantaged by the first respondent’s failure to pay their correct wages and entitlements under the APCS and the NAPSA.
There is nothing to indicate that the contraventions would not have continued had the applicant not conducted its investigation in or about January 2008.
For the respondent, the following other matters were submitted. First, it is submitted that if one closely examines the particulars of the employees who were affected by this conduct, as is identified in the schedule to the statement of claim, it can be seen that in respect of employees impacted in a gross sense, that is to say, by at least four or more contraventions, only 23 of 32 employees were significantly impacted. Other employees, whilst impacted, were only impacted in a minor sense.
Secondly, if one examines the weight of underpayments, it can be seen that while 32 employees in total were impacted by the conduct, 10 employees represent in effect approximately $30,000.00 worth of underpayments out of the total $46,000.00. In other words, a factor of about one-third of the employees account for two-thirds of the loss meaning that two-thirds of the employees suffered only a third of the losses between them. That factor of weighting is, in the respondent’s submission, significant.
Furthermore, the respondent says that prior to the intervention of the Workplace Ombudsman, the first respondent’s approach was to adopt what it regarded as an industry practice which was to pay in the order of $2.00 to $3.00 above the base rate. It is conceded in their submissions, however, that the shortcoming in that system was that it did not properly reflect the division between day, afternoon, night and weekend shift loadings together with penalty rates and I would expect also loadings in respect of public holidays and weekends. It is conceded by the respondent that it was a somewhat simplistic tool for wages utilised across the industry, but that the system had been introduced with good faith with the intention of balancing up the different pay periods.
It was contended, and I accept, that when the employer introduced the system, it did so not intending to produce disadvantage to any of its employees. As I will note in due course, there has been appropriate restitution to those employees, but, furthermore, it says in terms of the conduct that since these events and these matters came to its attention, it has remedied the system by engaging a wages consultant. It has implemented a workplace agreement for employees and it is now using MYOB payroll computer with the relevant awards, shift allowances, penalty and other loadings accounted for so that these problems will not occur again.
Furthermore, in respect to this matter and by way of corroboration of its submissions that it was not intending to disadvantage its employees, it points to the fact that while the Workplace Ombudsman has correctly identified underpayments, there were also overpayments made to various employees by the employment of the employer of the system. In exhibit 3, it particularises overpayments in the order of $4,719.20 as evidence of that matter.
Next is the nature and extent of any loss or damage. The amount of underpayments to the employees I have earlier noted, that the underpayment approximates $46,000.00. It is a significant amount. However, following the audit conducted by the applicant, the first respondent has made payment to the employees in rectification of the underpayments. This is, in my view, a significant factor when assessing the penalty. There is no evidence of any previous conduct of this kind on the part of either of the respondents.
Next is whether the breaches arise out of one course of conduct. In this instance, the applicant submits there were five contraventions of distinct applicable provisions and as such five separate penalties ought to be imposed. There is no dispute about that and there is no dispute between the applicant and the respondents as to the breaches of the applicable provisions which underpin the underpayments.
Next is the size of the business. In this regard, in Kelly v Fitzpatrick  FCA 1080 Tracey J at  observed that:
- “No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction must be imposed at a meaningful level.”
I take his Honour’s remarks to mean two things. First, that (a) there is an obligation upon small businesses such as the respondents in this instance to ensure compliance with the legislation and (b) that the sanction must be meaningful. That, by inference, also means not oppressive, and for that reason, I sought the respondent’s counsel to provide me with some financial information concerning the profitability of the enterprise involved. In this instance, the enterprise is not a large enterprise. As earlier noted, the basic ASIC records reflect it is a small corporation.
I am informed that it is capitalised at about $75,000.00 which principally comprises computers and motor vehicles. In terms of its turnover, it has increased from about 2007 to the present. In 2007, its turnover was $375,000.00, in 2008 $466,000.00 and in 2009 $529,000.00. In 2007, it made a loss. It seems its loss making position was reversed in 2008, although, as it was expressed by counsel, the losses having been carried forward would seem to have largely been offset against any profits made that year. It is now making modest profits. As one would expect in an enterprise of this kind, which is basically involved in managing labour, the greater part of turnover relates to operational overhead and costs in what might otherwise be expected to be a low-margin business.
Next are questions of the deliberateness of the breach or the breaches. This, of course, again is a significant matter. It is obvious in this instance that the respondents decided to pay the employees a flat rate of pay without any apparent consideration of their statutory obligations and to that end, the omission was in circumstances of some disregard for statutory obligations in an environment where it is well known and understood there is a high degree of regulation. That matter could be indicative of deliberateness. However, although I accept the submission there is an element of deliberateness, I do not attribute any Machiavellian intent but accept the submissions made by the respondent that it sought to short cut its obligations on a swings and roundabout basis by adopting its hourly rate plus margin formula.
So far as the involvement of senior management is concerned, it is apparent by reason of the second respondents present on the record that as a director or manager of the first respondent, he was involved in the contraventions and so it follows the contraventions were at a senior management level. In terms of contrition, corrective action, and cooperation with the enforcement authorities, it is apparent that the applicant has acknowledged the respondents have substantially cooperated with the applicant’s representatives throughout the investigation.
Although it does not appear that the first respondent immediately admitted liability after the audit was conducted, it did follow shortly after the issue of the initial breach notice, but following the first respondent’s refusal to comply with the requirements of that notice and the consequent conduct of a full investigation. It is submitted on behalf of the applicant that the first respondent did not rectify the underpayments in the timeframe required by the final notice issued by representatives of the applicant in or about 26 May 2009. However, on or about 2 July 2009 the first respondent confirmed that the underpayments had been rectified.
I note in this regard, the first respondent’s submissions that, so far as, the repayment was concerned, it sought to cooperate with the applicant and that the repayment was made nine months prior to proceedings commencing. It particularly submitted that there was some issue about the quantum of repayments to be made, with the sum ultimately settled upon being significantly less than the sum which was initially calculated by the applicant.
It is submitted that there was an amended breach notice dated 10 December 2008 claiming for an amount of $59,759.00 in full and that was subsequently varied to $45,798.66 on 11 May and before the final notice was delivered on 26 May. Having regard to those matters, I do not draw any adverse inference in respect of the immediate non-payment following the final notice given that the payment was indeed made by 2 July. Following the instigation of these proceedings, the respondents have cooperated by admitting the contraventions and entering into the agreed statement of facts, thereby minimising the need for extended or extensive litigation.
In terms of ensuring compliance with minimum standards, the principal objects of the Act emphasise the importance of an effective safety mechanism and safety net of minimum terms and conditions of employment together with effective enforcement of these minimum standards. There have been many cases before this court of a like kind and I am not going to rehearse decisions in them in this instance. I am cognisant of them and accept them as affording some guidance in relation to the penalties appropriate in this case. It is fair, however, to say that it is only with the imposition of significant penalties that the message will ever get out into the broader commercial community that it is important to comply with the statutory requirements in respect of one’s workplace obligations.
So far as specific and general deterrence is concerned, again it is well established that deterrence is a relevant factor in the imposition of a penalty and there is a need for both specific and general deterrence. The role of general deterrence has been earlier illustrated by comments by Lander J in Ponzio v B & P Caelli Construction Pty Ltd  FCAFC 65; (2007) 158 FCR 543, which I need not restate here and likewise the observations of Finkelstein J in CPSU v Telstra Corporation  FCA 1364. The applicant submits that there is also a need to generally deter employees in the security services industry.
This industry appears to have been the subject of a number of targeted campaigns in recent times which have brought these contraventions to the applicant’s attention. These campaigns have been instigated by the applicant because of the identified low levels of compliance in the security services industry and it follows that the applicant contends the court should have regard to the message that needs to be sent by imposition of penalties to employers, company directors and the community generally concerning the underpayment of wages and the fact that it will not be tolerated.
Having regard then to the penalties that ought be imposed, the applicant contends that, having regard to the maximum provided in respect of each of the first and second respondents, and of the circumstances as I have particularised them, that this is an instance where the contraventions fall within the low range of seriousness and that accordingly penalties in the low range ought be imposed. The respondents in their outline contend for penalties for the first respondent in the range of $15,000.00 to $25,000.00 and the second respondent in the range of $3,000.00 to $5,000.00 as being appropriate.
The applicant did concede that insofar as the financial or the monetary range of penalties articulated by the respondents in their outline was concerned, that those penalties fell within its appreciation of a low-range penalty. I also agree that the sums articulated by the respondent in their outline accord with a low-range penalty. So far as the specific contraventions are concerned, it is of course necessary to assess the penalty appropriate for each contravention. In the respondent’s draft order being part of exhibit 4, it contends in respect of the first and fifth contraventions a penalty of 35 penalty units.
In respect of the second, third and fourth contraventions, penalties in the order of 45 penalty units. I agree that penalties in that range are appropriate having regard to the particulars of each of those offences and in particular noting that in respect of the first and fifth offences, fewer employees were involved than in respect of the second, third and fourth offences. The respondent also contends that there ought to be a discount afforded by reason of its general cooperation. It submits a sum of 30 per cent ought to be allowed. I also agree that a discount ought to be allowed, however I do not accept 30 per cent as being necessarily appropriate in this instance.
For reasons that I have outlined earlier, it seems apparent that initially there was some pushback by the respondents in respect of the applicant’s initial inquiries and investigations and it was not until the applicant delivered the notices and was caused to commence and carry out a full investigation that there was a true cooperation from the respondents to the inquiries made by the applicant. It follows that, in my view, an appropriate discount ought to be 25 per cent to allow for the initial pushback in terms of cooperation by the respondents to the applicant’s investigations.
Likewise, those comments concern the second respondent – I accept the respondent’s contentions in respect of the appropriate penalty units that ought to be applied to the contraventions relevant to the second respondent and likewise for reasons I have earlier given, consider a discount of 25 per cent as being appropriate in this instance. In having regard to those matters and before I touch upon the matters of totality, I am also conscious that in the context of the sort of enterprise involved here, the second respondent will ultimately incur, in a direct sense, the penalty which is imposed upon the first respondent because in a closed corporation such as the small enterprise involved in this case, any impact upon the bottom line flows directly through to the respondent.
The imposition of a penalty here will clearly impact upon the bottom line and any dividend which the second respondent might ordinarily expect to receive from the first respondent. So far as totality is concerned, as I have earlier indicated, having set upon the penalties, it is then necessary to consider whether the aggregate penalties against the respondent are just and appropriate in all the circumstances.
The penalties will approximate at nearly $17,000.00 in respect of the first respondent and a little over $3,000.00 in respect of the second respondent, something approaching $20,000.00 when totalled together, having regard to the closed nature of the corporation. But, irrespective, looking at each penalty separately, it seems to me having regard to the individual penalties in respect of each contravention and the penalties in their totality that the result does not necessarily produce an inappropriate penalty, having regard to all the factors in this case, and it follows that, the penalties not being inappropriate, oppressive or crushing. The penalties ought to be made in those terms.
Brisbane Barrister – David Cormack