FWO prosecution – recalcitrant employer – $19,800 penalty v $ 14,865.31 unpaid wages

Fair Work Ombudsman v Berges [2010] FMCA 526 (17 June 2010)

It is interesting to contrast this decision with Fair Work Ombudsman v Sanada Investments Pty Ltd [2010] FMCA 401 (9 June 2010).

I refer to my earlier posting in relation the Sanada (“Sushi Train”) decision. The aggregate unpaid wages etc amounted to $119,760.92, however, the total penalty ordered was $33,600.00.

In the instance of Berges the respondent intentionally did not appear and was uncooperative with the investigation.

Sentencing principles


Factors relevant to the penalty: it is submitted that the assessment of penalties requires consideration of various factors. Those factors have been well-rehearsed previously and are commonly acknowledged as being set out in the decision of (supra). In that decision, a number of considerations were articulated although the list is not exclusive.


They include the nature and extend of the conduct; the circumstances in which the conduct took place; the nature and extent of any loss or damage similar to previous conduct; whether the breaches were properly distinct or arose out of one course of conduct; the size of the company; the deliberateness of the breach; the involvement of senior management; the respondent’s contrition, corrective action and co-operation with the enforcement authorities; ensuring compliance with the minimum standards, by providing effective means for investigation and enforcement of employee entitlements; and deterrence. As was noted in Mason, in adopting the observations of Burchett J in Trade Practices Commission v TNT Australia Propriety Limited[4]:

  • “It cannot be denied that the fixing of the quantum of a penalty is not an exact science. It is not done by the application of a formula, and within a certain range, Courts have always recognised that one precise figure cannot be incontestably said to be preferable to another.”


It is, in a sense, a matter of judicial art rather than science, which informs the penalty imposition process. In doing so, one should not overlook the principle object set out in section 3 of the Act, which particularly includes the need to provide and economically sustainable safety net of minimum wages and conditions for those whose employment is regulated by the Act, and to ensure compliance with minimum standards by providing effective means for investigation and enforcement of employee entitlements. As was noted by Mowbray FM in Pangaea, these provisions:

  • “…emphasise the importance of minimum standards, including minimum wages, and enforcement of those standards.”


This is further reflected in the magnitude of other penalties which have been fixed for breaches. In the case of a body corporate, this is set at a maximum of 300 penalty units, or $33,000 for each breach, and for an individual, 60 penalty units or $6,600 for each breach. Looking into the nature and extent of the circumstances in which this conduct took place, the matter of compliance with the APCS and the provisions of the NAPSA is important and should not be ignored by employers.


The conduct of the employer and the respondent in this instance was significant, because it related to two employees and occurred over a significant period of time. In relation to Mr Nielson, the conduct spanned 11 months, and in relation to Mr Vukavic, it spanned four months. There is nothing to indicate that the contraventions would not have continued had the employees not ceased their employment.


Matters were exacerbated, because Mr Nielson was paid sporadically and Mr Vukavic was, in fact, on one occasion not paid for one week. The amounts in question are significant; for Mr Nielson, the underpayment totals approximately $11,000, and for Mr Vukavic about $4,000. This is for employees who are at the bottom end of the employment scale and who are without, I think, argument, extremely vulnerable to loss of cash flow for living purposes.


Unquestionably in my view, the evidence demonstrates that these employees were disadvantaged by the respondent’s behaviour. One aspect of the complaint which I particularly note concerns Mr Nielson. I note that Mr Nielson seems to have had a particular vulnerability. It was noted in an admission made by the respondent to Mr Bloom, by way of amelioration, that Mr Nielson was clearly disabled and had problems.


The manner in which that fact was conceded or noted by the respondent to Mr Bloom was in an attempt to ameliorate his behaviour, by creating the impression that his employment constituted some form of charity. In fact, the fact that Mr Nielson was so patently disabled and suffering from difficulties as for it to be apparent to the employer, to my mind ought to have highlighted his general vulnerability and, indeed, should have called for the exercise of some degree of care in the part of the respondent, to avoid any risk of exploitation.


Dealing with the nature and extent of any losses: as I have noted, the underpayments total approximately $15,000. They are not insignificant. There is no evidence put before the court concerning the profitability of the enterprise involved, and so it is difficult to measure the overall significance of the underpayments against the commercial background of the enterprise involved. However, as I have earlier noted I consider these payments to be significant in the context of the employees, who suffered loss at the hand of the respondent.


There is no evidence of any previous contraventions on the part of the respondent or any entities associated with him. So far as a course of conduct is concerned, the applicant submits that each of the five contraventions constitutes a breach of five distinct applicable provisions; as such, five penalties ought to be imposed. I agree with the applicant’s submission in this regard. There is clearly no element of commonality in each of these instances and each breach ought to be treated discreetly.


So far as the size of the business is concerned, there was no evidence provided by the respondent to assist with an estimate of that matter. The applicant submits, and I accept, that the employer in this instance was a relatively small entity. But irrespective of that fact, it does not absolve it of its legal responsibility to comply with the law in relation to the employment of its employees. As was noted by Tracey J in Kelly v Fitzpatrick:

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


Further, in another decision made in this court Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at 27, it was stated:

  • “Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to the Court’s consideration of penalty.”


As I have noted, the size of the business is no excuse for non-compliance, and the penalty that I will impose takes authorities I have outlined above into consideration.


In terms of deliberateness, it was noted by Driver FM in Cotis v MacPherson at [17] that:

  • “In issue in this matter is whether the identified breaches were deliberate. I do not think that they were deliberate in the sense of Mr MacPherson setting out with an intention to breach the Workplace Relations Act. However, the facts compel the conclusion that Mr MacPherson was at least reckless in relation to the responsibilities of his company and himself as an employer. Mr MacPherson was made aware of some of the breaches by employees whilst the business was still in operation. He also acknowledged the breaches to the inspector, following the closure of the business, Mr MacPherson has no contest for the evidence provided by Mr Cotis.”


It is submitted on behalf of the respondent that the contraventions in this instance are, like Cotis, evidence of at least recklessness for the employer’s statutory obligations. That matter is amplified by the evidence of the poor wage records maintained by the employer and by the wage rate, particularly in relation to Mr Nielson itself, which was well below that which would be regarded as acceptable, having regard to the minimum award, or what is generally accepted as the minimum award.


I am mindful in this instance that the respondent contends, at least in his statements to Mr Bloom, that he was in effect affording Mr Nielson some charity, but that, of course, that does not sit comfortably with the fact that the evidence shows Mr Nielson was employed on a very regular basis between five and six nights a week. On balance, one could readily infer that, indeed, this was more exploitive than it was charitable, but in any event, those matters do, in my view, bear to some extent on the issue of deliberateness. I do not think that this is a case where the respondent was necessarily reckless, but I do think that the respondent had some general appreciation that, in this instance, what he was doing was outside the bounds of reasonableness.


So far as involvement of senior management is concerned, the respondent managed the day-to-day business of the employer, including the recruitment of employees. At the time he engaged Mr Nielson, he was aware of what he was being paid. And it was certainly the case that Mr Vukavic understood the respondent to be his manager. As the company secretary and sole shareholder of the employer, the respondent’s involvement in the contraventions equates to that of senior management.


So far as contrition, corrective action and co-operation with the enforcement authorities are concerned, the applicant submits the respondent has not co-operated with the inspector and the inspectorate during the course of the investigation. I think that submission is well made. The evidence demonstrates the respondent has not complied with notices to produce, until ultimately threatened with the prospect of the matter being referred to the Director of Prosecutions.


There were difficulties with the employer’s change of solicitor, which occasioned difficulties in the investigation. Ultimately, the records that were turned out have proven to be quite unsatisfactory, in terms of dealing with all the factors that might otherwise have been determined in this claim. To some extent, the respondent receives the benefit of the difficulties that he has in part been responsible for, in terms of the employer’s co-operation with the enforcement authorities.


In terms of ensuring compliance with minimum standards, one of the principal objects of the Act emphasis the importance of an effective safety net of minimum terms and conditions of employment, together with effective enforcement of those minimum standards. The provisions concerning compliance at Part 14 of the Act provide one of the ways in which the Act seeks to give effect to that principal object.


The importance of that safety net factor, is reflected not only in the magnitude of the maximum penalties available in respect of breaches, but also in terms of the legislature’s increase of those maximum penalties in August 2004. I have been referred to quite a number of authorities in the submissions prepared on behalf of the applicant which deal with penalties that have been imposed in respect of these types of contraventions. I take those matters into account.


So far as specific and general deterrence is concerned, it is again well established that deterrence is a relevant factor in the imposition of penalty. There is in this instance, in my view, a need for both a specific and general deterrence. So far as specific deterrence is needed, it is required in order to deter the respondent from engaging in any further conduct of this kind in any future dealings with further employees.


There is, of course, no evidence to indicate whether or not he will engage in further conduct of this kind, but one can work on the premise that in any event, there ought be factored into any penalty a sum which would serve to effect that specific deterrent element. As was noted by Lander J in Ponzio v B & P Caelli Construction Pty Ltd[5]:

  • 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. The penalty therefore should be of a kind that it would be likely to act as a detriment, in preventing similar contraventions by like-minded persons or organisations. If a penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed, or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor when fixing the penalty.


Likewise, Finkelstein J in CPSU v Telstra Corporation[6], made these observations:

  • Even if there be no need for the 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 act as a warning to others not to engage in similar conduct.


The applicant, in this instance, submits the court should have regard to the message that ought be sent to all employers in the community generally in respect of the underpayment of wages. It submits that the message should indicate clearly that underpayment of wages will not be tolerated, particularly in relation to vulnerable employees. I accept that submission and think that it is well founded.


Having regard then to the matters that I have been directed to, I have come to the preliminary view that the following penalties reflect appropriate penalties in the circumstances.


In respect of the breach of section 182 of the Workplace Relations Act, by failing to pay the correct periodic rate of pay under the APCS scale, to both Mr Nielson and Mr Vukavic, there ought be imposed a penalty of 45 penalty units. In respect of the breach of section 185(2) of the Workplace Relations Act by failing to pay casual loading pursuant to the APCS to Mr Nielson and Mr Vukavic, there ought be an imposition of a penalty of 45 penalty units. In respect of a breach of section 7.6 of the NAPSA, by failing to pay the public holiday penalty rates to Mr Nielson, there ought be an imposition of 20 penalty units, and in respect of a breach of clause 5.4 of the NAPSA, by failing to pay late work allowances to Mr Nielson, an imposition of 35 penalty units. In respect of a breach of clause 6.4 of the NAPSA, by failure to pay overtime to Mr Vukavic, there ought be an imposition of 35 penalty units: in total 180 penalty units, or $19,800.


That brings me then to consider the totality principle. The applicant submits that in assessing the penalty, the appropriate course for the court is to assess the appropriate penalty for each separate contravention and then review the aggregate penalty and consider whether the aggregate penalty against the respondent is just and appropriate in all the circumstances. This is clearly the appropriate approach; that is, the approach endorsed, for instance, by Tracey J in (supra), where his Honour noted:

  • “Another factor which must be taken into account in fixing the pecuniary penalties for multiple breaches of statutory stipulations is the totality principle. This principle is designed to ensure that the aggregate of penalties imposed is not such as to be oppressive or crushing. Different views have been expressed as to the manner in which the principle ought to be applied. On one view the starting point should be the determination of an appropriate total penalty. That figure would then be divided by the number of breaches to produce a penalty for each result, or for each breach.
  • The orthodox position, however, which I consider should be adopted is that the starting point is the determination of appropriate penalties for each contravention of the statutory norm. The aggregate figure is then considered with a view to ensuring that it is an appropriate response to the conduct which led to the breaches. This approach was recently described in the criminal context from which the totality principle is derived as “the orthodox, but not necessarily immutable practice” adopted by sentencing courts.”


It follows then, having regard to the determination which I have earlier expressed, on a preliminary basis in respect of each penalty, when one looks then at the totality of the conduct, I do not consider that an overall penalty of $19,800, would be oppressive or crushing in those circumstances, and it follows that the penalty in that quantum ought stand.


Having regard then to those findings; would you please draft up a minute of order dealing with the declarations in terms of paragraphs 48, 49, and the penalties in paragraph 50.


I will make an order, under section 841A of the Act that the penalty be paid to the following persons and to the Commonwealth Consolidated Revenue Fund in the following amounts: $10,792.13 to Mr Paul Neilson; $4073.18 to Mr Dallas Vukavic, and the balance to the Commonwealth Consolidated Revenue Fund.


 Brisbane Barrister – David Cormack

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