FWO v Oz Staff Career Services Pty Ltd & Ors (No.2) [2016] FCCA 2594 (18 October 2016)

Last Updated: 19 October 2016

FEDERAL CIRCUIT COURT OF AUSTRALIA

FWO v OZ STAFF CAREER SERVICES PTY LTD & ORS (No.2)

[2016] FCCA 2594

Catchwords: INDUSTRIAL LAW – Contraventions of civil penalty provisions established – dispute about grouping of contraventions – consideration of matters relevant to level of penalties to be imposed.

Legislation: Fair Work Act 2009, ss.546, 550(2)(c) Fair Work Regulations 2009, reg.3.44(6)

Cases cited: Kelly v Fitzpatrick [2007] FCA 1080 Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union [2008] FCA 466 FWO v Amritsaria Four Pty Ltd [2016] FCCA 968 Re Trade Practices Commission v CSR Limited [1990] FCA 762

Applicant:

FAIR WORK OMBUDSMAN

First Respondent:

OZ STAFF CAREER SERVICES PTY LTD (IN LIQUIDATION)

Second Respondent:

TRAVICE BLOM

Third Respondent:

ALESSANDRO LINOSSI

File Number:

MLG 2306 of 2013

Judgment of:

Judge Burchardt

Hearing date:

26 August 2016

Date of Last Submission:

26 August 2016

Delivered at:

Melbourne

Delivered on:

18 October 2016

REPRESENTATION

Counsel for the Applicant:

Ms Forsyth

Solicitors for the Applicant:

Office of the Fair Work Ombudsman

Counsel for the First and Second Respondent:

Mr McDougall

Solicitors for the First and Second Respondent:

HR Legal

Counsel for the Third Respondent:

Mr McKenny

Solicitors for the Third Respondent:

Kliger Partners

ORDERS

(1) Pursuant to s.546(1) of the Fair Work Act 2009 (‘the Act’), the Second Respondent pay a penalty of $14,960 for his involvement in the contraventions by the First Respondent, as declared in paragraph 2 of the Declarations dated 23 February 2016.
(2) Pursuant to s.546(1) of the Act, the Third Respondent pay a penalty of $9,920 for his involvement in the contraventions by the First Respondent, as declared in paragraph 3(a) to (c) of the Declarations dated 12 February 2016.
(3) Pursuant to s.546(3)(a) of the Act the Second Respondent and Third Respondent pay the penalties to the Commonwealth, within 28 days of the date of this order.
(4) The Applicant has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.

FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE

MLG 2306 of 2013

FAIR WORK OMBUDSMAN

Applicant

And

OZ STAFF CAREER SERVICES PTY LTD

First Respondent

TRAVICE BLOM

Second Respondent

ALESSANDRO LINOSSI

Third Respondent

REASONS FOR JUDGMENT

Introductory

1. This matter presently concerns the penalties that ought be imposed upon the second and third respondents for their contraventions of the Fair Work Act 2009 (“the Act”) and the Fair Work Regulations 2009 (“the Regulations”) as detailed in the declarations made by the court on 12 February 2016.
2. As the second and third respondents are individuals and not a corporation, the maximum penalties applicable for their contraventions are not, in the scheme of things, great. As I find, in respect of the second respondent the maximum available penalties are $17,600 and in respect of the third respondent $24,800.
3. Given the maximum proposed penalties put forward by the applicant are $14,300 (second respondent) and $12,500 (third respondent), and that neither of the respondents suggest that no penalties be imposed, it is immediately apparent that the parties must have spent far more in legal costs than the sums they are disputing before the court. The parties have expended considerable energy in their endeavours to persuade the court the outcome for which they contend is the appropriate one. I do not propose to deal with matters in quite the level of detail that the parties advance because, to my way of thinking, the outcome is relatively clear.
4. Despite all the various mitigating factors, to which I shall refer and to which I have had regard, these were, in the scheme of things, significant infractions of the award and regulations with which the case is concerned. I am going to impose penalties on the second respondent at 85 per cent of the maximum and on the third respondent at 40 per cent of the maximum.

The Earlier Judgment

5. Although I would refer to the entirety of my earlier judgment, which should be read in conjunction with these reasons, it is appropriate to emphasise the following findings. I found that on 29 February 2012 the applicant received from the third respondent pay slips, timesheet data and sign-in sheets for 10 Oz Staff employees working at Crown Casino which did not show any deductions other than tax. That set of pay slips was necessarily inaccurate given that the first and second respondents admitted that an administration fee was being deducted throughout the relevant audit period (paragraph 19).
6. I also found that there was no question that the first respondent did contravene the Act by deducting an administration fee and meal allowance deductions from time to time (paragraph 15).
7. So far as the third respondent was concerned I found that he was knowingly concerned in or party to the various contraventions (s.550(2)(c) of the Act). At paragraph 150 I said:
   • “Taken as a whole, in my view, the evidence does establish that it is more probable than otherwise that the third respondent was well aware of the contraventions of the first and second respondent in relation to the administration fee deductions and meal deductions alleged against him. He was aware that the deductions were being made. He had knowledge of this, as I find. He knew that the deductions were not lawful from his interrelationship with the Fair Work Inspectors he had met in 2012 and 2013. He thus had knowledge of the constituent parts of the contravention, albeit that he may not have known which section of the FW Act, if any, was capable of being contravened.”

The second respondent had ultimately admitted knowing involvement with both the administration fee and meal deduction contraventions (paragraph 9).

8. So far as the contraventions of the records regulations was concerned I stated at paragraph 151:
   • “On the evidence as it stands, it is clear that when the first respondent was first asked to produce the relevant wages records, it produced a set of records that were false. The first payment records did not record the administration fee deductions and did not record the meal deductions. The true records (the actual payment records) ultimately provided (they) did have these records. It is therefore inevitably the case that the records first provided were false and misleading. These documents were clearly provided by Mr Linossi.”
9. I went on to say at paragraphs 154-158:
   • “The real question is the state of knowledge of the second respondent and third respondent.
   • I accept the submissions of the applicant that the second respondent was at all relevant times in total control of the first respondent. There are no other directors, and one way or the other, the corporate structure of the first respondent makes it clear that it was wholly the creature of the second respondent.
   • The evidence of FWI Ma, not relevantly challenged in cross-examination, was that at the meeting on 4 February 2013 the second respondent was well aware of the administration fee deduction. He asserted it was not an illegal deduction and gave reasons why it might be contained on the employees’ pay slips. He also confirmed the meal deductions and said that these would be stopping shortly.
   • Given the production of the false payment records, and given the position that the second respondent occupied with the first respondent, it is clear in my view beyond doubt that the second respondent was knowingly involved with the contravention in the provision of false and misleading pay records. I do not accept, as counsel for the second respondent submitted, that the contraventions themselves are not proved, nor that there is no sufficient evidence to establish accessorial liability. Counsel submitted that there was no evidence that the second respondent had any knowledge of the content of the first payment records. I do not accept that submission. The second respondent actively asserted to FWI Ma and FWI Edwards that the deductions were made so that employees could claim their various payments against their tax.
   • So far as the third respondent is concerned, I have already dealt with his state of knowledge of the affairs of the company. Once again, I simply do not accept that the person running the Human Resources activities of the first respondent and intimately involved, as he clearly was, with Award matters was not aware not only that the deductions were being made but that the records which were forwarded to the applicant not showing those deductions were false and misleading. He was clearly involved within the meaning of s.550 of the FW Act.”
10. I went on to find that the records were altered by the first respondent’s officers (paragraph 161) and that the second and third respondents were knowingly involved (paragraphs 161-162). I further found that these records had been made use of in contravention of reg.3.44(6) and that both the second and third respondents were knowingly involved (paragraphs 163-164).

The Court’s Approach to Penalty

11. At paragraph 16 of the applicant’s written submissions the following was set out:
    • “The following principles should be taken into account in determining the question of appropriate penalty:
      • (a) the first step is for the Court is to identify the separate contraventions involved. Each breach of each separate obligation found in the FW Act and FW Regulations is a separate contravention;
      • (b) secondly, the Court should consider whether the breaches arising in the first step constitute a single course of conduct;
      • (c) thirdly, to the extent that two or more contraventions have common elements, this should be taken into account in considering what is an appropriate penalty in all the circumstances for each contravention. The Respondents 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 Respondents did. This task is distinct from and in addition to the final application of the “totality principle”;
      • (d) fourthly, consider the appropriate penalty for the single breaches and, if relevant, each group of contraventions, taking into account all of the relevant circumstances; and
      • (e) finally, consider whether the penalty is an appropriate response to the conduct which led to the breaches. The Court should apply an “instinctive synthesis” in making this assessment. This is known as an application of the “totality principle”.

The second respondent’s written submissions expressly accepted that this was a correct description of the principles relevant to determination of penalty (paragraph 16 written submissions). Nothing in the third respondent’s written or oral submissions took issue with this methodology.

12. The written submissions of the third respondent assert at paragraph 7:
    • “While the Courts have cautioned against the use of checklists, the criteria for determining the quantum as to penalties are well-known, ...”

In my view that is an accurate assertion. It is well established that the Court will have regard to a number of factors (see Kelly v Fitzpatrick [2007] FCA 1080 per Tracey J), that these are not matters to be looked at, as it were, as a catalogue requiring attention (Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 per Buchanan J).

13. For my part I have always, with respect, found the remarks of Gyles J in A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union [2008] FCA 466 to be extremely helpful. His Honour said at 6:
    • “...[t]he discretion is at large. There are no mandatory statutory criteria and it is wrong to regard factors seen as relevant by one court as statutory criteria. Indeed, lists of factors can confuse an essentially straightforward task and lead to over-elaborate reasoning.”

The Contraventions and Course of Conduct

14. The parties all agreed with the applicant’s written submission at paragraph 18 that:
    • “The evidence before the Court is that the multiple contraventions of each provision resulted from single decisions, namely:

(a) the practice of deducting the Administration Fee each pay week;
(b) the practice of deducting meal costs charged by third parties from the Employees’ wages;
(c) a decision to make and keep pay records of the 17 employees affected by the False Records contraventions knowing they were false or misleading;
(d) a decision to alter the pay records of the 17 employees affected by the False Records contraventions; and
(e) a decision to produce the False Records to the Applicant on 29 February 2012.”

15. Where the parties differed was how these should be grouped. Everybody agreed that the administration fee and meal cost deductions were separate. The applicant submitted that the decision to make and keep false pay records and the decision to alter the pay records were so sufficiently overlapped that they should be treated as one. The respondents, however, submitted additionally that the use of the false records was, likewise, part of the single course of conduct and should be grouped, therefore, as one grouping.
16. Although it puts the matter shortly, I accept the submissions of the applicant. It was one thing to create these records and keep them. It was another matter altogether to use them. As best I understand it the parties agreed that the grouping of these matters for these purposes involves an exercise of discretion and, in my opinion, that discretion should be exercised as I have indicated.

The Maximum Penalties

17. In the ultimate it is agreed, as I understand it, between the applicant and the second respondent that the Court should apply a penalty unit rate of $110. Although the second respondent’s written submissions put the matter in issue, on the day of trial counsel for the second respondent accepted the force of the decision of the Federal Circuit Court in FWO v Amritsaria Four Pty Ltd [2016] FCCA 968 per Smith J. This means that the penalty unit rate in respect of the administration fee and meal deductions should be set at $110.
18. In respect of the false records contraventions all of these took place before the increase in penalty and value from $110 to $170 on 28 December 2012 and therefore those contraventions for both the second and third respondents have their penalty in the value of $110. It was submitted at paragraph 35 that these matters should be given weight in the ultimate reasoning process of the Court bearing in mind that in respect to the second respondent the meal and administration fee matters continued after the increase in penalty unit rate and because the third respondent’s conduct post-dated the increase a higher rate would apply.
19. Bearing these matters in mind it is clear that the maximum penalties applicable to the second and third respondent are those set out in annexure A to the applicant’s written submissions. Accordingly, the administration fee deductions give rise to a maximum penalty for the second respondent of $6,600 and the third respondent of $10,200. The contraventions in relation to meal deductions are likewise $6,600 for the second respondent and $10,200 for the third respondent.
20. The maximums available for the group 2 breaches of the regulations are $2,200 for each respondent and a maximum for the known use of them is, likewise, $2,200 in each instance.

The Nature and Extent of the Contravening Conduct

21. The contraventions constituted by the administration fee deductions and meal deductions, as the applicant’s submissions point out at paragraph 46, resulted in substantial underpayments to employees across the periods in which they were made amounting to $121,347.05 in relation to the administration fee deductions and $8,836 by way of the meal deductions. These deductions would not have come to the attention of the applicant without the second audit.
22. In oral submissions, counsel for the applicant pointed to the fact that the first audit was hindered by the conduct of the second and third respondent (and also, of course, the first respondent). It was submitted that the respondents went to significant effort to create the false records. It was submitted that this falsehood undermines the system and “it doesn’t get much more serious.” The administration fees were deducted over a period of at least 17 months and, counsel submitted, would have continued if there had not been a second audit. Despite what the second respondent said when interviewed, I think that it is more probable than otherwise that this is so. The second respondent had had plenty of time to cease the various deductions had he wished to do so.
23. The submissions of the second respondent did not take issue with these matters, although both the written and oral submissions pointed to the fact that the relevant employees had been repaid both the administration and meal deductions.
24. The position of the third respondent did not seek to gainsay the overarching nature of the conduct but pointed to the fact that the third respondent’s involvement was temporally far more limited, and in fact in relation to the meal deductions constituted one pay period only.
25. It is sufficient for these purposes if I make it clear that these were significant matters. The amounts deducted overall were in excess of $100,000 and these affected employees in what is, on any view of the matter, an industry in which employees are lowly paid and open to abuse.
26. Despite the second and third respondents’ attempts to obfuscate, the false records were plainly created, kept and used by the respondents to, in effect, frustrate and effectively defeat the first audit. If other complaints had not led in due course to the second audit, they might well have got away with it. This is a significant matter to which weight must be given.

Any Previous Similar Conduct

27. In the earlier proceedings, I ruled that the applicant could not rely upon paragraphs 92-102, 108-110 and 112-144 of the affidavit of Ms Hurrell affirmed 13 July 2015. As I observed at the time, the matters therein, which were all related to alleged prior conduct by the second and third respondent, were not relevant to whether or not the contraventions were established. It was expressly conceded that they may well be relevant to penalty.
28. Although Ms Hurrell was required to be available for cross-examination at the resumed penalty hearing, no questions were put to her about those portions of her affidavit and it is entirely appropriate that the applicant now rely upon them.
29. The second respondent has in the past been involved with another entity which has been the subject of numerous complaints between 2006 and 2010 regarding deductions of administration fees from wages. The third respondent likewise has an extensive history of telephone interactions with the applicant and its predecessors in which he had showed an understanding of the Australian workplace relation system and payment obligations (paragraph 50(d), applicant’s written submissions).
30. I accept the written submission of the applicant at paragraph 52 where it is stated:
    • “The Second Respondent’s direct involvement in repeated interventions by the Applicant and its predecessors increases his culpability and highlights the need for strong specific deterrence in his case. It is plain that the Second Respondent did not otherwise attend to ensuring that all employees of the entities he controls received their full minimum wages and entitlements. The actions of the Applicant and its predecessors in bringing these obligations to his attention did not bring about general compliance.”
31. In oral submissions the third respondent dealt with specific deterrence and submitted that it should not be a matter of any moment in his case. It was put that he was not the subject of any prior contraventions in any event.

The Size of the Business Enterprise

32. The first respondent is, of course, in liquidation. Nonetheless, it seems clear from the materials as a whole, and does not seem to be the subject of challenge, that something remarkably similar to the activities of the first respondent is now carried on by another business of which the second respondent is the sole director. It has all the appearance of being what is sometimes described as a “phoenix company”, although I should make it clear I do not formally make a finding to that effect.
33. The second respondent, as the applicant submits, has extensive and sophisticated business arrangements. At the time the false records were submitted, the first respondent employed at least 400 employees. As the applicant’s written submissions unchallengingly assert, the second respondent is currently the sole director of seven registered companies and a director of a further entity. It appears that his businesses are sufficiently sophisticated that aspects of it are, in fact, conducted from Chandigarh in India. Indeed, the entire business operation has a strong subcontinental element. The materials filed as annexures to the affidavit of Dinesh Thuraisingham show that the vast majority of employees appear to come from India or the subcontinent generally. It is a substantial business operation.

Were the Breaches Deliberate?

34. I entirely accept the submissions of the applicant that these breaches must have been deliberate. I expressly rejected the assertion made by counsel for the second applicant that the alteration of records might have been accidental or otherwise innocently explained. As I think I have already indicated, it is clear, that is, it is far more probable than otherwise, that these breaches were deliberate, both as to the deductions and the endeavours to conceal them by creating and using the false records. As the applicant’s written submissions assert, this is an important matter.

Whether the Senior Management was involved

35. On any view of the matter, the second respondent was a senior manager. At the time of the contraventions, the second respondent was the sole director, shareholder and chief executive officer of the first respondent and controlled it.
36. During the times the contraventions took place, the third respondent was in a significant management position with the first respondent. He held responsibility for matters significant to the payment of employees.
37. Both of the respondents were involved within the meaning of the Act with the contraventions committed by the first respondent and no evidence has been produced to suggest that any other persons were so involved.

Contrition

38. It is clear that the third respondent has prepared letters of apology, sent and signed by the second respondent, to the employees who were underpaid (see the affidavit of Summit Malhan, affirmed 20 May 2016 and annexures to it). The letters were sent in May 2014, after the application that gave rise to this judgment had been filed. Although it is not, in my view, a matter of major moment, as the applicant submits, there was no apology in relation to the falsification of records. As the applicant submits, neither the second nor the third respondent have put on evidence of any contrition on their part, although I note that they have undertaken various remedial steps including training with the solicitors of the first respondent.

Corrective Action

39. It is the case that the first respondent did cease the unlawful deductions. Although the applicant submits otherwise, it seems to me clear that something akin to full rectification has taken place. It may well have been complicated by the relatively transient (and therefore disempowered) nature of the employment of many of the employees concerned.
40. I note that the successor entity, Oz Staff Holdings Pty Ltd, has appointed Mr Christopher Michael Baker as support services manager and it would seem that his duties are more focused, than was the case with the third respondent toward ensuring compliance with award obligations. I note further that Mr Baker has appointed Messrs Macpherson Kelley to conduct annual audits to ensure that awards are complied with. I further note the training undertaken in April 2014 of the second and third respondent deposed to by Mr Benjamin David Francis Burke on 20 May 2016. As indicated, it would seem that Oz Staff Holdings Pty Ltd has done its best to reimburse the employees of the first respondent who were underpaid.
41. While elements of the respondents’ actions have about them something of the feel of self-serving, I note that the applicant concedes that the respondents deserve credit for the training undertaken, and I would give further credit in a general way for the albeit tardy endeavours to repay amounts owing and to ensure that this does not happen again.

Cooperation with the Enforcement Authorities

42. In circumstances of this case, this matter can be dealt with shortly. The cooperation with enforcement authorities, to the extent that it occurred, stands in stark contradistinction to the decision to make, keep and then rely upon the false records. No discount should be made on this heading.

Compliance with Minimum Standards

43. Once again, although an important matter, this matter can be dealt with shortly. I accept the submissions of the applicant that this is a case in which the general maintenance of employment standards is significant. Creating and keeping false records and then producing them to try and defeat an audit is, at least in terms of the sort of conduct it represents, about as serious as it gets.

Deterrence

44. I refer respectfully the remarks of French J, as his Honour then was, in Re Trade Practices Commission v CSR Limited [1990] FCA 762 at [40] where his Honour said:
    • “The principal, and I think probably the only, object of the penalties imposed by s.76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.”

45. So far as general deterrence is concerned, it is important to remember that the amounts deducted would likely be significant for the employees concerned. I note at paragraph 88 of the applicant’s submissions unchallenged assertions that at the time some of these deductions were occurring the first respondent employed:
    • (a) 100 employees who speak a language other than English;
    • (b) 40 employees under 21;
    • (c) 80 employees born overseas; and,
    • (d) 20 visa holders.
46. I accept the applicant’s submission that it is reasonable to infer that at least some of these employees were employed in the group of cleaning employees affected by the contraventions. It is entirely appropriate that emphasis be given in the outcome of this proceeding to general deterrence.
47. So far as specific deterrence is concerned, it is sufficient to say that the second respondent has a regrettably lengthy history of proven misconduct in this field. He continues in effect, it would seem, to operate the business that was previously the first respondent. It is important that he understand that it is not in his interest to continue to contravene. Significant emphasis should be given to the proposition.
48. So far as the third respondent is concerned, it is important to remember that he was always a second-string player. While his conduct in being involved with the egregious falsities of the false records is significant, it is clear that, while he needs to understand himself how offensive his conduct was, it is a lesser need than that of the second respondent.

The Penalty Privilege Issue

49. This matter took up rather more time than was probably appropriate. It is sufficient to say that the third respondent was entitled to rely on the penalty privilege defence he took. This does not, as I think I explained during the currency of the hearing, make his conduct in any way worse and no greater penalty should be implied self-evidently as a result of his putting the applicant to proof. Equally, however, it cannot operate in any way as a mitigating factor. It is his privilege to make the applicant prove his case, but, once it is proved, he must face the consequences of his own contraventions of the law.

The Penalties That Ought Be Imposed

50. Despite all of what the respondents had to say about the mitigating qualities of the case, and I emphasise I have had regard to all the matters put, even if I have not traversed them seriatim, the fact is that this was an appalling course of conduct. Moneys were unlawfully deducted from a substantial number of employees in a total sum well in excess of $100,000. The second and third respondents were knowingly involved in the contravention and the second respondent in particular must have benefitted financially from them. This is the case even though ultimately it would appear substantially repayment may have taken place.
51. This objectionable conduct has been exacerbated by the falsification of records issues. It was not enough that these unlawful deductions were made, the respondents saw fit to be involved in endeavours quite plainly to conceal them.
52. Bearing all the relevant matters in mind, including the apparent vulnerability of the employees involved, in my opinion it is appropriate to set significant penalties, in particular for the second respondent. In my opinion, in his case a penalty of 85 per cent of the applicable maximum is appropriate.
53. I accept, however, that the conduct of the third respondent is not of the same order. I think I have already indicated the differentiating qualities that attached to his misconduct. Nonetheless, this was not conduct as his counsel would submit that places him at the absolutely bottom end of the scale, still less in circumstances where a suspended penalty as he seeks should be imposed. Persons who are actively involved with misconduct of this sort need to know that it will not benefit them to do so. In my opinion, bearing all of these matters in mind, a penalty of 40 per cent of the applicable maximum should be set. This balances on the one hand the relatively brief temporal participation of the third respondent in the actual deductions against the egregious nature of his involvement with the falsification of records.

The Totality Principle

54. The Court is required as a last step to take a step back, so to speak, and ensure that the ultimate outcome is not crushing upon the respondents and is appropriate to the conduct found to have been established. In this regard, the third respondent pointed to his having been dismissed and made redundant from the first respondent earlier this year, although it appears he is now back in employment. In my opinion, the third respondent has not put on any material such as to suggest that it will be beyond his power or in any way unduly burdensome for him to meet any penalty the Court will impose. This is yet more so in the case of the second respondent who had put on no affidavit material nor even made submissions about any hardship that any penalty imposed might give rise to.
55. I am quite satisfied that a penalties of 85 per cent of the maximum in terms of the second respondent and 40 per cent in terms of the third respondent are, in all the circumstances, appropriate. I should make it clear that in arriving at these conclusions I have borne in mind the fact that the maximum applicable to the second respondent is in part lower than it might have been because some of the conduct took place after units were increased and also the fact that the third respondent’s conduct all took place after that increase had taken place.

Conclusion

56. I will order that the second respondent pays $14,960 (85% of $17,600) and the third respondent pays $9,920 (40% of $24,800) to the Consolidated Revenue Fund as the applicant seeks.

I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Date: 18 October 2016