Serious fines for serious contraventions of the Fair Work Act?
Nov 2020 | Workplace AdvisoryIn a recent decision of the Federal Circuit Court1, a café and its general manager were ordered to pay penalties exceeding a combined total of $230,000 following contraventions of the Fair Work Act 2009 (Cth) (FW Act) described by the Court as being brought about by ‘deliberate indifference’ to obligations arising under the FW Act and the Restaurant Industry Award 2010 (Award).
The case was the first successful prosecution for an alleged breach of the serious contravention provision set out in s 557A of the FW Act, and is illustrative of the Court’s approach to penalty in such matters.
The facts
The first respondent, Tac Pham Pty Ltd (TPPL), had operated a café since 2013. The second respondent, Cuc Thi Thu Pham (Ms Pham) was the general manager of the business.
In January 2017, TPPL was the subject of an audit by the Fair Work Ombudsman (FWO). The audit resulted in findings that TPPL had underpaid 25 employees during the period between 22 December 2014 and 20 December 2015 (Initial Contraventions).
In June 2017, proceedings were commenced in the Federal Court against TPPL and Ms Pham in relation to the Initial Contraventions. Although the underpayments had been rectified prior to proceedings being commenced, TPPL and Ms Pham admitted multiple contraventions of the FW Act and Award, including:
- failures to pay minimum Award rates of pay;
- failures to pay Saturday, Sunday, public holiday and late night penalty rates;
- failures to pay split shift allowances; and
- failures to provide employees with pay slips which included the information required by the Fair Work Regulations.
On 20 February 2018, the Federal Court delivered its judgment and ordered that:
- TPPL pay a pecuniary penalty of $37,500;
- Ms Pham pay a pecuniary penalty of $7,500; and
- all persons with managerial responsibility of TPPL (including Ms Pham) attend training within three months in relation to compliance with wages and entitlements under the Award, and accrual and payment of entitlements under the FW Act.
On 20 May 2018, Ms Pham and her husband (who is the director of TPPL) attended the training ordered by the Federal Court.
On 30 May 2018, a FWO inspector attended TPPL’s premises as part of a national compliance monitoring campaign and issued TPPL with a notice to produce documents. The documents produced by TPPL revealed that TPPL had underpaid 11 employees during the period between 25 September 2017 and 8 April 2018 (Subsequent Contraventions). In other words, TPPL continued to underpay its employees while being prosecuted for the Initial Contraventions and after the judgment had been handed down in relation to the Initial Contraventions.
On 19 December 2019, the FWO commenced further proceedings against TPPL and Ms Pham in relation to the Subsequent Contraventions. Again, although the underpayments had been rectified prior to proceedings being commenced, TPPL and Ms Pham admitted multiple contraventions of the FW Act and Award, including:
- failures to minimum Award rates of pay;
- failures to pay casual loading;
- failures to pay Saturday, Sunday, public holiday and late night penalty rates;
- failures to pay split shift allowances;
- failures to pay employees for a minimum number of hours for work performed on a public holiday;
- a failure to pay a casual employee for a minimum of two hours’ work for a shift;
- failures to provide parttime employees with a part time work agreement;
- failures to provide pay slips to employees within one working day of payment of wages; and
- failures to provide employees with pay slips which included the information required by the Fair Work Regulations.
The FWO further alleged that the failures to pay minimum Award rates of pay and failures to provide employees with pay slips which included the information required by the Fair Work Regulations were serious contraventions within the meaning of s 557A of the FW Act.
The decision
TPPL and Ms Pham agreed a statement of facts with the FWO that included admissions in relation to each of the alleged breaches and admissions of serious contraventions.
In circumstances where liability was not in issue, the matter proceeded directly to a hearing on penalty.
Notwithstanding the admission of serious contraventions in the statement of agreed facts, written submissions were filed on behalf of TPPL and Ms Pham which sought to resile from those admissions and advocated for a finding that the contraventions were not deliberate and should therefore not be considered a ‘serious contravention’. The Court rejected those submissions.
The Court observed that there were at least 172 individual Award contraventions identified by the FWO. After grouping the contraventions for singular courses of conduct,2 the maximum potential penalty which may have been imposed:
- on TPPL was $26,082,000; and
- on Ms Pham was $5,216,400.
In determining the appropriate penalty to impose, the Court considered it relevant that TPPL and Ms Pham had not only continued to engage in the same offending behaviour as was identified in the Initial Contraventions, but had also committed a number of additional contraventions. In other words, their level of compliance had deteriorated rather than improved.
The Court was highly critical of the efforts (or lack thereof) to achieve compliance, noting:
- Ms Pham and her husband had deposed on 25 August 2017 that they would engage qualified consultants to ensure compliance with all relevant laws and regulations. They did not in fact do so until June 2018, after it became apparent that further underpayments had occurred;
- although Ms Pham attended the training ordered by the Federal Court in May 2018, she admitted she did not understand the training. The Court was unsympathetic to Ms Pham’s language difficulties, observing ‘it was incumbent on her to ensure that she had the capacity (be it intellectual, linguistic or timebased) to ensure that she complied with the Award and the Act. If she was unable to do so then she should have engaged consultants…’;
- Ms Pham indicated in affidavit evidence that she was ‘very surprised’ a further investigation was being conducted by the FWO so soon after the pecuniary penalties had been paid in relation to the Initial Contraventions. The Court interpreted this evidence as a suggestion that Ms Pham felt she would be immune from any further investigation and that the penalties imposed by the Federal Court were the ‘cost of doing business’;
- the actions taken by TPPL and Ms Pham to achieve compliance were superficial and were arguably done with a view to being ‘seen’ to have complied with the Federal Court’s orders. The Court found that TPPL and Ms Pham ‘had no intention of changing their conduct and would have continued as they had been if the [FWO] had not intervened when it did’.
In considering the size and financial resources of TPPL and Ms Pham, the Court observed that although there was evidence that TPPL was in liquidation and owed a debt of over $60,000 to the Australian Taxation Office, there was no evidence that either TPPL or Ms Pham would be incapable of paying a fine. The FWO had filed evidence showing that Ms Pham was the director of three nail salons, and that she and her husband held the title to four properties. In any event, the Court observed that ‘difficulty paying any pecuniary penalty should not deter the Court from imposing the appropriate penalty’.
Further, in circumstances where Ms Pham continued to be involved in at least three businesses which employed individuals, the Court considered the ‘need for specific deterrence must be at a level that is meaningful to deter future conduct of the sort seen here’.
The Court ultimately imposed a penalty of $191,646 against TPPL, and $38,394 against Ms Pham, representing approximately 0.007% of the total maximum penalties to which they were exposed.
Lessons
Short of circumstances where employers deliberately underpay staff in order to achieve a windfall gain for themselves, it is difficult to imagine many circumstances in which an employer might be facing more serious allegations of systemic Award and FW Act contraventions than in the present case.
Notwithstanding the objective seriousness of the offenses, the fines imposed suggest that Courts will be disinclined to impose high-range penalties even in relation to ‘serious contraventions’ within the meaning of s 557A of the FW Act.
Employers should not however, fall into the trap of treating pecuniary penalties as a mere ‘cost of doing business’. Employers who have been previously investigated and/or prosecuted by the FWO should be alert to the possibility of compliance checks and should ensure that all necessary steps have been taken to achieve compliance.
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1 Fair Work Ombudsman v Tac Pham Pty Ltd & Anor 2020] FCCA 3036.
2 An exercise a Court is obliged to undertake whereby multiple contraventions are treated as a single contravention if they arise from the same course of conduct. For example, although TPPL failed to provide its employees with pay slips on multiple occasions, this was treated as a single contravention.
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