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Pecuniary penalties no longer a matter of degrees

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Underpaying employer ordered to pay $475,200 in penalties

The Federal Court of Australia has issued one of its first penalty decisions since the High Court of Australia’s decision earlier this year of Australian Building and Construction Commissioner v Pattinson [2022] HCA 13.

The Federal Court of Australia has issued one of its first penalty decisions since the High Court of Australia’s decision earlier this year of Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 (ABCC v Pattinson).

In ABCC v Pattinson, the High Court found that the imposition of civil penalties for contraventions ought not to be applied “proportionately” to the contravening conduct, as has historically been done. It confirmed that the primary objective of penalties in civil proceedings is deterrence (both in a general and specific sense) as opposed to retribution, with the effect being that maximum penalties are not reserved for only the worst categories of contraventions – the penalty should be what is necessary to prevent the contravention from occurring again.

In the recent decision of Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2022] FCA 1317, the Federal Court was required to consider the principles in ABCC v Pattinson in determining the penalties to be imposed on 85 Degrees Coffee Australia Pty Ltd (the Employer) for its contraventions of the Fair Work Act 2009 (Cth) (the FW Act).

The contraventions were in relation to eight employees employed as part of an internship program through their university in Taiwan. The Employer’s parent company had partnered with the university to provide internship placements for students, including with the Employer in its retail stores and food manufacturing factories located in Australia.

The contraventions occurred between July 2016 to June 2017 and included a failure by the Employer to:

  • make and keep records for the employees which specified whether their employment was full-time or part-time, whether their employment was permanent, temporary or casual, or the number of overtime hours worked by each employee;
  • make and keep records in the English language which specified the names of the employees, the employer and the date of commencement of their employment, gross and net amounts paid to each employee, or any leave taken by the employees and their leave balances from time to time;
  • give each employee a pay slip within one working day of making payment;
  • give each employee a Fair Work Information Statement as required by the FW Act and pay them for any untaken paid annual leave when their employment ended; and
  • pay the employees their appropriate minimum, overtime and penalty rates (and in some cases, superannuation) in accordance with their applicable modern award.

During this period, the employees were paid only about 30% of their lawful entitlements, with the aggregate of the underpayments and non-payments being just over $470,000.00.

In the proceedings before the Federal Court, the Fair Work Ombudsman (FWO) sought pecuniary penalties in the range of $416,880.00 to $475,200.00 (out of an aggregate statutory maximum of $729,000.00). The Employer did not take issue with this range but submitted that the bottom of the range would be sufficient and appropriate in all of the circumstances.

Ultimately, the Federal Court ordered the imposition of pecuniary penalties at the top end of the agreed range, being $475,200.00.

However, in doing so, the Federal Court noted that it was also bound by the High Court’s decision of Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 (Agreed Penalties Case), which provided that a court ought to accept parties’ agreed proposals for penalties as long as it was satisfied that the parties’ agreement of the relevant facts and consequences was accurate and that the proposal was an appropriate remedy.

The Federal Court went on further to state that, were it not for the Agreed Penalties Case, it would likely have imposed the maximum penalty available (being $729,000.00) in light of ABCC v Pattinson. This was even though the Employer had, by the time of the hearing, rectified the underpayments. The Federal Court’s reasons for this were:

- It accepted the FWO’s submissions that there was a need for general deterrence, noting:

  • the significant amount of the underpayments, for which there was an incentive to underpay to increase profits, avoid tax obligations and obtain a competitive advantage over other employers;
  • the nature of the retail and food manufacturing industry which generally employed unskilled workers who are more likely to be young or from overseas; and
  • the need to ensure employers are discouraged from exploiting overseas workers.

- It also accepted the FWO’s submissions that there was a need for specific deterrence, noting:

  • the conduct had also occurred in breach of enforceable undertakings provided by the Employer only a year earlier, relating to similar contraventions of the FW Act;
  • the National Retail Association had conducted five audits during the relevant period which detected some of the contraventions and resulted in advice being given to the Employer about employee entitlements;
  • the Employer’s senior management, including two directors who had signed the previous enforceable undertakings and undertaken training, knew what was happening and were still directors;
  • there was a need for operative deterrence as the Employer was still a franchisor to entities that operated retail shops and it still continued to be involved in food manufacturing; and
  • the Employer had not adduced any evidence to give the Federal Court any confidence that there would be voluntary compliance in the future.

Lessons for employers

Up until the High Court’s decision in ABCC v Pattinson, it was quite safe to assume the maximum possible pecuniary penalties that could be awarded were for the worst categories of contraventions. However, as can be seen from this decision of the Federal Court, this is no longer the case. Courts will look at what penalty is necessary to deter contravening conduct. This can include penalties up to the highest possible maximum regardless of the severity of the contravention.  

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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