FEDERAL COURT OF AUSTRALIA

Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd

[2002] FCA 1406

INDUSTRIAL LAW – where employees employed pursuant to an award – where employees and employer entered into employment agreement – where employment agreement provided for conditions of employment which were lower than minimum conditions provided for by award – whether breach of award by failure to pay certain amounts for lunch breaks, sick leave and public holidays – whether parties can contract out of provisions of award – whether doctrine of estoppel relevant to operation of award – whether over‑award payments pursuant to employment agreement can be set‑off against under‑award payments in relation to leave entitlements – where over‑award payments pursuant to employment agreement not designated as payable in respect of award entitlements to leave – whether court should exercise discretion pursuant to s 178(6) Workplace Relations Act 1996 (Cth) not to order payment of leave entitlements given over‑award payments had been made.

COSTS – where ordinary rule under Workplace Relations Act 1996 (Cth) is that costs are not awarded – where costs can be awarded pursuant to s 347(1) Workplace Relations Act 1996 (Cth) if proceedings instituted vexatiously or without reasonable cause – whether proceeding instituted “vexatiously” or “without reasonable cause” given that claim was initially brought pursuant to an award to which the employer was not a party.

INTEREST – applicable interest rate to be awarded pursuant to s 179A(1) Workplace Relations Act 1996 (Cth) and s 51A(1) Federal Court of Australia Act 1976 (Cth) – whether appropriate interest rate a commercial interest rate or the relevant State penalty interest rate.

Workplace Relations Act 1996 (Cth):  s 178, s 179A(1), s 347(1)

Clothing Trades Award 1982

Josephson v Walker (1914) 18 CLR 691, applied

Byrne v Australian Airlines Ltd (1995) 185 CLR 410, applied

Kidd v Savage River Mines (1984) 6 FCR 398, applied

Jackson v Monadelphous Engineering Associates Pty Ltd (Moore J, Industrial Relations Court of Australia, 17 October 1997, unreported), applied

Walsh v Commercial Travellers’ Association of Victoria [1940] VLR 259, applied

Beckford Nominees Pty Ltd v Shell Co of Australia Ltd (1986) 73 ALR 373, applied

Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, referred to

Heidt v Chrysler Australia Limited (1975) 26 FLR 257, applied

Hamilton v Oades (1989) 166 CLR 486, referred to

Thompson v Hodder (1990) 21 FCR 467, applied

EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (1998) 160 ALR 382, applied

Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95, applied

Ray v Radano (1967) AR(NSW) 471, considered

Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415, applied

Printing and Kindred Industries Union v Vista Paper Products Pty Ltd (1994) 127 ALR 673, applied

Public Holidays Test Case (Print L4534, 4 August 1994), referred to

Poletti v Ecob (1989) 91 ALR 381, applied

Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503, applied

Logan v Otis Elevator Co Pty Ltd [1999] 94 IR 218, applied

Clothing & Allied Trades Union of Australia v J & J Saggio Clothing Manufacturers Pty Ltd (1990) 34 IR 26, referred to

Namol Pty Limited v AW Baulderstone Pty Limited (No 2) (1993) 47 FCR 388, referred to

Nagy v Masters Dairy Ltd (1997) 150 ALR 273, referred to

Alec Finlayson Pty Ltd v Armidale City Council (Burchett J, 6 March 1998, unreported), referred to

Kettle Chip Company Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466, referred to

McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32, referred to

TEXTILE, CLOTHING AND FOOTWEAR UNION OF AUSTRALIA v GIVONI PTY LIMITED

V 250 of 2000

GOLDBERG J

15 NOVEMBER 2002

MELBOURNE

REASONS FOR JUDGMENT

Introduction

1                     The applicant, Textile, Clothing and Footwear Union of Australia (“the Union”), claims that the respondent has acted in breach of the Clothing Trades Award 1982 (“the Clothing Trades Award”) by failing to make payments to two employees, Mr Elias El Hajj and Mr Ibrahim Hanna, required to be paid to them under that Award.  The Union seeks an order pursuant to s 178(6) of the Workplace Relations Act 1996 (Cth) (“the Act”) that the respondent pay to the two employees the amount of the underpayments.  The Union also claims that interest should be paid on those amounts pursuant to s 179A of the Act and seeks the imposition of a penalty of $10,000 in relation to the breaches of the Clothing Trades Award pursuant to ss 178(1) and (4) of the Act.

2                     Section 178 of the Act relevantly provides that:

“(1)      Subject to section 182, where an organisation or person bound by an award, an order of the Commission or a certified agreement breaches a term of the award, order or agreement, a penalty may be imposed by the Court or, except in the case of a breach of a bans clause, by a court of competent jurisdiction.

…

(4)        The maximum penalty that may be imposed under subsection (1) for a breach of a term of an award, order or agreement is:

(a)          where the penalty is imposed by the Court:

(i)            if the breach is taken to have been committed under a provision included in an award or order under paragraph 111(1)(e) – $5,000 for a body corporate or $1,000 in other cases; and

(iia)   if the breach is of a term of a certified agreement and continues for more than one day – the total of:

(A)         $10,000 for a body corporate or $2,000 in other cases; and

(B)          $5,000 for a body corporate, or $1,000 in other cases, for each day for which the breach continues; and

(iib)   if the breach is of a term of a certified agreement but subparagraph (iia) does not apply – $10,000 for a body corporate or $2,000 in other cases; and

(ii)     in any other case - $10,000 for a body corporate or $2,000 in other cases; and

(b)     where the penalty is not imposed by the Court – $10,000 for a body corporate or $2,000 in other cases.

…

(6)        Where, in a proceeding against an employer under this section, it appears to the court concerned that an employee of the employer has not been paid an amount that the employer was required to pay under an award, order or agreement, the court may order the employer to pay to the employee the amount of the underpayment.”

Background

3                     Mr El Hajj commenced employment with the respondent in about 1990.  He became a member of the Union in August 1993.  Mr El Hajj ceased employment with the respondent in about December 1999.  Mr Hanna commenced employment with the respondent in about 1988.  He became a member of the Union in 1988.  Mr Hanna was made redundant in June 2001 as part of a large-scale redundancy program resulting from a downturn in the respondent’s business.  From time to time in these reasons I refer to Mr El Hajj and Mr Hanna as “the employees”.

4                     The respondent carries on the business of manufacturing textiles and clothing.  The manufacturing activities of the respondent’s clothing division include garment sewing, garment finishing and embroidery.  From 1992, Mr El Hajj and Mr Hanna carried out embroidery work for the respondent.  The embroidery work involved the stitching of decorative patterns onto garments by the use of machinery.  The machine involved was an automatic machine with twenty heads.  It was computer controlled and the heads operated from a computer disc which contained the pattern.  The employees’ work involved changing the thread from time to time when the pattern contained more than one colour.  The work also involved loading the cut pieces into the machine for feeding through the machine for the embroidery.  During the relevant period under consideration, 1993 to 1999, Mr El Hajj and Mr Hanna were the only two employees employed full‑time on embroidery work.

5                     During 1992 Mr El Hajj and Mr Hanna were working a substantial amount of overtime for the respondent.  They said, and I accept, that they were often working in excess of sixty hours per week.  They were paid time and a half for the first three hours of overtime and double time thereafter.  They were covered by the Clothing Trades Award which bound the respondent.

6                     In early 1993 Mr El Hajj and Mr Hanna entered into a new work arrangement with Mr Deon Givoni, the production manager for the respondent, whereby they would work from Monday to Friday for sixty hours and be paid a rate of $11.49 per hour.  Also, occasionally they would be required to work on Saturday, Sunday and public holidays on which days they would be paid at a rate of time and a half for the first three hours and double time thereafter.  The arrangement was recorded in the following note from Mr Deon Givoni to the pay office:

“                                                                                                        25.1.93

To Jan – from Deon

Please pay B Hanna & E El Haj [sic] the following from 25.1.93 until further notice

For Mon – Fri

   60 hrs x 11.49 = $689.40

for Sat/Sun/public holidays

award rates

     D.Givoni [signed]”

7                     There is a dispute between the employees and Mr Deon Givoni as to how this arrangement came about.  The employees’ evidence was that Mr Deon Givoni called them into his office and told them that the company could not afford to pay them the overtime they were being paid and that they had to work sixty hours a week without overtime.  They said that they did not agree to the arrangement although they apparently went along with it at least for the first week.  When Mr El Hajj was asked in cross‑examination whether he agreed to Mr Deon Givoni’s proposal, he answered “I had no solution beside that.”  In their primary affidavits both Mr El Hajj and Mr Hanna said that “[t]he arrangement that we reached was recorded in writing” in the document Mr Deon Givoni gave to the pay office.  The employees said that about a week after the new arrangement started they each received a pay slip which was about $180 less in the case of Mr El Hajj, and $200 less in the case of Mr Hanna, than the weekly pay they had received previously.  Each of them complained to Mr Deon Givoni but he refused to return to the former arrangement. 

8                     Mr Deon Givoni denied initiating the process that led to the changed work and pay arrangement for the employees.  He said that in early 1993 the employees told him they wanted security of income because their hours of work were not set hours and could vary from week to week and season to season.  They told him that they wanted certainty and security of income rather than peaks and troughs.  Mr Deon Givoni said he would think about the matter and come back to them.  He calculated an amount which would give the employees a mean between the peaks and troughs over the year and worked out an hourly rate of $11.49 which was over the then award rate.  He then spoke to the two employees and told them the respondent would guarantee them sixty hours a week at $11.49 per hour for a five day week.  He did not mention weekends or public holidays which were outside the arrangement they had sought.  According to Mr Deon Givoni, Mr El Hajj and Mr Hanna agreed to the arrangement which he then documented for the pay office and gave each of them a copy of.  He said he had a close daily working relationship with Mr El Hajj and Mr Hanna between January 1993 and December 1995 and that during this period they never complained about the sixty hours pay arrangement.

9                     In 1995 Mr Deon Givoni left his position with the respondent and was replaced by Ms Anna Cachia.  Mr El Hajj gave evidence that he complained to Ms Cachia that other workers were getting paid overtime and shift allowance and tea money, but he was not, and that he had not received a pay rise for some time.  Ms Cachia said that he was lucky to be still working with the company.  Mr El Hajj did not complain to her again because he was afraid that she would sack him.  Ms Cachia denied making this statement.  She was not available to be cross‑examined on her affidavit and I place little weight on her denial.  I accept Mr El Hajj’s evidence as to his complaint to Ms Cachia.

10                  Mr El Hajj and Mr Hanna said that in July or August 1997 they complained to Mr Brandon Givoni, a director and operations manager of the respondent, about the non‑payment of overtime and the lack of wage rises and not being paid allowances.  Mr Hanna had noticed from the pay slips of other employees that they were being paid overtime.  Mr Brandon Givoni said that he would do something for each of Mr Hanna and Mr El Hajj and that they would be happy.  He said that he would arrange a meeting between himself, Ms Cachia and the two employees.  That meeting never went ahead.  Mr Brandon Givoni denied telling Mr El Hajj that he would do something for him and that he would be happy.  Mr Brandon Givoni said that his meeting with Mr El Hajj and Mr Hanna took place in late 1998.  He said that Mr El Hajj and Mr Hanna were complaining about more rigorous control of their movements within the factory.

11                  There were subsequent meetings between the two employees and Mr Brandon Givoni and Ms Cachia.

12                  Mr El Hajj gave evidence that he again approached Mr Brandon Givoni about his salary.  Mr Brandon Givoni told him that he had not been paid the right amount, but that he would have to deal with Ms Cachia directly.  In his evidence, Mr Brandon Givoni said he recalled meeting with Mr El Hajj in January 1999 but he denied that he told Mr El Hajj that he knew that he was not paid the right amount.

13                  Mr El Hajj and Mr Hanna said that in early February 1999 they met with Ms Cachia.  Later that day she told them that she had looked at the books and that they had been overpaid.  Mr Hanna noted that new workers were getting more than him.  Ms Cachia said that she would pay overtime to them but that their hourly rate would decrease from $11.84 to $11.40 per hour.  On the next day Ms Cachia gave Mr El Hajj and Mr Hanna a document which set out an hourly rate and provided that normal award conditions would now apply including overtime.  The document stated that it superseded the last agreement negotiated with Mr Deon Givoni in 1993 and that there was no longer a guaranteed minimum sixty hours payment for Monday to Friday.  They decided not to sign it as they did not believe they had reached an agreement with Mr Deon Givoni in 1993.

14                  Mr El Hajj and Mr Hanna said that in March 1999, Ms Cachia called them into her office and asked why they had not signed the document.   They said that they had never reached an agreement with Mr Deon Givoni in 1993.  Ms Cachia said that when she called Mr El Hajj and Mr Hanna into her office, they said nothing about the agreement with Mr Deon Givoni in 1993.  They told her that they thought she would hold them to 38 hours per week and not give them any overtime.  She said that if overtime were available, they would get it.  They said that they would not sign the document, but gave her no further reason.  She continued to operate on the instructions from Mr Brandon Givoni that if the document was not signed, the arrangement would not change until, sometime between March and June 1999, Mr Brandon Givoni told her to change Mr El Hajj’s arrangement as he had requested without requiring Mr El Hajj’s signature.

15                  Mr El Hajj said that in early April 1999 he said to Ms Cachia that he no longer wanted to work twelve hour shifts without overtime.  Ms Cachia organised a meeting between herself, Mr El Hajj and Mr Brandon Givoni.  Mr Brandon Givoni asked Mr El Hajj what he wanted.  He said that if he was going to work overtime he “wanted everything by the book”.  Ms Cachia said that she did not want to pay him any increases.  He said that he did not want any increases, he wanted his entitlements.  Mr Brandon Givoni said that Mr El Hajj’s payments would change and he should forget about the past.  Mr Brandon Givoni gave evidence that in this meeting Mr El Hajj asked to return to working 38 hours per week with overtime at time and a half and double time.  Mr Brandon Givoni agreed to this and directed Ms Cachia to implement the change without Mr El Hajj signing the document.  Mr Brandon Givoni did not recall Mr El Hajj stating that he “wanted everything by the book”.  The issue of an increase in hourly rate was not part of the conversation.  The hourly rate for the competency level of the employees was $11.40 and they were already receiving $11.84.  Mr Brandon Givoni denied saying to Mr El Hajj that his payments would change, other than that he would be on $11.84 per hour for 38 hours together with overtime at penalty rates calculated on the basis of $11.84 as the ordinary time rate.  He also denied saying to Mr El Hajj that he should forget about the past.

16                  In early April 1999 Mr El Hajj was paid the award rate and began working a 38 hour week.  He still received overtime, but was usually working less than 50 hours per week.  When he worked more than eight hours per day he was paid overtime and a meal allowance. 

17                  In about June 1999, the Union came and inspected the respondent’s books.  Mr Hanna said that he had a meeting with Mr Brandon Givoni and Ms Cachia in mid‑June during which they said that from now on he would be working eight hours a day.  Mr Brandon Givoni denied this meeting.  Mr Hanna was paid the award rate including overtime from April 1999 and commenced working a 38 hour week with occasional overtime.

18                  I accept the employees’ version of the conversations they had with Mr Brandon Givoni and Ms Cachia between 1997 and 1999.  Ms Cachia was not available for cross‑examination and I place little weight on her evidence.  The employees’ version is more probable than Mr Brandon Givoni’s version having regard to the context in which they occurred.

19                  The primary factual issue to be resolved is whether the employees sought the arrangement whereby they would be paid $11.49 an hour for a sixty hour, five day working week.  The employees denied seeking or agreeing to such an arrangement and say the arrangement was imposed upon them.  Having regard to my later conclusion that the parties could not contract out of the provisions of the award which bound them, it is of no practical consequence which finding I make regarding the arrangement.  Both the employees and Mr Deon Givoni were cross‑examined and although none of them had a perfect recollection of events long past, I am satisfied, notwithstanding inconsistencies in their evidence, that they were all honest witnesses who sought to give their evidence truthfully.  Nevertheless I am satisfied that on balance Mr Deon Givoni had better recall than the employees.  There were a number of inconsistencies in the evidence of the employees which led me to the conclusion that Mr Deon Givoni’s evidence is to be preferred as to the circumstances in which the respondent came to pay the employees $11.49 per hour for a sixty hour, five day working week.

20                  I also consider that, on the balance of probabilities, the version of events given by Mr Deon Givoni is more probable than the version of the employees.  At the time the arrangement came into being the respondent was employing approximately two hundred persons, all of whom were covered by award conditions.  I consider it to be improbable that in such circumstances an employer, on its own initiative, would change only two employees from award to non‑award conditions of employment.  More particularly is this so if the reason for the change was for financial stringency reasons or a cost‑cutting exercise.  In their affidavits, neither Mr El Hajj nor Mr Hanna said that Mr Deon Givoni had given them any reason for wanting the new work arrangement.  I consider it to be an improbable situation that Mr Deon Givoni would tell the employees that their work conditions as to hours and rates of pay would be changed without assigning a reason for such a change with employees who were subject to award conditions.  In cross‑examination Mr Hanna said that Mr Deon Givoni called him to his office and said that the company could not afford to pay overtime, time and a half and double time.  This evidence was not given in‑chief and I consider it unlikely that the conversation occurred in these terms with only two out of a workforce of some two hundred.

21                  The parties provided considerable detail in relation to wages paid and owing to the employees.  There was disagreement as to the appropriate method of calculating particular underpayments due to the employees.  Accordingly, it was agreed that, rather than address that detail, I should first make findings of fact as to how the arrangement came about and a determination in relation to the legal issues raised and then, if necessary, seek submissions from the parties in relation to the amount of any underpayments due to the employees. 

22                  The principal legal issues between the parties were:

·                    whether they could enter into an agreement or arrangement and thereby contract out of the provisions of the Clothing Trades Award;

·                    whether the employees were underpaid in relation to sick leave, public holidays and lunch break entitlements;

·                    whether, if the applicants were underpaid, any over‑award payments made to the employees could be set‑off against underpayments in determining the amount ordered to be paid under s 178(6) of the Act. 

Can an employee and an employer contract out of the provisions of an award?

23                  The first issue for determination is whether the arrangement reached between the parties was effective and binding so that the employees’ rights in relation to their wage payments should be determined by reference to the arrangement and not the Clothing Trades Award.

24                  The respondent submitted that it could rely on the arrangement which resulted in a waiver on the part of the employees of their strict award rights in relation to the method of payment of wages and that the employees were estopped from resiling from the arrangement.  The respondent submitted that the arrangement was entered into at the request of the employees and it relied on the arrangement as it could have ordered its affairs in such a manner that it did not have to pay any overtime, for example by hiring a third embroiderer.  The respondent contended that it would suffer detriment if the employees were permitted to depart from the arrangement as it might become liable for underpayments and penalties and it would be unconscionable for the employees to be permitted to depart from the arrangement as it was entered into at their request.  The employees submitted that the Act precluded parties from contracting out of an award and denied that the doctrine of estoppel had any operation in this area.

25                  I am not satisfied that there is a factual basis for the defence of estoppel but having regard to the conclusion I have reached that the doctrine of estoppel is not available in this area, it is not necessary to analyse the factual basis for the estoppel claim.  However, I would observe that there was no evidence led by the respondent as to any reliance by it on what were said to be the representations made by the employees.

26                  It has been well‑established that it is not possible to contract out of award rights and obligations under the Industrial Relations Act 1988 (Cth) and its predecessor statutes and that the principles of estoppel and waiver do not apply in relation to those obligations:  Josephson v Walker (1914) 18 CLR 691 at 700‑701; Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 421; Kidd v Savage River Mines (1984) 6 FCR 398 at 409‑410; Jackson v Monadelphous Engineering Associates Pty Ltd (Moore J, Industrial Relations Court of Australia, 17 October 1997, unreported) at 57‑59.  See also Walsh v Commercial Travellers’ Association of Victoria [1940] VLR 259 at 262‑263 and 268‑269; Beckford Nominees Pty Ltd v Shell Co of Australia Ltd (1986) 73 ALR 373 at 378‑379.

27                  The respondent acknowledged that the traditional view taken by the courts of the Industrial Relations Act and its predecessor, the Conciliation and Arbitration Act 1904 (Cth), was that parties could not contract out of award rights and obligations under those statutes.  However, it submitted that the current Workplace Relations Act 1996 did not so clearly evince such a legislative intention.  The respondent submitted that the objects of the Act appeared to encourage private and flexible agreements and arrangements between employers and employees.  The respondent referred, in particular, to s 3(c) of the Act which provides:

“The principal object of this Act is to provide a framework for cooperative workplace relations which promotes the economic prosperity and welfare of the people of Australia by:

…

(c)                enabling employers and employees to choose the most appropriate form of agreement for their particular circumstances, whether or not that form is provided for by this Act.”

28                  The respondent contended that although the arrangement between the employees and the respondent had been entered into in 1993, its effect on the method of payment of wages continued throughout the employees’ employment, and that to the extent that the arrangement continued after December 1996, it had effect under the Act. 

29                  In Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95 a Full Court of the Federal Court rejected a submission that an estoppel could arise in relation to the operation of an award.  The majority of the Full Court concluded that no estoppel could have arisen in the circumstances and therefore did not consider it was necessary to determine whether, as a matter of law, the doctrines of waiver and estoppel could apply to a claim for breach of an award.  French J considered the law in relation to whether a party can contract out of an award and whether a party can be estopped from relying upon the provisions of an award.  His Honour said at 103‑104:

“The rights conferred and the obligations imposed upon persons and organisations bound by industrial awards are statutory in origin …

The nature of the relationship between awards and contracts of employment has been much agitated –de Meyrick, ‘The Interaction of Awards andContracts’(1995) 8 AJLL 1 and the cases and articles there cited.  But the present law is plain.  The award is independent of contract.  It is neither incorporated by statute nor by implication into the contract of employment:  Byrne v Australian Airlines Ltd (1995) 185 CLR 410.  Nor can those bound by an award contract out of it:  Josephson v Walker (1914) 18 CLR 691 at 700 (Isaacs J) approved in Byrne at 421.  That is not to say that a contract may not be made which confers benefits upon an employee over and above those conferred by the award:  Byrne at 421.  Nor does it prevent parties from expressly agreeing to incorporate the terms of an award into their contract of employment thus providing remedies over and above those provided by statute:  True v Amalgamated Collieries of WA Ltd [1940] AC 537 adopted in Byrne at 420 and 444.

…

The inability to contract out of an award by virtue of its statutory operation militates against the proposition that parties may be estopped from enforcing its provisions or may waive its benefits in a way that is legally enforceable.  The effect of the statutory provisions which give awards their binding force are at least as powerful against the common law and equitable principles of estoppel and waiver as they are against the common law of contract.  There is nothing novel in the general proposition that statutes which preclude contracting out of the rights and obligations they confer will defeat the application of estoppel and waiver to like effect:  see Beckford Nominees Pty Ltd v Shell Co of Australia Ltd (1986) 73 ALR 373 at 378 (Pincus J).”

French J then said at 105:

“At least up until the amendment of the Industrial Relations Act by the Workplace Relations and Other Legislation Amendment Act 1996 (Cth) (the WROLA Act), there was a well‑established line of judicial authority in relation to industrial awards inimical to the notion of contracting out of award obligations and, a fortiori, the invocation of principles of estoppel or waiver in relation to them.”

30                  French J considered whether the Acthad changed the ability of parties to contract out of awards and invoke the doctrines of estoppel and waiver.  His Honour noted that Moore J in Jackson v Monadelphous Engineering Associates Pty Ltd (supra) thought that different considerations might arise in relation to the Actwith its greater emphasis on workplace‑based and individual agreements.  However, French J found that the effect of the Actdid not arise for consideration as the alleged breaches of the award occurred between June 1993 and June 1995.  Accordingly, the right to take proceedings for penalties in respect of those breaches had accrued pursuant to s 178 of the Industrial Relations Act prior to the passage of the Actand the issues of estoppel and waiver fell to be considered by reference to the statute as it was at the time the alleged breaches were committed. 

31                  However, his Honour said at 106‑107:

“The effect of the restatement of statutory purpose in the Workplace Relations Act on the ability of parties to contract out of awards and consequently on the application of doctrines of estoppel and waiver does not therefore arise.  On the face of it though it does seem that, notwithstanding the emphasis of that Act on agreements rather then awards, awards are maintained as a ‘safety net’ specifying minimum conditions on certain matters including rates of pay.  The provisions of the Act under which they are made are likely therefore to be construed so as to continue to render ineffective attempts to contract out for lesser than minimum conditions.  In any event the provisions of the Industrial Relations Act at the time of the breaches found to have occurred in the present case were of the same character as those which had preceded it and, for the reasons explained by Moore J in Monadelphous, precluded contracting out and the application of the doctrines of estoppel and waiver.”

32                  The respondent submitted that these observations of French J were obiter.  That may be so, but his Honour’s judgment was carefully reasoned and should be given substantial weight.  I agree, with respect, with the opinion expressed by French J that any agreement or arrangement entered into between employees and employers is likely to be interpreted subject to any applicable award such that any attempts to contract out of the award for less than the minimum conditions would be rendered ineffective. 

33                  This view is supported by the Explanatory Memorandum to the Act and the provisions of the Act concerned with agreements and awards.  The Explanatory Memorandum states that s 3(c) of the Act is based on the intention that the industrial relations framework encourage:

“more effective choice and flexibility as to the appropriate form of agreement for parties reaching agreements, including forms not provided by the Act (such as unregistered over award agreements).”

This intention suggests that s 3(c) is principally concerned with encouraging flexibility in relation to the form of any agreement and does not address the content or substance of the agreement.  Further, it specifically refers to over award agreements, as opposed to under award agreements.  Although the Act provides for employers and employees to enter into certified agreements or Australian workplace agreements, those agreements must pass the no‑disadvantage test in s 170XA of the Act by not disadvantaging employees in relation to their terms and conditions of employment.  Under s 170XA(2) an agreement disadvantages employees if, on balance, it results in a reduction in the overall terms and conditions of employment under the relevant award or designated award.  Further, the objects of Pt VI of the Act, which are concerned with dispute prevention and settlement and the making of awards by the Industrial Relations Commission, include ensuring that “awards act as a safety net of fair minimum wages and conditions of employment” (s 88A(b)).  Accordingly, the Explanatory Memorandum and context of the Act support the proposition that any attempt to contract out of an award for less than minimum terms and conditions of employment would not be effective.

34                  In any event, the relevant arrangement relied upon by the respondent is that entered into in early 1993, well before the enactment of the Act.  That arrangement remained in place and had operative effect until terminated or varied by agreement.  The fact that it continued after the enactment of the Act does not mean that that statute had retrospective operation in relation to the arrangement.  The arrangement was not renewed each week.  Rather it was intended by the parties to be operative and to regulate their relationship until terminated or varied by a further agreement.  I reject the respondent’s submission that, as the arrangement continued after December 1996, the Act should apply to it after December 1996.  The relevant date for considering whether the arrangement is valid, having regard to the provisions of the Clothing Trades Award, is the date upon which it was entered into which was prior to the enactment of the Act. 

35                  It follows from these conclusions that the employees’ claims for unpaid wages and benefits are to be assessed by reference to the provisions of the Clothing Trades Award and not the arrangement to the extent to which the arrangement provides less advantageous rates of pay, hours of work and benefits.  This assessment is to be made on a weekly basis and not by a comparison of overall payments received during the years in dispute compared to what should have been paid under the Clothing Trades Award during those years.  The Clothing Trades Award provided for weekly pay and that is the criterion by reference to which any underpayment is to be determined.

Were the employees underpaid in relation to lunch breaks?

36                  The Union claims that the employees should have been paid for a 30 minute lunch break each day.  No work was undertaken during the lunch breaks.  Lunch break entitlements are found in cl 12 of the Clothing Trades Award:

“12 – MIDDAY MEAL INTERVAL

(a)        An interval of not more than one hour and not less than 30 minutes shall be allowed for the midday meal.

(b)        The meal interval shall be observed between the hours of 11.30 am and 2.00 pm.

(c)        An employer shall be in breach of the award in permitting any work whatsoever being performed on his or her premises by an employee during that employee’s meal time.”

37                  The Union submitted that the absence of a provision for overtime to be paid for work performed during the lunch break in cl 12, or cl 13 which related to overtime, suggested that the intention of the Clothing Trades Award was for employees to be paid for their lunch breaks.  The respondent submitted that the use of the word “interval” in cl 12 suggested a complete cessation of work and payment. 

38                  I consider that the Clothing Trades Award, and in particular cl 12, on its proper construction does not provide for a paid midday meal break.  Support for this conclusion is found in cl 12(c) which prohibits an employer from permitting any work being performed by an employee during the employee’s meal time.  Support is also found in the use of the appellation “interval” to describe the lunch break.  An “interval” suggests a period during which the activity carried on on each side of the period does not occur.  In this case the interval is one in which work for which payment is made must cease.

39                  There are also a number of other provisions in the Clothing Trades Award which support the proposition that cl 12 does not provide for the lunch break to be a paid break.  Clause 11(f)(iv) provides that twenty minutes shall be allowed to employees on an afternoon shift for crib, which shall be counted as time worked.  In contradistinction, cl 12 provides that no work is to be undertaken during the meal interval.  Clause 13(f) provides that an employee who was required to work overtime for more than one hour beyond the ordinary ceasing time on any day shall be entitled to a rest period of ten minutes paid for at the appropriate rate.  No such payment provision is found in cl 12.  Clause 15 provides that employees  shall be entitled to two daily rest periods each of ten minutes “without loss of pay” to be taken between specified hours at the discretion of the employer.  No such provision is found in cl 12. 

40                  It is apparent from these clauses that where it is intended that workers be paid in respect of a break or interval, specific provision is made to that effect.  If cl 12 was intended to provide for paid meal breaks, I consider it would have been drafted along similar lines to these other provisions.

41                  I am satisfied that cl 12 on its proper construction does not provide for the intervals for lunch breaks to be paid for by the employer.  It provides that midday meal times are to be a complete break from, and are outside, the paid working period.  The other clauses to which I have referred specifically refer to breaks being paid for or treated as time worked. 

Were the employees underpaid in relation to sick leave and public holidays?

42                  The employees said that on certain days they were absent from work through illness and on other days, which were public holidays, they did not work.  Issues have arisen as to the consequences of those absences and public holidays on the employees’ pay entitlements.  On what basis are they to be paid for sick leave and specified public holidays?  By reference to the award provisions as to hours, rates and loading of pay, or by reference to the provision of the arrangement that the employees were to be paid at the hourly rate of $11.49 for a twelve hour day?

43                  In relation to sick leave, cl 19 of the Clothing Trades Award provides:

“A weekly employee … who is absent from work on account of personal illness or on account of injury shall be entitled to leave of absence without deduction of pay [subject to certain specified conditions and limitations].”

44                  The entitlement to holidays and payment for the days on which those holidays occurred is found in cl 23 of the Clothing Trades Award.  Clause 23 was amended several times throughout the employees’ employment with the respondent.  Between 7 March 1985 and 15 December 1994, cl 23(a)(i) of the Award stated, in part, “All employees, other than casual employees shall be granted the following holidays without deduction of pay…”.  The Union submitted that the expression “without deduction of pay” required the employer to pay to the employee the amount that the employee would have received for the hours the employee would have worked had the day not been a public holiday.

45                  On 15 December 1994, cl 23(a) was deleted and a new cl 23(a) was inserted which stated, in part, “An employee, other than a casual employee, shall be entitled to holidays on the following days…”.  The Union submitted that this variation gave effect to a decision of the Australian Industrial Relations Commission (“the Commission”) in the Public Holidays Test Case (Print L4534, 4 August 1994).  The Union submitted that there was no suggestion in the decision that the Commission intended to remove the right of employees to be paid for public holidays, rather the decision related to the establishment of national standards for the days to be given as public holidays.  Accordingly, the variation to the Clothing Trades Award giving effect to that decision should not be read as removing the right to payment for public holidays from employees under the Clothing Trades Award.  The Union submitted that from 15 December 1994 the employees remained entitled to the named holidays “without deduction of pay”.

46                  On 14 November 1996, the Commission made another variation to the Clothing Trades Award which deleted cl 23 and inserted a new cl 23 which provided, relevantly:

“All employees, other than casual employees, must be entitled to holidays without deduction of pay (which is the ordinary rate of pay an employee would have received for the hours that they would have worked had the day not been a holiday) on the following days…”.

47                  The Union submitted that the phrase “without deduction of pay” in the Clothing Trades Award required the employer to pay to the employee the amount that the employee would have earned had the employee not been sick or absent due to a public holiday, including a payment for any overtime that the employee would have worked.  The Union contended that under cl 11(a) of the Clothing Trades Award the average working day was 7.6 hours and if an employee worked twelve hours per day, the employee would be paid overtime for the hours worked above 7.6 hours.  Accordingly, if an employee usually worked twelve hours per day and was entitled to sick leave or public holiday leave for one day, then the employee was entitled to be paid as if he or she had worked a twelve hour day. 

48                  The Union submitted that the Clothing Trades Award expressly stated where it was intended that overtime payments be excluded from other similar payments such as annual leave and accident pay.  Reference was made to cl 18(j)(i) and cl 44(iii)(1) and (2).  However, those clauses refer to overtime payments being excluded from payments made in respect of annual leave and accident pay where an employee receives a weekly over award payment.  In relation to employees paid at the award rates, cl 18(j)(i) provides that payments for annual leave should be at the weekly rate prescribed by cl 7 and 8 of the Clothing Trades Award.  Clause 44(b)(iii)(1) provides that, in determining the weekly payment to a totally incapacitated employee, the total weekly award rate is to be deducted from the compensation payment during the relevant week, and cl 44(b)(iii)(2) provides that, in determining the weekly payment to a partially incapacitated employee, the total weekly award rate is to be deducted from the compensation payment during the relevant week and the average weekly amount the employee is earning or is able to earn in some suitable business.

49                  The respondent submitted that if the employees’ rights were to be determined by reference to the Clothing Trades Award and not by reference to the arrangement, sick leave and public holiday leave should be calculated on the basis of 7.6 hours, regardless of whether the employees usually worked twelve hours per day.  At the relevant times, the employees had been paid sick leave on the basis of twelve hours pay at the hourly rate provided for under the arrangement.  The respondent contended that the employees would not have been working sixty hours a week if the arrangement had not been entered into, accordingly the Union could not deny the arrangement for part of its argument and rely on the arrangement for other parts of its argument, in particular to make a claim based on sixty hours work a week under the Clothing Trades Award.  The Union said that the Clothing Trades Award attached to the hours which were worked and not what the hours would have been but for some agreement and there was no evidence that the employees would not have worked sixty hours but for the arrangement.

50                  I consider that the phrase “without deduction of pay” in cl 19 and 23(a) of the Clothing Trades Award should be read by reference to cl 11 and 13 of the Award which provide for one week’s work to be a period of 38 hours to be worked within five days and for overtime to be paid for any time worked in excess of those daily limits.  Unlike cl 19, the reference to “without deduction of pay” in cl 23(a) was further clarified in 1996 with the words “which is the ordinary rate of pay an employee would have received for the hours that they would have worked had the day not been a holiday”.   The Union submitted that the addition of these words made it clear that the employee was to receive the amount the employee would have earned had the employee not been sick or absent due to a public holiday, including a payment for any overtime the employee would have worked. 

51                  However, I consider that the reference to “ordinary rate of pay” is a reference to the award rate paid for working standard hours as opposed to the overtime rate, which is prescribed by cl 13(a) of the Clothing Trades Award as time and a half for the first three hours in excess of an employee’s normal number of daily hours or outside the daily limits prescribed in cl 11 and double time thereafter.  The reference to “ordinary rate of pay” excludes overtime payments.  Although the words “for the hours that they would have worked had the day not been a holiday” suggest that the employees should be paid by reference to the hours they usually worked, I consider that the intention was to recognise that employees may work hours other than standard hours prescribed by cl 11(a)(i) where the employer and 75% of the employees agree that more than eight hours should be worked without overtime or where a majority of employees and the employer agree to arrange the hours of work pursuant to cl 11(a)(ii).  The situation of the employees in this case is unusual because, as a result of the arrangement, they generally worked twelve hour days.  However, the Clothing Trades Award should be interpreted as it was intended to apply to all employees.  If the Clothing Trades Award was to have the interpretation for which the Union contended an employer would be required to calculate each employee’s pay for sick leave or public holiday leave days by first calculating the hours worked at the ordinary rate of pay and then secondly by making a hypothetical calculation by reference to the number of overtime hours which the employee might have worked if the employee had not been sick or the holiday had not occurred.  I do not consider that such an exercise was contemplated by the relevant clauses.

52                  I consider that in the circumstances of the employees, where I have determined that their weekly pay should be determined by reference to the Clothing Trades Award, sick days and public holidays should be paid for by reference to the standard hours prescribed by cl 11 of the Clothing Trades Award, namely 7.6 hours per day, because on a day by day basis they were the minimum required hours, and in usual circumstances it would be uncertain how many hours overtime an employee might work.

Should any over-award payments be set-off against any under-award payments?

53                  The Union prepared schedules showing on a weekly basis that the employees had been underpaid by reference to the provisions of the Clothing Trades Award.  However, there were a number of weeks in respect of which no claims were made.  In those weeks the employees received payment in excess of their award entitlements.  The respondent submitted that if I found that the employees had not received their award entitlements in respect of any weeks and that the respondent should pay the employees the amount of the underpayments, the respondent was entitled to set‑off against those under‑award entitlements the amounts paid to the employees in excess of their award entitlements in those weeks in which over‑award payments were made.

54                  The principles applicable to determining whether payments made by an employer to an employee can be setoff against payments due under an award have been considered in a number of authorities.  In Ray v Radano (1967) AR(NSW) 471, a majority of the New South Wales Industrial Commission in Court Session held that an employer was entitled to set‑off the wages paid for ordinary time to an employee under an agreement which were in excess of those due under the award for ordinary time against the amount due for overtime under the award.  Sheldon J dissented and said at 478‑479:

“… if by contract, express or implied, the whole or part of the payment made to the complainant has been in respect of matters which are outside the award entitlement, the payment to that extent cannot be set‑off.  This may include amounts allocated, say, for fares or as a uniform allowance where there is no award entitlement in respect of such matters.  This, of course, is recognized in the majority judgment.

But at this stage I must part company from that judgment because I can see no difference in principle between an amount promised in excess of the award requirement whether the promise is for, say, a uniform allowance or for a payment confined to ordinary time only.  In each case, the employee works on the basis that he will receive an extra-award payment and, in my opinion, it is not to the point that in one its subject matter is clothing and in the other additional remuneration for a nominated period of work.  If one cannot be set‑off, neither can the other because their essential character is identical, i.e., both are payments in fulfilment of a promise extraneous to the award obligation.  The award obligation re clothing may be nil, in regard to ordinary time it may be $X.  The extraneous promise is to pay $Y and, whether it is in respect of clothing or ordinary time, it is $Y beyond what the award requires.  To put it in more concrete terms, if the award rate for 40 hours work is $40 with overtime payable in addition but the employer agrees to pay a uniform allowance of $5 per week, it is common ground that it is no answer to a claim under s. 92 for $40 ordinary time and $5 overtime worked to show that in fact $45 went into the employee’s pocket.  If this is so, I regard it as equally no answer if he got $45 only because the employer agreed to pay him that amount for no more than 40 hours work.  In each case, as I see it, the employer cannot allocate to one subject matter what he has already paid in pursuance of a promise related to another subject matter.”

55                  In Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415, the Industrial Commission of New South Wales in Court Session preferred the approach of Sheldon J to that of the majority in Ray v Radano (supra).  The Commission in Court Session held that the amount of a “special gratuity” paid to an employee on retrenchment could not be treated as part satisfaction of the employee’s award entitlement to pay in lieu of notice.  The Commission said at 421:

“Despite the subsequent allocation and the suggestions in argument to the contrary, we do not think the payment designated a ‘special gratuity’ was intended to be a payment in lieu of award notice on termination.  The company clearly appropriated the payment, at the time of making it, as a ‘special gratuity’ in the special circumstances of the retrenchments then occurring and not as a payment in respect of any obligation which had arisen or might arise under cl. 12.  A gratuity labelled as a ‘Christmas bonus’, (to take the illustration of Sheldon J.) would clearly be incapable of subsequent deduction by the payer as part payment of wages or some other unsatisfied award entitlement.  We are satisfied that this payment falls into the same category.”

56                  In Poletti v Ecob (1989) 91 ALR 381, a Full Court of the Federal Court applied the principles referred to by Sheldon J in Ray v Radano (supra) and the Industrial Commission of New South Wales in Court Session in Pacific Publications Pty Ltd v Cantlon (supra).  The Full Court said at 393:

“It is to be noted that there are two separate situations dealt with in the passage from the judgment of Sheldon J which has been quoted and in the reasoning of the Commission in Pacific Publications [Pty Ltd v Cantlon (1983) 4 IR 415].  The first situation is that in which the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award entitlements.  In that situation, the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments.  The second situation is that in which there are outstanding award entitlements, and a sum of money is paid by the employer to the employee.  If that sum is designated by the employer as being for a purpose other than the satisfaction of the award entitlements, the employer cannot afterwards claim to have satisfied the award entitlements by means of the payment.  The former situation is a question of contract.  The latter situation is an application of the common law rules governing payments by a debtor to a creditor.  In the absence of a contractual obligation to pay and apply moneys to a particular obligation, where a debtor has more than one obligation to a creditor, it is open to the debtor, either before or at the time of making a payment, to appropriate it to a particular obligation.  If no such appropriation is made, then the creditor may apply the payment to whichever obligation or obligations he or she wishes:  see Halsbury’s Laws of England 4^th ed, vol 9 paras 505 and 506.”

57                  In Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503, Keely J considered whether amounts paid by an employer to employees in some weeks which were in excess of the amounts prescribed by the relevant award could be offset against a subsequent payment of an amount due under an award.  Keely J said at 509:

“…none of those payments which were in fact above the award rate were paid as amounts due under the award; they were paid as amounts due under an agreement which patently was not intended to fulfil the respondent’s obligations to pay wages under the award.  [Counsel for the respondent] conceded – correctly in my opinion – that an employer who has paid, by agreement with an employee, an over-award payment can not later use that over‑award payment to offset a subsequent payment of an amount less than that prescribed by the award.  In my opinion the present cases, where the payments were made pursuant to an agreement, are in the same position.”

58                  These principles were revisited recently by a Full Court of the Industrial Relations Court in Logan v Otis Elevator Co Pty Ltd [1999] 94 IR 218.  One of the issues before the court was whether the difference between the remuneration received by the employee and the amount payable to him for ordinary time pursuant to an award should be set‑off against payments due under the award for “standing by” (if applicable), “call back” and overtime.  The trial judge held that to the extent that the employee was paid a salary which exceeded the award wage, the employer was entitled to set‑off that amount against any amount found due as payment for overtime and “call backs”.  The trial judge acknowledged that the relevant principle to apply was the principle set out by Sheldon J in Ray v Radano (supra) and adopted by the Full Court in Poletti v Ecob (supra).  The trial judge described the principle in the following way:

“It is that the payment of an amount as wages can be relied on by an employer in satisfaction of an award obligation to pay wages whether in relation to wages for ordinary time, overtime, weekend penalty rates or any other like monetary entitlement under the award.  However if a payment is made under a contract either expressly or impliedly for some purpose other than the payment of wages, such as for fares or for a uniform allowance where there is no award entitlement to fares or a uniform allowance this cannot be relied upon as a set off for monies payable under the Award.”

59                  The Full Court concluded that the trial judge had not correctly enunciated the principle applied in Poletti v Ecob (supra).  The Full Court said at 227‑228:

“We do not, with respect, think the principle applied in Poletti v Ecob was correctly enunciated by Moore J in the passage from his reasons we have quoted in para 23 above.  That passage propounds a dichotomy between an obligation to make a money payment in respect of wages (whether for ordinary time, overtime, weekend penalty rates or otherwise) and an obligation relating to a matter such as fares or uniform allowance.  That dichotomy attracted the majority in Ray v Radano but was rejected by Sheldon J and subsequent decisions have endorsed his dissenting view.  The subsequent decisions focus on the matter of designation and appropriation rather than the nature of the outstanding obligation.

The present case is not the ‘first situation’ discussed in the passage from Poletti v Ecob quoted in para 26 above; the parties did not agree that the difference between the moneys that would be due under the award and the moneys actually paid ‘will be paid and received for specific purposes over and above or extraneous to award entitlements’.  The case is that of the second situation:  ‘there are outstanding award entitlements, and a sum of money is paid by the employer to the employee’.  However, prior to the hearing of the appeal, neither party sought to designate or appropriate the excess, or any part of it, to any particular obligation owed by [the employer] to [the employee].  The whole of the excess was paid and received as an amount appropriate to reflect the difference between the position of a local representative, with all that entails, and an ordinary electrician special class.  It is not open to [the employer] now to change that situation by asking the Court to make a retrospective designation between the various elements that differentiate the situation of a local representative and an ordinary electrician special class.  Without such a designation, none of the excess can be reasonably identified as a payment on account of overtime and call‑backs and, accordingly, set‑off against the overtime and call‑back payments due to [the employee] under the 1989 award.”

60                  These authorities make it clear that where a payment is made to an employee in discharge of an award obligation, which payment is in fact in excess of the amount of the obligation, the amount of the excess cannot be set‑off against a claim in respect of a different award obligation unless at the time of the payment of the excess the employer designates that the excess is payable in respect of a purpose or an obligation different from the purpose for which the initial payment is made.

61                  Put shortly, where there is a payment made for, or in respect of, ordinary hours of work which is in excess of the award obligation, the excess cannot be set‑off against a claim for underpayment of overtime unless at the time of the payment of the excess, the employer designates that that excess over the amount of the award obligation is paid for the purpose of satisfying any entitlement to overtime payments. 

62                  In the present case, the payments made by the respondent were not designated as made to discharge an award liability for overtime payments, but, like the payments in Lynch v Buckley Sawmills Pty Ltd (supra), they were made pursuant to the arrangement and were not designated as payments made in respect of the underpayments under the Clothing Trades Award.  Accordingly, these payments cannot be set-off against any amount due under the Clothing Trades Award.

63                  The respondent submitted that unlike Lynch v Buckley Sawmills Pty Ltd (supra), the arrangement was patently intended to fulfil the respondent’s obligations to pay wages under the Clothing Trades Award and that there was no purpose for which the payments were made under the arrangement extraneous to the respondent’s award obligations.  It is true that Mr Deon Givoni used past earnings and applied the Clothing Trades Award to derive an ultimate figure, but the arrangement was not an arrangement entered into for the purpose of discharging the respondent’s award obligations.  Rather it was entered into for the purpose of giving the employees a specific continuous level of remuneration by evening out the peaks and troughs which had occurred hitherto.

64                  Neither the employees nor Mr Deon Givoni turned their minds to the issue of award entitlements for overtime.  Certainly there was no express designation that any excess of remuneration over award entitlements for ordinary hours worked was to be appropriated to overtime award entitlements.  The respondent submitted that nevertheless there can be a reasonable designation other than an express designation and that that designation can be extracted from the circumstances and context of the discussion which led to the arrangement.  I took the respondent’s reference to a “reasonable designation” to be a reference to an implied designation.

65                  However, I am not satisfied that there was such an implied designation, or even a reasonable designation in a more general sense, in the present circumstances.  I am not satisfied that Mr Deon Givoni or the employees turned their minds to whether the payments under the arrangement complied with the Clothing Trades Award.  The respondent said that in determining the amount payable under the arrangement, Mr Deon Givoni looked at what the employees had earned in the past applying the Clothing Trades Award and averaged out those amounts into the future.  He was not purporting to satisfy an obligation to pay overtime but was rather concerned to achieve a level of remuneration for the employees which would be consistent, regardless of the hours of overtime worked from Monday through Friday.

Should the Court exercise its discretion under s 178(6) of the Act to decline to order the payment of any underpayments or to reduce the quantum of any underpayments ordered?

66                  The respondent submitted that if I found that underpayments had been made to the employees and that overpayments had been made on other occasions, the Court had a discretion under s 178(6) of the Act whether to order the employer to pay to the employee the amount of the underpayments. 

67                  The respondent said that if the overpayments in respect of the missing weeks were not set‑off against the underpayments under the Clothing Trades Award, they might be recoverable under a mistake of law because the respondent thought that it could enter into the arrangement and made the payments in accordance with it.  The respondent submitted that the overpayments should be taken into account in the exercise of the Court’s discretion and the Court should decline to order any underpayment at all or should set‑off the overpayments against the underpayments in determining the amount of the underpayment to order, independently of the principles discussed in Poletti v Ecob (supra).

68                  Section 178(6) of the Act provides:

“Where, in a proceeding against an employer under this section, it appears to the court concerned that an employee of the employer has not been paid an amount that the employer was required to pay under an award, order or agreement, the court may order the employer to pay to the employee the amount of the underpayment.”

69                  The discretion under s 178(6) of the Act is a discretion whether or not to order a payment.  It is not a discretion as to the quantum of the order.  In Printing and Kindred Industries Union v Vista Paper Products Pty Ltd (1994) 127 ALR 673, the issue arose whether the Industrial Relations Court was entitled or obliged to take into account other income received by an employee in determining whether to order payment by an employer of an underpayment and in determining the amount of any payment ordered.  Wilcox CJsaid at 691‑692:

“I accept that the word ‘may’ confers on the court a discretion whether or not to order payment of an underpayment:  sees 33A(2A) of the Acts Interpretation Act 1901 (Cth).  Section 178(6) does not prescribe criteria for the exercise of this discretion, so the court must exercise it by reference to the scope and purpose of the legislation.  Plainly, the purpose of s 178(6) is to facilitate the payment to employees of unpaid award benefits.  Unlike the earlier provisions of s 178, the subsection is not penal in character.  Accordingly, the extent of the employee’s loss must always be a relevant consideration, in determining whether or not to make an order for payment of the underpayment.  Where there is no significant loss, notwithstanding the employer’s failure to comply with the award, the court might justifiably decline an order.

However, I accept [counsel for the applicants’] submission that the section gives no discretion as to the quantum of the order.  The court may or may not make the order, but its nature is specified.  It is an order ‘to pay the employee the amount of the underpayment’; not part of the amount of the underpayment.  Once the court decides that, having regard to all relevant factors and as an exercise of discretion, it ought to make an order for payment, it has no choice other than to make an order extending to the whole of the underpayment.”

70                  The respondent submitted that there was no underpayment if the applicants had received over the whole of the period in issue the amount of money that the Clothing Trades Award would have required them to receive.  The respondent said that the underpayment could only mean actual underpayment, and that the employees had not been underpaid over the whole of the period if in some weeks they had been paid more than the award, which thereby reduced the underpayment in other weeks.  In short, it was said that the determination of whether there had been an “underpayment” for the purposes of s 178(6) was to be made not on a week by week basis but rather globally by reference to the whole of the period in issue.

71                  I reject the respondent’s interpretation of “underpayment” in s 178(6).  That sub-section enables a court to order an employer to pay an employee the amount of the underpayment where an employee has not been paid an amount that the employer was required to pay under an award.  The section does not contemplate taking into account any other payments made to the employee in determining the amount of the underpayment.  It is clear that the underpayment referred to in s 178(6) is the amount which an employer has failed to pay an employee as required by an award, and does not mean, as the respondent contended, the amount of any net underpayment after taking into account the amounts paid to employees under any other agreement or arrangement.

72                  As I have noted earlier, the parties agreed that I should not at this stage address the detail of the amounts which might be due to the employees as a result of my determination of the legal issues which had been raised.  It was agreed that I should publish my reasons and then seek submissions from the parties in relation to the amount of any underpayments due to the employees if the parties were unable to agree as to the monetary consequences in the light of my reasons.

73                  I should also point out that an order for the payment of an underpayment pursuant to s 178(6) of the Act can only relate to underpayments in respect of the period commencing no earlier than six years before the commencement of the proceeding.  Although the issues in respect of which I have found in favour of the Union and the employees under the Clothing Trades Award were only introduced into the proceeding by amendment after the proceeding was filed, that is in April 2001, the amendment operates from the commencement of the proceeding.  The Union accepted that an order for underpayments could only be made in respect of underpayments in respect of the period of six years prior to the date of the filing of the application.

74                  However, there are two further issues which need to be addressed before final orders can be made and it is desirable that I address those issues at this stage.  They relate to the Union’s claim that a penalty be imposed upon the respondent, a costs issue which has arisen and whether interest should be payable in respect of any order for payment to be made by the respondent to the employees. 

Should a penalty be imposed on the respondent?

75                  It follows from my findings that there have been a number of breaches of the Clothing Trades Award in relation to the payment of overtime.  The maximum penalty that may be imposed in relation to each breach is $10,000:  s 178(4)(a)(ii).  Although there were a number of breaches of the Clothing Trades Award they all trace their cause back to a single event, namely the making of the arrangement in early 1993.  I do not consider that the breaches which occurred were wilful or flagrant in the sense that there was a deliberate attempt to avoid obligations under the Clothing Trades Award.  It is also important to remember that the breaches only occurred in relation to two employees for a common reason and did not extend throughout the respondent’s workforce of some 200 persons. 

76                  The Union submitted that there were a number of factors which required the imposition of a substantial penalty.  The Union referred to the fact that the respondent knew of its award obligations, it had 200 employees or thereabouts at the time of the arrangement and was therefore a large concern, it sought no advice in relation to the matter, its records were not complete and when Mr El Hajj spoke to Ms Cachia in 1995 and complained that other workers were getting paid overtime, shift allowance and tea money and that he had not received a pay rise for sometime, she told him that he was lucky to still work for the company.

77                  I take all of these factors into account in reaching the conclusion that the respondent should pay a penalty of $3,000 which, in accordance with s 356(b) of the Act, should be paid to the Union which brought this proceeding on behalf of the employees.

Should the applicant pay any of the costs of the proceeding?

78                  The usual rule in relation to proceedings brought under the Act is that a party is not ordered to pay costs incurred by another party to the proceeding.  Section 347(1) of the Act provides that that position is maintained unless a party to a proceeding “instituted the proceeding vexatiously or without reasonable cause”.

79                  The respondent seeks an order that the Union pay its costs of the proceeding up to the date upon which the amendment was made to the application and statement of claim bringing claims under the Clothing Trades Award.  When the application and supporting statement of claim were filed, the claims for relief were made in respect of underpayments of amounts required to be paid under the Textile Industry Award 1981 and the Textile Industry Award 1994 (“the Textile Industry Award”).  The respondent was never a party to that Award and at a number of directions hearings after the proceeding was commenced it maintained that it was not a party to the Textile Industry Award.  Ultimately that position was recognised and accepted by the Union in the amendments which it sought and made to the application and statement of claim, pursuant to leave granted on 7 March 2001, when it substituted claims based on breaches of the Clothing Trades Award.  The respondent seeks its costs up to the date of those amendments on the basis that the proceeding was instituted vexatiously and without reasonable cause.  The respondent submitted that I should adopt the understanding of those expressions found in relation to “vexatiously” in Hamilton v Oades (1989) 166 CLR 486 and, in relation to “without reasonable cause”, in Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257. 

80                  In Hamilton v Oades (supra), Deane and Gaudron JJ said at 502:

“The terms ‘oppressive’ and ‘vexatious’ are often used to signify those considerations which justify the exercise of the power to control proceedings to prevent injustice, those terms respectively conveying, in appropriate context, the meaning that the proceedings are ‘seriously and unfairly burdensome, prejudicial or damaging’ and ‘productive of serious and unjustified trouble and harassment’:  Oceanic Sun Line Special Shipping Co Inc v Fay [(1988) 165 CLR 197 at 247‑250], per Deane J.”

81                  In Kanan v Australian Postal and Telecommunications Union (supra) Wilcox J said at 264‑265:

“It seems to me that one way of testing whether a proceeding is instituted ‘without reasonable cause’ is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success.  If success depends upon the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being ‘without reasonable cause’.  But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.”

82                  It should not be forgotten that the context in which the costs application arises is one in which in the ordinary course parties are free from liability to pay the costs of an opposing party.  As Northrop J observed in Heidt v Chrysler Australia Ltd (1975) 26 FLR 257 at 274:

“Great care must be exercised to ensure that in finding that a party has instituted proceedings vexatiously or without reasonable cause, that party is not improperly deprived of his freedom from liability to pay costs to an opposing party.  The test is a substantial one”.

In Thompson v Hodder (1990) 21 FCR 467, a Full Court of the Federal Court observed at 470 that:

“… an applicant who has the benefit of the protection of s 347 will only rarely be ordered to pay the costs of a proceeding in exceptional circumstances.”

83                  I do not consider that there is any basis for a finding that the proceeding was instituted “vexatiously”.  This concept directs attention towards the motive or intention of the Union in instituting the proceeding rather than the reasonableness of the basis for it.  In the present circumstance there were factual disputes between the parties which needed to be resolved.  The Union may have been mistaken initially as to the award pursuant to which the claims should be brought, but such mistaken view was not vexatious. 

84                  The issue whether the proceeding was instituted without reasonable cause requires further consideration.  The respondent was never a party to the Textile Industry Award.  It sought belatedly in final submissions to tender in evidence copies of the relevant Textile Industry Awards. Objection was taken to their admissibility at that stage but in my view it is appropriate that they be admitted in evidence for the purpose of determining the costs issue.  Their tender did not require the leading of any further evidence.  Indeed, the Union filed written submissions on the issue of costs in which it submitted that “the Textile Industry Award named Givoni Mills Pty Ltd of 214 Bay Road Sandringham as a respondent to the award”.  The Union did not submit that it was prejudiced by the late tendering in evidence of the relevant Textile Industry Awards.

85                  Although it appeared that the Textile Industry Award did not nominate the respondent as a party bound by that Award, there may have been a live issue as to whether the description “Givoni Mills Pty Ltd” in that Award was a mistaken description for the respondent Givoni Pty Ltd.  As Gray J observed in Clothing & Allied Trades Union of Australia v J & J Saggio Clothing Manufacturers Pty Ltd (1990) 34 IR 26 at 28‑29:

“It is well established that, provided that the intention of a maker of an award is clear as to the entity which is to be bound, failure to use the precise name of that entity is not fatal.  In Australian Commonwealth Shipping Board v Federated Seamen’s Union of Australasia (1925) 35 CLR 462, the expression ‘Commonwealth Government Line of Steamers’ in an award was held to be sufficient to bind a statutory body named ‘Australian Commonwealth Shipping Board’. …

Care must be taken when a company name is involved, to ensure that the award maker has not tendered to bind another company of a similar name.”

86                  Prior to the institution of the proceeding there was a clear factual dispute between the parties which needed to be resolved.  There was reasonable cause for instituting the proceeding on the basis of those factual issues.  Notwithstanding the mistake made as to the relevant award which provided the basis for the claims, I am not satisfied that the proceeding was instituted without reasonable cause. 

87                  In any event, any order as to costs is within the discretion of the Court and I consider that there are other factors to be taken into account in exercising this discretion in the present circumstances.  It did not appear that there were any substantial costs incurred by the respondent which were thrown away, or rendered abortive, by reason of the claims initially having been made pursuant to the Textile Industry Award.  Further, discovery of documents was given by the parties well before the amendments to bring the claims under the Clothing Trades Award and no further discovery was given after that time.  It therefore seems to me that a substantial amount of the costs, if not most of the costs, incurred prior to the amendment being made to the application and the statement of claim were incurred in respect of preparing matters relevant to the trial which in fact occurred.  The purpose of the exception in s 347(1) of the Act to the general position that there be no order as to costs is to provide for a situation where costs are needlessly and unnecessarily incurred for no good cause.  That is not the situation which applied in the present circumstances.

Should interest on the underpayments be awarded?

88                  Section 179A(1) of the Act provides:

“In exercising its powers under subsection 178(6) or in a proceeding under section 179, the Court or a court of competent jurisdiction must, upon application, unless good cause is shown to the contrary, either:

(a)     order that there be included in the sum for which an order is made or judgment given, interest at such rate as the Court or court of competent jurisdiction, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date on which the order is made or judgment entered; or

(b)     without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which an order is made or judgment given, a lump sum instead of any such interest.”

89                  Thus, unless good cause is shown, I should award interest on the amount of any underpayments which are the subject of an order in accordance with s 178(6) of the Act.  The respondent did not submit that good cause was shown against the payment of interest but rather submitted that I should adopt the approach to interest applied in Ardelle v Spastic Society Victoria Ltd [2001] FCA 220 and Pryde v Warramunda Village [2001] FCA 350.  In each of those cases the trial judge awarded interest at the rate of 6.5% per annum being a commercial interest rate rather than a penalty interest rate under the Penalty Interest Rates Act 1983 (Vic).  The penalty interest rate in Victoria between 1 June 1994 and 23 February 1998 was 13.2% per annum and after 23 February 1998 it was 12.3% per annum.

90                  Section 179A(1) of the Act is, in substance, in similar terms to s 51A(1) of the Federal Court of Australia Act 1976 (Cth).  There have been a number of Federal Court decisions in which the relevant State penalty interest rate has been applied:  Namol Pty Limited v AW Baulderstone Pty Limited (No 2) (1993) 47 FCR 388; Nagy v Masters Dairy Ltd (1997) 150 ALR 273; Alec Finlayson Pty Ltd v Armidale City Council (Burchett J, 6 March 1998, unreported); Kettle Chip Company Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466; EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (1998) 160 ALR 382; McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32.

91                  In EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (supra) Heerey J said at 384:

“I think there is obvious practical value in having the Federal Court applying the same interest rate as would be applied in litigation in the same State in which the case is being heard.  It would be undesirable for there to be distinctions drawn from State to State, depending on whether it was thought the regime in any particular State did or did not impose a commercial rate of interest.”

With respect, I agree with his Honour’s observations.  I consider it desirable that, to the extent possible, there be consistency in court decisions as to the identification of the appropriate rate of interest to be ordered by the Court pursuant to s 179A(1) of the Act or s 51A(1) of the Federal Court of Australia Act. 

92                  It will be necessary for the parties to submit proposals as to the final orders to be made which will include any order as to interest.  If I am asked to calculate interest I will do so on the basis of the relevant penalty interest rates in Victoria at particular times.  However, I would consider any submission that I should order a lump sum instead of interest, as allowed by s 179A(1)(b) of the Act. 

93                  I will give the parties the opportunity to consider these reasons and make submissions in due course as to what orders should be made consequent upon these reasons.

Associate:

Dated:              15 November 2002