FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Phua & Foo Pty Ltd [2018] FCA 137

ORDERS

THE COURT DECLARES THAT:

1.    During the period 29 December 2014 to 28 September 2015, the respondent contravened the following civil penalty provisions:

(a)    s 45 of the Fair Work Act 2009 (Cth), by contravening clause 20.1 of the Restaurant Industry Award 2010 by failing to pay 14 of the employees the required minimum rate of pay under the Restaurant Award;

(b)    s 45 of the Fair Work Act, by contravening clause 13.1 of the Restaurant Award by failing to pay the employees the casual loading required under the Restaurant Award;

(c)    s 45 of the Fair Work Act, by contravening clause 34.1 of the Restaurant Award by failing to pay the employees the Saturday penalty rates required under the Restaurant Award; and

(d)    s 45 of the Fair Work Act, by contravening clause 34.1 of the Restaurant Award by failing to pay 25 of the employees the Sunday penalty rates required under the Restaurant Award.

AND THE COURT ORDERS THAT:

2.    Pursuant to s 546(1) of the Fair Work Act, the respondent is to pay a pecuniary penalty in respect of the contraventions of the Fair Work Act declared above in the sum of $35,000.

3.    Pursuant to s 546(3)(a) of the Fair Work Act, the pecuniary penalties payable by the respondent be paid into the Consolidated Revenue Fund of the Commonwealth of Australia within 28 days of the date of this order.

4.    Pursuant to s 545(1) of the Fair Work Act, all persons engaged by the respondent who have managerial responsibility for decisions regarding wages and conditions, at the expense of the respondent, to engage a suitably qualified compliance professional or legal practitioner with expertise in workplace relations law to conduct training, either jointly or individually, to occur within three months of the date of this order, in relation to compliance with:

(a)    wages and work-related entitlements under the Restaurant Award; and

(b)    accrual and payment of entitlements under the National Employment Standards contained in Part 2-2 of the Fair Work Act.

5.    The respondent is to notify the applicant in writing, within seven days of the training, referred to in order 4 above of the attendees and the name(s) of the person(s) who conducted the training.

6.    The applicant has liberty to apply on seven days’ notice in the event that any of the preceding orders are not complied with.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

SIOPIS J:

1    The respondent, Phua & Foo Pty Ltd, has since 2005 operated a franchised restaurant trading as Han’s Café Armadale, in the suburb of Armadale, Western Australia. Mr Tye Kin “Philip” Phua and his wife, Ms Ai Poon Foo, are the directors and shareholders of the respondent.

2    At all material times, the respondent was bound by the Restaurant Industry Award 2010 (the Restaurant Award). During the period 29 December 2014 to 28 September 2015 (the relevant period), the respondent employed 27 employees on a casual basis in its restaurant business. The Restaurant Award imposed conditions upon the respondent in relation to the minimum rates of pay and penalty rates to be paid to each of the employees.

3    On 25 July 2017, the applicant, the Fair Work Ombudsman (FWO), commenced a proceeding in this Court. In the statement of claim, the FWO alleged that the respondent had underpaid 27 restaurant employees in contravention of the Restaurant Award and, thereby, in contravention of s 45 of the Fair Work Act 2009 (Cth) (the FW Act).

4    The FWO alleged that the respondent had contravened of s 45 of the FW Act by engaging in the following conduct:

(a)    failing to pay 14 employees the required minimum rate of pay in breach of cl 20.1 of the Restaurant Award;

(b)    failing to pay 27 employees casual loading in breach of clause 13.1 of the Restaurant Award;

(c)    failing to pay 27 employees Saturday penalty rates in breach of clause 34.1 of the Restaurant Award; and

(d)    failing to pay 25 employees Sunday penalty rates in breach of clause 34.1 of the Restaurant Award.

5    The FWO alleged that the affected employees comprised two introductory employees, seven kitchen attendants, 13 food and beverage attendants and five cooks, who were collectively underpaid a total of $67,161.51 over the relevant nine month period.

6    The FWO sought by way of relief declarations that the respondent had contravened the FW Act as alleged, orders for the payment of a pecuniary penalty and for the training of members of the respondent’s staff responsible for payroll and employment conditions.

7    On 8 September 2017, the parties filed a statement of agreed facts and admissions. The respondent admitted it had contravened s 45 of the FW Act as alleged by the FWO in the statement of claim.

8    The parties agreed that declarations should be made that the respondent has contravened s 45 of the FW Act by reason of the contraventions in the aforementioned respects, that a pecuniary penalty should be imposed and that an order be made pursuant to s 545(1) of the FW Act requiring the respondent to engage a qualified and competent person to conduct training of the relevant members of the respondent’s staff to promote compliance with the Restaurant Award and payment of entitlements under the National Employment Standards.

9    I am on the basis of the agreed facts and admissions content to make the declarations and training order referred to in that document and in the statement of claim.

10    Accordingly, the only matter which remains to be determined by the Court is the quantum of any pecuniary penalty against the respondent in respect of the agreed contraventions.

11    The parties requested that the Court determine the appropriate penalty and make final orders on the papers.

the evidence

The affidavit of Ms Gowri Suppiah dated 20 October 2017

12    The FWO relied on the affidavit of Ms Gowri Suppiah. The evidence of Ms Suppiah was to the following effect.

13    In 2015, the FWO conducted an audit of employers in the Southern Perth region of Western Australia regarding employers’ compliance with the FW Act in respect of wages and record keeping. The respondent was one of the employers selected to be audited.

14    On 18 December 2015, an inspector issued the respondent with a notice to produce records or documents pursuant to s 712 of the FW Act. The notice contained nine categories of documents, including:

3.    All documents and records, including pay slips, that relate to or record the payment of wages to workers engaged by PHUA & FOO PTY LTD in the Relevant Period including records or documents containing any of the following information:

…

e.     bonuses, loadings, allowances, penalty rates, incentive-based payments or other separately identifiable entitlements;

15    On 11 January 2016, Mr Phua responded to the notice to produce by way of a letter enclosing documents. In relation to the third category of documents, Mr Phua stated in his letter:

As per item 3 I want to clarify that I pay my employees the same rate whether they work on weekends or weekdays because the nature of my business simply cannot afford to pay the weekend penalty rate. To entice my employees to work on weekends however, I pay a slightly higher rate during normal hours.

16    On 15 March 2017, Mr Phua participated in a recorded interview at the office of the FWO with Ms Suppiah and another inspector. During the course of that interview, Ms Suppiah asked:

…so when you agreed with your employees to pay a rate, was that rate a fixed rate for all hours worked or did they receive penalty rates for weekends?

17    Mr Phua replied:

No, no. Just flat rate. We agreed that we all – because we are a small restaurant, we cannot pay…

18    On 29 May 2017, the FWO sent a letter to Mr Phua, which contained the FWO’s findings in relation to the audit of the respondent (the FWO audit letter). The letter included a finding that the respondent had “paid a flat hourly rate of pay, for all hours worked” which was generally insufficient to meet the applicable casual rates of pay and did not comply with the obligation to pay weekend penalty rates under the Restaurant Award. The letter also contained a seven page appendix which set out in detail the alleged underpayments. The letter also stated that the respondent needed to rectify the underpayments detailed in the appendix and to provide evidence of such payments.

19    Ms Suppiah also annexed a report from the FWO based on research undertaken by the FWO. The report showed that during the financial years 2013 to 2016, the restaurant/café industry had generated the most number of dispute lodgements to the FWO of any industry; and that the work force in that industry tended to be, on average, young, with less education, lower paid, employed part-time, with higher levels of culturally and linguistically diverse backgrounds. The research also speculated that employment within that industry would increase by 12% during the years leading up to 2020.

The affidavit of Mr Phua dated 28 September 2017

20    The respondent relied upon the affidavit of Mr Tye Kin “Philip” Phua dated 28 September 2017.

21    The FWO objected to the admissibility of two letters, comprising annexure TKP3, to Mr Phua’s affidavit. The letters were written by each of Mr Phua’s daughter and a friend and referred to Mr Phua’s good character. The objection was on the grounds of relevance and hearsay. I uphold the objection. The assertions contained therein are hearsay and further, Mr Phua is not a respondent to the proceeding.

22    The FWO’s next objection was to annexure TKP4, a letter from an accountant, Ms Debra Jefferies. The letter pronounces upon Mr Phua’s honesty and the manner in which he sought to pay the employees the underpayments. The FWO objected on the basis that the statements contained therein are hearsay and irrelevant. I uphold the objection.

23    The applicant also objected to the admissibility of para 25 of Mr Phua’s affidavit and the respondent has conceded that objection with the consequence that para 25 will not be taken as having been read.

24    Mr Phua deposed that he had migrated to Australia in 2002 from New Zealand. He said that he initially started working and training at Han’s Café at the Carousel shopping centre, Cannington, Western Australia. Mr Phua went on to say that whilst he was working at Han’s Café, Carousel, he had the idea of starting up his own Han’s Café franchise.

25    Mr Phua went on to say that in March 2005, after having obtained a business loan, he started a Han’s Café franchise at the Armadale shopping centre. Mr Phua said that he was unfamiliar with Australian culture and employment laws and that he relied on Mr Ian Han, the owner of the Han’s Café franchise chain in relation to any questions involving the operation of the business. He said that Mr Han’s wife, Ms Tram, had set up the payroll and MYOB computer system and that he believed that she was knowledgeable about the payroll system.

26    Mr Phua deposed that the respondent’s business had made a profit in each of 2013, 2014 and 2015, varying from $63,000 to $242,277. However, he said that in 2016, the business made a net loss of $55,775. Mr Phua annexed to his affidavit a trading statement for the year ended 30 June 2016 which showed a net loss of $55,775. However, the accounts also show an accumulated profit of $395,238 in June 2016.

27    Mr Phua went on to say that he owned two properties, one in Lakey Street valued at $450,000 and another in North Lake Road which he bought in 2015 for $1 million. The Lakey Street property was not subject to any mortgage.

28    Mr Phua deposed that in June 2017, shortly after receiving the FWO audit letter, he apologised to the respondent’s employees, explained that he had underpaid them and then paid the employees the amounts to which the FWO had found that they had been underpaid.

The number of contraventions

29    The parties have agreed, adopting the course of conduct principle, that the respondent engaged in four separate contraventions of s 45 of the FW Act.

30    Further, during the relevant period, the value of a penalty unit which applied to a contravention of, inter alia, s 45 of the FW Act, changed on 31 July 2015 from $170 to $180.

31    In my view, the maximum penalty to be applied in respect of each of the contraventions is to be assessed by reference to the higher amount. This is because the conduct in question is being treated as a single contravention by reason of the course of conduct principle and the course of conduct covered a period both before and after the change in the value of a penalty unit (Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557 at [396]-[398]).

32    As to the question of the number of contraventions that should be considered for the purposes of the imposition of a penalty, each party adopted a different position.

33    The FWO contended that the appropriate penalty should be set by reference to four contraventions; whereas the respondent contended that the penalty should be assessed by reference to one contravention on the basis of the one transaction principle. The respondent contended that all of the contraventions resulted from one single decision, namely, the decision by Mr Phua of the respondent to pay the employees a flat rate of pay of $25 per hour without making any attempt to calculate the precise amounts to which the employees were entitled under the Restaurant Award.

34    This difference in approach is reflected in the contentions made by the parties as to the appropriate penalty. The FWO contended that the penalty should be about $60,480, whereas the respondent contended that the penalty should be in the range of $8,100 to $12,200.

35    In my view, the penalty should be assessed by reference to four contraventions on the basis that there was a contravention of each of four terms of the Restaurant Award. This accords with the approach taken by Gray J in Gibbs v Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216 at 233, which was cited with approval in Rocky Holdings Pty Ltd v Fair Work Ombudsman (2014) 221 FCR 153.

36    The consequence is that the penalty will be assessed by reference to four contraventions, each carrying a maximum penalty of $54,000.

PENALTY

37    In determining the appropriate penalty, it is necessary to recognise that the primary purpose for the imposition of a civil penalty is deterrence. Further, the Court, in assessing an appropriate penalty, has regard to a number of well-known factors. I deal with these factors below.

The nature and extent of the contraventions

38    As mentioned, the respondent conducted a restaurant business and, at all times during the relevant period, the respondent was subject to the Restaurant Award. This award imposed terms and conditions in relation to the employment of the employees of the restaurant. All of the employees in question were casual employees. As such, they were entitled to the benefits which are provided for in the Restaurant Award.

39    The contraventions in question are contraventions of s 45 of the FW Act which provides that “[a] person must not contravene a term of a modern award”.

40    The first contravention was the failure to pay minimum rates of pay to certain employees in breach of cl 20.1 of the Restaurant Award. The respondent failed to pay the minimum rate for ordinary hours of work to 14 employees during the relevant period. The total amount of the underpayment was $7,866.38.

41    The second contravention comprised the failure of the respondent to pay all 27 employees the casual loading which was payable to the employees for their hours of work between Monday to Friday as required by cl 13.1 of the Restaurant Award. The total amount of the underpayment was $27,310.73.

42    The third contravention was the failure to pay all 27 employees penalty rates for work performed on a Saturday in breach of cl 34.1 of the Restaurant Award. The total amount of the underpayment was $17,843.86.

43    The fourth contravention comprised the failure of the respondent to pay 25 employees Sunday penalty rates for the work performed on a Sunday. There were 25 employees who were not paid in contravention of cl 34.1 of the Restaurant Award. The total amount of the underpayment was $14,140.54.

44    The total amount of the underpayment by reason of the contraventions was $67,161.51.

45    The nature of the contravening conduct is serious because it covered the whole of the relevant period and was the product of the deliberate decision by the respondent through Mr Phua to pay a flat hourly rate, notwithstanding that he was conscious of the fact that weekend penalty rates existed and would have imposed a higher cost for labour for his business.

The extent of loss suffered

46    As mentioned, the total underpayment in respect of the contraventions is $67,161.51.

47    That sum must be considered in the context that this represented the underpayment over a nine month period and that the employees were low paid employees and the underpayment would have had a more profound impact upon persons whose base rate of pay was low.

48    The proportionate impact on each of the employees would, therefore, have been greater than simply looking at a figure objectively may suggest. Thus, for example, one of the employees during the nine month period was underpaid a total of $6,985.30 out of a total entitlement to $15,838.78.

49    The loss, of course, is not continuing because, consequent upon the intervention of the FWO, the respondent has paid the affected employees the underpaid amounts.

The size of the business and the capacity to pay

50    The business is operated by a small family company. The size of the business, of course, does not exempt a company from the requirement to comply with the law. However, the impact of a penalty, particularly, from a perspective of specific deterrence, may vary according to the size of the business and the capacity of the business to pay the penalty.

51    The respondent relies on the fact that the respondent made a net loss of $55,775 in the financial year ended 30 June 2016 to argue that the respondent has a limited capacity to pay a penalty. However, the financial statements which are annexed to the affidavit of Mr Phua for the year ended 30 June 2016, show that the respondent was profitable in previous years and that there was an accumulated profit of $395,238 for the year ended 30 June 2016.

52    Mr Phua has also deposed to his personal assets. Mr Phua owns a property in North Lake Road which he bought two years ago for $1 million and another property which is valued at $450,000 which is not the subject of a mortgage.

53    I infer that there is a capacity for the directors and shareholders to use their assets to advance monies to the respondent’s business expenses. I, therefore, place little weight on the contention that because the respondent incurred a net trading loss for the year ended June 2016, the Court should treat the respondent as impecunious in assessing an appropriate penalty.

Whether the contravening conduct was deliberate

54    Mr Phua on behalf of the respondent accepted that he had made a deliberate decision to pay employees of the respondent a flat rate of $25 per hour, in the knowledge that such payment did not comply with the Restaurant Award.

The involvement of senior management

55    As I have mentioned, the respondent is a family company. Mr Phua who is a director of the respondent, is also responsible for the day to day business operations of the respondent. He was responsible, therefore, for the contravening conduct of the respondent.

Contrition, corrective action and cooperation

56    The FWO accepts that following the investigation and receipt of the FWO audit letter, the respondent promptly reimbursed the employees the monies in respect of which they had been underpaid.

57    In my view, this circumstance is to be taken into account in favour of the respondent in assessing the appropriate penalty. However, it is necessary to bear in mind that, in doing so, the respondent was doing no more than complying with its legal obligations which, as I have previously found, it had, through Mr Phua, deliberately ignored.

58    However, it is the case that during the investigation, Mr Phua, on behalf of the respondent, cooperated with the FWO by providing documents and attending an interview. Further, after the proceeding was commenced, the respondent, at an early stage, made admissions of liability and agreed a statement of facts. This level of cooperation is to be taken into account in the respondent’s favour in assessing an appropriate penalty.

59    Further, Mr Phua, on behalf of the respondent, has apologised to the affected employees and demonstrated a commitment to complying with the Restaurant Award in the future by undertaking a course on the proper administration of the respondent’s payroll system.

Previous contraventions of workplace laws

60    There was no evidence that the respondent had been found liable previously for any contravention of workplace laws.

Deterrence

61    As I have said, the primary purpose of the imposition of a civil penalty is deterrence.

62    In this case, in my view, notwithstanding Mr Phua’s evidence that he will ensure that the respondent does not breach the law again, and the training course he has undertaken, it is, nevertheless, necessary that the penalty reflect an element of specific deterrence. This is because of the deliberate disregard which the respondent has previously shown to compliance with the Restaurant Award conditions in an environment where the affected employees are casual and vulnerable employees. This is to remind the respondent of the continuing need to comply with its statutory obligations.

63    Further, the penalty should also act as a deterrent to others in the restaurant/café industry who may be minded to flout the law with a view to increasing profit at the expense of vulnerable employees. As mentioned, there is in evidence a FWO report which shows that the failure to meet minimum employment obligations is widespread within the restaurant/café industry which employs a large number of vulnerable employees. The penalty should be at a level such that the payment of a penalty is not regarded as simply a cost of doing business whilst continuing to exploit vulnerable employees.

What is the appropriate penalty?

64    I now turn to determine the question of the appropriate penalty to impose in this case.

65    I take into account that the contraventions were serious in that they were the consequence of a comprehensive failure to implement the Restaurant Award consequent upon a deliberate decision by Mr Phua to flout the law.

66    I have also had regard to the fact that the total underpayment over the relevant nine month period was in the not insignificant sum of $67,161.51. But for the intervention of the FWO, the respondent would, at the expense of vulnerable employees, have made a gain of that amount during the relevant period.

67    On the other hand, the respondent has through Mr Phua demonstrated contrition by apologising to the affected employees. Further, the respondent cooperated with the FWO in providing documents and by Mr Phua attending an interview with Fair Work inspectors during the investigation. The respondent also promptly paid the underpayments to the affected employees after being notified thereof by the FWO audit letter. As mentioned above, however, the credit for this must also be considered in the context of it merely constituting a belated performance of an obligation. Also to be taken into account in favour of the respondent, is the fact that it has not been previously held to have contravened any workplace laws.

68    Further, and significantly, the respondent has also cooperated with the FWO in the early disposal of this proceeding by making admissions and agreeing a statement of facts. In addition, the respondent has, through Mr Phua, stated that it does not intend to break the law in the future and Mr Phua has subsequently attended a payroll administration course, thus mitigating to some extent, but not dispensing with, the need for the penalty to reflect an element of specific deterrence.

69    I also take into account the need for the penalty to reflect general deterrence to dissuade any other employers from adopting the course of conduct adopted by the respondent of simply determining to ignore the provisions of the Restaurant Award.

70    Taking all those factors into account, in my view, the appropriate penalty in respect of each of the four contraventions would be $12,500 before the application of the totality principle. The total pecuniary penalty would, therefore, be $50,000.

71    However, applying the totality principle and giving effect to instinctive synthesis, particularly bearing in mind the deliberateness of the contravening conduct and the amount of the potential loss to the employees in this case and the need for deterrence, in my view, the appropriate total pecuniary penalty is $35,000.

Associate

Dated:    22 February 2018