FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v IE Enterprises Pty Ltd [2020] FCA 848

ORDERS

THE COURT DECLARES THAT:

1.    Upon the admissions which the First Respondent is taken to have made, consequent upon default by the First Respondent pursuant to rule 5.22 of the Federal Court Rules 2011 (Cth) (Rules), the First Respondent contravened the following civil remedy provisions:

(a)    as a serious contravention within the meaning of section 557A of the Fair Work Act 2009 (Cth) (Act), section 45 of the Act by failing to pay Debora Van Hattem, Elisabeth Brugman, Jean-Brieuc Gicquel, Jium (Bimo) Ku, Julian Mizzi, Mike Thomas, Seoin (Jessica) Park and Thomas Gatt (collectively, the Employees) the minimum hourly rates required by clause 17 of the General Retail Industry Award 2010 (Award);

(b)    as a serious contravention within the meaning of section 557A of the Act, section 323(1) of the Act, by failing to pay Debora Van Hattem, Jean-Brieuc, Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt in full;

(c)    as a serious contravention within the meaning of section 557A of the Act, section 323(1) of the Act by failing to pay Jium (Bimo) Ku in full;

(d)    as a serious contravention within the meaning of section 557A of the Act, section 535(1) of the Act by failing to make and keep employee records in relation to the Employees as prescribed by regulations 3.32 and 3.33 of the Fair Work Regulations 2009 (Cth) (Regulations);

(e)    as a serious contravention within the meaning of section 557A of the Act, section 536(1) of the Act, by failing to provide pay slips to the Employees in relation to the performance of work;

(f)    section 45 of the Act by failing to pay the Employees the casual loading required by clause 13.2 of the Award;

(g)    section 45 of the Act by failing to pay failing to pay Jean-Brieuc Gicquel, Jium (Bimo) Ku, Julian Mizzi, Mike Timmers, Seoin (Jessica) Park and Thomas Gatt the Saturday penalty rates required by clause 29.4(b) of the Award;

(h)    section 45 of the Act by failing to pay Jean-Brieuc Gicquel, Jium (Bimo) Ku, Julian Mizzi, Mike Timmers, Seoin (Jessica) Park and Thomas Gatt the Sunday penalty rates required by clause 29.4(c) of the Award;

(i)    section 45 of the Act by failing to pay Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt the public holiday penalty rates required by clause 29.4(d) of the Award;

(j)    section 45 of the Act by failing to pay Debora Van Hattem, Jean-Brieuc, Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt at the end of every engagement, weekly or fortnightly as required by clause 13.3 of the Award; and

(k)    section 536(3) of the Act, by knowingly providing pay slips to Jium (Simo) Ku, Julian Mizzi and Thomas Gatt that were false or misleading.

2.    Upon the admissions which the Second Respondent is taken to have made, consequent upon default by the Second Respondent pursuant to rule 5.22 of the Rules, the Second Respondent was involved:

(a)    within the meaning of subsection 557A(5A) of the Act, in the contraventions of the First Respondent listed in declarations 1(a) to (e) above; and

(b)    within the meaning of subsection 550(2) of the Act, in the contraventions of the First Respondent listed in declarations 1(g) to (k) above.

THE COURT ORDERS THAT:

3.    Pursuant to subsection 545(2) of the Act, the First Respondent is required to pay the following outstanding underpayment amounts to the Employees:

4.    The Second Respondent is jointly and severally liable with the First Respondent to pay the following outstanding underpayment amounts to the Employees in respect of the contraventions of the First Respondent with which he was involved, specifically:

5.    Pursuant to section 545(2) of the Act that the First Respondent is required to make superannuation contributions on behalf of the Employees, to their nominated superannuation funds:

(a)    in respect of the ordinary time earnings component of any payment made pursuant to order 3 above at the superannuation guarantee charge rate prescribed by applicable superannuation legislation as at the date those orders are made; and/or

(b)    in the amount of any relevant superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992 (Cth).

6.    Pursuant to section 545(2) of the Act the Second Respondent is jointly and severally liable with the First Respondent to make the superannuation contributions on behalf of the Employees, to their nominated superannuation funds:

(a)    in respect of the ordinary time earnings component of any payment made pursuant to order 4 above at the superannuation guarantee charge rate prescribed by applicable superannuation legislation as at the date those orders are made; and/or

(b)    in the amount of any relevant superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992 (Cth).

7.    Pursuant to subsection 547(2) of the Act that the First Respondent is required to pay interest to the Employees on the amounts referred to in order 3 above for the period between 20 May 2019 and 18 June 2020 at the rate of 4.75% being:

8.    Pursuant to subsection 547(2) of the Act that the Second Respondent is jointly and severally required with the Second Respondent to pay interest to the Employees on the amounts referred to in order 4 above for the period between 20 May 2019 and 18 June 2020 at the rate of 4.75% being:

9.    An order that the Applicant have liberty to apply on seven days' notice in the event that any of the preceding orders are not complied with.

10.    The matter be listed for a case management hearing on a date to be fixed for a timetable to be set for the filing of evidence and submissions in respect of the determination of penalties.

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

REASONS FOR JUDGMENT

ANDERSON J:

Introduction

1    Today, on 18 June 2020, I granted the Fair Work Ombudsman (Ombudsman) partial default judgment in this proceeding against IE Enterprises Pty Ltd (trading as Uncle Toys) (Company) and Mr Eyal Israel (Mr Israel) (collectively, respondents).

2    The respondents have not engaged in the proceeding to date. After this proceeding was transferred from the Federal Circuit Court of Australia (Circuit Court), I made orders that, should the respondents not file certain documents within a prescribed timeframe, the proceeding would be listed for a hearing as to default judgment as to the relief claimed by the Ombudsman other than pecuniary penalties.

3    The relief granted today comprises declarations that the respondents contravened, or were involved in the contravention of, various provisions of the Fair Work Act 2009 (Cth) (Act) in relation to eight of the Company’s former employees, and that the respondents are required to rectify certain underpayments as a result of those contraventions. The relief includes declarations that the respondents committed “serious contraventions” for the purposes of ss 557A(1) and (5A) of the Act.

4    These are my reasons for granting this default relief.

Ombudsman’s claims

5    The Ombudsman, by her Application and Statement of Claim, each filed on 21 May 2019 in the Circuit Court, alleges that, at all materials times, the Company traded as “Uncle Toys” and operated “pop-up” kiosks which sold toys and other recreational goods at shopping centres in the State of Victoria. According to the Ombudsman, Mr Israel is, and was, the sole director and shareholder of the Company.

6    The allegations by the Ombudsman of non-compliance by the Company relate to the eight employees set out in the following table (referred to below as the Employees):

7    The full allegations of the Ombudsman against the respondents are outlined below. However, the Ombudsman particularly alleges that the Company committed “serious contraventions” within the meaning of s 557A of the Act in respect of the following civil remedy provisions of the Act:

(a)    s 45 of the Act, by failing to pay the Employees the minimum hourly rates required by cl 17 of the General Retail Industry Award 2010 (Award);

(b)    s 323(1) of the Act, by failing to pay five employees of the Company in full;

(c)    s 323(1) of the Act, by failing to pay one employee of the Company in full (as the result of making an unauthorised deduction);

(d)    s 535(1) of the Act, by failing to make and keep employee records in relation to the Employees as prescribed by regs 3.32 and 3.33 of the Fair Work Regulations 2009 (Cth) (Regulations); and

(e)    s 536(1) of the Act, by failing to provide pay slips to the Employees in relation to the performance of work.

These contraventions are collectively referred to below as the “serious contraventions”.

8    The Statement of Claim also seeks that orders be made against Mr Israel in relation to his involvement in the serious contraventions.

9    The Ombudsman’s Statement of Claim primarily seeks the following declarations and orders:

M.    ORDERS SOUGHT

The Applicant seeks the following relief:

114.    Declarations that the First Respondent contravened the following provisions:

(a)    as a serious contravention within the meaning of s 557A of the FW Act, s 45 of the FW Act by failing to pay the Employees the Minimum Hourly Rates pursuant to cl 17 of the Award;

(b)    as a serious contravention within the meaning of s 557A of the FW Act, s 323(1) of the FW Act by failing to pay Debora Van Hattem, Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt in full;

(c)    as a serious contravention within the meaning of s 557A of the FW Act, s 323(1) of the FW Act by failing to pay Jium (Bimo) Ku in full;

(d)    as a serious contravention within the meaning of s 557A of the FW Act, s 535(1) of the FW Act by failing to make and keep employee records in relation to the Employees as prescribed by regulations 3.32 and 3.33 of the FW Regulations;

(e)    as a serious contravention within the meaning of s 557A of the FW Act, s 536(1) of the FW Act, by failing to provide pay slips to the Employees in relation to the performance of work;

(f)    s 45 of the FW Act by failing to pay the Employees Casual Loadings pursuant to cl 13.2 of the Award;

(g)    s 45 of the FW Act by failing to pay failing to pay Gicquel, Jium (Bimo) Ku, Julian Mizzi, Mike Timmers, Seoin (Jessica) Park and Thomas Gatt Saturday Penalty Rates pursuant to cl 29.4(b) of the Award;

(h)    s 45 of the FW Act by failing to pay Gicquel, Jium (Bimo) Ku, Julian Mizzi, Mike Timmers, Seoin (Jessica) Park and Thomas Gatt Sunday Penalty Rates pursuant to cl 29.4(c) of the Award;

(i)    s 45 of the FW Act by failing to pay Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt Public Holiday Penalty Rates pursuant to cl 29.4(d) of the Award;

(j)    s 45 of the FW Act by failing to pay Debora Van Hattem, Jean-Brieuc Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt at the end of every engagement, weekly or fortnightly, pursuant to cl 13.3 of the Award; and

(k)    s 536(3) of the FW Act, by knowingly providing pay slips to Jium (Bimo) Ku, Julian Mizzi and Thomas Gatt that were false or misleading.

115.    A declaration that the Second Respondent was involved:

(a)    within the meaning of s 557A(5A) of the FW Act, in the contraventions of the First Respondent alleged in paragraphs 114(a) to (e) above; and

(b)    within the meaning of s 550(2) of the FW Act, in the contraventions of the First Respondent alleged in paragraphs 114(g) to (k) above.

…

118.     Orders that pursuant to subsection 546(1) of the FW Act:

(a)    pursuant to s 545(2) of the FW Act, the First Respondent and Second Respondent are jointly and severally required to rectify the Total Underpayment referred to in paragraph 67 above;

(b)    pursuant to s 545(2) of the FW Act that the First Respondent and Second Respondent are jointly and severally required to make superannuation contributions on behalf of the Employees to their nominated superannuation funds:

(i)    in respect of the ordinary time earnings component of any payment made pursuant to the orders above at the superannuation guarantee charge rate prescribed by applicable superannuation legislation as at the date those orders are made; and/or

(ii)    in the amount of any relevant superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992 (Cth); and

(e)    pursuant to s 547(2) of the FW Act that the First Respondent and Second Respondent are jointly and severally required to pay interest on the amounts referred to in paragraph 118(a) above.

10    In addition to the above relief, the Ombudsman seeks the following orders against the respondents as to pecuniary penalties:

119.     Orders that pursuant to subsection 546(1) of the FW Act:

(a)     the First Respondent pay pecuniary penalties in an amount to be fixed by the Court for its contraventions set out in paragraph 114 above; or

(b)     in the alternative, the First Respondent pay pecuniary penalties in an amount to be fixed by the Court for its contraventions set out in paragraphs to 114(f) to (k) above and paragraph 116 above.

120.     Orders that pursuant to subsection 546(1) of the FW Act:

(a)     the Second Respondent pay pecuniary penalties in an amount to be fixed by the Court for his involvement in the First Respondent's contraventions set out in 114(a) to (e) above and 114(g) to (k) above; or

(b)     in the alternative, the Second Respondent pay pecuniary penalties in an amount to be fixed by the Court for his involvement in the First Respondent’s contraventions set out in paragraphs 114(g) to (k) above and paragraph 116 above.

121.     An order pursuant to subsection 546(3) of the Act requiring the First Respondent and the Second Respondent to pay their respective penalty amounts to the Consolidated Revenue Fund of the Commonwealth within 28 days of the order.

11    The respondents have not filed an appearance or any response to the Ombudsman’s claims.

Procedural background

12    As noted above, the Ombudsman commenced this proceeding in the Circuit Court on 21 May 2019. The proceeding was transferred to this Court pursuant to the order of Judge O’Sullivan on 16 October 2019 made pursuant to s 39 of the Federal Circuit Court of Australia Act 1999 (Cth): Fair Work Ombudsman v IE Enterprises Pty Ltd & Anor [2019] FCCA 2952.

13    At a case management hearing on 31 March 2020, I made orders in the form proposed by the Ombudsman, which relevantly provided that, should the respondents not file a Notice of Address for Service, Response or a Defence in the proceeding by a prescribed date, the proceeding would be listed for a hearing as to default judgment on the relief claimed by the applicant other than penalties (that is, the relief set out above at [9], but not [10]).

14    The Ombudsman filed the following affidavits in support of the order for default judgment:

(a)    sworn affidavit of Claire Toner (who is a Senior Lawyer in the Ombudsman’s office) (Ms Toner) dated 16 April 2020, with annexures CT-1 to CT-27 (First Toner Affidavit); and

(b)    sworn affidavit of Ms Toner dated on 15 June 2020, with annexures CT-28 to CT-32 (Second Toner Affidavit);

(c)    sworn affidavit of Ms Toner dated 15 June 2020, which provides the most recent confirmation of outstanding underpayment amounts (Third Toner Affidavit),

(collectively, supporting affidavits).

15    The supporting affidavits set out the history of the proceedings, the acts or omissions by the respondents that constitute the alleged default, and the Ombudsman’s solicitors’ attempts to engage with the respondents in respect of this proceeding.

16    I heard the Ombudsman’s default judgment application today, on 18 June 2020. The respondents did not appear. After hearing counsel for the Ombudsman, Ms Knowles, I determined to enter partial default judgment against the respondents and make the declarations and orders (other than in respect of pecuniary penalties) in the form sought by the Ombudsman.

Default judgment – Relevant principles

17    Rule 5.22 of the Federal Court Rules 2011 (Cth) (Rules) provides that a party is in default if the party fails to:

(a)    do an act required to be done, or to do an act in the time required, by the Rules;

(b)    comply with an order of the Court;

(c)    attend a hearing in the proceeding; or

(d)    prosecute or defend the proceeding with due diligence.

18    Rule 5.23(2)(c) of the Rules enables the Court, if a respondent is in default, to give judgment against the respondent, in a proceeding which was commenced by an originating application supported by a statement of claim, for the relief that:

(a)    is claimed in the statement of claim; and

(b)    to which the Court is satisfied that the applicant is entitled.

19    The principles relevant to the making of an order for default judgment have previously been summarised in, amongst other decisions, Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [19]–[26] per Flick J, Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979 at [10]–[14] per Gleeson J and Ferraro v DBN Holdings Aust Pty Ltd T/As Sports Auto Group [2015] FCA 1127; 246 FCR 138 at [20] per Besanko J. The key principles may be summarised as follows:

(a)    the power afforded to the Court is discretionary. The discretion should generally be exercised with caution;

(b)    the discretionary power to enter a judgment by default is enlivened when an applicant makes application to the Court for an appropriate order. In the absence of such an application, the power cannot be invoked;

(c)    there is a difference in the terms by which the limits of the power conferred by former O 35A r 3(2)(c) are expressed and the wording of the current r 5.23(2)(c). Notwithstanding that difference in language, the requirement imposed is not that an applicant prove by way of evidence the claim which is sought to be advanced. The requirement is that the Court needs to be satisfied on the face of the Statement of Claim that the applicant is entitled to the relief claimed. The facts as alleged in the Statement of Claim are deemed to have been admitted by the respondent in default;

(d)    in order to be satisfied that an applicant is entitled to the relief claimed in the Statement of Claim, the Court needs to be satisfied that each element of the relevant civil wrong involved is properly and discretely pleaded in the Statement of Claim; and

(e)    in addition to the facts alleged in the Statement of Claim, the Court may permit recourse to limited further evidence. However, it may not admit evidence which would alter the case as pleaded.

20    Default judgment may be entered where a party’s participation in the proceedings is such as to indicate an inability or unwillingness to cooperate with the Court and the other party in having the matter ready for trial in an acceptable period, or where non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the other party: Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 at 396 per Wilcox and Gummow JJ; see also, as a recent example, Winn v Yeo as former trustee of the estate of Goodwin (a bankrupt) [2020] FCA 552 at [44] per O’Callaghan J.

Are the respondents in default?

21    Having read the supporting affidavits, my view is that the respondents are in default pursuant to r 5.22(2)(b) and (c) of the Rules on the bases that:

(a)    they did not attend the case management hearing on 31 March 2020 despite being notified of it; and

(b)    they did not comply with my orders on 31 March 2020 to:

(i)    file a Notice of Address for Service;

(ii)    file a Response to the Ombudsman’s Application; or

(iii)    file a Defence to the Ombudsman’s Statement of Claim,

despite being notified of those orders.

22    The respondents are also in default pursuant to r 5.22(d) of the Rules as they have failed to defend the proceeding with due diligence. As explained above, the Ombudsman’s application was initially commenced in the Circuit Court and was later transferred to this Court. The respondents:

(a)    did not comply with rr 4.03, 4.05 and 6.01 of the Federal Circuit Court Rules 2001 (Cth) respectively in relation to the filing of a Notice of Address for Service, a Response to the Application or a Defence to the Statement of Claim;

(b)    did not attend any directions hearing or comply with any order of the Federal Circuit Court in those proceedings, including orders giving the respondents additional opportunities to file their documents; and

(c)    have failed to defend the proceeding in this Court with due diligence by not filing a Notice of Address for Service, a Response or a Defence.

Is the Ombudsman entitled to the relief claimed?

Does the Court have jurisdiction to grant the relief sought?

23    The Court has the discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). Rule 5.23 of the Rules imposes no restraints upon the granting of declaratory relief: Yeo v Damos Earthmoving Pty Ltd; Re Beechwood Developments Pty Ltd (in liq) [2011] FCA 1129 at [16] per Gordon J.

24    The Court has jurisdiction to make orders sought by the Ombudsman for compensation and interest under ss 545(2)(b) and 547(2) of the Act. The Court may order that a person who was “involved in” a contravention to pay compensation: Veeraragoo v Goldbreak Holdings Pty Ltd (No 2) [2018] FCA 1448 at [42]–[52] per Colvin J.

Should the Court grant the relief sought?

25    For the reasons explained below, having read the supporting affidavits, I am satisfied that the Ombudsman has a claim for the relief sought in the Statement of Claim and, accordingly, I will make the declarations and the orders in the form sought by the Ombudsman.

26    The declaratory relief sought by the Ombudman is directed to the determination of the legal controversy at hand, that is, whether the respondents have contravened the Act. The Ombudsman, as the relevant regulator, has a real interest in the declarations being made. There is utility in making the declarations sought by the Ombudsman, which have been framed to identify the contravening conduct accurately and concisely: see Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [68] per Gordon J (Yellow Page (No 2)).

27    There is, moreover, a public interest to be served in making the declarations sought, as they will help to educate employers about their obligations to employees, and warn employers of the consequences of failing to take steps to ascertain, and then meet, those obligations. Making the declarations sought would also mark the Court’s disapproval of the contravening conduct: see ibid at [69].

28    The orders for compensation and interest sought by the Ombudsman will compensate the impacted employees for the loss they have suffered as a result of the Company’s failure to pay their minimum entitlements, which arose as a direct consequence of the respondents’ conduct. Pursuant to s 51A of the FCA Act, the Court may order interest at such rate, and for such period, as the Court sees fit. The Ombudsman submits, and I accept, that, if the Court grants default judgment, it would be appropriate for interest to be applied for the period between 20 May 2019, being the date that the proceeding was commenced in the Circuit Court, and the date default judgment is entered.

29    I now expand on this conclusion by reference to each form of relief sought by the Ombudsman.

Failure to make and keep records in contravention of s 535(1) of the Act

30    Section 535(1) of the Act requires an employer to make, and keep for seven years, employee records of the kind prescribed by the Regulations in relation to each of its employees.

31    The Ombudsman seeks a declaration that the Company, as a “serious contravention” within the meaning of s 557A of the Act, contravened s 535(1) of the Act by failing to make and keep employee records in relation to the Employees in the manner prescribed by regs 3.32 and 3.33 of the Regulations.

32    Paragraphs 26–31 of the Statement of Claim plead that the Company did not make and keep records of the kind prescribed by regs 3.32 and 3.33(1), and so contravened s 535(1) of the Act.

33    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the declaratory relief sought in this regard.

Failure to provide pay slips in contravention of s 536(1) of the Act

34    Section 536(1) of the Act provides that an employer must give a pay slip to each of its employees within one working day of paying an amount to the employee in relation to the performance of work.

35    The Ombudsman seeks declarations that the Company, as a “serious contravention” within the meaning of s 557A of the Act, contravened s 536(1) of the Act by failing to provide pay slips to the Employees in relation to the performance of work.

36    Paragraphs 32–36 of the Statement of Claim plead that the Company made payments to each of the Employees for the performance of work, but did not give them pay slips, and so contravened s 536(1) of the Act.

37    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the declaratory relief sought in this regard.

False or misleading pay slips provided in contravention of s 536(3) of the Act

38    Section 536(3) of the Act provides that an employer must not give a pay slip (for the purposes of s 536) that the employer knows is false or misleading.

39    The Ombudsman seeks a declaration that the Company contravened s 536(3) of the Act by knowingly providing pay slips to Jium (Bimo) Ku, Julian Mizzi and Thomas Gatt that were false or misleading.

40    The Statement of Claim pleads that the Company:

(a)    employed these relevant employees: para 5;

(b)    gave false or misleading pay slips to these employees: para 38;

(c)    knew that the pay slips were false or misleading: para 39; and

(d)    thereby contravened s 536(3) of the Act: para 40.

41    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the declaratory relief sought in this regard.

Award underpayment contraventions

42    Section 45 of the Act provides that a person must not contravene a term of a modern award.

43    The Ombudsman seeks:

(a)    declarations that the Company committed five contraventions of s 45 of the Act by failing to pay the Employees in contravention of various terms of the Award; and

(b)    an order that the Company and Mr Israel, jointly and severally, pay compensation and interest in respect of the identified underpayments to the Employees that occurred as a result of these contraventions.

44    The Statement of Claim pleads that the Award, being a “modern award” as defined by the Act, covered and applied to the Company with respect to the employment of the Employees: para 23. The Company’s contraventions of the five terms of the Award, and the consequential underpayment of entitlements, are pleaded at paras 45–67 of the Statement of Claim, in particular:

(a)    in respect of the failure to pay casual loading pursuant to cl 13.2 of the Award: paras 49–52;

(b)    in respect of the failure to pay Saturday penalty rates pursuant to cl 29.4(b) of the Award: paras 53–56;

(c)    in respect of the failure to pay Sunday Penalty Rates pursuant to cl 29.4(c)(i) of the Award: paras 57–60;

(d)    in respect of the failure to pay Public Holiday Penalty Rates pursuant to cl 29.4(d) of the Award: paras 61–63; and

(e)    in respect of the failure to pay the specified employees at the end of each engagement or weekly or fortnightly pursuant to cl 13.3 of the Award: paras 64–66.

45    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the relief sought in this regard. In particular, my view is that the Court has power under s 545(1) of the Act to make an order that Mr Israel pay compensation and interest in respect of the identified underpayments even though the Company is not in liquidation. In circumstances where Mr Israel was the effective hands and mind of the Company, and the respondents have not engaged with this proceeding, my view is that it is appropriate to make orders against both the Company and Mr Israel.

Failure to pay employees in full in contravention of s 323(1) of the Act

46    Section 323 of the Act provides that an employer must pay amounts payable to the employee in relation to the performance of work in full (except where a deduction is permitted under s 324) and at least monthly.

47    The Ombudsman seeks declarations that the Company, as a serious contravention within the meaning of s 557A of the Act, committed two contraventions of s 323(1) of the Act by failing to pay specified employees in full.

48    Paragraphs 68–70 of the Statement of Claim plead that the Company did not pay Debora Van Hattem, Jean-Brieuc Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt in full or at least monthly, and so contravened s 323(1). Paragraphs 71–75 of the Statement of Claim also separately plead that the Company did not pay a particular employee, Jium (Bimo) Ku, in full because it made an unauthorised deduction, and so contravened s 323(1) of the Act.

49    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the declaratory relief sought in this regard.

Declarations of serious contraventions by the Company

50    As indicated above, the declarations sought by the Ombudsman include that five of the contraventions committed by the Company set out above were “serious contraventions” within the meaning of s 557A(1) of the Act.

51    For reference, s 557A of the Act provides as follows:

Serious contravention of civil remedy provisions

(1)     A contravention of a civil remedy provision by a person is a serious contravention if:

  (a)     the person knowingly contravened the provision; and

  (b)     the person’s conduct constituting the contravention was part of a systematic pattern of conduct relating to one or more other persons.

Systematic pattern of conduct

(2)     In determining whether the person’s conduct constituting the contravention of the provision was part of a systematic pattern of conduct, a court may have regard to:

(a)     the number of contraventions (the relevant contraventions) of this Act committed by the person; and

(b)     the period over which the relevant contraventions occurred; and

(c)     the number of other persons affected by the relevant contraventions; and

(ca)     the person’s response, or failure to respond, to any complaints made about the relevant contraventions; and

(d)     except if the provision contravened is section 535—whether the person also contravened subsection 535(1), (2) or (4) by failing to make or keep, in accordance with that section, an employee record relating to the conduct constituting the relevant contraventions; and

(e)     except if the provision contravened is section 536—whether the person also contravened subsection 536(1), (2) or (3) by failing to give, in accordance with that section, a pay slip relating to the conduct constituting the relevant contraventions.

 (3)     Subsection (2) does not limit the matters that a court may have regard to.

(4)     Subsection 557(1) does not apply for the purposes of determining whether the person’s conduct was part of a systematic pattern of conduct.

(5)     Subsection (4) does not otherwise affect the operation of subsection 557(1) in relation to serious contraventions of civil remedy provisions.

Involvement in a serious contravention

(5A)     A person (the involved person) who is involved in a contravention of a civil remedy provision by another person (the principal) commits a serious contravention of the provision only if:

(a)     the principal’s contravention was a serious contravention; and

(b)     the involved person knew that the principal’s contravention was a serious contravention.

Application for a serious contravention order and alternative orders

(6)     If a person is applying for an order in relation to a serious contravention of a civil remedy provision, the person’s application under subsection 539(2) must specify the relevant serious contravention.

(7)     If, in proceedings for an order in relation to a serious contravention of a civil remedy provision, the court:

(a)     is not satisfied that the person has committed a serious contravention against that provision; and

(b)     is satisfied that the person has contravened that provision;

the court may make a pecuniary penalty order against the person not for the serious contravention but for the contravention of that provision.

52    Section 557A was inserted into the Act as part of a suite of amendments made by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (Amending Act). According to the Explanatory Memorandum to the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Cth) (Explanatory Memorandum) (at pg 2), the Bill was designed to address “increasing community concern about the exploitation of vulnerable workers (including migrant workers) by unscrupulous employers, and responds to a growing body of evidence that the laws need to be strengthened”. See also Mr Dutton (Minister for Immigration and Border Protection), Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 Second Reading Speech, 1 March 2017, Commonwealth Parliamentary Debates, House of Representatives, pp 1873–1874.

53    The Explanatory Memorandum (at pp 4–5) expresses the following about the insertion of s 557A:

Section 557A – Civil contraventions of civil remedy provisions

20. New section 557A establishes the regime for serious contraventions under the Fair Work Act. New subsection 557A(1) provides that a contravention is only a ‘serious contravention’ if the contravening conduct was deliberate and part of a systematic pattern of conduct relating to one or more other persons.

21. The new section requires several steps to be taken. First, identify the relevant proscribed conduct in the applicable civil penalty provision (e.g. a term of a modern award has been contravened under section 45; or employee records have not been made or kept under section 535(1)). The proscribed conduct may consist of an act or omission. Second, consider whether the conduct was deliberate (e.g. a term of a modern award was deliberately contravened, or employees’ records were purposefully not made or kept). New section 557B explains how a body corporate’s conduct may be assessed to determine whether it ‘deliberately’ contravened the law for the purposes of new subsection 557A(1). Third, consider whether the conduct formed part of a systematic pattern of conduct.

22. The term ‘deliberate’ is not defined, but is intended to be read synonymously with the term ‘intentional’ that is used elsewhere in the Fair Work Act.

23. New subsection 557A(2) provides examples of the kinds of matters a court may have regard to in determining whether a person’s conduct constituting the contravention of the provisions was part of a systematic pattern.

24. The reference to a ‘systematic pattern of conduct’ is to a recurring pattern of methodical conduct or a series of coordinated acts over time. It does not encompass ad hoc or inadvertent conduct. A contravention is more likely to be considered part of a systematic pattern of conduct if:

•    there are concurrent contraventions of the Fair Work Act occurring at the same time (e.g. breaches of multiple award terms and record-keeping failures);

•    the contraventions have occurred over a prolonged period of time (e.g. over multiple pay periods) or after complaints were first raised;

•    multiple employees are affected (e.g. all or most employees doing the same kind of work at the workplace, or a group of vulnerable employees at the workplace); and

•    accurate employee records have not been kept, and pay slips have not been issued, making alleged underpayments difficult to establish.

25. These factors are intended to be indicative only, and a ‘serious contravention’ may still be established if one or more of these factors are not present. For example a pattern of systematic conduct may affect an individual or group of employees. Other factors may also be relevant, such as a failure to address complaints about alleged underpayments.

26. New subsection 557A(3) clarifies that subsection 557A(2) provides a non-exhaustive list and does not limit the matters a court may have regard to.

27. New subsection 557A(4) clarifies that, in determining whether there is a ‘systematic pattern of conduct’, the ‘grouping’ of contraventions under section 557(1) should be disregarded. This allows the total number of relevant contraventions to be considered, so the entirety of the relevant conduct may be taken into account.

…

54    As Judge O’Sullivan observed in the Circuit Court, s 557A has not been the subject of detailed consideration by the Federal Court: Fair Work Ombudsman v IE Enterprises Pty Ltd & Anor [2019] FCCA 2952 at [5] and [31]. (Although, see Ahmed v Al-Hussain Pty Ltd t/as The Cheesecake Shop (No 3) [2019] FCA 848 at [28] per Rares J.) Given the respondents have not engaged with this proceeding, and there is accordingly no contradictor to the Ombudsman, my view is that the present case is not an appropriate vehicle for the exposition of that section, and its ancillary provisions introduced by the Amending Act.

55    Returning to the facts of the present case, the serious contraventions alleged by the Ombudsman are:

(a)    the contravention of s 45 of the Act by failing to pay the Employees the minimum hourly rates required by cl 17 of the Award;

(b)    the contravention of s 323(1) of the Act by failing to pay Debora Van Hattem, Jean-Brieuc Gicquel, Julian Mizzi, Seoin (Jessica) Park and Thomas Gatt in full;

(c)    the contravention of s 323(1) of the Act by failing to pay Jium (Bimo) Ku in full (due to making an unauthorised deduction);

(d)    the contravention of s 535(1) of the Act by failing to make and keep employee records in relation to the Employees as prescribed by regs 3.32 and 3.33 of the Regulations; and

(e)    the contravention of s 536(1) of the Act, by failing to provide pay slips to the Employees in relation to the performance of work.

56    The elements of a serious contravention pursuant to s 557A(1) are that:

(a)    the person knowingly contravened the relevant civil remedy provision. (For this purpose, s 557B(1) of the Act provides that a body corporate knowingly contravenes a civil remedy provision if it expressly, tacitly or impliedly authorised the contravention: see the Explanatory Memorandum at p 5); and

(b)    the person’s conduct constituting the contravention was part of a systematic pattern of conduct relating to one or more other persons. (For this purpose, s 557A(2) of the Act provides that the Court may have regard to various factors in determining whether the person’s conduct constituting the contravention of the relevant civil remedy provision was part of a systematic pattern of conduct.)

57    The basis for the Ombudsman alleging that these contraventions were “serious contraventions” is set out at paras 76–101 of the Statement of Claim. In respect of these contraventions, the Statement of Claim pleads that:

(a)    the Company, expressly, tacitly or impliedly authorised the contravention within the meaning of s 557B(1) of the Act, and so knowingly contravened that provision within the meaning of s 557A(1)(a) of the Act: paras 79, 84, 89, 94 and 99; and

(b)    the conduct constituting the contraventions was part of a systematic pattern of conduct: paras 80, 85, 90, 95 and 100.

58    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the declaratory relief claimed in respect of these “serious contraventions”.

Mr Israel’s involvement under s 550 in the Company’s contraventions

59    Section 550 of the Act provides as follows:

Involvement in contravention treated in same way as actual contravention

(1)     A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.

(2)     A person is involved in a contravention of a civil remedy provision if, and only if, the person:

   (a)     has aided, abetted, counselled or procured the contravention; or

(b)     has induced the contravention, whether by threats or promises or otherwise; or

(c)     has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or

   (d)     has conspired with others to effect the contravention.

60    According to the principles discussed by Mason ACJ, Wilson, Deane and Dawson JJ in Yorke v Lucas [1985] HCA 65; 158 CLR 661 at 667, the elements of this civil wrong, being accessorial liability for the employer’s contravention, are that:

(a)    the person knew of the essential factual matters comprising the contravention; and

(b)    was an intentional participant in those matters.

61    The Ombudsman seeks:

(a)    a declaration that Mr Israel was, within the meaning of s 550(2) of the Act, “involved in” the Company’s contraventions alleged in paras 114(g)–(k) of the Statement of Claim; and

(b)    an order that Mr Israel, jointly and severally, pay compensation and interest in respect of the identified underpayments to the Employees that occurred as a result of the Company’s contraventions of s 45.

62    The Statement of Claim alleges that Mr Israel:

(a)    knew of the factual matters which comprised the Company’s contraventions: paras 4 and 103–105;

(b)    was an intentional participant in the factual matters which comprised each of the Company’s contraventions: para 106; and

(c)    was relevantly involved in the Company’s contraventions: paras 107 and 108,

and so is to be treated as having himself contravened each of those civil remedy provisions.

63    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the relief sought in this regard.

Mr Israel’s involvement in the Company’s serious contraventions under section 557A(5A)

64    As extracted above at [51], s 557A(5A) of the Act provides that a person who is involved in a contravention of a civil remedy provision by another person (the principal) commits a serious contravention of the provision if:

(a)    the principal’s contravention was a serious contravention; and

(b)    the involved person knew that the principal’s contravention was a serious contravention.

65    The Ombudsman seeks a declaration that Mr Israel committed a serious contravention for the purposes of s 557A(5A) of the Act in respect of the Company’s serious contraventions. The elements of this civil wrong are that:

(a)    the person was involved in a principal’s contravention of a civil remedy provision;

(b)    the principal’s contravention of the civil remedy provision was a serious contravention; and

(c)    the involved person knew that the principal’s contravention was a serious contravention because he or she knew that:

    the principal knowingly contravened the relevant provision; and

    the principal’s conduct constituting the contravention was part of a systematic pattern of conduct relating to one or more other persons.

66    Paragraphs 109–113 of the Statement of Claim alleges that Mr Israel committed serious contraventions for the purposes of s 557A(5A) of the Act because:

(a)    he was involved in the Company’s serious contraventions (as identified above); and

(b)    he knew that the Company’s contraventions were serious contraventions as he knew that:

    the Company expressly, tacitly or impliedly authorised the contraventions; and

    the Company’s conduct constituting the contraventions was part of a systematic pattern of conduct relating to the Employees.

67    On the basis that each of the facts alleged therein are taken to be admitted, the Court is satisfied that the Ombudsman is entitled to the relief sought in this regard.

Conclusion

68    For the reasons expressed above, the Court will enter default judgment in accordance with the form of relief sought by the Ombudsman.

69    The remaining relief in the Ombudsman’s Statement of Claim relates to the imposition of pecuniary penalties on the respondents: paras 119–121 (as extracted above at [10]). My chambers will arrange for the matter of any imposition of penalties to be listed for a case management hearing in order for a timetable to be set for the filing of evidence and submissions in respect of the determination of penalties.

Associate:

Dated:        18 June 2020