Federal Court of Australia

Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024] FCA 484

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 546(1) of the Fair Work Act 2009 (Cth), the respondent pay to the applicant a pecuniary penalty of $17,000 within 28 days of the date of this order, by reason of its contravention of s 90(2) of the FW Act, in which the respondent failed to pay the applicant the amount that would have been payable for his accrued untaken paid annual leave when the employment ended on 9 December 2021, in the sum of $8,022.82, and did not pay that amount until 30 March 2022.

2.    Any party wishing to make an application for costs must, within seven days of the date of this judgment, file any application, any evidence in support of that application and written submissions (not exceeding two pages in length) which address the reasons for why a costs order can and should be made.

3.    Any party opposing such an application must, within 14 days of the date of this judgment, file and serve any evidence and written submissions (not exceeding two pages in length) which address why a costs order cannot and should not be made.

4.    The parties are then to confer and provide mutually agreed times and dates upon which the short argument regarding costs can be listed for hearing with a time estimate.

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

REASONS FOR JUDGMENT

RAPER J:

1    Where a civil penalty provision under the Fair Work Act 2009 (Cth) is breached, an applicant (in this case Mr Dorsch) may apply for an appropriate civil penalty to be awarded, pursuant to s 546(1) of the FW Act. The theory underpinning the power in s 546(1) is to provide a financial disincentive, by the imposition of a pecuniary penalty, which will encourage compliance such that like contravening conduct is an economically irrational choice.

2    On 29 February 2024, I delivered my reasons for judgment in Dorsch v HEAD Oceania Pty Ltd [2024] FCA 162 (liability judgment or LJ). In that proceeding Mr Dorsch alleged, among other things, that he had been dismissed by the respondent, HEAD Oceania, because he had exercised a number of “workplace rights”; that he had been unreasonably requested or required to work an unreasonable number of hours; and that he had not been paid out his accrued entitlements on termination. Mr Dorsch alleged each of these species of conduct contravened ss 340, 62 and 90(2) of the FW Act respectively.

3    The relevant contravening conduct, as found in the liability judgment, was that HEAD Oceania failed to pay Mr Dorsch the amount that would have been payable to him had he taken his accrued but untaken annual leave, when his employment ended on 9 December 2021, but rather did not pay him the relevant amount of $8,022.82, until 30 March 2021. This conduct was in breach of s 90(2) of the FW Act. On 13 March 2024, I declared that HEAD Oceania, in failing to pay out Mr Dorsch’s accrued annual leave in full on termination, contravened s 90(2) of the FW Act.

4    Section 90(2) forms part of the National Employment Standards which must not be contravened: s 44. Where a contravention of the NES occurs, a Court is empowered to “order a person to pay a pecuniary penalty that the Court considers appropriate if the Court is satisfied that the person has contravened a civil remedy provision”: ss 539(2) and 546(1). It was agreed that at the time of the contravening conduct the maximum applicable penalty was $66,000.

5    The penalty to be imposed in respect of HEAD Oceania’s contravention of the FW Act remains to be determined.

6    For the reasons which follow, I am of the view that the appropriate penalty to be fixed for HEAD Oceania to pay to Mr Dorsch is $17,000 (which comprises approximately 25% of the maximum).

Evidence and submissions

7    The organising principles governing the fixing of an appropriate penalty for proven contraventions of the FW Act are not in dispute. To the extent that there is divergence, it relates to the application of those principles.

8    Mr Dorsch submits that HEAD Oceania deliberately failed to pay his annual leave upon termination and was recklessly indifferent to the question of payment given no steps were taken to verify the purported basis upon which the payment was refused. Mr Dorsch also submitted that by reason of the contravention and three-month delay in receiving his entitlement he suffered loss. As found at [453] of the liability judgment:

453    By reason of the evident distress Mr Dorsch suffered in the immediate aftermath of his termination and the fact of him suffering financial strain, I am able to infer that Mr Dorsch suffered some distress by reason of the delay in paying the payment. In the circumstances, it is my view that HEAD Oceania should be ordered to pay Mr Dorsch a modest amount of general damages to compensate him for the unlawful delay in paying his accrued annual leave entitlement. I have taken into account the limited probative general evidence as the distress he suffered as a result of his financial circumstances after the termination of his employment. I award the sum of $10,000 as compensation for the distress he suffered from the delay in making the payment.

9    Mr Dorsch submits that a penalty in the nature of 40–55% of the maximum is appropriate given considerations of the loss he suffered and the need for specific and general deterrence. In relation to specific deterrence Mr Dorsch submitted there to be a need to specifically deter HEAD Oceania given that it still employs persons in Australia. As for general deterrence, the Court should fix a penalty that deters other employers from failing to pay an employee’s accrued leave on termination.

10    HEAD Oceania submits that 40–55% of the maximum is greater than necessary to achieve the object of deterrence and a penalty in the lower range is appropriate given:

(a)    Mr Skrobanek was unfamiliar with Australian law;

(b)    Mr Dorsch’s loss and damage was relatively modest;

(c)    though Mr Skrobanek deliberately decided not to pay Mr Dorsch he did not deliberately contravene the law;

(d)    HEAD Oceania showed contrition by admitting its contravention in its defence; and

(e)    to the best of Mr Skrobanek’s knowledge and belief, it has not previously contravened the FW Act.

11    By affidavit, affirmed 27 March 2024, Mr Skrobanek concedes to have made a deliberate decision not to pay Mr Dorsch’s accrued entitlements at the time of termination, but deposed that he did so because he was unfamiliar with Australian law and had concerns about the accuracy of Mr Dorsch’s leave records.

Applicable Principles

12    Section 546(1) empowers this Court to impose an “appropriate” penalty. A penalty is appropriate where it goes no further than considered reasonably necessary to deter contraventions of a “like kind” bearing in mind that the primary, if not sole purpose of the civil penalty regime is promoting the public interest in securing compliance: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [9]–[10] and [15]. The deterrence objective requires the imposition of a penalty with “a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249 at [62]. 

13    The maximum penalty that may be imposed is “but one yardstick” which may be considered by a Court considering appropriateness of penalty, others include those stated by French J, as his Honour then was, in Trade Practices Commission v CSR Ltd [1990] FCA 521; [1991] ATPR ¶41-076 at 52,152–52,153 cited in Pattinson at [18]:

1.     The nature and extent of the contravening conduct.

2.     The amount of loss or damage caused.

3.     The circumstances in which the conduct took place.

4.     The size of the contravening company.

5.     The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.     The deliberateness of the contravention and the period over which it extended.

7.     Whether the contravention arose out of the conduct of senior management or at a lower level.

8.     Whether the company has a corporate culture conducive to compliance, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.

9.     Whether the company has shown a disposition to co-operate with the authorities responsible for enforcement of the Act in relation to contravention.

14    As is evident from the above, the deliberateness of a contravention is a factor indicating an increased need for specific deterrence. The concept of deliberateness in the civil penalty context is spectral: Assessing deliberateness involves consideration of the contravener’s state of mind and intention. A contravention may be deliberate where it is engaged in with the knowledge of the essential facts giving rise to the contravention. However, the concept may also include additional aggravating features such as deliberately flouting the law, being reckless, wilfully blind, “courting the risk” or otherwise being negligent. It is for the party asserting the relevant state of mind to prove it: Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [131].

Consideration

15    The undisputed evidence reveals, as found, that HEAD Oceania breached s 90(2) of the FW Act by failing to pay Mr Dorsch the amount that would have been payable had Mr Dorsch taken annual leave when his employment ended.

The conduct and statutory objective

16    An entitlement to payment of annual leave upon termination falls within the suite of NES which provide minimum employee protections under Part 2-2 of the FW Act. Any breach of the NES is objectively serious. The purpose of the s 90(2) entitlement is obvious. An employee is entitled to accrue and take annual leave. In circumstances where an employee’s employment is terminated, invariably she or he will have accrued leave entitlements for which she or he is entitled to be paid in lieu of her or his capacity to take that outstanding leave. The intended mischief the provision is seeking to confront is to ensure that an employer cannot avoid providing the employee with the entitlement by ending the employment or merely because the employment comes to an end at the employee’s instigation. Whilst the purpose of the payment (to compensate for the loss of the ability to take the leave) is different from the requirement to give actual or pay in lieu of notice upon termination, often the payment in lieu of the ability of an employee to take accrued annual leave invariably provides a financial buffer in the wake of the termination of an employee’s employment and loss of ongoing wages.

17    Here, however, it is not a case of a complete failure to pay the accrued entitlement but rather a delay in making the payment of three months. The entitlement, in the amount of $8,022.82, was payable upon 9 December 2021 but was eventually paid, approximately three months later, on 30 March 2022.

18    This Court has already found that the delay did have a material effect on Mr Dorsch: Mr Dorsch suffered evident distress as a result of the financial strain placed upon him as a result of the termination, some of which was caused by the delay in making the annual leave payment: LJ at [453]. In addition, I note that the effect of the delay in receipt of the entitlement is evident from the fact that the unpaid amount was not insignificant, it comprised approximately 10% of the annual salary Mr Dorsch received from HEAD Oceania.

19    Where the parties part company regarding the circumstances giving rise to the nature and character of the contravening conduct, is how to characterise HEAD Oceania’s actions and inaction giving rise to the contravention. Mr Skrobanek, as agent for HEAD Oceania, made the initial decision to not pay the amount, and then later instigated the payment.

20    Mr Skrobanek deposed to the circumstances giving rise to the contravention. It was his evidence that he did not accept, at the time Mr Dorsch’s employment came to an end, that Mr Dorsch had any entitlement to a payment upon termination for annual leave.

21    His reason for this belief was expressed contemporaneously in an email he sent to Mr Dorsch, on 20 December 2021, in which he stated, inter alia:

Your holiday records are incomplete and not credible. In principle any absence from office other than business travel or approved home office will be treated as annual leave.

No home office approval was ever granted to you. Despite this, it appears you came and left [the] office at your personal discretion, which renders all holiday records “ad absurdum”, e.g. you have not been in offices on Fridays. The unapproved absence days by far exceed the claimed accrued annual leave.

22    This belief appeared to be based on a conversation with Ms Fookes on 26 November 2021 in which she stated:

Although Matthias is very strict with staff members if they ever want to leave the office early or come to work late, he comes and goes form the Yatala office as he pleases and is rarely ever in the office on Fridays.

23    As a consequence, it was his belief that the “unapproved absence days” (equating, in rough numerical terms, to 25 Fridays) far exceeded the claimed accrued annual leave (205.2277 hours).

24    Under cross-examination, Mr Skrobanek accepted that he knew that HEAD Oceania’s employee records recorded that Mr Dorsch was entitled to accrued annual leave. He also accepted that he knew that Mr Dorsch was entitled to be paid an amount for that accrued leave upon termination. Mr Skrobanek accepted that the only basis for refusing to pay the entitlement was by reason of the information he had received from Ms Fookes. He also accepted that he took no steps to verify the record, seek legal advice or consult with other Australian managers, such as Mr Davies before or after making the decision. Mr Skrobanek conceded that he had no actual knowledge as to whether Mr Dorsch had been in fact seeing clients on Fridays or otherwise working on Fridays.

25    As to his (and HEAD Oceania’s position) change of position, Mr Skrobanek deposed:

In around March 2022, I became aware that, without clear proof that the Respondent’s annual leave records were incorrect, the Respondent was required to make a payment of accrued annual leave in accordance with those records. I realise that my opinion about offsetting annual leave by days that I believed the Applicant had impermissibly failed to attend work at the Yatala office was incorrect. I was not aware of this when I sent the emails referred to in paragraphs 14 and 15 to the Applicant. In the circumstances, I authorised the Respondent to make the payment to the Applicant with respect to the 205.2277 hours of accrued annual leave that were recorded in the Respondent’s leave records.

26    As to how Mr Skrobanek came to this awareness, it can be inferred that he obtained advice of some kind. It was his evidence that when he was considering all the claims that Mr Dorsch was making, including for outstanding long service leave, he received this advice. As to why he did not take steps earlier, under cross-examination, he stated that at the time of termination, in effect, it was an intense period, where he was trying the stabilise the organisation (as a result of Mr Dorsch’s departure), during its peak season, and this was in his view a “fairly minor matter” comparatively. When questioned as to the deliberateness of his actions, he stated that his actions were deliberate because of concerns he had regarding the accuracy of the records and not simply because he was deliberately refusing to pay Mr Dorsch his annual leave.

27    As adverted to above regarding the organising principles concerning the concept of “deliberateness” in a civil penalty context, the concept is spectral. The parties appeared to accept that based on Mr Skrobanek’s evidence, his conduct was deliberate, in the sense that he refused to pay Mr Dorsch his annual leave for a period of three months, by reason of an incorrect belief that there was no such entitlement in the circumstances.

28    Ordinarily ignorance of the law or a mistaken belief as to the innocence of the conduct is not an ameliorating factor because the object of the imposition of a penalty is deterrence – specific and general: Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; 260 FCR 68 at [64]. In order to achieve general deterrence a clear signal must be sent to the Australian community at large that all employers have an obligation to know and understand their obligations under the FW Act and that lack of care and ignorance of the law is no excuse: Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151 at [156].

29    Large, well-resourced organisations are expected not only to be capable of ascertaining their legal obligations but also to comply with the law: Williams v MacMahon Mining Services Pty Ltd [2010] FCA 1321; 201 IR 123 at [95].

30    However, where a party committed a contravention (in the belief of its innocence) but is now disabused of that belief may suggest that the need for specific deterrence in this case is reduced: Flight Centre at [64].

31    Account may be taken of the circumstances including whether the mistake arose from reliance on legal advice or on an arguable (but ultimately incorrect) interpretation of the law: see Australasian Meat Industry Employees' Union v Australia Meat Holdings Pty Ltd [1998] FCA 664; 82 IR 76 at 78 and Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Telstra Corporation Ltd [2007] FCA 1607; 168 IR 368 at [18].

32    It is my view that, for the reasons set out below, HEAD Oceania is of such a size and had such a level of resources that its failure to ascertain and comply with its obligations under Australian law must be taken into account. Whilst I accept HEAD Oceania’s submission that it was not recklessly indifferent to its obligations, Mr Skrobanek was not indifferent to whether Mr Dorsch had this entitlement but held an incorrect view as to Mr Dorsch being ineligible for it. This is not a case where HEAD Oceania sought to deliberately flout the law, which would be an aggravating feature. However, it is one where there is a need for specific and general deterrence by reason of HEAD Oceania’s ignorance – a clear message does need to be sent to HEAD Oceania and the community that ignorance (including mistaken belief) is no excuse. Further, an employer not only has an obligation to know and understand the law but also, if in doubt as to whether the entitlement is payable, to take adequate steps to interrogate the circumstances and seek advice. It is not sufficient that one can have a mistaken belief and then take no steps to verify the circumstances. This is not a case where (incorrect) legal advice had been obtained and relied upon or where attempts had been made to verify the record.

The contravener’s circumstances including co-operation, contrition and remediation

33    HEAD Oceania submitted that it was a relatively small enterprise in Australia (employing approximately 35 employees). The size of the enterprise does inform the extent of the need for specific deterrence in a number of ways. However, where a contravener is a distinct legal entity within a broader corporate structure, the Court will take account of that broader structure in assessing the extent to which the penalty achieves deterrence, including where the contravener is part of a much larger, internally coordinated and wealthy corporate group: Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69; 377 ALR 55 at [185]; Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306; 147 ACSR 266 at [214]; Australian Securities and Investments Commission v BT Funds Management Limited [2021] FCA 844 at [44]; Australian Securities and Investments Commission v Westpac Securities Administration Limited [2021] FCA 1008; 156 ACSR 614 at [84]. For example, where the Court is setting a penalty for a company that has “vast resources”, the sum required to achieve the object of deterrence will be larger: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; 215 ALR 301 at [39].

34    Here it was evident that HEAD Oceania is part of a large group of companies. It was the evidence of Mr Skrobanek, as Chief Operating Officer of HEAD International Holding GmbH that there were over 20 HEAD Group entities globally: LJ at [113]. Accordingly, it is my view that it should be assumed that HEAD Oceania forms part of a large, internally coordinated and wealthy corporate group.

35    In addition, it is relevant that the conduct was taken by the most senior officer in the HEAD group of companies. However, there is no suggestion that it had a culture which was not conducive to compliance. There is no prior non-compliance history. It is evident that HEAD Oceania has shown a disposition to co-operate and to be contrite. Firstly, HEAD Oceania paid, no doubt on the basis of advice, the outstanding amount. Secondly, HEAD Oceania admitted the contravention in its defence filed on 3 December 2022. Thirdly, Mr Skrobanek, on its behalf, apologised to Mr Dorsch, as part of the evidence filed for the purpose of this aspect of the hearing. There was no challenge to the genuineness of the apology.

36    I do note that nothing is known as to HEAD Oceania’s financial capacity to pay a penalty. The extent of that capacity is relevant when considering the extent to which a penalty achieves deterrence: Australian Competition and Consumer Commission v ABB Transmission & Distribution Ltd [2001] FCA 383; ATPR 41-815 at [13] per Finkelstein J. It is also relevant to consider its size and financial position: AMP Financial Planning at [220].

37    Lastly, for the purposes of both specific and general deterrence, it is notable that HEAD Oceania adduced no evidence as to the remedial steps it has taken, through policy or procedure, to ensure that this does not happen again. However, I note that the issue was not one of ignorance of the obligation but rather related to a mistaken belief that in the circumstances (because of the claim of set off) it was not necessary for the amount to be paid.

38    As is evident from the above, this is a case where the contravening conduct was not one of deliberately flouting the law to avoid paying an employee entitlement, but rather delaying the payment in circumstances where HEAD Oceania had an initial mistaken belief as to its obligations but took inadequate steps to verify the circumstances and understand its legal obligations. HEAD Oceania thereafter rectified the underpayment and at the earliest procedural opportunity admitted the contravention.

Disposition

39    For these reasons, it is appropriate for the Court to impose a pecuniary penalty of $17,000 on HEAD Oceania, payable to Mr Dorsch.

Associate:

Dated:    9 May 2024