Fair Work Ombudsman v Crystal Carwash Cafe Pty Ltd

Fair Work Ombudsman v Crystal Carwash Cafe Pty Ltd - [2014] FCA 827 - FCA 2014 case summary — Zoe

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The allegations against the respondents 3 The statement of claim made a number of allegations. It primarily alleged that the first respondent contravened the Vehicle Manufacturing, Repair, Services and Retail Award 2010 ("the Award") by not paying its employees minimum rates of pay or overtime entitlements under the Award and that it failed to maintain proper records with respect to employee overtime. The allegations concerning the underpayment contraventions were that from the period 1 January 2010 to 18 September 2010 a significant number of the 359 employees employed by the first respondent were paid less than the applicable award wages and/or not paid overtime entitlements. These allegations presumed that the first respondent was the true employer of the carwash employees and alleged that the use of labour hire companies such as the fourth to thirteenth respondents was a sham. The respondents initially maintained that the labour hire companies were the true employers of the carwash employees and denied that the Award applied to them or their employees, contending that their activities were not covered under the terms of the Award. 4 The statement of claim contended also that the use of labour hire companies, such as the fourth to thirteenth respondents, constituted part of an avoidance system designed to hide the true identity of the employer of the carwash employees and avoid liability under workplace laws. The system was alleged to involve the setting up of labour hire companies at the direction of the second and third respondents, where an employee of the first respondent's carwash business who did not have any experience as a director of a company would purport to be the sole director of the labour hire company. On a weekly, fortnightly or monthly basis the labour hire company would pay the wages of its supposed employees and invoice the first respondent for roughly the same amount. The invoices were prepared by a representative of the first respondent. It is an agreed fact in these proceedings that the first respondent received all of the profits and takings generated by the operations of the labour hire entities. It was also alleged that certain labour hire entities would be liquidated from time to time and their supposed role as employers would be transferred to newly-created labour hire entities. 5 The respondents denied the allegation that the arrangements were a sham or otherwise uncommercial. However, it was later admitted by the respondents (for the purpose of these proceedings only) that the first respondent was the true employer of the employees. 6 That admission makes it unnecessary to examine the labour hire arrangements in any depth. However, in my view, it follows from the admission that the establishment of the supposed labour hire arrangements concealed the true position and rendered enforcement of award obligations more difficult. Those are matters which are relevant to an assessment of the seriousness of the conduct of the first, second and third respondents.

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Agreed facts in the penalty proceedings 11 On the question of penalty, the parties provided agreed facts which included the following: PART A: CRYSTAL CARWASH … 2. Crystal Carwash conducts the business of operating eleven carwashes and cafes trading as "Crystal Carwash Cafe" (Carwash Business) at the eleven addresses listed below: (a) 57 Curlewis Street, Bondi Beach, New South Wales (Bondi Beach Site); (b) 460 Parramatta Road, Strathfield, New South Wales (Strathfield Site); (c) 612 Military Road, Mosman, New South Wales (Mosman Site); (d) 2 - 6 Bream Street, Coogee, New South Wales (Coogee Site); (e) 559 Pittwater Road, Brookvale, New South Wales (Brookvale Site); (f) 312 Victoria Road, Gladesville, New South Wales (Gladesville Site); (g) 185 Pitt Street, Merrylands, New South Wales (Merrylands Site); (h) 67 New South Head Road, Rushcutters Bay, New South Wales (Rushcutters Bay Site); (i) 315 Victoria Avenue, Chatswood, New South Wales (Chatswood Site); (j) 777 New South Head Road, Rose Bay, New South Wales (Rose Bay Site); and (k) 75 Sailors Bay, Northbridge, New South Wales (Northbridge Site); (collectively, Carwash Sites). … PART B: THE CARWASH ENTITIES 4. In the period from 1 January 2010 to 18 September 2010 (Underpayment Period), the 359 individuals listed in Annexure A performed car washing and detailing duties for the Carwash Business at the Carwash Sites on either a full time or a part time basis (Carwash Employees). … PART C: PURPORTED LABOUR HIRE ENTITIES 6. In the period from approximately 1999 to approximately 2007, Crystal Carwash was directly employing individuals to work as car washers at some or all of the Carwash Sites. 7. In the period from 12 May 2009 to 28 July 2010, Crystal Carwash established the following ten labour hire companies to purport to directly employ individuals performing car washing work at the Carwash Sites: (a) Baddington Pty Ltd (ACN 137 049 560) (Baddington); (b) Seekton Pty Ltd (ACN 137 049 579) (Seekton); (c) Ozrest Pty Ltd (ACN 137 219 820) (Ozrest); (d) Schatry Pty Ltd (ACN 137 219 802) (Schatry); (e) Cooljam Pty Ltd (ACN 141 762 352) (Cooljam); (f) Ozrun Pty Ltd (ACN 141 762 389) (Ozrun); (g) Tushar Investments Pty Ltd (ACN 141 758 045) (Tushar Investments); (h) Lucky Horizons Pty Ltd (ACN 144 648 975) (Lucky Horizons); (i) Pepper Stone Pty Ltd (ACN 144 649 427) (in administration) (Pepper Stone); (j) Oak Mink Pty Ltd Pty Ltd [sic] (ACN 145 471 941) (Oak Mink); and (collectively, Labour Hire Entities). The names of the Labour Hire Entities, their dates of incorporation, and other relevant details are set out in Annexure B. 8. Throughout the Underpayment Period, Crystal Carwash claimed that the Labour Hire Entities, and not Crystal Carwash were the employers of the Carwash Employees. PART D: THE PURPORTED LABOUR HIRE ARRANGEMENTS 9. Pursuant to the purported labour hire arrangements between Crystal Carwash and the Labour Hire Entities, the Labour Hire Entities contracted with Crystal Carwash to operate the Carwash Business at the Carwash Sites, including by employing employees to perform carwashing duties at the Carwash Sites. 10. On a weekly, fortnightly or monthly basis, a representative of Crystal Carwash prepared an invoice on behalf of each Labour Hire Entity in order for the invoice to be issued to Crystal Carwash. 11. Approximately one to two days after each Labour Hire Entity issued the invoices to Crystal Carwash, Crystal Carwash made a payment to each Labour Hire Entity which was approximately equal to the amount of total wages that each of the Labour Hire Entities paid to the Carwash Employees for that particular period. 12. Crystal Carwash received all of the profits and takings generated from the operation of the Carwash Business at each of the Carwash Sites. 13. On 22 July 2013, Crystal Carwash admitted, for the purposes of these proceedings only, that it was the true employer of the Carwash Employees. PART E: THE EMPLOYMENT ARRANGEMENTS 14. The majority of the Carwash Employees were from a non-English speaking background. 15. The wages of the Carwash Employees was paid by one or more of the Labour Hire Entities. 16. During the Underpayment Period, the Labour Hire Entities paid the Carwash Employees either $13, $14 or $15 per hour. … 17. The wage rates referred to in paragraph 16 above were determined by Mr Sahade, Mr Khouri and/or other persons acting on the instructions or directions that were ultimately given by Mr Sahade or Mr Khouri. PART F: CONTRAVENTIONS … 20. Pursuant to subclause 33.4 and item A.2.5 of the Vehicle Modern Award, during the period from 1 January 2010 to 30 June 2010, the minimum rate of pay payable to the Carwash Employees was $14.31. 21. Pursuant to subclause 33.4 and item A.2.4 of the Vehicle Modern Award, during the period from 1 July 2010 to 18 September 2010, the minimum rate of pay payable to the Carwash Employees was $15.00. (Emphasis in original.) 12 The parties accepted that there were three contraventions arising out of three distinct courses of conduct by the first respondent and two contraventions arising out of the involvement of the second and third respondents in those courses of conduct. The contraventions by the first respondent were the failure to provide minimum rates of pay under the Award, the failure to pay overtime entitlements under the Award, and the failure to keep records with respect to employee overtime. The contraventions for the second and third respondents related to the failure by the first respondent to provide minimum rates of pay under the Award as well as the failure to pay overtime entitlements under the Award. 13 In addition to the agreed facts, the applicant provided an affidavit dealing with remaining facts in dispute, which principally related to the use of labour hire entities and to the past conduct of the second respondent and his alleged knowledge of applicable workplace laws at the time of the contraventions. The applicant through this evidence sought to show that there was a pattern of conduct by the respondents of attempting to avoid liabilities under workplace laws.

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The applicable penalties 14 Penalties for the underpayment contraventions are imposed under Item 2 of s 539(2) and s 546 of the FW Act. For the record keeping contravention, penalties are imposed under Item 29 of s 539(2) and s 546 of the FW Act. 15 The maximum total penalties under the FW Act for the contraventions by the first, second and third respondents are: a) $82,500 for the first respondent b) $13,200 for the second respondent c) $13,200 for the third respondent 16 As a body corporate, s 546(2)(b) of the FW Act applies to the first respondent. Section 546(2)(b) of the FW Act has the effect that the maximum penalty for a body corporate is five times the maximum for an individual, as recorded in column 4 of the relevant item in s 539(2) of the FW Act. The maximum penalties in respect of the first respondent comprise $33,000 for each of the two underpayment contraventions (FW Act, Item 2, s 539(2)) and $16,500 for the record keeping contravention (FW Act, Item 29, s 539(2)). The maximum penalty for the three contraventions by the first respondent total $82,500. 17 In respect of the second and third respondents, the penalties for each comprise the two underpayment contraventions, the maximum penalty for which is $6,600 per contravention (FW Act, Item 2, s 539(2)). The maximum penalties for the two contraventions of each of the second and third respondents total $13,200 for each respondent. 18 Based on the agreed and asserted facts the applicant submitted that a penalty close to the maximum allowed under the FW Act for such contraventions should be imposed. 19 The respondents contended that only modest penalties (i.e. low range) were required or justified in the present case. The respondents emphasised the need to fix penalties based on the circumstances of the present case (rather than for past conduct), criticised the applicant's additional affidavit evidence as hearsay and irrelevant (although without formal objection) and claimed the benefit of co-operation and proper admissions avoiding the need for a full, contested hearing. 20 In support of its contention for penalties near the maximum allowed ($70,000, $10,000 and $10,000 respectively), the applicant provided the following summary in its written submissions: 5. The applicant submits that the penalties set out in the paragraph directly above are appropriate because of the following factors: (a) the significant amount of the total underpayment over a short period of time; (b) the serious nature of the contraventions, being the underpayment of minimum wages and award entitlements; (c) the vulnerability of the employees in that they performed low skilled work and were from non-English speaking backgrounds; (d) the respondents' pattern of conduct of systematically establishing companies in order to purport to employ employees which were then successively placed into liquidation with new companies being established to replace the liquidated entities; (e) the lack of contrition displayed by the respondents; (f) the fact that the respondents' conduct was deliberate; (g) the involvement of senior management; (h) the need for specific deterrence, given Crystal Carwash's history of non-compliance and that it continues to operate and employ staff; and (i) the need for general deterrence in the car washing industry. 21 I propose to briefly consider each of those matters.

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Submissions 5(a) and (b) - Nature and extent of the contraventions 22 The contraventions fall into two main categories. The first category relates to underpayment of minimum rates of pay and overtime under the Award. The second category concerns the failure of the respondents to keep proper records. 23 In respect of the underpayments it was agreed that the first respondent paid a significant number of its employees a flat hourly rate of $13.00 per hour, which was below the Award rate. The flat rate was also applied to employees who worked overtime, but who were actually entitled to overtime rates of pay under the Award, which accounted for the majority of the total underpayment of $177,077.59. The total underpayments comprised $12,416.61 in underpayment of minimum Award rates and $164,660.98 in underpayment of overtime entitlements under the Award. 24 The respondents' primary line of defence to minimise the significance of its conduct was to argue that it made good all underpayments before proceedings commenced. I give that circumstance little weight. The payments were only made after the applicant had commenced to investigate and when it must have been apparent that resistance was probably futile. 25 The record keeping contraventions relate to a failure to keep records for the employees of the first respondent, particularly in respect of overtime worked. It was submitted by the applicant that this may have hindered it from uncovering the full extent of underpayment of overtime entitlements. 26 I consider all the contraventions to be serious. The applicant is correct to point out that the underpayment of wages is particularly significant given the number of employees (359), their relatively low minimum rate of pay under the Award to begin with ($14.31 per hour to 30 June 2010 and $15.00 per hour to 18 September 2010), and the overall amount of underpaid wages in a relatively short period (1 January 2010 to 18 September 2010). Additionally, the requirement under the FW Act to keep proper records serves to aid the statutory objectives of the FW Act and the functions of the Fair Work Ombudsman. Although it cannot be conclusively determined that properly kept records would have revealed further evidence of underpayment, it is nonetheless a significant factor in considering the appropriate penalty.

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Submission 5(d) - Pattern of conduct involving labour hire entities 29 The applicant made the following submission regarding the respondents' pattern of conduct: 12. In addition, the respondents had a pattern of conduct of: (a) establishing companies (Carwash Entities) which had directors who were not independent businessmen but drawn from the ranks of employees working as car washers; (b) purporting to enter into arrangements with the Carwash Entities whereby the Carwash Entities purported to operate the Carwash Business at the Carwash Sites, including by employing car washers to work for the Carwash Business; (c) successively placing the Carwash Entities into voluntary liquidation or administration; (d) establishing new entities to replace the Carwash Entities to operate the Carwash Business at the Carwash Sites, including by transferring the employment of car washers to the replacement Carwash Entity. (Footnotes omitted) 13. Since 2007, the respondents have established at least 24 of these Carwash Entities and at least 13 Carwash Entities have been placed in voluntary liquidation or administration, by one or more of the following people or entities who were connected to the Carwash Business, including Anthony Sahade, his wife, Rita Sahade, Crystal Carwash's legal representatives, Crystal Carwash's accountants, the Carwash Entities or directors of the Carwash Entities. 30 As previously mentioned, an additional affidavit was filed by the applicant to support these, and other, contentions. Counsel for the respondents submitted that very little weight should be given to the affidavit which contained a good deal of hearsay material. 31 The affidavit referred to a number of complaints contained in earlier file notes taken by employees of the Fair Work Ombudsman and its predecessor organisations. It also referred to documents used in previous court cases involving the second respondent concerning similar complaints. 32 Based on the affidavit, and the history of complaints against the first and second respondents, the applicant submitted that a heavy penalty was called for. 33 One difficulty about this material was that the evidence of previous complaints was obviously hearsay, and untested. I am not able to give this material any particular weight. In any event, its possible prejudice outweighs any probative value it might have (Evidence Act 1995 (Cth), s 135). 34 Material referring to the outcome of earlier proceedings in a court, adverse to the respondents, is relevant to dispel any claim to a previously unblemished record, but no such claim was made by the respondents in the present case. 35 However, the business practice revealed directly in the present case of setting up supposed labour hire companies (to which the affidavit material gave additional colour, but not extra weight) deserves censure and reflection in the penalties I fix. It can have no legitimate purpose (at least none was suggested) and is an aggravating aspect for which each of the first, second and third respondents must bear responsibility.

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