Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd

Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd - [2017] FCA 580 - FCA 2017 case summary — Zoe

Background 1 The following reasons address the issue of penalties in respect of each of the respondents for contravention of certain provisions of the Fair Work Act 2009 (Cth) (FW Act). It will be helpful to set out the background to the litigation which has led to this point as well as the relevant law. Neither is controversial and both are substantially drawn from the written submissions as to penalty made on behalf of the Fair Work Ombudsman (FWO). 2 Declarations as to liability were made against the first respondent, Quest South Perth Holdings Pty Ltd (Quest), and the third respondent, Mr Ashvin Luchmaya (Luchmaya), as set out in the judgments of the Federal Court and High Court dated 14 June 2013 and 2 December 2015, respectively: Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (No 2) [2013] FCA 582 (FCA Decision) and Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (2015) 256 CLR 137. (HCA Decision). 3 The FWO commenced these proceedings on 27 May 2011. In the Amended Application dated 15 September 2011, the FWO sought the imposition of declarations and penalties arising from alleged contraventions of ss 357 and 358 of the FW Act by the respondents. 4 At the liability hearing, McKerracher J made findings of contravention of s 358 by each of Quest and Luchmaya, but otherwise dismissed the claims made against them as well as against the second and fourth respondents. Consequently on 26 July 2013 his Honour made declarations that: (a) the first respondent contravened s 358 of the Fair Work Act 2009 (Cth) (FW Act) by threatening to dismiss Jessica Buttrum-Virco (Buttrum-Virco) in order to engage her as an independent contractor to perform the same, or substantially the same, work under a contract for services (Quest's s 358 contravention); and (b) the third respondent is taken to have also contravened s 358 of the FW Act, in that he was involved in Quest's s 358 contravention within the meaning of s 550 of the FW Act. 5 On 15 August 2013, the FWO filed a notice of appeal concerning the findings in relation to s 357 of the FW Act. On 17 March 2015, the Full Court of this Court dismissed the FWO's appeal: Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (2015) 228 FCR 346 (FCAFC Decision). 6 On 12 May 2015, McKerracher J ordered in this proceeding that: The determination of any penalties imposed against the First Respondent and Third Respondent be stayed pending the application for special leave to appeal in P16 of 2015, and, if special leave is granted, pending the resolution of the High Court appeal. 7 On 14 August 2015, the FWO was granted special leave to appeal to the High Court of Australia in relation to part of the Full Court's decision. 8 On 2 December 2015, the High Court unanimously allowed the FWO's appeal and set aside the Order of the Full Court made on 17 March 2015. The High Court ordered that: (a) the appeal be allowed; (b) the order of McKerracher J made on 26 July 2013 be varied so that, in addition to the declarations contained in paragraphs 1 and 2 of the order, the following declarations be made: "2A. The first respondent contravened s 357 of the FW Act by representing to Ms Margaret Best (Best) that the contract of employment under which she was employed by the first respondent was a contract for services under which she performed work as an independent contractor"; "2B. The first respondent contravened s 357 of the FW Act by representing to Ms Carol Roden (Roden) that the contract of employment under which she was employed by the first respondent was a contract for services under which she performed work as an independent contractor"; and (c) the proceeding be remitted to a judge of the Federal Court for further hearing to determine any pecuniary penalties to be imposed on the first respondent in respect of those contraventions. 9 The issue of penalties in this matter is to be determined by this Court pursuant to the orders made by the High Court in relation to the s 357 contravention by Quest. The determination of penalties concerning the s 358 contraventions by Quest and Luchmaya which were stayed by McKerracher J pending the resolution of the appeal to the High Court also fall to be determined. 10 I made the following orders on 4 February 2016:

The applicant shall file and serve submissions on penalty, and evidence by 18 March 2016.
The first and third respondents shall file and serve submissions, if any, on penalty, and evidence, if any, by 29 April 2016.
The applicant shall file and serve any submissions in reply by 6 May 2016.
The final orders shall be determined on the papers, unless a party notifies the Associate to his Honour Justice Gilmour, in writing, by 11 May 2016 that they require an oral hearing.
There shall be no order as to costs. 11 The FWO filed written submissions on 18 March 2016. No submissions were filed by the first and third respondents. 12 The FWO seeks the imposition of pecuniary penalties on Quest for the following contraventions of the FW Act: (a) two contraventions of s 357 of the FW Act by representing to Best and Roden, who were employed as housekeepers at Quest, that the contracts of employment under which they were employed were contracts for services under which they performed work as independent contractors; and (b) one contravention of s 358 of the FW Act by threatening to dismiss Buttrum-Virco, a receptionist employed by Quest, in order to engage her as an independent contractor to perform the same, or substantially the same, work under a contract for services. 13 Further, the FWO seeks the imposition of a pecuniary penalty on Luchmaya for his involvement in Quest's contravention of s 358 of the FW Act, within the meaning of s 550 of the FW Act. 14 No claim for penalty is pursued against either the second or fourth respondents, and nor could it be on the basis of the Full Court dismissing the FWO's appeal against those respondents, and those parts of the Full Court's decision not being the subject of appeal to the High Court.

[8]

Grouping of contraventions and course of conduct provisions 37 The course of conduct provisions in s 557(1) of the FW Act apply only to contraventions of the provisions listed at s 557(2). The list is comprised of contraventions which involve payments to employees. The list specifically does not include ss 357 or 358 of the FW Act or any other provisions in Part 3-1 of the FW Act. 38 Accordingly, the statutory course of conduct provision in s 557 does not apply to sham contracting contraventions. This has been recognised in respect of both s 557 of the FW Act and its equivalent in the Workplace Relations Act 1996 (Cth) (WR Act), s 719(2), in Fair Work Ombudsman v EA Fuller & Sons Pty Ltd [2013] FCCA 5 at [31] and Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 at [14]. However, the FWO acknowledges correctly, in my opinion, that grouping principles can still apply to such contraventions: Pearce v The Queen (1998) 194 CLR 610 at 623 [40] cited with approval in the context of the WR Act in Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith at 571 [46]. 39 Each separate representation to an employee is a contravention of s 357(1) of the FW Act. Accordingly in respect of Best and Roden there are two contraventions of the provision and one contravention in relation to Buttrum-Virco. 40 It is open to the Court to group separate contraventions together where the contraventions may be said to overlap with each other or involve the potential punishment of the respondents for the same or substantially similar conduct: Fair Work Ombudsman v Tiger Telco Pty Ltd (in liq) [2012] FCA 479 at [24]. In Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [41]-[46], the Full Court specifically applied this principle in circumstances where a course of conduct provision similarly did not apply to the conduct in question before the Court. 41 The FWO submits and I accept that the conduct the subject of the contraventions of s 357(1) of the FW Act should be treated as two separate and distinct courses of conduct for the purposes of imposing a penalty on Quest. The FWO submits that at the liability hearing the FWO was required to prove that misrepresentations were made to each employee, including to each employee at different points in time signing documentation relating to their purported conversion and by Quest's conduct after the "conversion" of Best and Roden. 42 As the FWO submits, the effect of the contravention of s 357(1) of the FW Act was real and significant for each of the relevant employees, being Best and Roden: each was a different victim of the conduct of Quest, and the conduct in relation to each should be treated separately for the purposes of determining penalties. 43 The contravention of s 358 of the FW Act arises out of different factual circumstances to the contraventions of s 357(1) of the FW Act. Accordingly, I accept the submission put on behalf of the FWO that the contraventions should not be grouped.

[11]

The nature of the loss or damage sustained as a result of the contraventions 49 As the FWO observed the contraventions the subject of these proceedings, resulted from Quest's strategy and desire to engage the employees as independent contractors so their rights and entitlements would not be protected by industrial relations legislation. It was a term of the proposal presented to Quest that the employees who were converted would not be subject to industrial relations legislation, awards or other employment entitlements. 50 The FWO submits correctly, in my opinion, that the impact of sham contracting contraventions is that workers believe that they are deprived from the wide ranging entitlements afforded to employees, including minimum rates of pay, annual leave, personal leave, long service leave, parental leave, superannuation, workers compensation, notice upon termination of employment and eligibility to access other protections such as unfair dismissal applications, general protections applications or an application for an order to stop bullying. 51 The FWO, in support of this last submission referred to the statutory framework and also called in aid the following: (a) the Explanatory Memorandum, Independent Contractors Bill 2006 (Cth) which at p 20 notes: "[T]he Government will not tolerate exploitation of workers who would be treated as employees under industrial laws [and not imposing penalties] would allow unprincipled employers to avoid paying their workers their legal entitlements. Consequently, unscrupulous employers could undercut honest employers when providing similar services resulting in significant disadvantage to those law-abiding businesses." (b) the Minister for Employment and Workplace Relations' statement as follows in his concluding remarks on the parliamentary debate in respect of the introduction of the sham contracting contravention: "While the government fully supports genuine independent contracting arrangements, it will not tolerate the use of sham arrangements and considers that people found to have knowingly disguised an employment relationship in this way should be subject to penalties. The government has demonstrated this by proposing four new penalty provisions. These would apply to employers who knowingly seek to disguise employment relationships as independent contracting arrangements. They would also apply to employers who deceive employees in order that they become independent contractors or who dismiss or threaten to dismiss a person for the purpose of engaging them as an independent contractor to perform substantially the same work. (emphasis added)"; and (c) the Minister's statement in the second reading speech in respect of the penalties proposed that, "[t]hese penalties will send a clear message to employers that this sort of unscrupulous behaviour will not be tolerated" (emphasis added). 52 McKerracher J in the FCA Decision observed at [2]: The vice of this conduct is that it unfairly deprives workers of the benefits of employment and undermines the effective operation of the system established by the [FW Act] and other industrial legislation. Additionally, it arguably distorts competition to the disadvantage of employers who honour their statutory obligations.

[13]

The extent of the loss or damage as a result of the contraventions 54 As the FWO submitted the impact on the Employees was significant. The consequence of Quest and Luchmaya's conduct was that Buttrum-Virco was terminated from her position as a receptionist. After Buttrum-Virco was "converted" to an independent contractor, she did not receive any further shifts and thus lost all income she would have earned had she been working for Quest. 55 The FWO accepts that Buttrum-Virco was planning to move to Melbourne a short while after the conduct, and around the time of her purported conversion, concentrating on university examinations. The FWO submits that this factor carries no weight in the assessment of the appropriate penalty to be imposed, particularly when considering the need for general deterrence. Rather, such a fact may have been relevant to an assessment of compensation if that was sought, but it is not. I accept these submissions. 56 Best and Roden, I accept, also suffered financial and non-financial loss as a result of the contraventions of Quest. After their "conversion", Best and Roden were paid a flat rate of pay by Contracting Solutions. That rate did not make provision for entitlements such as overtime, Saturday, Sunday and public holiday penalties. 57 I also accept the submission that the arrangement also had non-financial consequences as the "conversion" likely meant that Best and Roden were deprived of the basic protections and conveniences that Australian employees would ordinarily be entitled to, for example the deduction of taxation payments. 58 In this respect, in ABCC v Inner Strength, at [19] I observed that in relation to quantification of loss that: …such quantification is not an easy task. For example, a contractor who does not have recourse to paid sick leave is more likely to work when sick than an employee who has an entitlement to sick leave. 59 The FWO submits that in addition to any monetary loss suffered, the Employees necessarily lost numerous statutory protections and the Court should take into account these potential additional losses when considering the penalty to be imposed. I accept this submission.

[19]

Contrition, corrective action and co-operation with enforcement authorities 73 Aside from Quest filing a defence, and Luchmaya an amended defence, neither party has actively defended the FWO's application. 74 Quest and Luchmaya did not participate in the liability hearing. McKerracher J granted leave to the FWO to proceed against Quest and Luchamaya in their absence at the liability hearing. 75 Quest also did not participate in the Full Court appeal nor in the appeal to the High Court. 76 Quest's and Luchmaya's conduct in failing to admit any contraventions, and ignoring the Court process, put the FWO to the expense of having to prove its case in relation to the s 358 contraventions at the liability hearing, and in relation to Quest, on appeal to the High Court in relation to the s 357 contraventions. 77 It was for Quest to prove any s 357(2) defence. Self-evidently it did not do so. Haayema gave evidence at the liability hearing, but not on behalf of Quest to satisfy s 357(2). Quest's conscious decision not to positively defend the application is indicative, in my opinion, at least of indifference towards the seriousness of the contraventions and the Court process. 78 In relation to the s 357 contraventions by Quest, although the issue was determined in Quest's favour at the liability hearing, and by the Full Court, the issue which ultimately required the determination by the High Court was only first raised by the Full Court. The FWO submits that this factor should not mitigate any penalties which may be imposed on Quest, as no evidence was led by it at liability hearing to the effect that it considered the application of s 357 which was ultimately considered by the High Court, or otherwise sought to satisfy the defence for which if carried the onus in s 357(2). I accept this submission. 79 On about 30 December 2009, Buttrum-Virco received a payment of $1,451 from Quest. This amount was for accrued annual leave entitlements owed to her after she terminated her employment to become an independent contractor. The FWO submits that this payment was not corrective of the relevant contraventions and should not be considered as corrective action for the purposes of determining an appropriate penalty. 80 There is otherwise no evidence or indication whatsoever of any contrition or corrective action with enforcement authorities by Quest or Luchmaya.

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (18)