Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd

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:

1. The applicant shall file and serve submissions on penalty, and evidence by 18 March 2016.
2. The first and third respondents shall file and serve submissions, if any, on penalty, and evidence, if any, by 29 April 2016.
3. The applicant shall file and serve any submissions in reply by 6 May 2016.
4. 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.
5. 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.

Legislative provisions 15 Sections 357 and 358 of the FW Act are located in Chapter 3, Part 3-1, Division 6 of the FW Act, headed 'sham arrangements' but the practices they cover are more commonly known as sham contracting. 16 Section 357 of the FW Act prohibits an employer misrepresenting an employment relationship as an independent contracting relationship. Section 358 of the FW Act prohibits an employer from threatening to dismiss (or dismissing) an employee who performs particular work for the employer, in order to engage the employee as an independent contractor. 17 In Australian Building and Construction Commissioner v Inner Strength Steel Fixing Pty Ltd [2012] FCA 499 at [14], I outlined the purpose of s 357 and the predecessor provision to s 358 of the FW Act as follows: The legislature has prohibited the practice of sham contracting because it undermines the protections afforded to employees by Australian industrial relations laws and instruments. Sham contracting arrangements enable employers to avoid legal obligations such as payment of payroll tax, workers compensation premiums, employee entitlements and superannuation contributions. 18 Given the serious nature of the contraventions and the facts in this matter, the FWO submits that the contraventions are deserving of substantial penalties. I accept this submission. 19 Indeed, in ABCC v Inner Strength, I observed that "[t]he penalty regime established for sham contracting arrangements…is indicative of the seriousness with which the legislature views this type of conduct."

Factual background 20 Again, the relevant factual background was uncontentious. The following is a relevant summary drawn variously from the reasons of the first instance judgment and of the Full Court as well as the High Court. 21 Quest operated a business in 2009 known as the Quest on Arlington in South Perth (Quest on Arlington), providing serviced apartment accommodation. Luchmaya was employed by Quest at Quest on Arlington as its Manager from mid-2009 until November 2010. 22 In 2007, Quest employed Best and Roden as housekeepers. On 18 March 2009, Buttrum-Virco started work at Quest as a receptionist (collectively, the Employees). 23 In mid to late 2009, Luchmaya, as a Manager for Quest, contacted a representative of the second respondent, Contracting Solutions Pty Ltd (Contracting Solutions) which operated a contract labour hire business utilising the Odco system. 24 Various meetings occurred between representatives of Quest (primarily Luchmaya) and Contracting Solutions (primarily the fourth respondent, Konstek) in September and early October 2009 with a view to Quest engaging Contracting Solutions to implement its contracting system for housekeeping and reception staff working at Quest's business. 25 The process by which the Employees would be "converted" into independent contractors working at Quest was agreed to be managed by Contracting Solutions on behalf of Quest. The object of the exercise was that the Employees would continue to perform the same work for Quest as they were performing, but rather as independent contractors under Contracting Solutions' system and not as employees.

Best and Roden 26 In October 2009, Quest and Contracting Solutions entered into the contracting relationship described above. Best and Roden signed what was known as a "Contractor Application" with Contracting Solutions. 27 Once the arrangement was implemented, Best and Roden performed the same housekeeping work and in the same manner as they had as employees, and remained under the control and direction of Quest. The only difference was that they were paid by Contracting Solutions.

Buttrum-Virco 28 Buttrum-Virco did not attend the initial meetings with Contracting Solutions referred to above, and had an individual meeting with a representative of Contracting Solutions. 29 At the meeting, it emerged that Buttrum-Virco intended to move to Melbourne in the near future. She was told by the representative of Contracting Solutions that, "there is probably not much point in you [becoming an individual contractor], it would be better for you to stay an employee." 30 Buttrum-Virco felt insecure about the meeting. She signed the "conversion documentation", but did not fill out any details, and gave it to Luchmaya at her next shift. 31 In late November 2009, Buttrum-Virco had a discussion with Luchmaya. He noted that Buttrum-Virco had not completed the "conversion documentation". Luchmaya threatened Buttrum-Virco saying to her, "if you don't fill out the last few pages you won't get paid." 32 On 1 December 2009, as a result of that threat, Buttrum-Virco completed the conversion documentation and signed it. 33 Immediately after Buttrum-Virco completed the documentation, Luchmaya, on behalf of Quest contacted Contracting Solutions and advised that Quest no longer required Buttrum-Virco's services. Buttrum-Virco received a letter to this effect on 5 December 2009.

Factors relevant to penalty 34 Generally and relevantly any penalty imposed must be proportionate to the offence and in accordance with prevailing standards of punishment and will have regard both to specific and general deterrence: Ponzio v B&P Caelli Constructions Pty Ltd (2007) 158 FCR 543 at [93]. Indeed deterrence is a significant consideration and will frequently be of primary importance in fixing pecuniary penalties: Director, Fair Work Building Industry Inspectorate v Construction, Forestry Mining and Energy Union (2015) 229 FCR 331 at 359 [71]. 35 The Court requires, by a process described as "instinctive synthesis" in Australian Opthalmic Supplies Pty Ltd v McAlary Smith (2008) 165 FCR 560 at 567-568 [27] and 572 [55], to take into account all relevant factors and to arrive at a single result which takes due account of them all. 36 The FWO submits the following procedure should be undertaken in determining the appropriate penalties to impose.

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.

Maximum penalty 44 The maximum penalty for a contravention of these provisions is 300 penalty units for a body corporate and 60 penalty units for an individual. As at the time of the contraventions, the value of a penalty unit, as provided for in s 4AA of the Crimes Act 1911 (Cth) was $110. 45 The maximum penalties the Court may impose on Quest, as a body corporate are: (a) $33,000 (300 penalty units) for contravening s 357(1) of the FW Act by representing to Best that the contract of employment under which she was employed by Quest was a contract for services under which she performed work as an independent contractor: ss 539(2), Item 11 and 546(2)(b) of the FW Act. (b) $33,000 (300 penalty units) for contravening s. 357(1) of the FW Act by representing to 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: ss 539(2), Item 11 and 546(2)(b) of the FW Act; and (c) $33,000 (300 penalty units) against Quest for contravening s. 358 of the FW Act by threatening to dismiss 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: ss 539(2), Item 11 and 546(2)(b) of the FW Act. 46 The maximum penalty which may be imposed on Luchmaya, as an individual, is $6,600 (60 penalty units), for his involvement in Quest's s 358 contravention within the meaning of s 550 of the FW Act as referred to in [13] of these reasons: ss 539(2), Item 11 and 546(2)(a) of the FW Act.

Factors relevant to determining of penalties 47 In Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357 the plurality Full Court at 374-375 [57]-[58] adopted a non-exhaustive list of factors that are potentially relevant to the imposition of a penalty as set out by Mowbray FM in Mason v Harrington Corporation Pty Ltd [2017] FMCA 7 at [26]-[59] and previously adopted by Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14 at [14]: (a) the nature and extent of the conduct which led to the breaches; (b) the circumstances in which that conduct took place; (c) the nature and extent of any loss or damage sustained as a result of the breaches; (d) whether there had been similar previous conduct by the defendant; (e) whether the breaches were properly distinct or arose out of the one course of conduct; (f) the size of the business enterprise involved; (g) whether or not the breaches were deliberate; (h) whether senior management was involved in the breaches; (i) whether the party committing the breach had exhibited contrition; (j) whether the party committing the breach had taken corrective action; (k) whether the party committing the breach had cooperated with the enforcement authorities; (l) the need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and (m) the need for specific and general deterrence. 48 The summary is a convenient checklist, but it does not prescribe or restrict the matters which may be taken into account in the exercise of the Court's discretion: Australian Ophthalmic Supplies at [91] per Buchanan J, adopted with apparent approval by the plurality in Plancor at 375-376 [58].

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.

Nature and extent of the conduct and circumstances in which it occurred 53 The nature and extent of the contravening conduct and circumstances in which it occurred are outlined above as well as, in more detail, in both the FCA Decision and the FCAFC Decision.

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.

Whether there had been similar previous conduct by the respondents 60 The FWO does not submit that there had been any similar previous conduct by Quest or Luchmaya and accepts that this fact will weigh against the need for specific deterrence.

Whether the contraventions were distinct or arose out of the one course of conduct 61 I have already concluded that the contraventions were each distinct such that separate penalties should be imposed for each contravention. 62 No course of conduct arises.

Size of the business enterprise involved 63 At all material times, Quest carried on the business of providing serviced apartment accommodation in South Perth. 64 The FWO does not understand Quest (under this specific entity) any longer to be involved in such activities. 65 The FWO does not otherwise have evidence regarding the current respective financial positions of Quest and Luchmaya.

Deliberateness of the contraventions 66 Quest's contravention of ss 357(1) and 358 of the FW Act were deliberate and conscious acts designed to circumvent industrial relations legislation and the protections they provide. 67 As the FWO submits, the deliberate nature of the contraventions was borne out in correspondence between Konstek of Contracting Solutions to Luchmaya, on behalf of Quest written prior to the implementation of the arrangement in which Konstek advised that, Quest, "would no longer 'be governed by IR law' and they would 'no longer need to worry about….employment related issues' including penalty and overtime rates, 'unfair/unlawful dismissal', 'industrial relations legislation' and sick leave." 68 I find, as the FWO submits that Quest's strategy to "convert" the Employees was well considered by it. The conversion of Buttrum-Virco from employee to independent contractor was implemented with the specific intent to allow Quest to terminate her employment without risk of unfair dismissal and to remove her other entitlements. 69 In addition, Best and Roden believed that they had little option but to convert to independent contractors if they wanted to remain working at Quest. 70 In the implementation of the arrangement, Quest relied on the information provided by Contracting Solutions and on Luchmaya to check that the information was true and correct. The decision and actions of Luchmaya, as General Manager, was for and on the behalf of Quest. Quest made no additional inquiries about the legality of the arrangement that it entered into with Contracting Solutions.

Involvement of senior management 71 Derek Haayema (Haayema), who was a director of Quest, was not closely involved in the process and essentially left the arrangements between Quest and Contracting Solutions up to Luchmaya. 72 Luchmaya was the responsible General Manager at Quest at the relevant times. He was intimately involved in the process and set about engaging Contracting Solutions and was largely personally responsible for the implementation of the unlawful system put into place. This I find demonstrates the deliberate nature of Luchmaya's unlawful conduct: see ABCC v Inner Strength at [21].

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.

Ensuring compliance with minimum standards 81 The FWO submits that ensuring compliance with minimum standards is an important consideration in this case. He submits that one of the principle objects of the FW Act is the maintenance of an effective safety net of employer obligations and effective enforcement mechanisms and that the substantial penalties set by the legislature for contravention of such obligations reinforce the importance placed on compliance with minimum standards: see the objects outlined in s 3 of the FW Act. 82 The FWO contends that the Court should have regard to the observations of Bromberg J in Fair Work Ombudsman v A Dalley Holdings Pty Ltd [2013] FCA 509 where his Honour said, at [19]: In imposing a penalty, it is imperative for the Court to impose a penalty that reinforces the fundamental importance of compliance with the safety net of entitlements specified by the National Employment Standards and the general protection provisions of the FW Act. 83 Earlier in Fair Work Ombudsman v Maclean Bay Pty Ltd [2012] FCA 557 at [29], Marshall J observed, "rights are a mere shell unless they are respected." 84 It is also vital to recognise the importance of maintaining a level playing field for all employers in an industry, with respect to wage costs. As was observed by McKerracher J in the FCA Decision at [2] those employers who fail to comply with minimum obligations, including through sham contracting arrangements, gain unfair competitive advantage over those employers who do comply with their obligations.

Specific deterrence 85 The FWO is unaware of any prior, or subsequent, contraventions of industrial legislation by either Quest or Luchmaya. The FWO accepts, correctly, in my view, that this counts against any strong need for specific deterrence. 86 However, specific deterrence is still of significance and the penalty must be sufficient so as to deter Quest and Luchmaya from engaging in further unlawful conduct of this type: ABCC v Inner Strength at [31].

General deterrence 87 I accept the submission by the FWO that by reason of the unfair advantage that sham contracting provides a company over its competitors, it is necessary for the penalties to "reflect the objective seriousness of this type of conduct to act as a deterrent to others who might be likely to engage in contraventions.": ABCC v Inner Strength at [30] affirming Ponzio 158 FCR 543 at 557 [93]. 88 The sham arrangement provisions are, I accept, important provisions that protect employees from unscrupulous employers. 89 The FWO contends that general deterrence is of significant importance in a case such as this and that the penalties in this case should be imposed on a meaningful level so as to deter other employers from committing similar contraventions.

Totality 90 Once an appropriate penalty for each course of conduct is arrived at, the Court should take a final look at the aggregate penalty to determine whether it is an appropriate response to the conduct which led to the contraventions, and is not oppressive or crushing: Kelly v Fitzpatrick (2007) 166 IR 14 at 21-22 [30]; Australian Ophthalmic Supplies at [23], [71], [96],-[97] and [102]. 91 The FWO submits that the penalties proposed are appropriate and proportionate in the circumstances.

Appropriate penalties 92 The determination of the appropriate penalty to be imposed on Quest and Luchmaya is ultimately a matter for the Court. 93 As the FWO correctly submits in light of the High Court's recent decision in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476, the FWO may make submissions to the Court as to the appropriate penalties to be imposed. 94 The FWO submits that, taking account of the relevant principles and the unlawful conduct found to have been engaged in, the following penalties are appropriate. The maximum penalties in force at the time of the relevant conduct giving rise to the contraventions:

Quest Provision Contravened Maximum Penalty Proposed penalty - Percentage of Maximum Proposed Penalty s 357(1) of the FW Act (by representing to Best that the contract of employment under which she was employed by Quest was a contract for services under which she performed work as an independent contractor) $33,000 50% $16,500 s 357(1) of the FW Act (by representing to Roden that the contract of employment under which she was employed by Quest was a contract for services under which she performed work as an independent contractor) $33,000 50% $16,500 s 358 of the FW Act (by threatening to dismiss 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) $33,000 65% $21,450

Luchmaya Provision Contravened Maximum Penalty Proposed penalty - Percentage of Maximum Proposed Penalty s 359 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) $6,600 65% $4,290

95 I am satisfied that the penalties proposed are appropriate and, in their totality, are neither oppressive, nor crushing.

Orders 96 There will be orders accordingly. I will also order, pursuant to s 546(3)(a) of the FW Act, that the penalties be paid to the Commonwealth. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.