Fair Work Ombudsman v Spotless Services Australia Ltd

Solicitor for the Respondent: Corrs Chambers Westgarth

AND: SPOTLESS SERVICES AUSTRALIA LTD (ACN 005 309 320) Respondent

order made by: COLVIN J DATE OF ORDER: 12 APRIL 2022

1. The respondent pay a pecuniary penalty of $17,500 in respect of its contravention of s 119(1) of the Fair Work Act 2009 (Cth). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 Spotless Services Australia Ltd has been found to have contravened s 119(1) of the Fair Work Act 2009 (Cth) by failing to make redundancy payments to three of its employees when their employment was terminated in June 2015. The Fair Work Ombudsman seeks the imposition of a pecuniary penalty. Spotless accepts that a pecuniary penalty is appropriate. It is common ground that the failure to make the redundancy payments arose out of a single course of conduct such that, applying s 557 of the Act, there is a single contravention. The maximum penalty is $51,000. The Ombudsman submits that the penalty should be $35,700. Spotless submits that the penalty should be $5,100. For the following reasons, I have determined that the appropriate penalty is $17,500.

General matters 2 The Court has a broad discretion when assessing pecuniary civil penalties to be imposed under the Act. Assessment of the appropriate amount requires an instinctive synthesis of the considerations relevant to penalty to arrive at a single result: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 at [54] (Keane CJ, Finn and Gilmour JJ). The required process of assessment is evaluative, not mathematical: Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118. Factors that may be relevant have been listed in the decided cases, but such lists should not be approached as a checklist. 3 The object of the imposition of a pecuniary penalty in such cases 'is primarily, if not wholly protective in promoting the public interest in compliance' by putting a price on contravention that will deter repetition by the contravener and by others who might be tempted to contravene the Act: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [55] (French CJ, Kiefel, Bell, Nettle and Gordon JJ) quoting with approval the explanation by French J in Trade Practices Commission v CSR Ltd [1990] FCA 762. 4 The penalty must also be proportionate in the sense that the maximum is reserved for cases that are adjudged to be of the requisite degree of seriousness based upon an assessment of the spectrum of contraventions such that, all other things being equal, higher penalties are to be imposed for conduct that, viewed objectively, is a more serious breach of the law: Pattinson v Australian Building and Construction Commissioner [2020] FCAFC 177; (2020) 282 FCR 580.

The nature of the contravention in the present case 5 Spotless forms part of a group of companies that provide facilities services on a contract basis (Spotless Group). At the time of the contravention, companies in the Spotless Group employed approximately 27,000 people of whom approximately 13,600 were employed by Spotless. 6 Spotless, as with other companies in the Spotless Group, usually secured its contracts with customers through a competitive process involving a tender, bid or negotiation. Contracts with customers for supply of facilities services are usually for a term of years. At the relevant time, when a particular contract came to an end efforts were made to redeploy the employees who had been performing the work required to provide the services to other work within the Spotless Group. Where that was not possible, the term of employment was brought to an end for reasons of redundancy. 7 Mr Campilan was a long standing employee of Spotless. In 1993 he was transferred to undertake work at Perth International Airport as an accountant. In 2012 he received a letter congratulating him on 30 years of service. In 2015, Mr Campilan was still working for Spotless at the Perth International Airport. He was considering a switch to part time employment. At the time, he sought clarification by email about how the move to part time work would affect redundancy if and when it applied to him. He received the following response: Firstly we would look to redeploy, if redundancy were to happen you would get whatever you would be legally entitled to I believe that being either part time or full time won't make a difference, it's about years of service, AL not used, notice periods I can't exactly say however, I've put the fair work link below if this helps 8 Mr Campilan commenced part time employment on 9 February 2015. In June 2015 he was told formally that the Spotless contract at Perth International Airport was to terminate on 24 June 2015 and his employment would be terminated a month later 'as a consequence of ordinary and customary turnover of labour'. 9 Mr Campilan's employment was terminated without redundancy pay. On 1 December 2017, almost two and half years after being told his employment was terminated, he was paid $10,126.80 by Spotless without admitting that it had any liability to do so. 10 Similar circumstances applied to two other employees, Ms Wright and Mr Ramble although the duration of their employment was much less than that of Mr Campilan (in each case being over four years of service). 11 As at 2014, many employees in the Spotless Group were employed on a permanent ongoing basis. In October 2014, Spotless changed its policy concerning the duration of employment. The change was to the effect that in the future Spotless would be implementing a policy whereby the term of employment was 'reflective of the contract term with the client'. The memorandum advising the change in policy described the then current position in the following way: Currently, the employment structure of staff is not aligned with the nature of our business in the most employees are employed on a permanent ongoing contract of employment when the work they are performing is for delivery of services to our customer; which is subject to a fixed term service contract with that customer. Subsequently, when a service contract comes to an end, the Company is required to find suitable alternative employment or be subject to payment of redundancy pay. 12 The new policy stated that there would be no change to employment of existing staff. 13 The employment of those working at Perth International Airport came to an end in stages in 2014 and 2015. In the first stage, employees who could not be redeployed were paid redundancy. After 5 November 2014, no employee was paid redundancy pay. The relevant employees were told that there had been a change in the law and redundancy pay was not payable where the termination of employment was due to the ordinary and customary turnover of labour. The statement to that effect was false. There had been no change in the law. 14 The terminology 'ordinary and customary turnover of labour' reflects the terms of s 119(1)(a) of the Act which creates an exception from the statutory protection in respect of redundancy pay where the redundancy 'is due to the ordinary and customary turnover of labour'. 15 Significantly for present purposes, reliance upon the exception for existing employees was a very different approach to the terms of the new policy adopted to align the term of employment contracts for future employees with the term of the facilities services contracts that Spotless had with its employees. It was a significant change in the way existing permanent employees were to be treated when it came to redundancy. 16 The Ombudsman conducted an investigation. It was only after those steps were taken that redundancy payments were made to the three employees. The payments were made without admission of liability but on the basis that steps would not be taken to recover the amounts even if Spotless was successful in proving that redundancy pay was not due to its employees. The Ombudsman then brought proceedings against Spotless alleging, amongst other things, contravention of the Act by failing to pay redundancy pay. 17 For reasons delivered in January 2019, I determined that the exception to s 119(1)(a) did not apply to the circumstances of the three employees: Fair Work Ombudsman v Spotless Services Australia Ltd [2019] FCA 9. That view was confirmed on appeal: Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113; (2020) 279 FCR 249. The appeal also upheld a similar result in United Voice v Berkeley Challenge Pty Limited [2018] FCA 224 (Berkeley Challenge (No 1)). Berkeley Challenge Pty Limited is another company in the Spotless Group. It had adopted the same approach to redundancy pay as Spotless, namely it maintained that the exception for ordinary and customary turnover of labour applied. 18 Therefore, Spotless sought to justify its actions based upon the interpretation of the legislation. Both at first instance and on appeal, its construction of the exception to s 119(1)(a) was not accepted. It also contended that it had adopted a practice of applying the exception prior to November 2014. That aspect of its case was also not accepted: Spotless Services at [174].

Seriousness of the conduct 19 There is no suggestion that the failure to pay redundancy pay occurred by reason of some error or oversight or even some inadequacy in payroll systems within the Spotless Group. It occurred because of a conscious and deliberate decision not to make the payments despite employees having been paid redundancy pay in equivalent circumstances in the past. Indeed, as has been noted, redundancy payments were made to other employees who worked at Perth International Airport who were involved in the first stage of terminations as a result of the relevant facilities services contract not being renewed. 20 In the case of Mr Campilan, he had been an employee for a very long time. In those circumstances, the conduct was particularly harsh in depriving him of the financial protection from the burden of forced termination of his employment after many years of service. It was also contrary to what he had been told a few months earlier when switching to part time employment. 21 The only explanation for the conduct itself is the reliance upon the statutory exception. No evidence was presented for Spotless explaining the circumstances in which a decision was taken to rely upon the exception despite previously having paid redundancy to employees in the circumstances of the Mr Campilan, Ms Wright and Mr Ramble. The adoption of the new policy in 2014 was not an explanation for that approach because the policy only applied to new employees who were to be hired for a contract term that coincided with the duration of the particular facilities services contract for which they were required. The only contemporaneous explanation the subject of evidence was the false statement that there had been a change in the law. Even at the present stage of determining the appropriate pecuniary penalty, there is a complete absence of evidence of any advice or analysis at the time that caused Spotless to change its approach to making redundancy payments to its existing employees. 22 On the evidence, senior management were involved in adoption of the policy. Further, nearly two and half years elapsed before any of the redundancy payments were made during which time it may be safely assumed, given the involvement of the Ombudsman, that senior management supported the approach that had been taken. I infer that decisions concerning how to deal with the investigation by the Ombudsman were taken by senior management. 23 Submissions were advanced for Spotless to the effect that there was no basis to find that the view as to what the law required was not formed and acted upon honestly or without regard to obligations to comply with the Act. Implicit in these submissions is the suggestion that it was for the Ombudsman to establish such matters of mitigation. I do not accept that to be the position. The contraventions have been established. They did not depend upon the state of mind of Spotless. What the submissions expose is the failure by Spotless to lead any evidence by way of explanation for the position that it adopted. It also failed to deal with the false explanation provided for not paying redundancy pay. 24 The further submission advanced is to the effect that there is no basis to conclude that the view of the law on which Spotless defended the claim was not reasonable. This aspect is dealt with separately below. For the reasons given, this is not a case where the reasonableness of the legal argument advanced is a matter that should count in any significant way as a reason to impose a lesser pecuniary penalty than the circumstances might otherwise indicate. 25 Otherwise as to seriousness, it may be accepted that the conduct affected a small number of employees within a very large business. However, the conduct was not isolated. It was sought to be justified on the basis that it was an approach that was appropriate for Spotless to take in respect of a large number of employees. But for the actions of the Ombudsman it may be assumed that Spotless and other companies in the Spotless Group would have applied the interpretation of the law for which it contended. As the decision in Berkeley Challenge v United Voice makes plain, it was a decision that was taken on the basis that it would be applied across the Spotless Group. 26 For those reasons, I find that the conduct itself is at the lower end of moderate seriousness.

Reasonableness of the case advanced by Spotless 27 It may be accepted that there was a reasonable basis for the legal argument that was advanced concerning the exception. It found some support in the decision in Compass Group (Australia) Pty Ltd v National Union of Workers [2015] FWCFB 8040; (2015) 253 IR 32 at [20]-[27]. Equally, there was very real uncertainty as to whether the exception applied as broadly as the case advanced for Spotless maintained. The case for Spotless was to the effect that all turned on its own business practices when it came to termination. Cases which were against that legal aspect of the claim by Spotless included: Transport Workers' Union v Veolia Environmental Service (Australia) Pty Ltd [2013] NSWIRComm 22; and Fashion Fair Pty Ltd v Department of Industrial Relations (Inspector Rouse) (1999) 92 IR 271. 28 However, before considering whether the reasonableness of the legal argument advanced for Spotless is a matter that ameliorates the seriousness of the conduct and hence the quantum of the penalty, it must be noted that Spotless did not succeed on significant factual aspects of its claim which were to the effect that its employees were terminated when the facilities services contracts with its customers were not renewed. In that regard, I made factual findings as follows at [152]-[155]: Spotless did not have a practice of terminating the employment of all employees upon each customer contract coming to an end. A considerable proportion of customer contracts throughout the Spotless Group are not renewed at the end of their term. So, the end of work for a particular customer is a relatively common occurrence. In the business and industry sector (being the sector applicable to the contracts with the Perth International Airport) about a quarter of the contracts come to an end without renewal each year. So, loss of contracts is a regular part of the business of companies in the Spotless Group. Similarly, securing new contracts is a regular part of their business. Within the Spotless Group, customers who are undertaking a job required to perform a particular contract are known as 'contract requirement employees'. There was no evidence that this was a term used in regular communications with those employees. It is not usual for contract requirement employees to be moved from working under one contract to another during the course of the contract. The contracts entered into by Spotless with employees do not indicate that the contracts will come to an end when the contract with a particular customer comes to an end. In the course of the proceedings, the Spotless Group produced 1,062 agreements with its employees recording the terms and conditions of the employment of 839 employees who had been paid redundancy pay in the period 1 January 2015 to 31 July 2015. For most of those employees there was no reference to the customer contract and there were terms providing that the employee could be directed to work at another location, on other duties for other Spotless Group companies and no express term relating to redundancy or severance pay. A considerable number contained a term that provided for severance or redundancy pay. Only five contained a term that severance or redundancy pay was not payable on the expiry of a specified term (noting that they were, despite such a provision, actually paid redundancy pay). A further seven referred to the exception for ordinary and customary turnover of labour but did so when referring to the entitlement to redundancy pay under the Standards. 29 Therefore, it may be questioned whether the reasonableness of its legal argument explains the conduct of Spotless. Its conduct, as found, was not consistent with the legal claim it made concerning what it alleged to be a normal feature of its business. Many employees were redeployed to work on other contracts. It was not a customary business practice for Spotless to terminate all of its employees who were undertaking work for a particular facilities services contract when that contract was not renewed. It was that factual aspect of its case that arguably brought it within the approach in Compass Group and on that aspect it failed on the facts. 30 Further, for the following reasons, I do not accept that this is a case where a genuine and reasonable but mistaken view of the statutory provision ought to lessen the penalty imposed. 31 It was accepted that the case advanced in defence of the alleged contravention relied upon the alleged practices of the Spotless Group as a whole. Spotless Group is a very large enterprise. Its annual revenue is now to be measured in the billions of dollars and it has many thousands of employees. A business of that size seeking to comply with its obligations might be expected to have taken a step as significant as changing its approach to redundancy pay for long standing employees only after taking formal and considered independent legal advice. In order to obtain that advice, Spotless would need to prepare an accurate brief as to its business practices to provide the factual foundation upon which such advice may rest. There is no suggestion that it took such a course or indeed addressed the issue with any considered formality at all. Indeed, the contemporaneous statements to the effect that the actions were justified, for some time, by the proposition that there had been a change in the law (which there had not) together with the fact that the formally recorded policy change in 2014 related only to future employees who were to be employed for a specific term rather suggests that the failure to pay redundancy pay to the three employees in the present case was not taken as a result of any properly informed view as to what the law required. 32 It may be accepted that when it comes to assessing penalty, there are instances where it has been determined that a genuine and reasonable but mistaken view of the statutory penalty is a matter that may lessen the penalty imposed on the basis that it is a matter that goes to the seriousness of the contravention and whether a substantial penalty is needed for the purposes of specific and general deterrence: Australian & International Pilots Association v Qantas Airways Limited [2009] FCA 500; and Australian Building and Construction Commissioner v Powell (No 2) [2019] FCA 972 at [35]. 33 However, the application of a discount when assessing the quantum of a pecuniary penalty on the basis that there is a general principle that a discount should be applied where the conduct was guided by a genuine and reasonable view of the law is not appropriate. Usually a belief in the innocence of conduct that is a contravention of a statute is not an ameliorating factor: Flight Centre Limited v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; (2018) 260 FCR 68; and Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2005] FCAFC 236 at [48]-[49]. 34 Indeed, where the contravening party is aware that there was an appreciable risk that its conduct would contravene such that its conduct involved an element of risk taking, the choice to engage in the conduct in such circumstances may lead the Court to conclude that the fact that legal advice was taken and relied upon is not a matter that should result in any appreciable discount when it comes to assessing the appropriate penalty: Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 at [308]-[310]; and Australian Competition and Consumer Commission v TPG Internet Pty Ltd (No 2) [2012] FCA 629 at [103]-[107]. 35 For completeness, I note that the position may be different where the contravening conduct arises from taking a reasonable view as to the meaning of a term in an industrial instrument where the parties (or those acting on their behalf) have shaped the form of the provision: Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Telstra Corporation Ltd [2007] FCA 1607 at [18]; but compare Construction, Forestry, Mining and Energy Union v Hail Creek Coal Pty Ltd (No 2) [2018] FCA 480 at [15]-[17]. 36 In the present case, there is no evidence as to the relevant position. Further, in my view, on the state of the authorities at the time, proper advice would have identified a real risk that the liability to pay redundancy pay did not depend entirely upon the practice adopted by the employer at the time of termination of employment, being the legal argument advanced. The decision taken was plainly one that was in the commercial interests of Spotless. It was sought to be justified on the basis that it applied to the whole of the Spotless Group. 37 For those reasons, this is not a case where the reasonableness of the legal argument should result in any significant discount.

Consistency and the decision concerning Berkeley Challenge 38 It may be accepted that there should be consistency in the imposition of penalties. The decision in Berkeley Challenge (No 1) concerned a failure to pay redundancy pay to 14 employees. The case was defended on the basis of a similar legal argument. Payments in that case were only made after the case was lost at first instance. The penalty imposed was $4,500, being approximately 9% of the then maximum. On that basis Spotless submits that for reasons of consistency a penalty of $5,100 (or 10% of the current maximum) is appropriate. 39 Ultimately, the reasons of Reeves J concerning the quantum of penalty (United Voice v Berkeley Challenge Pty Limited (No 2) [2018] FCA 1189) were as follows (at [40]-[41]): The redundancy contravention affected 14 employees and also involved a single event uncompounded by any element of repetition or duration. This contravention was based upon an arguable, albeit self-serving, construction of the exception in s 119(1)(a) of the FWA. In this respect, I have had regard to the principles raised in CEPU v Telstra (see at [29] above). I have also had regard to the observations of Rangiah J in the recent decision of Construction, Forestry, Mining and Energy Union v Hail Creek Coal Pty Ltd (No 2) [2018] FCA 480 (at [15]) to the effect that such principles are a 'powerful factor' affecting the exercise of the discretion to decline to impose a penalty, but each case must turn on its own circumstances. In the circumstances of this case, I consider it is appropriate to impose a penalty for the redundancy contravention. Berkeley's decision - which ultimately proved to be misconceived - to attempt to rely on the exception in s 119(1)(a) must have significantly added to the stress and uncertainty that confronted the affected employees. They were about to cease receiving any pay and, because of Berkeley's decision, the 'guaranteed safety net' that had been provided for under the National Employment Standards to assist them to deal with the financial disaster frequently associated with a loss of employment was unilaterally removed. In this respect, it is worth noting that the affected employees were unskilled and generally middle aged or older, with the oldest being 64. They were therefore in that section of the workforce that is particularly vulnerable to losing their jobs. 40 It must be observed that in Hail Creek Rangiah J went on to refer to the principles in Universal Music and their application where a contravener appreciated the risk it was taking and 'takes the odds': at [16]. His Honour found that what was significant in that case was that the respondent knew it was taking a risk that it would be contravening the relevant enterprise agreement but did not take an obvious step to avoid that risk, being to apply for a declaration in the face of a dispute: at [17]. It was not suggested that Spotless could and should have sought declaratory relief in the present case. However, in the present case, as in Hail Creek, for reasons I have given, the risk of contravention was appreciable. There is no suggestion that considered advice was taken. The conduct was justified at the time on the false basis that there had been a change in the law. Further, the factual foundation for the legal argument was not made out. The contemporaneous basis for the conduct of Spotless is otherwise unexplained. 41 I also note that in Berkeley Challenge (No 1) evidence from Mr Potter as to the general approach to redundancy pay in the Spotless Group was accepted. It was to the effect that no redundancy is payable upon a termination of employment due to the 'longstanding ordinary and customary turnover of labour (OCTL) exception' being relied upon: Berkeley Challenge (No 1) at [44]. As has been mentioned, a factual case to the effect that such an approach had been adopted within Spotless and the Spotless Group prior to the events in 2015 when redundancy payments were not made to the three employees was not accepted in the present case. 42 In the above circumstances, despite the fact that Berkeley Challenge and Spotless are both part of the same group and the same legal argument was advanced in both cases, what is exposed in the present case and was not part of the facts before Reeves J is an evident willingness to take a risk by proceeding without a properly informed understanding of the legal obligations. For reasons I have given this is not a case where there has been shown to have been a genuine and reasonable but mistaken view of the law by a party seeking to abide by its obligations (rather than taking a risk as to whether the conduct contravenes). Also, the factual position in present case is materially different to the factual basis upon which penalty was assessed in Berkeley Challenge (No 1). 43 For those reasons, there is no reason to approach the assessment of penalty on the basis that there must be some direct consistency with the outcome in Berkeley Challenge (No 1). Rather, it is appropriate to reflect the differences in the approach to penalty in the present case.

Specific deterrence 44 Three aspects arise concerning specific deterrence. First, the Ombudsman says that there has been a previous history of behaviour by Spotless that is relevant. Second, Spotless says that the conduct relates to only three employees out of many thousands. Third, Spotless says that significant steps have been taken since to improve the systems and procedures of within the Spotless Group. 45 As to previous history, there are two matters raised by the Ombudsman. First, in 2012 Spotless entered into a 'Pro-Active Compliance Deed' with the Ombudsman in which it acknowledged that between January 2006 and October 2011, the Ombudsman had received complaints from approximately 200 employees which had resulted in back-payments of approximately $200,000. However, the voluntary nature of the deed is a matter that indicates that steps were being taken to comply with ongoing obligations. The Ombudsman also points to the matters the subject of the decision in Berkeley Challenge (No 1). They demonstrate that the conduct in relation to redundancy pay was applied more generally across the Spotless Group. 46 The size of Spotless and the Spotless Group when it comes to employees is a matter that is of concern when it comes to specific deterrence. It is the case that the conduct in the present case only related to three employees. However, it was conduct that was sought to be justified on the basis that it was appropriate for the whole of the group. 47 I accept that since the first instance decision in the present case, significant steps have been taken by the Spotless Group to improve compliance and substantial additional resources have been provided within the group, including by employing industrial relations specialists (including three lawyers) to provide advice across the group including to Spotless. A major review has also been undertaken of the processes to be applied when a facilities services contract is not renewed. Training has been introduced for all its employees. These actions mean that there can be some considerable confidence that conduct of the kind that occurred in the present case will not be repeated in the future. Indeed, there is no suggestion that there has been any such repetition in the years that have passed since 2015. Given the size of the Spotless Group, that is a significant factor when it comes to specific deterrence.

Cooperation 48 Spotless points to respects in which it cooperated and made payments to the three employees. Whilst these aspects are favourable to Spotless to some degree, I do not consider the nature and extent of these considerations to be so favourable as to have any great significance for assessing penalty in the present case.

General deterrence and a price on contravention 49 The amounts of redundancy pay involved were about $30,000. Had the Ombudsman not undertaken the investigation then the conduct would have been ongoing and had the potential to have affected many more employees. The potential financial gains to the Spotless Group in not paying redundancy pay were considerable. 50 Having regard to the level of the seriousness of the conduct as already described and the need for general deterrence and taking account of the other factors, including the commercial size of Spotless, the appropriate penalty is $17,500. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.