Flattery v Zeffirelli's Pizza Restaurant [2007] FMCA 9

THE ITALIAN EATERY T/AS ZEFFIRELLI'S PIZZA RESTAURANT

The respondent, the Italian Eatery Pty Ltd, is a registered proprietary company limited by shares which trades as Zeffirelli Pizza Restaurant at Belconnen in the Australian Capital Territory. It employed Ms Donabella Santos Cruz for about ten weeks from December 2005 to February 2006 and Mr Napoleon Enriquez Arrieta for about eight weeks from December 2005 to January 2006. They were employed under the Liquor and Allied Industries Catering, Café, Restaurant, Etc. (Australian Capital Territory) Award 1998.

The applicant, Mr Matthew Victor Flattery, is employed by the Commonwealth in the Office of Workplace Services. He was responsible for investigations into the Italian Eatery as an inspector under the Workplace Relations Act 1996. In this application the Office seeks:

• pecuniary penalties for breaches of the Award

• payment to Ms Cruz and Mr Arrieta for the underpayments during their period of employment

• payment of interest to Ms Cruz and Mr Arrieta on the underpayments.

The Italian Eatery has admitted the breaches in an Agreed Statement of Facts of 22 August 2006. The hearing therefore was principally only into the appropriate penalty which should be imposed. For the reasons set out below, I have concluded that:

• the Italian Eatery committed eight breaches between December 2005 and February 2006

• the Italian Eatery should pay penalties totalling $50,000 to the Commonwealth for these breaches

• the Italian Eatery should pay Ms Cruz $2,467.64 and Mr Arrieta $2,584.53 for underpayments

• the Italian Eatery should pay Ms Cruz and Mr Arrieta 6.5 per cent per annum interest on the underpayments.

The Workplace Relations Act relevantly provides:

717: Definitions

In this Part:

"applicable provision," in relation to a person, means:

(a) a term of one of these that applies to the person:

719: Imposition and recovery of penalties

(1) An eligible court may impose a penalty in accordance with this Division on a person if:

(a) the person is bound by an applicable provision; and

(a) 2 or more breaches of an applicable provision are committed by the same person; and

(b) the breaches arose out of a course of conduct by the person;

the breaches shall, for the purposes of this section, be taken to constitute a single breach of the term.

(4) The maximum penalty that may be imposed under subsection (1) for a breach of an applicable provision is:

(a) 60 penalty units for an individual; or

(b) 300 penalty units for a body corporate.

(6) Where, in a proceeding against an employer under this section, it appears to the eligible court that an employee of the employer has not been paid an amount that the employer was required to pay under an applicable provision (except a term of an AWA), the court may order the employer to pay to the employee the amount of the underpayment.

(1) In exercising its powers under subsection 719(5) or (6) or in a proceeding under section 720 or 721, the eligible court must, upon application, unless good cause is shown to the contrary, either:

(a) order that there be included in the sum for which an order is made or judgment given, interest at such rate as the Court or court of competent jurisdiction, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date on which the order is made or judgment entered; or

On 22 August 2006 the parties settled an Agreed Statement of Facts. This is reproduced in full at annexure 1 without four attachments. Agreement was therefore reached about two weeks before the hearing on 4 September 2006.

The following facts from this Statement are accepted by both parties:

• the Italian Eatery is a registered proprietary company with Ms Mary Pelle and Mr Dominic Pelle as directors

• it trades as Zeffirelli Pizza Restaurant in Belconnen

• Ms Cruz and Mr Arrieta were offered employment with the Italian Eatery by letters of offer of 30 September 2005 which they signed on 5 October 2005

• they were to be employed under the Award with a minimum gross salary of $29,182

• on 16 November 2005 the Philippine Overseas Employment Administration registered and approved Standard Employment Contracts for both employees, with a salary of $29,182 and various other conditions "AS PER Australia LABOR LAW"

• the Italian Eatery sponsored visa applications for both the employees who were subsequently granted Subclass 457 visas

• when seeking approval of its sponsorship the Italian Eatery specifically declared that it would "comply with laws relating to workplace relations that are applicable to the business"

• the letters of offer were reviewed by the Department of Immigration and Multicultural Affairs and the ACT Government and deemed appropriate for granting the visas

• Ms Cruz and Mr Arrieta arrived in Australia in early December 2005 on Subclass 457 visas sponsored by the Italian Eatery

• Ms Cruz was employed by the Italian Eatery from 6 December 2005 to 15 February 2006 and Mr Arrieta from 10 December 2005 to 31 January 2006

• the Italian Eatery maintains that at all times it believed it was complying with its lawful obligations by paying the salary component specified in the contract and that the Award did not apply to these two employees

• however the Italian Eatery was obliged to comply with the terms and conditions contained in the Award which is a common rule in the ACT

• the two employees were entitled to the benefits under the Award, including prescribed wage rates, week and weekend overtime, after hours and weekend penalty rates, annual leave, public holidays without loss of pay and penalty rates for work on public holidays

• the two employees were appropriately classified as Level 4 under the Award for which the ordinary hourly rate was $15.2158 and ordinary weekly rate $578.20

• underpayments to the two employees involved failure to pay the correct weekly wage, for all hours worked, in lieu of accrued annual leave, for public holidays, and the correct rate for time Mr Arrieta worked on a public holiday

• as a consequence of these underpayments, Ms Cruz is owed a net sum of $2,467.64 and Mr Arrieta $2,584.53

• the Italian Eatery provided other benefits to these two employees which are not found in the Award, including meal and drinks from the Restaurant

• on 2 February 2006 Ms Cruz and Mr Arrieta lodged complaints with the Office over these underpayments

• on 6 February 2006 the Office alerted the Italian Eatery through its representative, the ACT and Region Chamber of Commerce and Industry, of the complaints and sought information from the Italian Eatery

• upon notification the Italian Eatery "effected a reimbursement of the underpayment by crediting the monies claimed by [the Italian Eatery] from Ms Cruz and Mr Arrieta. [The Italian Eatery] subsequently retained the money it credited in pursuit of costs it alleged it was owed by Mr Arrieta and Ms Cruz. [The Italian Eatery] maintains that it believed it had lawfully withheld this money at that time."

• the Office and the Italian Eatery, through the Chamber, met and exchanged correspondence between mid February 2006 and June 2006 on the amounts owing and the legitimacy of the deductions

• by letter of 28 April 2006 the Italian Eatery through the Chamber made a number of admissions on underpayments

• the Italian Eatery does not dispute the breaches of the Award asserted by the Office

• neither Ms Cruz nor Mr Arrieta have been paid the amounts owing to them

• the Italian Eatery stands ready to pay these amounts.

The Italian Eatery accepts that it breached the Award as follows:

a) Clause 19 - Classifications and wage rates: Failure to pay the correct ordinary rate of pay. This includes underpayment in the ordinary rate of pay for two weeks for Ms Cruz and one week for Mr Arrieta (paid $561.26, which was the rate prior to 2 July 2005, instead of $578.20) and unauthorised deductions of rent and other expenses from net pay.

b) Clause 28 - Overtime Monday to Friday: Failure to pay overtime rates for all hours worked during the week in addition to ordinary hours (clause 28.1). Both employees worked in excess of the 38 hours for which they were paid as salaried employees. They worked 60 hours per week, including overtime during the week for which they were not paid.

c) Clause 28 - Overtime weekend work: Failure to pay overtime rates for all weekend work in addition to ordinary hours (clause 28.2). Both employees worked in excess of the 38 hours for which they were paid as salaried employees. They worked 60 hours per week, including weekend overtime for which they were not paid.

d) Clause 29 - Weekend work penalty rates: Failure to pay penalty rates for all ordinary hours worked between midnight Friday and midnight Saturday (clause 29.1.1). The employees worked between these times for which they were not paid any penalty rate.

e) Clause 29 - Evening work penalty rates: Failure to pay penalty rates for all ordinary hours worked between 7.00 pm and midnight, Monday to Friday (clause 29.2.1). The employees' work included evening work for which they were not paid the penalty rate.

f) Clause 34 - Annual leave: Failure to pay proportional leave upon termination (clause 34.6). The employees were not paid on a pro rata basis for accrued annual leave to which they were entitled on termination.

g) Clause 37 - Public holidays: Failure to pay for public holidays not worked (clause 37.1). Both employee employees were not paid for the public holidays on 26 December 2005, 27 December 2005 and 2 January 2006.

h) Clause 37 - Payment for work on a public holiday: Failure to pay Mr Arrieta the penalty rate for work on 26 January 2006 (clause 37.7).

I am satisfied on the material before me, in particular noting the Agreed Statement of Facts and the affidavit of Matthew Victor Flattery affirmed on 26 June 2006, that the Italian Eatery committed the breaches set out above. I find accordingly.

The Italian Eatery has admitted and I have found seven breaches of the Award concerning Ms Cruz and eight Mr Arrieta.

Mr Connolly for the Office initially insisted that the course of conduct provision in section 719(2) of the Act had no application here. The breaches therefore should be treated as 15 separate ones for the purposes of penalty. Mr Moses in written submissions for the Italian Eatery suggested five categories of breaches. He later resiled from this as inconsistent with authority.

Mr Moses accepted a proposition I put that having regard to s.719(2) there were eight breaches for which penalty could be levied. In the end Mr Connolly submitted that "it's open for you to consider 15 breaches, but I do concede when you review the authorities that it is very open for this court to find eight breaches rather than 15".

I considered this question in Mason v Harrington Corporation Pty Ltd T/as Pangaea Restaurant & Bar [2007] FMCA 7 at [10] - [17]. The following passages are also relevant here:

10. Section 719(2) of the Act requires that where two or more breaches of an applicable provision (here a term of an award) are committed by the same person and arise out of a course of conduct by that person, the breaches are to be treated for the purposes of section 719 as constituting a single breach of the term.

11. The parties have submitted that the failure to pay Mr Sorrosa for his accrued annual leave and his annual leave loading on termination should be treated as part of the one course of conduct and one breach not two. In my view this is not permissible under section 719. While I agree that these two breaches arose from one course of conduct, they are breaches of two distinct terms of the Award - subclause 34.6 and subclause 34.13 (see Gibbs v Mayor, Councillors and Citizens of the City of Altona _[1992] FCA 374; (1992) 37 FCR 216 at 223). They therefore do not fall under section 719(2). This matter is however relevant to the penalty imposed for each (_Gibbs at 223).

12. While not referring to section 719(2) Mr Korn for the Corporation submitted that the other breaches which are common to both employees should be dealt with together by imposing a penalty for one and a nominal penalty for the other. They "in essence reflect the same wrongdoing and therefore should receive the one penalty, however it's apportioned between the two of them".

13. Mr O'Grady for the Office said that these other breaches are properly viewed as discrete matters. It would not be appropriate to deal with the breaches in respect of Mr Sorrosa as overlapping those concerning Ms Cabisidan. One should not be discounted or reduced to reflect the other "because they both occurred at around the same time and [in] the same way".

_14. In my view, Mr O'Grady's submissions do not give effect to section 719(2). Provided all breaches of a particular term of the Award arise out of the same course of conduct, even if they involve different employees, they must be treated as a single breach. This is clearly supported by authority (_Quinn v Martin [1977] FCA 11; (1977) 16 ALR 141 at 143 - 145, Seymour v Stawell Timber Industries Pty Ltd [1985] FCA 237; (1985) 70 ALR 391 at 394 and 416 - 417, and Textile Clothing and Footwear Union of Australia v Southern Cross Clothing Pty Ltd [2006] FCA 325 at [28]).

On the evidence as agreed each of the first seven breaches in respect of Mr Arrieta arose out of the same course of conduct as the seven breaches concerning Ms Cruz:

• both Ms Cruz and Mr Arrieta were recruited at the same time by the same representative for the Italian Eatery in the Philippines

• they received and signed similar letters of offer from the Italian Eatery on the same day

• they were employed under the same Standard Employment Contract registered with and approved by the Philippine Overseas Employment Administration at the same time

• the letters of offer were in exactly the same terms as were the contracts, providing for employment as chefs

• both employees arrived in Australia at about the same time

• the major part of the employment was common to both

• the various terms of the Award were breached in the same manner for each of the employees.

The two breaches of each of clause 19, clause 28.1, clause 28.2, clause 29.1.1, clause 29.2.1, clause 34.6 and clause 37.1 must be treated as a single breach of each of those terms of the Award.

In the result the Court is faced with eight breaches of the Award - seven common to Ms Cruz and Mr Arrieta and one for Mr Arrieta alone.

In Mason v Harrington Corporation I outlined some general principles on penalty at [18] - [24]:

18. In Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 40,161 at 40,165 Burchett J said:

[I]t cannot be denied that the fixing of the quantum of a penalty is not an exact science. It is not done by the application of a formula, and within a certain range, courts have always recognised that one precise figure cannot be incontestably said to be preferable to another.

19. The principal object set out in section 3 of the Act at the time of the breaches includes:

• providing the means for wages and conditions of employment to be determined upon a foundation of minimum standards

• providing the means to ensure the maintenance of an effective award safety net of fair and enforceable minimum wages and conditions of employment

• providing a framework of rights and responsibilities for employers and employees which ensures that they abide by awards and agreements applying to them.

20. The principal object in section 3 of the current Act includes:

• providing an economically sustainable safety net of minimum wages and conditions for those whose employment is regulated by the Act

• ensuring compliance with minimum standards by providing effective means for the investigation and enforcement of employee entitlements

• ensuring that awards provide minimum safety net entitlements for award-reliant employees ... .

21. Both these object provisions emphasise the importance of minimum standards, including wages, and of the enforcement of those standards. This is further reflected in the magnitude of the penalties which have been fixed for breaches. In the case of a body corporate this is set at a maximum of 300 penalty units or $33,000 for each breach (section 719(4)(b)).

22. It is also relevant to note that the maximum penalty has been increased very significantly in the last two years. It was raised from $10,000 to $33,000, an increase of 230 per cent. In view of this large increase the following comments of Merkel J in a slightly different context at [72] in Finance Sector Union v Commonwealth Bank of Australia [2005] FCA 1847 are apposite - also noting that the maximum penalty for each breach that Merkel J was considering was $10,000:

Finally I note that the penalties imposed in the present case ... greatly exceed penalties imposed under the WR Act or its predecessors in previous cases. It may be that breaches by unions and employers of industrial legislation from time to time have been accepted as part of the give and take of industrial disputation. However, in recent years industrial legislation has increasingly codified and prescribed what is acceptable, and what is unacceptable, industrial conduct. The legislature has, over time, also moved to increase the penalties that may be imposed in respect of unlawful industrial conduct. In my view, any light handed approach that might have been taken in the past to serious, wilful and ongoing breaches of the industrial laws should no longer be applicable. As is apparent from the penalties that I have imposed, I have not accepted that such an approach, which was urged by CBA (which contended that either no penalty or only a nominal penalty was appropriate), is applicable in the present case.

_23. Mr O'Grady for the Office contends that the Court should determine the penalty based on the totality principle. This requires consideration of the appropriateness of a pecuniary penalty having regard to the totality of the conduct rather than simply by the addition of each individual breach (_Australian Communications and Media Authority v Clarity 1 Pty Ltd [2006] FCA 1399 at [46]). Merkel J referred to this principle in Textile Clothing and Footwear Union of Australia v Lotus Cove Pty Ltd [2004] FCA 43 at [44-45]:

44 In the present case, the question of penalties should not be approached with the primary emphasis being placed on the number of breaches, even taking into account s 178(2) of the Act. The award is unusual in that it establishes a complex scheme to prevent avoidance of its terms. This has the result ... that the same set of acts and omissions on the part of a respondent can result in numerous separate breaches. An appropriate approach in such a case is to determine penalties by reference to the "totality principle". In CSPU, The Community and Public Sector Union v Telstra Corporation Limited [2001] FCA 1364; (2001) 108 IR 228 at 230 ([7]) Finkelstein J explained that approach:

The principle is that in imposing a penalty for a number of offences it is necessary to ensure that the penalties in aggregate are just and appropriate. One way the totality principle can be given effect is to determine what is an appropriate total penalty and then divide that penalty by the number of offences to produce a penalty for each separate offence.

45 The "totality" approach has the advantage of ensuring that separate penalties are not imposed in respect of overlapping obligations, where interrelated clauses have been breached by what is essentially the same conduct.

24. The Federal Court has in a number of decisions set out a non-exhaustive range of considerations to which regard may be had in determining whether particular conduct calls for the imposition of a penalty, and if it does the amount of the penalty (see for example Trade Practices Commission v CSR Ltd [1991] ATPR 52,135 at 52,152 - 52,153, NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 at 291 - 292, Construction, Forestry, Mining and Energy Union v Coal and Allied Operations Pty Ltd (No 2) [1999] FCA 1714 at [7 - 8], Textile Clothing and Footwear Union of Australia v Lotus Cove Pty Ltd [2004] FCA 43 at [46 - 47]).

I now turn to those considerations which are relevant in this matter.

As set out at [7] the breaches of eight terms of the Award involved:

• underpayment of ordinary rates of pay

• unauthorised deductions from pay

• failure to pay for overtime during the week

• failure to pay for overtime during the weekend

• failure to pay penalty rates for weekday and weekend after hours work

• failure to pay for annual leave

• failure to pay for public holidays not worked

• in the case of Mr Arrieta failure to pay the penalty rate for work on a public holiday.

Two employees were disadvantaged by this conduct. In the case of

Ms Cruz the conduct extended over a ten week period from 6 December 2005 to 15 February 2006, Mr Arrieta eight weeks from 10 December 2005 to 31 January 2006.

There is nothing in the Agreed Statement of Facts which suggests that the breaches other than those on annual leave and failure to pay for public holidays would not have continued had they not been brought to the attention of the authorities or Ms Cruz and Mr Arrieta not ended their employment. Indeed the gross weekly wage paid to both employees was reduced on 29 January 2006, as was that paid to Ms Cruz on 5 February 2006, to the minimum rate set out in the letters of offer. No explanation was given for this reduction.

It is reasonable therefore to draw the inference that these breaches could well have become ongoing.

The Agreed Statement of Facts does not give any background to the Italian Eatery seeking chefs from overseas. Presumably there were some local shortages.

However, Ms Cruz and Mr Arrieta were offered employment by letters of 30 September 2005 which expressly stated that they would be employed under conditions of the Award "at level 4 Hospitality Service, or similar award." They were to be paid a minimum gross salary of $AU29,182. This was the Award rate prior to a variation in July 2005. Both employees signed the letters of offer on 5 October 2005.

Both Ms Cruz and Mr Arrieta signed a "Standard Employment Contract" which was approved by the Philippine Overseas Employment Administration on 16 November 2005. This contract included:

• monthly salary of AU$29,182 per annum - there is no indication whether this was a minimum or maximum

• overtime pay "AS PER Australia LABOR LAW"

• vacation leave "AS PER Australia LABOR LAW"

• sick leave "AS PER Australia LABOR LAW"

• "Official holidays in the country of employment ... shall be granted with pay"

• the employer to provide "free food of compensatory allowance of US$ FREE and suitable housing and free laundry"

• the parties to abide by the pertinent laws of the country of employment.

Mr Moses for the Italian Eatery suggested that the letters of offer and employment contracts were approved by the Department of Immigration and Multicultural Affairs, the ACT Government and the Philippine Overseas Employment Administration. Certainly the Philippines authority approved the contracts.

But there is no evidence that the Australian authorities "approved" either the letters of offer or the contracts. The Department and the ACT Government reviewed the letters of offer for the purpose of granting visas. There is no suggestion that they approved them for the purposes of workplace relations laws.

The Department required that the contracts of employment mention the Award under which the persons were to be employed. The Italian Eatery also undertook to the Department that it would comply with laws relating to workplace relations that applied to its business.

The Italian Eatery sponsored the two employees for the Subclass 457 visas on which they subsequently entered Australia in early December 2005. Although it is not spelt out in the relevant documents, it seems implicit that the employees would only be able to retain their Subclass 457 visas and remain in Australia while they were sponsored and employed by the Italian Eatery.

The standard roster for the Restaurant was 10 hours a day Tuesday to Sunday on a split shift finishing at 10 pm. The standard roster therefore provided for 60 hours instead of the 38 hours set under the Award. Both Ms Cruz and Mr Arrieta actually worked 60 hours, including Saturdays, Sundays and evenings. At no stage were they paid penalty and overtime rates as required by the Award.

Throughout their employment Ms Cruz and Mr Arrieta were paid as salaried employees calculated on a 38 hour week. This was irrespective of how many hours they worked in any one week.

The Italian Eatery made unauthorised deductions of rent and other expenses from the employees' weekly wages through the whole period of employment, although Ms Cruz authorised the rent deduction from 10 February 2006. The agreed facts point out however that the Italian Eatery notified both employees prior to the first deductions of its intention to do so. These were also detailed on their payslips. Neither objected to the deductions.

Both employees received additional benefits from the Italian Eatery, including meals and drinks from the Restaurant.

Ms Cruz and Mr Arrieta completed more than one month but less than 12 months service. They both resigned without giving notice of termination. The Italian Eatery maintains that it was advised by the Chamber that the payment of the annual leave requirement was not therefore necessary.

The Italian Eatery informed the Filipino employment agency prior to the arrival of the two employees in Australia that it had a Christmas close down period. The employees would not be paid during this period. The agency confirmed in writing that the employees nevertheless wished to come as soon as possible and were aware they would not be paid during the close down period.

The loss suffered by the two employees was a significant underpayment of wages. Ms Cruz is still owed a net sum of $2,467.64 for her ten weeks work and Mr Arrieta $2,584.53 for his eight weeks. To put this in context the annual ordinary entitlement for these two employees - that is, without overtime and penalty rates, etc - was just over $30,000, or approximately $5,800 in total for ten weeks or $4,600 for eight weeks.

In anyone's language the underpayments and the amounts still owing are large, particularly relative to the overall entitlements. They are significant sums for the two employees who are not highly paid.

There is no evidence nor any suggestion that the Italian Eatery has previously been found by a court to have engaged in similar conduct.

Whether the breaches were properly distinct or arose out of the one course of conduct

I have considered this earlier at [9] - [15]. My conclusion at [15] was that section 719(2) requires the Court to consider eight breaches, seven common to Ms Cruz and Mr Arrieta and one for Mr Arrieta alone.

Although separate and distinct breaches for the purposes of penalty under the Act, the circumstances giving rise to some of the breaches are closely connected, for example the overtime and penalty rate breaches. This close connection between the breaches, although of separate terms of the Award, is however relevant to the penalty imposed for each (Gibbs v Mayor, Councillors and Citizens of the City of Altona [1992] FCA 374; (1992) 37 FCR 216 at 223).

There is no evidence before the Court on the size of the Italian Eatery Pty Ltd. It is a registered proprietary company limited by shares. The directors are Ms Mary Pelle and Mr Dominic Pelle. Mr Connolly did not contest that it is a small company with only two shares held by Mr and Ms Pelle. It trades as Zeffirelli Pizza Restaurant, Belconnen. There is nothing in evidence about any other trading activities it may undertake.

Mr Moses agreed that Mr and Ms Pelle operated two other restaurants, but not through this particular company. They operate through two other corporate entities.

Mr Moses submitted that the Italian Eatery was similar to a business with Mr and Ms Pelle as sole owners employing workers under their own names. Imposition of penalties on them, particularly at the corporate rate, may drive them out of business resulting in the loss of jobs for other employees. Any penalties should therefore be imposed as if the company were an individual for whom the maximum is $6,600.

I reject this approach. The Italian Eatery is a corporation. Any penalties should be assessed by reference to those set by the legislature.

The theme running through assertions made by the Italian Eatery in the Agreed Statement of Facts and Mr Moses' submissions is that the Italian Eatery did not deliberately breach the Award. It acted on a misunderstanding that the Award did not apply and it was to pay the two employees in the terms set out in the contracts of employment. It did not believe the Award should be ignored, but rather believed that by complying with the terms in the contracts it would also be complying with the Award.

This last submission is of course inconsistent with the Agreed Statement of Facts which says at [12]:

The Respondent maintains that it believed that as a consequence of the contract it entered into with Ms Cruz and Mr Arrieta the Award did not apply to them.

Paragraph 9 of the Agreed Statement of Facts says:

The Respondent maintains that at all times it believed it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract.

This is repeated in one form or another ten times in the Statement.

• there is ample evidence that the Italian Eatery had a general misunderstanding as to its obligations to comply with the Award, notwithstanding that the Award is mentioned in the letters of offer

• this evidence included the standard employment contracts approved by the Philippine Overseas Employment Administration and which Mr Moses said had been approved by the Department of Immigration and Multicultural Affairs and the ACT Government (but see [25] - [26] above)

• further the Italian Eatery believed it was sufficient for it "and indeed incumbent on it" to comply with the terms of these contracts and in the letters of offer

• the misunderstanding resulted from advice from the Chamber "as well as the circumstances in which the contract of employment was presented to the Respondent and later submitted to DIMA"

• the law in this area is extremely complex and "the Respondent can be forgiven any misunderstanding as to its obligations under the law"

• there was no evidence to displace the assertion that Mr and Mrs Pelle had a genuine belief that they were to pay the employees under the contracts of employment, and by doing so they were fulfilling their obligations

• there was a course of conduct by the Italian Eatery which resulted from its misunderstanding of the application of the Award.

Mr Connolly for the Office strongly contested that the breaches resulted from a misunderstanding, although he agreed that there was no evidence of the Italian Eatery blatantly disregarding its obligations. He suggested that the Agreed Statement of Facts, the letters of offer and the employment contracts spoke for themselves.

I am not prepared to find from the evidence that the Italian Eatery and Mr and Ms Pelle, its directors, acted on a genuine misunderstanding of their obligations. Neither am I able to find that they deliberately disregarded their obligations under the law. The evidence does not go far to enable a finding either way. Neither party put on any evidence which would assist in this regard.

However, it is clear that directors of the Italian Eatery were extremely careless in failing to properly ascertain their obligations under the workplace relations legislation and to give effect to them:

• the letters of offer referred explicitly to employment under the Award and payment of a minimum salary

• the Standard Employment Contract said relevant matters would be in accordance with Australian labour law and that the parties would comply with laws of the country of employment

• the Italian Eatery undertook to the Department of Immigration and Multicultural Affairs that it would comply with laws relating to workplace relations.

There is nothing in the agreed facts or the other evidence to indicate what the directors did to determine their obligations under workplace relations law and the Award. It is a reasonable inference that they did nothing. This is at the least extremely careless for persons whom it is accepted run three restaurants.

It is unnecessary to repeat what I have said about the size of the company at [40] - [41] above.

There is no question that the two shareholders and directors, Mr and Ms Pelle, run the company and were directly involved in the conduct in question.

Corporation's contrition, corrective action and cooperation with the enforcement authorities

Paragraphs 42 - 43 of the Agreed Statement of Facts set out the action taken by the Italian Eatery after being informed that the two employees had been underpaid:

42. Upon notification of the breaches, the Respondent effected a reimbursement of the underpayment by crediting the monies claimed by the Respondent from Ms Cruz and Mr Arrieta. The Respondent subsequently retained the money it credited in pursuit of costs it alleged it was owed by Mr Arrieta and Ms Cruz. The Respondent maintains that it believed it had lawfully withheld this money at that time.

43. The Respondent sought advice from the Chamber and between mid February 2006 and mid June 2006 a number of correspondences and meetings occurred and flowed between OWS and the Respondent through its representative, the Chamber, in relation to amounts owing and the legitimacy of deductions from wages. The Chamber sent a letter dated 28 April 2006 to OWS where the Respondent makes a number of admissions with respect to underpayments resulting from breaches of the Award. This letter is marked "A" and annexed to the Affidavit of Matthew Victor Flattery which was sworn and filed on 26 June 2006.

Mr Flattery's affidavit of 26 June 2006 also referred to constant communication and exchange of information between the Office and the Italian Eatery, mostly through the Chamber, from 18 January 2006.

Neither Ms Cruz nor Mr Arrieta have been paid the amounts owing to them. However the Italian Eatery says it stands ready to pay these amounts.

It is to be expected in the circumstances that the Italian Eatery would seek professional assistance from its industry association or local chamber of commerce. This was quite a responsible thing to do, but the Italian Eatery can not hide behind the advice it received from such a body.

There is no evidence that the Italian Eatery attempted to conceal its breaches. In submissions it expressed its contrition. But as late as 28 April 2006 the Italian Eatery in a letter via the Chamber failed to accept that there was anything owing. This suggests that it took some time for it to acknowledge that it had breached the law. This finds support in the technical or accounting response it made when notified of the breaches - see [42] of the Agreed Statement of Facts quoted at [54] above.

That the Italian Eatery has still to pay the amounts it accepts as outstanding is hardly an expression of remorse or contrition.

The Italian Eatery has not put on any evidence of measures it has introduced to overcome deficiencies in payment of employees such as Ms Cruz and Mr Arrieta. On the evidence any corporate culture at the time of these breaches could not be regarded as conducive to compliance with workplace relations legislation.

Following the commencement of these proceedings the Italian Eatery has cooperated with the Office in attempting to minimise court time. Thus it has participated in mediation and discussions resulting in the Agreed Statement of Facts and the acceptance of the breaches. The Court has principally only had to deal with the penalty. The parties also agreed to limit the affidavit evidence before the Court.

Ensuring compliance with minimum standards by providing effective means for investigation and enforcement of employee entitlements

The importance attached to these matters in the legislation is discussed at [16] above by reference to [19] - [22] in Mason v Harrington Corporation Pty Ltd, and below in relation to deterrence.

The authorities have emphasised the significance of deterrence, both specific and general, in setting pecuniary penalties (see CPSU, The Community and Public Sector Union v Telstra Corporation Limited [2001] FCA 1364 at [9], Finance Sector Union v Commonwealth Bank of Australia [2005] FCA 1847 at [60]). When discussing general deterrence in a trade practices matter Finkelstein J said that "[f]or a penalty to have the desired effect, it must be imposed at a meaningful level" (Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 at [13]).

The Italian Eatery says there is no need for further specific deterrence:

• it is fully aware as a result of this experience of the need to comply with awards and legislation

• it now knows there can be no contracting out of the legislation

• it has already sought advice from the Office on compliance issues

• it is unlikely to offend again.

General deterrence would be served by modest penalties.

I have reached the view however that this is a case which calls for both specific and general deterrence:

• in the main there is no evidence to support the assertions made in the previous paragraph

• I have found that the Italian Eatery was at the least extremely careless in failing to check its obligations for these two employees

• it is accepted that the directors of the Italian Eatery run three restaurants in the ACT

• it took some time for the Italian Eatery to acknowledge its breaches

• these sort of breaches strike at the heart of workplace relations legislation

• the local chamber of commerce was acting for the Italian Eatery at a time when it still did not accept that amounts were owing to the two employees.

In my view a clear message needs to be sent to both the Italian Eatery and the industry in general that underpayment of wages will not be tolerated. Further its plea that it misunderstood its obligations was accompanied by no evidence that it had sought to ascertain those obligations.

The Italian Eatery submitted the Court is not bound to impose a penalty in all cases of breach. Factors it said were present in this case which suggested either no penalty or a nominal penalty included:

• its contention that the breaches were due to a misunderstanding

• the law is extremely complex

• the breaches were not serious ones or ones which fell into the worst category

• workers had not been mistreated or exploited

• the Italian Eatery had been a good corporate citizen with monetary and other contributions to various schools, sporting teams, a retirement village and emergency services (see Dominic Pelle's affidavit of 1 September 2006).

In support Mr Moses took me to passages in Victoria University of Technology v Australian Education Union [1999] FCA 1065 and Australian Liquor Hospitality & Miscellaneous Workers Union v Broadlex Cleaning Australia Pty Ltd (1997) 78 IR 464. In my view these passages do not assist his client.

In Victoria University of Technology at [33] the Full Court accepted a conclusion of the judge at first instance "that to impose no penalty could be regarded as unwarrantably condoning a breach which, in the circumstances of this application, has been more than trivial or technical." In the matter before me, the breaches are neither trivial nor technical.

In Broadlex Moore J decided not to impose a penalty for non-payment of wages, noting at 467 "it is sufficient, in the circumstances, for Broadlex to have demonstrated that it had a genuine misunderstanding about the operation of the Award and had acted reasonably in endeavouring to ascertain its obligations." Here I have been unable to make a finding whether there was a misunderstanding. Furthermore there is no evidence to show that the directors of the Italian Eatery did anything to ascertain their obligations.

I accept Mr Moses' submission that I have a discretion not to impose a penalty. For the reasons that follow, I reject his contention for no penalty at all or just a nominal one.

The Office submits that relying on the totality principle the total penalty should be $224,950:

• the maximum penalty is $495,000 being 300 penalty units ($33,000) x 15

• each breach is very serious warranting a discrete and significant penalty

• there should be some discount for the Italian Eatery's acknowledgment of the breaches, but this should be considered in light of the primary considerations of deterrence and objective seriousness of the breaches.

During argument on the course of conduct question and in submissions in reply, Mr Connolly contended even if I found eight breaches rather than 15, $224,950 would still be an appropriate penalty "considering the aggravating factor of more than 1 employee being affected by the breaches." Alternatively, a penalty in the order of $172,590 would be appropriate in view of the seriousness of the breaches affecting more than one employee.

The Italian Eatery asserted that either no pecuniary penalty or a nominal penalty only should be imposed. Such penalty should not exceed $15,000. The factors that I should consider are those in [67] above as well as those discussed elsewhere in these reasons.

Applying the totality principle, I believe that the "just and appropriate" (see CPSU at [7]) aggregate penalty is $50,000. Had the Italian Eatery not acknowledged its breaches before the hearing I would have set a total penalty of $70,000. I have discounted this by 30 per cent for the Corporation's acceptance of the breaches before the hearing.

In reaching this conclusion, I have had regard to all the factors discussed earlier in these reasons. I have noted in particular:

• the importance placed on compliance and enforcement in the principal objects of the Act

• the high maximum penalty of $33,000 for each breach

• the fact that the legislature has seen fit to increase this from $10,000 relatively recently

• the Act provides for a separate penalty for breaches of each term of an award

• here the Court is faced with eight breaches, not 15 as submitted by the Office

• seven of these breaches are common to both employees

• the maximum total penalty is therefore $264,000

• although separate and distinct breaches for the purposes of penalty under the Act, the circumstances giving rise to some of the breaches are closely connected, for example the overtime and penalty rate breaches

• the Italian Eatery should have been aware of its obligations under the workplace relations legislation and under the Award

• the Italian Eatery maintains that at all times it believed it was complying with its lawful obligations by paying the salary component specified in the contract and the Award did not apply to these two employees

• yet there is no evidence it took any steps to ascertain its obligations

• the directors of the Italian Eatery were extremely careless in failing to properly ascertain their obligations under the workplace relations legislation and to give effect to those obligations

• this was their clear responsibility

• the level of underpayment and of the amounts still owing is large when compared with the wages and overall entitlements of the employees, although it was for a relatively short period of only eight to ten weeks

• the underpayments and amounts still owing are significant sums for each of the employees who are not highly paid

• the most significant breaches were for overtime and evening and weekend penalty rates

• the two employees worked 60 hours a week, 22 hours more than the standard of 38 hours, but they were not paid any overtime or penalty rates

• the Italian Eatery stands ready to pay the outstanding amounts, however it has yet to do so

• although it is not spelt out in the relevant documents, it seems implicit that the employees would only be able to retain their Subclass 457 visas and remain in Australia while they were sponsored and employed by the Italian Eatery

• the workers were therefore very vulnerable

• this is a case in which calls for both specific and general deterrence

• there is no evidence of earlier breaches

• both employees received additional benefits from the Italian Eatery, including meals and drinks from the Restaurant

• the penalty should not be oppressive.

The total $50,000 can be apportioned to reflect the individual breaches as set out below.

The clause 19 breach is an underpayment in ordinary rate of pay for two weeks for Ms Cruz and one week for Mr Arrieta. It has not been explained why their pay was reduced late in their employment. This breach also covers unauthorised deductions from net pay, although the employees had been advised that such deductions would be made. The breach was for both employees. The appropriate penalty discounted by 30 per cent (see paragraph 75) is $7,000.

Clauses 28.1 and 28.2 concern overtime. They, with the failure to pay weekend and evening penalty rates, are the most serious of the breaches. Neither employee was paid any overtime across the whole period of employment. The Standard Contract of Employment referred to overtime. The appropriate penalty in each case discounted by 30 per cent is $10,000.

The clauses 29.1.1 and 29.2.1 breaches are for failure to pay the correct penalty rate for weekday evening work and work during weekend ordinary hours. Neither employee was paid penalty rates across the whole period of employment. In my view they result from the same conduct which led to the overtime breaches. The appropriate penalty in each case discounted by 30 per cent is $7,000.

Clause 34.6 provides for a pro rata annual leave payment on termination. Although the breach was for both employees, it only relates to a once off payment. It does not involve any continuing breach such as failure to pay ordinary or penalty rates. The Italian Eatery says that the Chamber advised it that payment was not necessary due to the nature of termination. Nevertheless it was its decision not the Chamber's. The appropriate penalty discounted by 30 per cent is $5,500.

Clause 37.1 relates to failure to pay both employees for public holidays not worked. This was for three public holidays during the Christmas close down. The employees were informed that there would be such a close down and they would not be paid. They were to commence later. However they chose to commence prior to the close down. Nevertheless this does not excuse the Italian Eatery from breaching the Award. The appropriate penalty discounted by 30 per cent is $1,500.

Under clause 37.7 Mr Arrieta should have been paid the penalty rate for work on a public holiday, 26 January 2006. This was only a once off occurrence and related to one employee. The appropriate penalty discounted by 30 per cent is $2,000.

Section 841 provides that the Court may order that a pecuniary penalty be paid to the Commonwealth or a particular person or organisation. As Mr Flattery is an officer of the Commonwealth it is appropriate that the penalty be paid to the Commonwealth. This is not a case where the applicant is a union or other organisation.

The application also seeks the payment of all outstanding monies to the two employees with interest. Provision is made for this in ss.719(6) and 722 of the Act. Ms Cruz is still owed a net sum of $2,467.64 and Mr Arrieta $2,584.53.

I do not understand there to be any dispute that the payments should be made with interest.

There was some debate about the appropriate interest rate and whether it should be the penalty interest rate of 9 per cent which is currently applied by the ACT Supreme Court. In Ardelle v Spastic Society of Victoria Limited [2001] FCA 220 at [13] Marshall J pointed out that the purpose of an award of interest is to compensate the employees for the detriment they have suffered by being kept out of their money, not to punish the employer.

In my view the penalty interest rate is somewhat high. Consistent with the approach in Ardelle I will order that interest be paid to each employee at the rate of 6.5 per cent per annum from the date of each underpayment until the date of this decision. I take the date of underpayment to be each pay date during the period of employment.

The Italian Eatery accepted the breaches and the Court's task was principally assessment of penalty. I have concluded however that by virtue of the course of conduct provisions in s.719(2) of the Act, the Court is faced with eight breaches in applying the penalty provisions, not 15 as asserted by the Office.

Relying on the totality principle, I have reached the view that the just and appropriate aggregate penalty is $50,000 paid to the Commonwealth. This is after discounting a total penalty of $70,000 by 30 per cent for the Italian Eatery's acknowledgement of its breaches. I have apportioned the $50,000 across the eight breaches.

This penalty is neither nil nor nominal as sought by the Italian Eatery, nor does it approach the $224,950 sought by the Office for the 15 breaches it asserted. The maximum penalty for each breach is $33,000 or $264,000 in total for eight breaches.

The penalty is somewhat less than I ordered in Mason v Harrington Corporation because there are a number of mitigating circumstances to which I gave some weight. Although I was unable to make a finding about any misunderstanding by the Italian Eatery of its obligations, this is a possibility. Also a number of contraventions, although separate breaches for penalty purposes under the Act, have resulted from the same conduct.

Nevertheless the breaches are serious, but not the most serious. There have been no previous contraventions. But the underpayments were large, particularly relative to the overall entitlements. Significantly, the breaches involved vulnerable employees, dependent on their employment with the Italian Eatery for their visas to remain in Australia.

Employers have a responsibility to make themselves aware of their obligations under the law. There is nothing in the material before me to indicate what the directors of the Italian Eatery did to determine their obligations under workplace relations law and the Award. It is a reasonable inference that they did nothing. This is at the least extremely careless for persons whom it is accepted run three restaurants.

This is a case for deterrence. As I noted earlier in these reasons, a clear message needs to be sent to both the Italian Eatery and the industry in general that underpayment of wages will not be tolerated.

Parliament has set high penalties for parties failing to meet their obligations under the Act. I consider that the penalty I have set is just and appropriate. It is set at a level to provide meaningful deterrence, both to the Italian Eatery and generally.

I intend to give the Italian Eatery 60 days to pay the penalty. However I propose to allow 14 days for it to make any submissions on the time for payment and whether payment might be made by instalments. If no submissions are received within 14 days, I will have the order on the time for payment of the penalty entered, with payment to be paid within 60 days from the date of this judgment.

I am also ordering payment to Ms Cruz and Mr Arrieta of all outstanding monies plus interest from the date of underpayment, with payment to be made by 16 February 2007.

Consistent with section 824 there will be no order for costs.

I certify that the preceding ninety-nine (99) paragraphs are a true copy of the reasons for judgment of Mowbray FM

The Italian Eatery Pty Ltd (the "Respondent") is a registered proprietary company limited by shares. The directors of that company are Mary Pelle and Dominic Pelle.

The Respondent trades as Zeffirelli Pizza Restaurant Belconnen with its principal place of business located at 5 Chandler Street, Belconnen, in the Australian Capital Territory (the "Restaurant").

Under cover of letters of offer dated 30 September 2005 Donabella Santos Cruz ("Ms Cruz") and Napoleon Enriquez Arrieta ("Mr Arrieta") were offered terms of employment with the Respondent. Each letter contained the following terms:

(a)

You will be employed under the conditions of the Liquor and Allied Industries Catering, Café Restaurant, etc - (ACT) Award at Level 4 Hospitality Service, or similar Award. You will be paid a minimum $AU29,182.00 gross salary. Income tax will be deducted by the employer.

(b)

Superannuation 9% employer contribution.

(c)

Subject to your approval of your Visa by the Department of Immigration and Multicultural Affairs, the duration of your employment is fixed for a total of 4 four (4) years - subject to satisfactory performance.

(d)

Four (4) weeks annual leave per completed year of service.

(e)

Five (5) days per year sick leave.

(f)

Workers compensation and your own private medical insurance whilst you remain in Australia.

(g)

Please note: if you breach your Visa conditions while in Australia, you will reimburse the employer for any debts incurred by the Department of Immigration and Multicultural and Indigenous Affairs in locating and detaining you, while you are sponsored by the employer in a sub class 457 Visa.

The letters of offer were signed by both Ms Cruz and Mr Arrieta on 5 October 2005 and are attached and marked "A" and "B".

On 16 November 2005, the Philippine Overseas Employment Administration registered an employment contract which was signed by both Ms Cruz and Mr Arrieta and the Respondent to work as Chefs at the Restaurant, which is referred to as the 'Standard Employment Contract'. Copies of the contracts for both Ms Cruz and Mr Arrieta are attached hereto and marked "C" & "D" respectively and are to be included in this statement as if the contents of those contracts are repeated here.

To enter Australia, Ms Cruz and Mr Arietta required a visa to enable them to take up employment with the Respondent. The Respondent sponsored their Visa application with the Department of Immigration and Multicultural Affairs ("DIMA"). The Respondent made application to DIMA for approval to sponsor migrant workers on 13 October 2005. The sponsorship of Ms Cruz and Mr Arietta required the Respondent to substantiate the requirements for an overseas worker and the terms and conditions of employment. The letters of offer dated 30 September 2005, referred to in paragraph 3 above, were reviewed by both DIMA and the ACT Government and these were deemed appropriate for the granting of the visas. The stamped agreements dated 16 November 2005 and marked "C" and "D", were approved by the Philippines Overseas Employment Administration. The Respondent maintained the belief that it was sufficient for and indeed incumbent upon it to comply with the terms and conditions reviewed by DIMA, the ACT Government and the Philippines Overseas Employment Administration.

In addition to the requirement that the contract of employment mention the appropriate award under which the employees were to be employed, DIMA required the Respondent to make a declaration that included specific undertakings to the Commonwealth in sponsoring migrant workers. This declaration formed part of the application lodged on 13 October 2005. One of the undertakings that the respondent made to the Commonwealth read as follows:

"The business undertakes to do the following in relation to sponsored persons...

...comply with laws relating to workplace relations that are applicable to the business and any workplace agreement that the business may enter into with a sponsored person."

Ms Cruz and Mr Arrieta arrived in Australia in early December 2005. They entered Australia under a section 457 Visa and sponsored by the Respondent. Ms Cruz commenced employment with the Respondent in the ACT on 6 December 2005. Mr Arrieta commenced employment with the Respondent in the ACT on 10 December 2005.

The Respondent maintains that at all times it believed it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract_._

Ms Cruz ceased employment with the Respondent on 15 February 2006. Mr Arrieta ceased employment with the Respondent on 31 January 2006.

Throughout their employment Ms Cruz and Mr Arrieta were entitled to the benefits prescribed by the Liquor and Allied Industries Catering Café Restaurant (ACT) Award 1998 ("the Award"). The Award is common rule in the ACT and the declaration to this effect is stated in the Award. The Respondent was obliged to comply with the terms and conditions contained in the Award.

The Respondent maintains that it believed that as a consequence of the contract it entered into with Ms Cruz and Mr Arrieta the Award did not apply to them.

CLAUSE 19 of the Award provides:

Classification and wage rates

Rates of pay for employees employed under this Award are set out in Schedule A to the Award.

Schedule A specifies that:

Employees of the classification hereunder specified....shall be paid the wages set out opposite: Level 4 Hospitality Services as $578.20.

Overtime Monday to Friday

For all work performed outside the spread of ordinary hours and/or in addition to the ordinary working hours prescribed in clause 26 of this Award, or outside an employee's rostered hours of duty is overtime; and payment must be made at the rate of time and a half for the first 3 hours and double time thereafter for overtime worked Monday to Friday inclusive.

Overtime Weekend Work

For all overtime work between midnight Friday and midnight Sunday must be paid at the rate of double time as a maximum except on public holidays were as such maximum is double time and a half.

CLAUSE 29.1.1 of the Award provides:

Weekend Work Penalty Rates

For all ordinary time worked between midnight Friday and midnight Saturday, time and a quarter rate must be paid.

CLAUSE 29.2.1 of the Award provides:

Weekend Work Penalty Rates

For all ordinary hours worked between the hours of 7:00pm and midnight Monday to Friday inclusive, an additional $1.38 per hour or any part of an hour for such time worked within the said hours with a minimum payment of $2.09 for any one day.

Annual Leave

Should an employee not complete 12 months services he/she shall, on the termination of his/her employment, provided that he/she has been employed continuously for one month or more be entitled to pay on a pro rata basis for each completed month of service.

Public Holidays

Employees other than casual employees will be entitled to the following public holidays without loss of pay, namely:

37.1.1 New Years Day, Good Friday, Easter Saturday, Easter Monday, Christmas Day and Boxing Day; and

37.1.2 the following days, as prescribed in the Australian Capital Territory: Australia Day, Anzac Day, Queens Birthday and Eight Hours Day or Labour Day; and

37.1.3 one other day fixed as follows: Canberra Day

Payment for work on a Public Holiday

All time worked by a full-time or part-time employee on a public holiday prescribed in this Award must be paid for at the rate of double time and one half for the hours worked, with a minimum of four (4) hours pay. Alternatively, permanent employees who worked on a prescribed holiday may, by agreement, perform such work at ordinary rates plus half time additional in that week provided that equivalent paid time is added to the employees annual leave or one day in lieu of such public holiday is allowed to the employee during the week in which such holiday falls. However, such holiday must be allowed to the employee within 28 days of such holiday falling due.

The work performed by Ms Cruz and Mr Arrieta is appropriately classified as Level 4 under the Award. During the time that Ms Cruz and Mr Arrieta were employed by the Respondent the hourly rate under the Award for a Level 4 employee working ordinary hours was $15.2158 and the weekly rate was $578.20.

The weekly rate required by the Award for ordinary hours is $578.20. The Respondent failed to pay the required weekly wage in the following instances:

(a)

failure to pay both Ms Cruz and Mr Arrieta the correct weekly wage in the week ending 29 January 2006 where the Respondent reduced the gross weekly wage to $561.26 which was the standard gross weekly wage prior to the Award variation that occurred from 2 July 2005; and

(b)

failure to pay Ms Cruz the correct weekly wage in the week ending 5 February 2006 by paying Ms Cruz the amount of $561.26 which was the standard weekly rate prior to the Award variation of 2 July 2005.

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments to be made in paragraph 22.

Failure to pay the appropriate rate for all hours worked

The standard roster for the Restaurant was Tuesday to Sunday at 10 hours per day on a split shift finishing at 10:00pm. The standard roster provided for hours in excess of the standard 38 hours per week as prescribed by the Award. Each week the rostered hours and hours actually worked were in fact 60 hours for both Ms Cruz and Mr Arrieta. Hours worked by Ms Cruz and Mr Arrieta each week included Saturdays, Sundays and evenings. Penalty rates are payable for such work and are also payable for overtime worked. At no stage during their employment were Ms Cruz or Mr Arrieta paid penalty rates as required by the Award.

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments to be made in paragraph 24.

Throughout their employment, Ms Cruz and Mr Arrieta were paid as salaried employees. The weekly salary they were paid was calculated on the basis of a 38 hour week for a level 4 employee. The basis of payment is described in the contracts of employment referred to above at paragraphs 3 and 5. This salary was paid irrespective of how many hours Ms Cruz or Mr Arrieta worked in any particular week.

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments to be made in paragraph 26.

Throughout the employment, the Respondent made unauthorised deductions of rent and other expenses from the weekly wages of Ms Cruz and Mr Arrieta. Rent of $60.00 per week was deducted up until 15 January 2006 from both employees' weekly wages. From 15 January 2006 $50 per week was deducted until cessation of the employment except for Ms Cruz who provided a written authority for the deduction for rent from 10 February 2006. Prior to making the first deductions the Respondent notified both employees of its intention to make the deductions. These were further detailed on their payslips. The employees made no objections to the deductions.

The Respondent maintains that in the circumstances it believed that it was complying with its lawful obligations by deducting the amounts.

Under the Award, an employee is entitled to annual leave for a period of 4 weeks following 12 months of continuous service. Should an employee not complete 12 months of employment, the Award provides a payment for Annual Leave on a pro rata basis for each month of service completed upon termination. This payment only occurs if the employee has completed more than one month of continuous service. Both Napoleon and Ms Cruz completed more than 1 month of continuous service. However, Ms Cruz and Mr Arrieta did not provide notice of termination of their employment with the Respondent and resigned effective immediately. The Respondent sought advice from the Chamber and the Respondent maintains that the Chamber advised the Respondent that the payment of the annual leave requirement was not necessary due to the nature of termination by Ms Cruz and Mr Arrieta. Upon the termination of their employment the Respondent did not pay Ms Cruz or Mr Arrieta their annual leave entitlement.

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments to be made in paragraph 30.

Both Mr Arrieta and Ms Cruz were not paid for the public holidays of 26 December 2005, 27 December 2005 and 2 January 2006 as required by the Award.

The Respondent informed LEAD Resources & Management Corporation (the Filipino employment agency acting on behalf of Ms Cruz and Mr Arrieta) prior to their arrival in Australia that they would not receive payment during the Christmas close down period. LEAD confirmed in writing to the Respondent that the employees wished to come to Australia as soon as possible and were aware that they would not receive payments during the closedown period. The written confirmation is attached and marked "E".

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments referred to in paragraph 32.

Failure to pay Mr Arrieta the correct rate for time worked on a public holiday

Under the Award employees are entitled to a rate of double time and a half for the hours worked on a public holiday with a minimum of 4 hours pay, unless otherwise agreed. Mr Arrieta worked on 26 January 2006 and did not receive the required payment under the Award.

The Respondent maintains that it believed that it was complying with its lawful obligations by paying to Ms Cruz and Mr Arrieta the salary component specified in their contract and not the payments referred to in paragraph 35.

Notwithstanding the above matters, the Respondent provided additional benefits to Ms Cruz and Mr Arrieta which are not found within the Award. These items included meals and drinks within the Zeffirelli Pizza Restaurant.

The Applicant and Respondent have agreed that as a consequence of breaching clauses 19, 28.1, 28.2, 29.1.1, 29.2.1, 34.6, 37.1 and 37.7 of the Award, Mr Arrieta is owed the nett sum of $2,584.53.

The Applicant and Respondent have agreed that as a consequence of breaching clauses 19, 28.1, 28.2, 29.1.1, 29.2.1, 34.6 and 37.1 of the Award, Ms Cruz is owed the nett sum of $2,467.64.

On 2 February 2006 Ms Cruz and Mr Arrieta lodged complaints with the Office of Workplace Services ("OWS") claiming to be underpaid for wages, penalties, overtime and public holidays by the Respondent.

On 6 February 2006 OWS alerted the Respondent, through it's representative the ACT and Region Chamber of Commerce and Industry (the "Chamber") of the complaints and sought clarification of the spread of ordinary hours used at the Restaurant.

Upon notification of the breaches, the Respondent effected a reimbursement of the underpayment by crediting the monies claimed by the Respondent from Ms Cruz and Mr Arrieta. The Respondent subsequently retained the money it credited in pursuit of costs it alleged it was owed by Mr Arrieta and Ms Cruz. The Respondent maintains that it believed it had lawfully withheld this money at that time.

The Respondent sought advice from the Chamber and between mid February 2006 and mid June 2006 a number of correspondences and meetings occurred and flowed between OWS and the Respondent through its representative, the Chamber, in relation to amounts owing and the legitimacy of deductions from wages. The Chamber sent a letter dated 28 April 2006 to OWS where the Respondent makes a number of admissions with respect to underpayments resulting from breaches of the Award. This letter is marked "A" and annexed to the Affidavit of Matthew Victor Flattery which was sworn and filed on 26 June 2006.

On 26 May 2006 and after finalising its investigations, the Applicant filed an Application and accompanying Affidavit in the Federal Magistrates' Court alleging breaches of the Award, underpayments and breaches of record keeping requirements.

On 26 June 2006 the Applicant filed an amended Application which removed the alleged breaches of record keeping requirements (and mistakenly removed the alleged breaches of the Award). The Applicant also filed a further supporting Affidavit.

On 29 June 2006 the Applicant filed a further amended Application reinstating the alleged breaches of the Award which were mistakenly removed when filing the amended Application on 26 June 2006.

There is no dispute between the Applicant and Respondent as to the breaches of the Award which underpin the underpayments and amounts now owing to Mr Arrieta and Ms Cruz. However, the parties will make independent submissions as to any penalties that may be applied for such breaches.

As at the date of this Agreed Statement of Facts, neither Mr Arrieta nor Ms Cruz have been paid the amounts owing to them by way of underpayments. The Respondent stands ready to pay the amounts owing.

......................................................

.....................................................