Mason v Harrington Corporation Pty Ltd [2007] FMCA 7

HARRINGTON CORPORATION PTY LTD T/AS PANGAEA RESTAURANT & BAR

The respondent, the Harrington Corporation Pty Ltd, is a registered proprietary company limited by shares which trades as Pangaea Bar and Restaurant at Manuka in the Australian Capital Territory.

It employed Mr Margarito T Sorrosa and Ms Rosanna Ramirez Cabisidan for seven weeks from August to October 2005 under the Liquor and Allied Industries Catering, Café, Restaurant, Etc. (Australian Capital Territory) Award 1995.

The applicant, Mr Gregory James Mason, is employed by the Commonwealth in the Office of Workplace Services. He was responsible for the oversight of investigations into the Corporation as an inspector under the Workplace Relations Act 1996. In this application the Office seeks:

• pecuniary penalties for breaches of the Award

• payment to Mr Sorrosa and Ms Cabisidan for the underpayments during their period of employment

• payment of interest to Mr Sorrosa and Ms Cabisidan on the underpayments.

The Corporation has admitted the breaches in an Agreed Statement of Facts filed on 6 July 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 Corporation committed seven breaches between August and October 2005

• the Corporation should pay penalties totalling $64,000 to the Commonwealth for these breaches

• the Corporation should pay Mr Sorrosa $1,074.50 and Ms Cabisidan $2,741.83 for underpayments

• the Corporation should pay Mr Sorrosa and Ms Cabisidan 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 Thursday 6 July 2006 the parties settled an Agreed Statement of Facts. This is reproduced in full at annexure 1. Agreement was therefore not reached until the second last working day before the hearing on 10 and 11 July 2006.

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

• the Harrington Corporation trades as Pangaea Bar and Restaurant at Manuka with Mr Michael Harrington as Manager

• late in 2004 as a result of a labour shortage the Corporation engaged a recruitment agent in the Philippines to facilitate engagement of potential employees

• Mr Sorrosa and Ms Cabisidan were both engaged as chefs and on 20 June 2005 signed contracts of employment with the Corporation to be employed under the Award at Level 4 Hospitality Service

• both employees arrived in Australia on 19 August 2005 under Subclass 457 visas

• they were employed by the Corporation from 20 August 2005 to 7 October 2005

• during this period they were entitled to the benefits under the Award, including prescribed wage rates, after hours and weekend penalty rates, overtime, annual leave, annual leave loading and payment in lieu of notice of termination by the employer

• the two employees were appropriately classified as Level 4 under the Award for which the hourly rate had been varied on 24 June 2005, effective 2 July 2005, to $15.2158

• the two employees were not paid the correct hourly rate and were not paid for all hours and all days worked and for accrued annual leave

• in addition Mr Sorrosa was not paid his annual leave loading nor for one week in lieu of notice

• there were seven breaches in respect of Mr Sorrosa with total underpayment of $4,263.56 and five for Ms Cabisidan amounting to $3,603.93

• the Office of Workplace Services informed the Corporation in November 2005 that it had calculated underpayments of $2,702.58 for Mr Sorrosa and $1,531.41 for Ms Cabisidan. It advised that if these payments were made, no further action would be taken

• in December 2005 on the advice of the Restaurant and Catering Association, the Corporation offered to settle by paying Mr Sorrosa $1,175.42 and Ms Cabisidan $862.10

• this offer was made without admission of liability. Both Mr Sorrosa and Ms Cadisidan signed deeds of release based on these amounts on 30 January 2006

• the offer was approximately half the amount that the Office had calculated as owing

• the Corporation made efforts to effect these payments but the cheques were not received by Mr Sorrosa and Ms Cabisidan

• following filing of the current application on 31 March 2006, the Corporation made a further offer to settle the claims through the payment of the amounts contained in its December 2005 offer

• on 15 May 2006 the Corporation paid Mr Sorrosa $882 net and Ms Cabisidan $667 net, being the monies referred to in the December 2005 release less applicable taxation

• on 16 May 2006 an affidavit filed by Mr Matthew Flattery contained revised calculations of the amounts owing, being $4,263.56 to Mr Sorrosa and $3,603.93 to Ms Cabisidan

• in June 2006 the Corporation offered to pay all monies the Office said were owed to the two employees. The Corporation says it attempted to make the payments through the Liquor, Hospitality and Miscellaneous Union but the Union refused to accept them unless payments were also made to non-employees of the Corporation.

In oral submissions Mr O'Grady for the Office accepted that as at the hearing:

• Mr Sorrosa had received the equivalent of $3,189.06 towards the outstanding $4,263.56

• $1,074.50 is therefore still owing to Mr Sorrosa

• Ms Cabisidan had received $862.10 towards the outstanding $3,603.93

• $2,741.83 is therefore still owing to Ms Cabisidan.

The Corporation 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 (paid an hourly rate of $14.7681, which was the rate prior to 2 July 2005, instead of $15.2158), unauthorised deductions from net pay, and failure to pay for the last five days worked. Total underpayment: Mr Sorrosa $845.54, Ms Cabisidan $875.97

b) Clause 28 - Overtime: Failure to pay appropriate overtime rates for all hours worked in addition to ordinary hours. Both employees worked in excess of the 38 hours for which they were paid as salaried employees. They worked 51 hours per week, including overtime for which they were not paid. Total underpayment: Mr Sorrosa $2,305.19, Ms Cabisidan $2,282.37

c) Clause 29 - Weekend work penalty rates: Failure to pay appropriate penalty rates for all ordinary hours worked between 7.00 pm and midnight, Monday to Friday (subclause 29.2.1). The employees' work included evening work for which they were not paid the appropriate penalty rate. Total underpayment: Mr Sorrosa $125.58, Ms Cabisidan $115.92

d) Clause 29 - Weekend work penalty rates: Failure to pay appropriate penalty rates for all ordinary hours worked between midnight Friday and midnight Saturday (subclause 29.1.1). The employees worked between these times for which they were not paid the appropriate penalty rate. Total underpayment: Mr Sorrosa $182.59, Ms Cabisidan $136.94

e) Clause 34 - Annual leave: Failure to pay proportional leave upon termination (subclause 34.6). The employees were not paid on a pro rata basis for accrued annual leave to which they were entitled on termination. Total underpayment: Mr Sorrosa $192.73, Ms Cabisidan $192.73

f) Clause 34 - Annual leave: Failure to pay Mr Sorrosa 17.5 per cent loading on proportional annual leave to which he was entitled on termination (subclause 34.13). Total underpayment: Mr Sorrosa $33.73

g) Clause 18 - Termination of employment: Failure to pay Mr Sorrosa one week's wages in lieu of notice of termination to which he was entitled. Total underpayment: Mr Sorrosa $578.20.

I am satisfied on the material before me, in particular noting the Agreed Statement of Facts, that the Corporation committed the breaches set out above. I find accordingly.

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 s.719 as constituting a single breach of the term.

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).

While not referring to s.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".

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".

In my view, Mr O'Grady's submissions do not give effect to s.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 five breaches in respect of Mr Sorrosa arose out of the same course of conduct as the five breaches concerning Ms Cabisidan:

• both Mr Sorrosa and Ms Cabisidan were recruited by the same Philippines recruitment agent as a result of a shortage of chefs in Canberra

• they signed similar contracts of employment with the Corporation

• both contracts provided for employment as chefs under precisely the same conditions under the Award

• both employees arrived in Australia on the same day

• both were employed for the same period

• the 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, subclause 29.2.1, subclause 29.1.1 and subclause 34.6 must be treated as a single breach of each of those terms of the Award.

In the result the Court is faced with seven breaches of the Award - five common to Mr Sorrosa and Ms Cabisidan and two for Mr Sorrosa alone.

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.

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.

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 ... .

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 (s.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.

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.

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]).

The parties have helpfully identified those considerations which are relevant in this matter. I shall consider them in turn.

As set out at paragraph 8 the breaches of seven terms of the Award involved:

• underpayment of ordinary rates of pay

• unauthorised deductions from pay

• failure to pay for all days worked

• failure to pay for overtime

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

• failure to pay for annual leave and an annual leave loading

• failure to make payment in lieu of notice of termination.

Two employees were disadvantaged by this conduct which extended over a seven week period. There is nothing in the Agreed Statement of Facts which suggests that the breaches other than those on annual leave and termination payments would not have continued had they not been brought to the attention of the authorities or the employment not been terminated. It is reasonable therefore to draw the inference that these breaches could well have become ongoing.

The conduct was also in breach of the contract of employment entered into by the two employees and the Corporation.

These circumstances are described in the Agreed Statement of Facts and include:

• a shortage for chefs in Canberra restaurants

• the two employees were brought from the Philippines having responded to a newspaper advertisement

• their employment contract said that they would be employed under the Award

• this indicated that the Corporation was aware of its obligations under the Award, including to pay overtime

• the Award was varied after the employees signed their contracts of employment but before they commenced employment - the weekly ordinary wage rate and the penalty payment for weekday evening work were increased

• there is no evidence that the Corporation was aware of the variation and simply disregarded it

• but being aware of its obligations to pay the Award rates, the Corporation should have ensured that it was complying with the current provisions of the Award in all respects

• it was implicit in the employment contract 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 Corporation (see paragraphs 5(1), (2) and (9) of the Agreed Statement of Facts)

• the breaches continued throughout the period of employment.

The loss suffered by Mr Sorrosa was an underpayment of $4,263.56 and by Ms Cabisidan $3,603.93. 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 $4,050 in total for the seven weeks they were employed.

In anyone's language these underpayments are very large, particularly relative to the overall entitlements. On rough calculations the two employees were paid less than half of what they were entitled to in total. They are very significant sums for the two employees.

Mr Korn for the Corporation disputes the seriousness of the underpayments, particularly those due to the increases in the weekly ordinary wage rate and the penalty payment for weekday evening work. But these were not the most important breaches. The most important breaches were in relation to overtime and also for a number of days in October 2005 when the employees were not paid at all (see paragraphs 19, 20, 21, 25 and 26 of the Agreed Statement of Facts). It is not credible for example to accept that the Corporation was unaware that there was a requirement in the Award for overtime. I reject the Corporation's attempt to detract from the significance and seriousness of the underpayments.

There is no evidence nor any suggestion that the Corporation 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 paragraphs 10 - 17. My conclusion at paragraph 17 was that s.719(2) requires the Court to consider seven breaches, five common to Mr Sorrosa and Ms Cabisidan and two for Mr Sorrosa alone.

For the reasons given at paragraph 11 I do not accept that the failure to pay Mr Sorrosa for his accrued annual leave and his annual leave loading on termination should be treated for the purposes of s.719(2) as part of the one course of conduct and one breach not two. The close connection between the two breaches is however relevant to the penalty imposed for each (Gibbs at 223).

There is no evidence of assistance before the Court on the size of the Corporation. It is a registered proprietary company limited by shares. It trades as Pangaea Bar and Restaurant. There is nothing in evidence about any other trading activities it may undertake.

On 30 May 2006 the Corporation notified ASIC of two charges in respect of all the assets and undertakings of the Company, one for $405,851 with Michael Ross Harrington being the chargee and the other for $63,855 with John Phillip Harrington being the chargee. Both the chargees are directors of the Corporation and Michael Harrington is the Manager of the Restaurant. This information does little to assist in determining the size and activities of the Corporation.

Some aspects of this have already been covered above.

Although there is nothing in the agreed facts on the reasons for failure to pay the correct hourly rate and the correct penalty payment for weekday evening work, these rates did change between the time the contracts of employment were signed and when the employees commenced work. There is no evidence that the Corporation was aware of the changes and disregarded them. Mr Korn submitted that these breaches were not as a result of any deliberate conduct. In these circumstances I agree that it is reasonable to infer that the failure may have been by mistake.

However the other Award provisions were not varied. The award contained clear provisions for overtime, weekend penalty rates, annual leave and leave loadings, and termination payments which remained the same. The contracts of employment specifically provided for overtime. I can not accept without evidence that the breaches in relation to these were by mistake or oversight. This is particularly the case with overtime. Mr Korn could not point to any material that would assist the Corporation on the wilfulness or otherwise of these breaches. The Corporation chose not to call any evidence on this question.

The Agreed Statement of Facts says that the Restaurant is managed by Michael Ross Harrington, one of the directors of the Corporation.

I accept Mr Korn's submission that Mr Harrington is relatively young.

The draft roster was provided by Ms Lisa Harrington on behalf of the Corporation to the Office. It provided for 51 hours work per week, including Saturday, Sunday and evening work. In submissions Mr Korn indicated that for the purposes of these proceedings the Corporation accepted that the employees had worked these hours each week.

Although again there is no direct evidence, in my view it is a reasonable inference that the breaches occurred with the knowledge of the management of the Corporation. At the very least the management was reckless in failing to ensure it met its obligations.

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

Paragraphs 27 - 40 of the Agreed Statement of Facts sets out the corrective action taken by the Corporation after being informed that the two employees had been underpaid, including:

• on advice from the Restaurant and Catering Association, in December 2005 the Corporation offered to pay approximately half what had then been calculated by the Office as being owing

• after the two employees signed Deeds of Release the Corporation made efforts to effect such payments but the cheques were never received

• in April 2006 after this matter had been filed in this Court the Corporation made a further offer based on the December 2005 offer

• on 15 May 2006 the Corporation paid the two employees the amounts set out in the December 2005 offer less applicable taxation

• in June 2006 the Corporation offered to pay all outstanding monies following recalculations by the Office and the filing of amended applications in the Court

• the Corporation says it sought to make these payments through the Union but was unable to do so

• Mr Sorrosa is still owed almost $1,100 and Ms Cabisidan $2,750.

It is to be expected in the circumstances that the Corporation would seek professional assistance from its industry association. This was quite a responsible thing to do, but the Corporation can not hide behind the advice it received from such an association.

There is no evidence that the Corporation attempted to conceal its breaches. Further the agreed facts indicate that the Office revised its calculations on at least one occasion.

Nevertheless the Corporation still sought to avoid meeting the full extent of its obligations with its December 2005 and April 2006 offers. No basis has been put forward for only offering about half what was owed. This action is hardly an expression of remorse or contrition. It was not until June 2006 that the Corporation attempted to pay in full what was owed.

Following the commencement of these proceedings the Corporation has cooperated with the Office in attempting to minimise court time. Thus it has participated in mediation resulting in the Agreed Statement of Facts and the acceptance of the breaches. The Court has principally only had to deal with the penalty.

On the other hand the Corporation finally accepted the breaches and the Agreed Statement of Facts at the very last minute. Inevitably this meant that the Office has been put to additional legal expense, despite the Corporation's earlier negotiations and mediation with it.

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 above at paragraphs 19 - 22, 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 Office contends that the facts give rise to a need for both specific and general deterrence:

• on being informed of the underpayments the Corporation only offered approximately half of what had been then calculated as owing

• the Corporation persisted with offering only half until June 2006

• the Corporation still owes both employees significant amounts

• general deterrence is needed because of the nature of the breaches and the Corporation's response

• it is of particular concern if the Restaurant and Catering Association is advising its members to respond in the way the Corporation did

• there would appear therefore to be a clear need for a significant penalty to communicate the unacceptability of this type of behaviour.

The Corporation asserts that the need for deterrence is not high:

• the breaches were isolated in time, continuing for only seven weeks

• there is no evidence that other restaurants are following suit such that a significant general deterrent element needs to be included.

The Corporation also puts in written submissions other reasons why any deterrent element should be low. Some of these are not supported by evidence in the agreed facts. Others such as the wilfulness of the conduct have been considered elsewhere.

I have reached the view, substantially for the reasons put forward by the Office, that this is a case which calls for both specific and strong general deterrence. As Mr Korn conceded the Corporation should have checked carefully its obligations and taken more care. There is also no evidence that the Corporation has changed its practices and, if so, how. On the other hand any deterrent element in the penalty should not be so great as to be oppressive.

The Office submits that relying on the totality principle the total penalty should be $154,000:

• the maximum penalty is $396,000 being 300 penalty units ($33,000) x 12

• apart from the annual leave loading breach, each breach is a serious matter warranting a discrete and significant penalty

• no penalty or only a nominal penalty should be imposed for the annual leave loading as this is properly seen as associated with failure to pay for leave in the first place

• there should be some discount for the Corporation's acknowledgment of the breaches, but this should be significantly reduced due to the lateness of this acknowledgement.

The Corporation accepts that a pecuniary penalty should be imposed, but in oral submissions suggested that this should only be nominal. In addition to a number of factual matters on which there is no evidence, the Corporation sought that I take notice of:

• the relative inexperience of Michael Harrington

• the efforts made to make reparations for the underpayments

• "the specific and general deterrents that has already been effected"

• the effect that a large and oppressive penalty will have upon the ability of the Corporation to remain in business.

Applying the totality principle, I believe that the "just and appropriate" (see CPSU at [7]) aggregate penalty is $64,000. Had the Corporation not acknowledged its breaches before the hearing I would have set a total penalty of $85,000. I have discounted this by 25 per cent for the Corporation's acceptance of the breaches before the hearing, albeit very late in the day, after a period of mediation and negotiation with the Office. Had this acknowledgement come earlier I would have applied a 30 per cent reduction.

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 seven breaches, not twelve as submitted by the Office

• five of these breaches are common to both employees

• the maximum total penalty is therefore $231,000

• the Corporation was aware of its obligation to pay Award rates

• the level of underpayment is very large when compared with the wages and overall entitlements of the employees, although it was for a relatively short period of only seven weeks

• the underpayments were very significant sums for each of the employees

• the most significant breach is for overtime, a term expressly mentioned in the contracts of employment

• the Corporation failed to make good the full amounts when the underpayments were brought to its attention

• apart from the change in the weekly ordinary wage rate and the penalty payment for weekday evening work, no explanation was given for the underpayments

• the Corporation did not seek to adduce evidence to provide any such explanation

• although the failure to pay the correct weekly ordinary wage rate and the penalty payment for weekday evening work may have been due to oversight, I am not persuaded that this applies to the other breaches

• any suggestion that the Corporation was unaware that there was a requirement in the Award for overtime is not credible

• at the very least the management was reckless in failing to ensure the Award was complied with

• the workers being from overseas under subclass 457 visas were very vulnerable, their tenure in Australia being in effect dependent on their remaining on good terms with the Corporation

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

• there is no evidence of earlier breaches

• the penalty should not be oppressive.

The total $64,000 can be apportioned to reflect the individual breaches as set out below.

The clause 19 breach is an underpayment in ordinary rate of pay which I have accepted may have been due to oversight when the Award was varied. But this breach also covers unauthorised deductions from net pay and a failure to pay for the last five days worked. The breach was for both employees. The appropriate penalty discounted by 25 per cent (see paragraph 58) is $16,500.

Clause 28 concerns overtime. It is the most serious breach, the largest by far in absolute terms and any suggestion that it was an oversight is unconvincing. The appropriate penalty discounted by 25 per cent is $20,000.

The clause 29.2.1 breach is the failure to pay the correct penalty rate for weekday evening work. I have also accepted that this may have been due to oversight when the Award was varied. The breach was for both employees. The appropriate penalty discounted by 25 per cent is $6,500.

Clause 29.1.1 relates to penalty rates for ordinary hours worked between midnight Friday and midnight Saturday. The breach was for both employees. The appropriate penalty discounted by 25 per cent is $7,500.

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 appropriate penalty discounted by 25 per cent is $6,000.

Clause 34.13 relates to failure to pay Mr Sorrosa his 17.5 per cent annual leave loading. This is clearly associated with the breach of clause 34.6. No additional penalty should be imposed.

Under clause 18 Mr Sorrosa should have been paid one week's wages in lieu of notice of termination. This only relates to a once off payment. It does not involve any continuing breach such as failure to pay ordinary or penalty rates. But it was a significant sum of money for Mr Sorrosa. The appropriate penalty discounted by 25 per cent is $7,500.

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 Mason 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. Mr Sorrosa is still owed $1,074.50 and

Ms Cabisidan $2,741.83.

I do not understand there to be any dispute over these matters.

Both parties accepted in oral submissions the appropriate interest rate to be the penalty interest rate of 9 per cent which is currently applied by the ACT Supreme Court. However in Ardelle v Spastic Society of Victoria Limited [2001] FCA 220 at [13] Marshall J agreed 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 seven week employment period.

The Corporation 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 seven breaches in applying the penalty provisions, not twelve as asserted by the Office.

Relying on the totality principle, I have reached the view that the just and appropriate aggregate penalty is $64,000 paid to the Commonwealth. This is after discounting a total penalty of $85,000 by 25 per cent for the Corporation's acknowledgement of its breaches.

I have apportioned the $64,000 across the seven breaches.

This penalty is neither nominal as sought by the Corporation, nor does it approach the $154,000 sought by the Office for the twelve breaches it asserted. The maximum penalty for each breach is $33,000 or $231,000 in total for seven breaches.

The breaches are serious, but not the most serious. There have been no previous contraventions. But the underpayments were very large, particularly relative to the overall entitlements. Significantly, the breaches involved vulnerable employees, dependent on their employment with the Corporation for their visas to remain in Australia. At least in regard to the most important breaches for failing to pay overtime, any suggestion that they were an oversight is just not credible.

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 Corporation and generally.

I am minded to give the Corporation 60 days to pay the penalty. However I propose to allow 14 days for the Corporation 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 Mr Sorrosa and Ms Cabisidan of all outstanding monies plus interest from the date of underpayment, with payment to be made by 31 January 2007.

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

I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Mowbray FM

Harrington Corporation Pty Ltd (the Respondent) is a registered proprietary company limited by shares. The directors of that company are John Phillip Harrington, Peter John Harrington and Michael Ross Harrington. Michael Ross Harrington is the Managing Director of the Company.

The Respondent trades as Pangaea Bar and Restaurant at 2 Furneaux Street Manuka, in the Australian Capital Territory. Michael Ross Harrington is the Manager of the Restaurant. Peter John Harrington is an employee of the Restaurant.

Some time late in 2004, the Respondent recognised a labour shortage for restaurants and cafes in Canberra, particularly chefs. As a result of this the Respondent looked to the Philippines as a possible source of labour. The Respondent engaged Lead Resources Management Corporation, a recruitment agent, to facilitate the engagement of potential employees.

In early 2005 Rosanna Ramirez Cabisidan (Ann) and Margarito T Sorrosa (Gary) independently responded to an advertisement for employment placed in a newspaper in the Philippines.

They were both engaged as chefs and signed a contract of employment with the Respondent in the following terms:

1. You will be sponsored for employment for a subclass 457 visa to enable you to work in Australia as a Chef for a contract period of two years

2. You can only work as a Chef for the sponsoring employer while you remain in Australia and hold a subclass 457 visa sponsored by the employer.

3. You will be employed under the conditions of the Liquor & Allied Industries Catering, Café, Restaurant, etc -- (ACT) Award at Level 4 Hospitality Service, or similar award.

4. Under the Award you will be paid AU$29,182 gross salary for a standard 38 hour working week plus the award rate for any overtime hours worked. Income tax will be deducted by the employer.

5. Your net salary will be paid each week into your nominated Australian bank account

6. An additional payment of 9% of your gross earnings will be paid into a superannuation fund of your choice in Australia. When you permanently depart Australia, you will be able to apply for a refund of your superannuation contributions, less the appropriate income tax deduction.

7. You will receive four weeks paid annual leave for each year of employment.

8. You will maintain a private medical insurance policy to cover all medical expenses while you remain in Australia on a subclass 457 visa sponsored by the employer. The cost of this medical insurance is approximately $150 per month.

9. 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 on a subclass 457 visa

The contract was signed by both the Respondent (John Phillip Harrington) and Ann/Gary on 20 June 2005.

Ann and Gary arrived in Australia on Friday 19 August 2005. They entered Australia under a section 457 Visa. They were met on arrival at Sydney Kingsford Smith Airport by John Phillip Harrington. They then commenced employment with the Respondent. The period of employment was 20 August 2005 to 7 October 2005.

Throughout their employment Ann and Gary were entitled to the benefits prescribed by the Liquor & Allied Industries Catering, Café, Restaurant, etc (ACT) Award 1995 (the Award) and the Respondent was obliged to accord them the terms and conditions contained in the Award.

9.

Clause 19 of the Award provides:

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

Employees of the classification hereunder specified...shall be paid the wages set out opposite:

10.

Clause 29.2.1of the Award provides:

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.

11.

Clause 29.1.1 of the Award provides:

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

12.

Clause 28 of the Award provides:

28.1 - All work performed outside the spread of ordinary hours and/or in addition to the ordinary 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 three hours and double time thereafter for overtime worked Monday to Friday inclusive.

28.2 - All overtime worked between midnight Friday and midnight Sunday must be paid at the rate of double time as a maximum except on public holidays whereas such maximum is double time and a half.

13.

Clause 34.6 of the Award provides:

Should an employee not complete twelve months of service 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

14.

Clause 34.13 of the Award provides:

Payment of the 17.5 per cent loading as provided for in this clause applies to leave entitlements for completed years of service. However, the loading prescribed by this clause applies to proportionate leave on termination of employment where employment is terminated by the employer but, not where the reason for termination is misconduct or wilful disobedience.

15.

Clause 18 of the Award provides:

18.1.1 - In order to terminate the employment of a full time....employee the employer shall give to the employee......1 weeks notice period where the employee has had less than one year of continuous service.

18.1.3 - Payment in lieu of notice shall be made if the appropriate notice period is not required to be worked.

18.1.4 - In calculating any payment in lieu of notice, the wages an employee would have received in respect of the ordinary time he or she would have worked during the period of notice had his or her employment not been terminated will be used.

The work performed by Gary and Ann is appropriately classified as level 4 under the Award.

During the time that Ann and Gary were employed by the Respondent the hourly rate for a level 4 employee working ordinary hours under the Award was $15.2158. This variation was made on 24 June 2005, effective on 2 July 2005.

The hourly rate required by the Award for ordinary hours is $15.2158 effective 2 July 2005. The hourly rate that Gary and Ann were paid was $14.7681 which was the rate prior to 2 July 2005 and consistent with the amount in the employment contract.

The draft roster provided by Lisa Harrington on behalf of the Respondent provides for 51 hours work per week and was submitted to the OWS after Gary and Ann's employment had been terminated. It also provides for Saturday, Sunday and evening work. Penalty rates are payable for such work and are also payable for overtime. During the period of their employment Gary and Ann were paid as salaried employees. The weekly salary that they were paid was calculated on the basis of a 38 hour week for a level 4 employee. This basis of payment is described in the agreement set out above. Save as discussed below, this salary was paid irrespective of how many hours Gary or Ann worked in any particular week.

a)

In their first week of employment the Respondent paid Gary and Ann the amount of $100 in addition to the weekly salary in order to assist them with the expenses associated with their relocation to Canberra.

b)

The Respondent also made the following deductions from the salary paid to Gary and Ann:

(i)

Rent $35.50 per week

(ii)

Uniform $40

(iii)

Medical insurance $34.50.

Throughout the course of their employment Gary and Ann worked in excess of the 38 hours in respect of which they were paid. The Applicant maintains that they worked 51 hrs per week and that this work involved over time, weekend work and evening work. These hours are described in more detail in the Affidavit of Matthew Flattery, filed 16 May 2006. The Respondent does not contest, for the purposes of these proceedings, that these hours were worked.

Failure to pay for the work done on 4,5,6,7 October

Gary and Ann worked on 4,5,6,7 October. They were not paid for these days.

Under the Award on terminating his employment Gary was entitled to be paid one weeks pay in lieu of notice. This amount was not paid.

Failure to pay in lieu of accrued Annual Leave.

Under the Award Annual Leave accrues on a pro rata basis. Accrued Annual Leave is to be paid out on termination. Upon the termination of their employment the Respondent did not pay Gary or Ann their accrued Annual Leave.

Failure to pay leave loading on accrued Annual Leave

Under the Award Annual Leave attracts a 17.5% leave loading. Upon the termination of their employment Gary and Ann were not paid this loading.

Failure to pay Mr Sorrosa the correct ordinary rate of pay. This includes the underpayment in the ordinary rate of pay, the unauthorised deductions from the net pay, and the failure to pay for the last five days worked.

Failure to pay Mr Sorrosa the appropriate overtime rates for all hours worked in addition to ordinary hours for the period of his employment.

Failure to pay Mr Sorrosa the appropriate penalty rates for all ordinary hours worked between 7:00pm and midnight, Monday to Friday, for the period of his employment.

Failure to pay Mr Sorrosa the appropriate penalty rates for all ordinary hours worked between midnight Friday and midnight Saturday for the period of his employment.

Sub-clause 34.6 - Proportional Annual Leave upon termination.

Failure to pay Mr Sorrosa proportional Annual Leave upon termination.

Failure to pay Mr Sorrosa 17.5% loading on proportional Annual Leave upon termination.

Failure to pay Mr Sorrosa one week's wages in lieu of notice of termination.

Failure to pay Ms Cabisidan the correct ordinary rate of pay. This includes the underpayment in the ordinary rate of pay, the unauthorised deductions from the net pay, and the failure to pay for the last five days worked.

Total underpayment: $875.97

Failure to pay Ms Cabisidan the appropriate overtime rates for all hours worked in addition to ordinary hours for the period of her employment.

Total underpayment: $2282.37

Failure to pay Ms Cabisidan the appropriate penalty rates for all ordinary hours worked between 7:00pm and midnight, Monday to Friday inclusive, for the period of her employment.

Total underpayment: $115.92

Failure to pay Ms Cabisidan the appropriate penalty rates for all ordinary hours worked between midnight Friday and midnight Saturday for the period of her employment.

Sub-clause 34.6 - Proportional Annual Leave upon termination.

Failure to pay Ms Cabisidan proportional Annual Leave upon termination.

In November 2005 the Office of Workplace Services (OWS) informed the Respondent that it had calculated that under the Award the amount of $2,702.58 was owed to Gary and the amount of $1,531.41 was owed to Ann by the Respondent.

The OWS also informed the Respondent that if these amounts were paid then no further action would be taken by the OWS.

The Respondent sought advice from the Restaurant and Catering Association (RCA).

In December 2005 on the advice of Dru Gillan, Manager Workplace Relations (RCA), the Respondent offered to settle the matter on the basis of the payment to Gary of $1,175.42, being $948.96 for underpayment of wages and $226.46 in respect of Annual Leave. It also offered to make payment to Ann of $862.10, being $669.37 for underpayment of wages and $192.73 in respect of Annual Leave.

This offer was made without admission of liability and on the basis of the provision of releases. This amount was approximately half the amount that the OWS had calculated was owing to Gary and Ann.

On 30 January 2006, Gary and Ann signed a Deed of Release based on these amounts.

The Respondent maintains and the Applicant does not dispute, that it made efforts to effect such payments by forwarding cheques for the agreed amounts to Gary and Ann's last known address. The cheques for these amounts were not received.

On 31 March 2006 the Applicant filed the original Application in respect of this matter, claiming 6 breaches of the Award with respect to Gary and 4 breaches of the Award with respect to Ann.

The Respondent maintains it was not aware that the cheques had not been received by Gary and Ann.

In April 2006 the Respondent made a further offer to settle the claims through the payment of the amounts contained in its December 2005 offer. At that point in time it was informed that the Applicant intended to proceed with the Application and was advised to obtain legal advice.

On 1 May 2006 the Applicant filed an amended Application revising the number and nature of alleged breaches.

The Applicant undertook a more thorough calculation of the amounts owing to Gary and Ann. These calculations which are set out in the exhibits to the affidavit of Matthew Flattery filed 16 May 2006 show that Gary and Ann were owed $4,263 and $3,603 respectively.

On 15 May 2006 the Respondent paid Gary the amount of $882 net. It also paid Ann $667 net. These payments were made by forwarding cheques to the OWS. These amounts represented the monies referred to in the December 2005 Deed of Release, less applicable taxation.

On 31 May the Applicant served another amended Application revising the nature of the breaches.

In June 2006 the Respondent offered to pay all monies the Applicant says the Respondent owed to Gary and Ann. This offer was made without admission of liability. The Respondent maintains it attempted to make the payments through the Liquor, Hospitality and Miscellaneous Union (LHMU). The Respondent maintains it was unable to make the payments because the LHMU refused to accept the payments unless payments were also made to non-employees of the Respondent.

As at 10 July 2006 the Respondent has paid Ann $862.10 of the $3,603.00 it owes her.

There is a dispute between the parties as to the amount the Respondent has paid to Gary, of the $4,263.00 it owes him.