11 Dec Underpayment of Wages: Fair Work Act
1. The following sections of the Fair Work Act 2009 (Cth) (“FW Act”) are most likely to be relevant in an underpayment of wages context:
- contravention of the NES (s 44);
- contravention of a modern award (s 45);
- contravening an enterprise agreement (s 50);
- failure to pay an employee in full for work performed at least monthly (s 323);
- failure to make and keep employee records (s 535); and
- failure to provide pay slips (s 536).
2. An application alleging a breach of any of the sections listed above can be initiated in (s 539(2)):
- the Federal Court;
- the Federal Circuit Court; or
- an eligible State or Territory Court.
3. An application pursuant to the sections listed above can be filed in the name of an employee who is affected, or will be affected, by the contravention (s 540(1)).
4. A trade union can initiate proceedings in its own name for:
- a contravention of the NES;
- a contravention of a modern award;
- a contravention of an enterprise agreement – but only if the agreement applies to the union. An agreement will apply to the union if it is expressed to cover the union (s 52; s 53) – this essentially means if the union filed a Form F18 for the agreement; and
- a contravention of the payment of wages provision (s 323).
5. A union does not have standing to initiate proceedings concerning the employee records and pay slip provisions.
6. Importantly, a union can only apply for orders under these sections in relation to an employee if (s 540(1)):
- the employee is affected, or will be affected, by the contravention; and
- the union is entitled to represent the industrial interests of the employee.
7. This means if coverage is contentious, the safer approach will be to initiate proceedings in the name of the employee and to provide representation to the employee.
8. A number of Federal Court cases have proceeded on the basis that “entitled to represent” is determined exclusively by eligibility rules (Construction, Forestry, Mining and Energy Union v BMD Constructions Pty Ltd  FCA 41 at ). However, the Explanatory Memorandum to the FW Act states at paragraph 690:
“A relevant employee organisation is defined in Part 1-2 as an employee organisation that is entitled to represent the industrial interests of one or more employees who will be covered by the agreement, in relation to work to be performed under the agreement (see clause 12). A demarcation order may provide that an employee organisation is not entitled to represent the industrial interests of a particular class or group of employees, despite those employees being eligible to be members of that employee organisation.“
Issues to consider in choosing jurisdiction
9. The custom in the Federal jurisdiction is for relatively standard underpayment cases to be initiated in the Federal Circuit Court.
10. Significant cases affecting large numbers of employees or ‘test cases’ may be initiated in the Federal Court.
11. The suitability of the State or Territory Courts is likely to vary from State to State – for example, NSW previously had a specialist industrial magistrate but now the matters are handled by general Local Court Magistrates.
12. This article focuses on processes in the Federal Circuit Court.
13. Unfortunately, a trade union falls within the definition of a “corporation” which appears in Regulation 1.04 of the Federal Court and Federal Circuit Court Regulation 2012. This means a union acting in its own capacity pays the same fees as a trading corporation.
14. The fees payable for matters involving an alleged breach of the general protections provisions are quite low. The filing fee is currently $70.60 and mediation and hearing fees are not applicable.
15. The current fees for applications involving an alleged breach of the sections identified above are much higher:
|Type of fee||Employee||Union|
|Filing an application – general||$615||$1,485|
|Filing an application – small claim – less than $10,000||$215||$215|
|Filing an application – small claim – $10,000 to $20,000||$355||$355|
|Mediation (not payable for small claims)||N/A||$495|
|Setting down for hearing (not payable for small claims)||$735||$1780|
|Daily hearing fee – excluding first day (not payable for small claims)||$735||$1780|
|Issuing a subpoena||$70||$145|
16. The current compensation limit for a small claim is $20,000 (s 548(2)). In a small claim proceeding pecuniary penalty orders cannot be made (s 548(1)(a)) and the rules of evidence don’t apply (s 548(3)). A party needs leave to be legally represented but this is not required if the lawyer is an employee or officer of the person (s 548(7)). This exception only appears to apply if the applicant is the union as opposed to an employee.
17. An application alleging a contravention of the sections listed above must be made within 6 years of the contravention (s 544).
18. Orders relating to underpayments cannot relate to a period that is more than 6 years before the proceeding was commenced (s 545(5)).
Contractual entitlements – s 323
19. The FW Act allows an employer or employee to apply to the Federal Court or Federal Circuit Court to enforce a safety net contractual entitlement (s 543). A safety net contractual entitlement is a contractual entitlement relating to a subject matter described in the NES or that may be included in a modern award pursuant to s 139(1) of the FW Act.
20. Significantly, breaching a safety net contractual entitlement does not constitute a breach of a civil remedy provision. This means:
- pecuniary penalty orders cannot be made;
- a union cannot be the applicant (s 542; s 543);
- accessorial orders cannot be made (s 550); and
- the range of orders available to a court is limited (s 545).
21. However, the Federal Court judgment in APESMA v Wollongong Coal Ltd  FCA 878 means s 323 of the FW Act can now be widely utilised to enforce contractual entitlements.
22. In APESMA, Justice Buchanan adopted a wide interpretation of s 323 to the effect that underpaying an employee under an employment contract will give rise to a contravention of the civil remedy provision in s 323 because an employee will not be paid in full for the performance of work at least monthly.
23. Hence, by relying on s 323 of the FW Act, the limitations inherent in the safety net contractual entitlements provisions can be avoided because s 323 is a civil remedy provision.
24. Section 550 of the FW Act is proving to be an increasingly helpful tool for underpayment claims. Section 550 states a “person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision”.
25. “Involved in” is defined as (s 550(2)):
- aiding, abetting, counselling or procuring the contravention;
- inducing the contravention;
- being knowingly concerned in or party to the contravention – directly or indirectly;
- conspiring with others to effect the contravention.
26. Examples of courts applying this accessorial liability provision include:
- Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor  FCCA 1482: a company director was held jointly and severally liable for underpayments by his company. This allows the director’s personal assets to be targeted in the recovery process;
- Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810: an accounting firm was found to been involved in the contraventions of an employer client. Judge O’Sullivan of the Circuit Court stated:
- “I accept the FWO’s submissions that Ezy (and Mr Lau) had at their fingertips all the necessary information that confirmed the failure to meet the Award obligations by the first respondent and nonetheless persisted with the maintenance of its (payroll) system with the inevitable result that the Award breaches occurred”; and
- The accounting firm (Ezy) was recently ordered to pay $53,880 in penalties for these contraventions in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors (No. 2)  FCCA 2797; and
- Construction, Forestry, Mining and Energy Union & Ors v RGN Mining Services Pty Ltd & Anor  FCCA 1546: orders were made against the sole director despite the relevant company going into liquidation before the proceedings were finalised.
27. The maximum penalty payable by a corporation for contraventions of the civil remedy provisions identified above (aside from the employee records and pay slip provisions) is $63,000 per contravention (as of the 1st of July 2017).
28. The maximum penalty for a corporation in relation to the employee records and pay slip contraventions is $31,500.
How are penalties determined?
29. In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union  FCAFC 113 at , a Full Federal Court summarised the purpose of civil penalties with reference to leading authorities as:
- primarily, if not wholly, protective in promoting the public interest in compliance;
- to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene – both specific and general deterrence is important;
- ensuring that the penalty is not regarded as an acceptable cost of doing business; and
- to send a message that contraventions are serious and not acceptable.
30. Although the determination of an appropriate penalty is discretionary and necessarily depends upon the facts, the following is often relevant (Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited  FCA 1516 at  and ):
- whether the conduct was deliberate, covert, reckless, negligent or careless;
- whether the conduct was isolated or systematic;
- the seniority of officials involved;
- compliance systems in place;
- whether profit or benefit was derived from the conduct;
- the size of the business or entity;
- whether there have been prior compliance issues;
- whether there is remorse and contrition;
- whether there was cooperation with authorities; and
- whether other detriments have already been suffered by the party (publicity etc.).
Who are penalties paid to?
31. Section 546(3) of the FW Act allows the Federal Court, Federal Circuit Court and eligible State and Territory Courts to order that pecuniary penalties imposed on an employer are payable to a particular organisation or person.
32. In Sayed v Construction, Forestry, Mining and Energy Union  FCAFC 4 at , a Full Federal Court examined the history of pecuniary penalty orders and the relevant provisions of the FW Act and concluded:
“Given the legislative history of ss 539(2) and 546(3) of the FW Act, since the enactment of ss 44 and 45 in the pioneering 1904 Act, and the manner in which the “usual order” was articulated in such early cases as the Vehicle Builders’ Employees’ Federation case and Seymour, which is reflected in the Explanatory Memorandum, we consider that the power conveyed by s 546(3) is ordinarily to be exercised by awarding any penalty to the successful applicant. We accept that there may be cases (of which this is not one) where the penalty, or a part of the penalty, should be paid to another person in the circumstances described by Gray J in Plancor at .“
33. The last sentence is a reference to the following statement from Justice Gray in Gibbs v The Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216;  FCA 553 (cited in Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 17 FCR 357;  FCAFC 170):
“In the present case, the applicant has brought the proceeding on behalf of the Union, to enforce the Award for the benefit of the Union and its members. Had the applicant brought the proceeding in his personal capacity, and at his own expense, it would have been appropriate to order that the penalties be paid to him. It is unlikely that the applicant has become responsible personally for the costs of the proceeding and more likely that those costs will be met by the Union. In the circumstances, it is appropriate that the Union should be the recipient of the penalties.“
34. Therefore, if the union is the applicant it will generally receive penalties payable by an employer and there are good prospects of the union receiving at least some of the penalties if the union has funded an employee’s application.
35. Section 570 of the FW Act prevents a court ordering a party to pay costs unless the court is satisfied:
- the proceedings were instituted vexatiously or without reasonable cause;
- a party’s unreasonable act or omission caused the other party to incur costs; or
- the party unreasonably refused to participate in an FWC matter that arose from the same facts.
36. Justice Bromberg summarised s 570 of the FW Act in the following terms with reference to leading authorities in Hutchinson v Comcare (No.2)  FCA 370 at  – :
- the purpose is to ensure fear of a costs order does not discourage genuine litigants with reasonable cause and is concerned with access to justice;
- the occasions upon which costs will be awarded are exceptional; and
- the fact that a party has conducted litigation inefficiently, made late concessions, or adopted a misguided approach will be relevant to, but not conclusive of, the party having acted unreasonably in a sense relevant to s 570(2)(b).
37. The best prospect of a union recovering its costs in underpayment proceedings is when a settlement offer has been unreasonably rejected by the employer. It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of subsection 570(2)(b) and its predecessors.
38. However, the Federal Court has previously highlighted that it cannot be assumed principles applying to ‘Calderbank letters’ are directly applicable in FW Act proceedings because of s 570 (Stratton Finance Pty Limited v Webb  FCAFC 110 at ):
“Caution should be exercised as to how a Calderbank offer, even a generous one, is viewed in such circumstances. Calderbank letters presuppose what might be called a “costs jurisdiction”, in contrast to the usual rule in FW Act claims.“
39. Generally, FW Act claims in the Federal Circuit Court are dealt with in the following manner:
- First court date – directions before a Judge (roughly one month after filing);
- Mediation before a Registrar (roughly two months after the first court date);
- Filing of evidence (often agreed timetabling); and
40. The Federal Circuit Court is a busy court and it can be difficult to obtain hearing dates in the timeframe desired by the parties.
What is needed to commence proceedings
41. There is a specific application form for commencing a FW Act claim in the Federal Circuit Court. This form is brief and relatively straightforward.
42. However, the application generally needs to be accompanied by a statement of claim (or affidavit) setting out the material facts (not evidence) relied upon to substantiate the claim (Federal Circuit Court Rules 2001 (Cth) r 4.05).
42. If a statement of claim is filed instead of an affidavit, the solicitor who prepared the statement of claim has to provide a certificate in the following terms:
I, [INSERT], certify to the Court that, in relation to the statement of claim filed on behalf of the applicant, the factual and legal material available to me at present provides a proper basis for each allegation in the pleading.
43. Hence, this isn’t like an unfair dismissal application where you can file a general application and worry about the evidence later. Preparations for the case should be well advanced before the proceedings are commenced.
44. The respondent is generally required to file a defence within 14 days of receiving the application.
Fair Work Ombudsman
46. A quick recent review of Federal Circuit Court judgments suggests the Fair Work Ombudsman has been involved in more than 30 prosecutions during 2017. In total, unions have been involved in less than 10.
47. These figures obviously don’t take account of settlements reached – but they highlight the extent to which the Fair Work Ombudsman is assuming roles traditionally performed by trade unions.
For more articles on underpayment, see more of our articles here.
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