Compensation for workplace breaches

This is an extract from a recent Federal Circuit Court of Australia case which sets out the legal principles which the court will use when determining whether to order compensation to be paid for breaches of the Fair Work Act, the National Employment Standards and modern awards and enterprise agreements, collective called statutory entitlements.

“Power to make orders for compensation

  1. FWO’s submissions addressed the power to award compensation, the power to award interest and why such orders were appropriate.
  2. As to power, the court “may make any order the court considers appropriate” if it is satisfied that, relevantly, a person has contravened a civil remedy provision: Act, s 545(1).  Amongst the orders that the court is authorised to make is “an order awarding compensation for loss that a person has suffered because of the contravention”: Act, s 545(2)(b).
  3. The power conferred by s 545 is confined to making appropriate orders that are preventative, remedial or compensatory in nature.  Although the section is drawn in terms that confer a broad discretion,[196]the power to make any order that the court considers appropriate is a power separate from, for example, the power to impose a pecuniary penalty: Act , s 546.  Though broad, the discretion to make appropriate orders is not unlimited and is constrained by the context and the purpose of that provision. In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union[197] (ABCC v CFMEU) Keane, Nettle and Gordon JJ stated:[198]

. . . the first and most immediate point of significance is the breadth of the terms in which s 545(1) empowers the Court take make any order the court considerate appropriate. What is appropriate for the purpose of s 545(1) falls to be determined in light of the purposes of the section and is not to be artificially limited . . . such broad terms of empowerment are constrained only by limitations that are strictly required by the language and purpose of the section

Those observations, and the authorities to which their Honours referred, recognise the well-settled principles that where the Parliament confers power on a court it should not be hedged about by implied limitations that are not reflected in its text, but at the same time that the ambit of those powers may be constrained by the context in which they appear.

  1. Keane, Nettle and Gordon JJ held that, properly construed, and “despite the breadth of the power conferred by s 545(1), it should be concluded that it is limited to making appropriate preventative, remedial and compensatory orders and as such does not include a power to make penal orders”.[199] Relevantly, the power conferred by s 545(1) extended to a power to make appropriate remedial and compensatory orders.

Compensation

  1. By the SOAF, NoBrace agreed to an order pursuant to par 545(2)(b) that it pay Ms Lee compensation for the then acknowledged underpayments. The scope of that agreement was implicitly enlarged by the admission at trial of the further underpayments amounting in total to $66,945.24.  No respondent opposed the making of an order for compensation.
  2. Before the court may make such orders, it must be satisfied, relevantly, that a person has contravened a civil remedy provision.  A person who is found to have been involved in a contravention is taken to have contravened the provision: Act, s 550(1).  By the Liability judgment, NoBrace was declared to have contravened the Act and the Masters were declared to have been involved in certain or all such contraventions.

Orders for compensation must be appropriate

  1. Once the jurisdictional requirement of demonstrating that a person has contravened the Act has been met, the court may then make any order that it ‘considers appropriate’.  This phrase has been construed as imposing a requirement that before an order of the type sought can be made, the court must first have considered that it is appropriate to do so.  Where, for example, an order for compensation is sought, the court must consider it to be appropriate to make an order of that kind: Veeraragoo v Goldbreak Holdings Pty Ltd (No.2).[200]
  2. In pressing an application for compensation, FWO acknowledged that paragraphs 2175-2177 of the Explanatory Memorandum to the Fair Work Bill 2008[201](EM) which addressed s 550 did not support the proposed compensation orders.  Those paragraphs of the EM read:
  3. The clause means that a pecuniary penalty for a contravention of a civil remedy provision can also be imposed on a person involved in a contravention.  For example, where a company contravenes a civil remedy provision, a pecuniary penalty can also be imposed on a director, manager, employee or agent of the company.
  4. However, while a penalty may be imposed on a person involved in a contravention, the clause does not result in a person involved in a contravention being personally liable to remedy the effects of the contravention.  For example, where a company has failed to pay, or has underpaid, an employee wages under a fair work instrument, the director is not personally liable to pay that amount to the employee.
  5. FWO submitted that as extrinsic materials could not be relied upon to displace the clear meaning of the text,[202]and that the combined effect of ss 545 and 550 of the Act was unambiguous, it was not permissible to refer to the EM in construing s 545 of the Act.  I accept that while such extrinsic materials may be relied upon to confirm[203] the meaning of a provision, they cannot be employed to displace[204] the clear meaning of the text.  Consideration of the EM at [2177] cannot be employed to displace the clear meaning of a provision which confers power to make any order that the court considers appropriate.  It follows the EM cannot be employed to deny that power is conferred on the court to make an order for compensation where that is considered to be appropriate.
  6. I further agree in FWO’s submission that the EM cannot be employed to read down the broad power in s 545 as being limited to making orders against a person who was the primary contravenor and not being available as against a person involved in a contravention.  In the result, I accept that by s 545 power is conferred on the court to make orders against a secondary participant awarding compensation for failing to pay an amount due under the Act, Regulations or in a related instrument.
  7. As concerned the power to make an order for compensation as against a person who has been involved in a contravention (as distinct from the primary contravenor), there have been a number of decisions in this court where such orders had been made.[205] More recently, in Veeraragoo v Goldbreak Holdings Pty Ltd (No.2),[206] Colvin J considered the scope of the power to make compensatory orders as against persons who had been involved in a contravention of the Act.  After noting ABCC v CFMEU and the several decisions of this court which have examined the nature and scope of the power to order that an accessory to a contravention should pay compensation, his Honour held:

In my view, having regard to the purposes of the Fair Work Act, the meaning of s 545 is that where the court has determined that there has been a contravention then before any person (including a person involved in the contravention) may be ordered to pay compensation, the court must have formed the view that such an order is appropriate in the particular circumstances. (emphasis added)

The court was satisfied it was appropriate to make compensatory orders against a person who was held to have been liable as an accessory.[207]

  1. Consistently with the authorities upon which reliance was placed, FWO identified a non-exhaustive list of matters that may be relevant:
  2. a)whether the order was necessary taking into account the capacity of the employer to make compensation payments;
  3. b)the nature and extent of the accessory’s involvement in the contravention;
  4. c)any relevant public policy reasons; and
  5. d)the nature of the order sought, including whether the accessory is to be made solely liable, or jointly liable.

As applied to the present case, I agree that a number of considerations support the conclusion that an order for compensation is appropriate.

  1. First, although there was no evidence of its capacity to pay the outstanding amounts, NoBrace has sold its business and its shareholders have resolved that it be placed in voluntary liquidation.  NoBrace has failed to make any payments at all to Ms Lee in respect of the underpayments.  Accordingly, compensation orders will serve to protect Ms Lee’s entitlements.  Such orders are appropriate, taking into account the likely incapacity of NoBrace to meet a compensation order.
  2. Secondly, Dr Masters and Mrs Masters had, at separate stages, each been the sole director of NoBrace. They were each materially involved in some or all of the contraventions that resulted in the underpayment amounts to Ms Lee.
  3. Thirdly, the making of orders for compensation will serve to discourage the controlling minds of a corporate employer from allowing their “corporation to fail only to continue the business via a new corporation. It would encourage them to take steps to ensure the corporation they control meets its statutory obligations as they arise.”[208]
  4. Fourthly, the court has made declarations that Dr Masters and Mrs Masters were involved in all, or some, of the contraventions by NoBrace.  Those contraventions led to the underpayment to Ms Lee. No attempt has been made to rectify the underpayment contraventions.
  5. Fifthly, by the SOAF, NoBrace agreed to pay Ms Lee the amount of the admitted underpayments.  On the first day of trial, NoBrace further admitted the contraventions involving the unauthorised deduction from Ms Lee’s gross wages by the payment of her PAYG instalments being for sums calculated by reference to the supposed $50,000 annual salary, as distinct from her actual gross wage.  Next, by their opening and closing submissions, the respondents variously accepted a liability to pay such sums and said that the loss to Ms Lee would be made good and further, that Dr Masters clearly had the capacity to pay the amount owing plus interest.  Why he has not done so was not adequately explained at any stage.  A supposed difficulty in doing so was said to arise from uncertainty as to the respective liability of Dr Masters and Mrs Masters for the total amount of the (admitted) underpayments and interest.  Reliance was placed upon the fact of the Masters’ separation, the apparent implication being that their liabilities were truly distinct.  While those submissions were unpersuasive, the issue that they present has been addressed in the form that the orders will take.
  6. Sixthly, in Veeraragoo,[209]Colvin J identified considerations of this kind as being sufficient to support a conclusion that for the purposes of s 545 of the Act it was appropriate to make orders for compensation.
  7. Seventhly, the making of such orders was agreed to by the Masters.

Causation

  1. The court’s power under s 545(1) to make any order the court considers appropriate includes a power to make an order awarding compensation for loss that a person has suffered but is conditioned by the requirement that such loss was “because of the contravention”: see Act, s 545(2)(b).  Expressed in other terms, such compensation should be confined to that which is referrable to the conduct of the person who was involved in the contravention.[210] The nature of this causal requirement was recently addressed in Fair Work Ombudsman v Construction, Forestry, Maritime, Mining and Energy Union where Ross J said:[211]

Further, as is clear from s 545(2)(b) a necessary condition for the making of an Order for compensation is that loss is suffered because of the contravention. As Barker J put it in Australian Licenced Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd [2011] FCA 333; (2011) 193 FCR 526 at [423] (the Australian Aircraft Case), “this requires an appropriate causal connection between the contravention and the loss claimed”. (Also see Maritime Union of Australia v Fair Work Ombudsman and Skilled Offshore (Australia) Pty Ltd [2015] FCAFC 120 at [20]). It necessarily follows that any order for compensation is an order directed to compensating a person for such a loss. As Katzmann J observed in Shizas v Commissioner of Police ([2017] FCA 61 at [209]) the focus of such an order is “in a loose sense, the restoration of those affected by a contravention to the positions they would have occupied but for its occurrence”.

  1. In the present case, the loss for which compensation was sought was confined to the sum of the underpayments; namely, $66,945.  FWO advanced a ‘formal’ submission that each of the Masters should be ordered to make compensation in that entire amount.  This submission ignored the need to consider whether the whole of that loss had been suffered, relevantly, because of the contraventions that Mrs Masters had been involved in: Act, par 545(2)(b).  Mrs Masters has not been found to have been involved in all contraventions and I do not consider that she has caused the loss that was suffered as a result of all contraventions.

It is appropriate to make orders for compensation

  1. I am satisfied that it is appropriate to make compensatory orders as against each of the persons who have been declared as being involved in the contraventions by NoBrace.  However, I am not satisfied that the same orders should be made as against each of them.
  2. Beyond recognising that Mrs Masters had not been found to have been involved in contraventions beyond 31 October 2012, no submission was made by the respondents as to why the loss represented by those underpayments had not been caused by the contraventions by NoBrace.  Instead, they agreed in the making of orders for compensation.  While I am satisfied that the loss for which compensation was claimed was suffered because of those contraventions, it is necessary to make orders for payment of compensation which recognise the distinct liability of each of the persons involved in the contraventions.
  3. FWO helpfully furnished a post-hearing submission that shed light upon the quantum of the underpayments that had occurred as a result of the contraventions in the period up to Mrs Masters’ resignation in 2012.  Out of the total loss to Ms Lee of $66,945 the sum of the underpayments that were not paid up to the date of that resignation was $34,057.  Upon the data furnished by FWO, I am satisfied that the loss which was suffered by Ms Lee because of the contraventions in which Mrs Masters had been involved was $34,057.  Contrastingly, the loss which was suffered by Ms Lee because of the contraventions in which Dr Masters had been involved was $66,945.  The appropriate relief should be confined to that which was referrable to the contravening conduct in which each of Dr and Mrs Masters respectively, were involved.[212]

Joint and several liability?

  1. FWO next sought that the Masters should be jointly and severally liable for the payment to Ms Lee of the total amount of the underpayment and interest.  For the reasons above, it is not appropriate that orders be made that they be held to be jointly and severally liable for the sum representing the whole of the underpayments.
  2. Reliance was placed upon Fair Work Ombudsman v Step Ahead Security Services Pty Ltd,[213]where Jarrett J had made an order that a company and its director (who was held liable as an accessory), be jointly and severally liable for payment of the underpayments to a number of employees.  His Honour considered that the order was appropriate as an order for several liability may lead to a situation where employees might receive double compensation.[214]   Otherwise, his Honour does not appear to have been referred to any authority or principles as to why or when particular persons should be rendered jointly and severally liable.
  3. The learned authors of Accessories in Private Law,[215]examine the nature of joint liability in the context of accessory liability and recognise the many issues that may arise for consideration in deciding whether joint liability exists as between a principal wrongdoer and one or more accessories.  In the context of examining available remedies, the authors considered XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd, where Gibbs CJ did not consider it to be in the least impracticable to give separate judgments against two defendants.[216]
  4. While no submissions were made as to the nature of joint and several liability, FWO recognised that the fact Mrs Masters had ceased involvement in the dental practice from at least 31 October 2012, coupled with the fact that she had not been found liable as an accessory for contraventions beyond that date, raised questions as to why it would be appropriate to make such an order.
  5. Chapter 4 of the Act, which concerns compliance and enforcement, is arranged in two parts and comprises ss 537 – 572.  In Part 4.1, which relates to civil remedies, Div 2 is concerned with Orders including those that may be made under ss 545-547.  Nothing in those provisions addresses the question of making of orders that, where more than one person has been found to have been involved in the contraventions of a primary contravenor, orders may be made that those secondary participants are to be jointly, or jointly and severally, liable.  Nor from my electronic search of the Act is the question of joint and several liability addressed.  To say as much may only mean that the issue arises beyond the scope of the Act and is addressed by some other means.
  6. However, in the absence of full argument, I am not prepared to yield to the application that Mrs Masters be held jointly liable with Dr Masters for all of the loss that was suffered as a result of the entire contraventions by NoBrace.  The declarations that she has a separate and distinct liability for certain contraventions undermines a conclusion of joint liability.  Such submissions as were made appeared to assume that persons found to have been involved in a contravention bore a status akin to joint tortfeasors.  There seems to be no reason why that assumption must apply in every case where allegations of accessory liability under the Act are raised for determination.  Viewed from another perspective, there is no reason to introduce the many possible complications[217]arising from joint liability where the Act confers a broad power to make any order it considers appropriate in relation to compensation.  The claim for compensation is a statutory, not a tortious, claim.
  7. The respondents agreed that an order should be made against them pursuant to s 545(2)(b) for payment to Ms Lee, including as against each of the Masters.  Nothing was said as to the submission that that sum should be paid within 28 days.  The only apparent difficulty raised by the respondents was that they had quite different levels of culpability and for that reason, as the argument ran, there was uncertainty as to what amount each of them should pay (and when).  Reliance was placed upon the fact of their separation and that they bore a substantively different legal liability for the amount of the underpayments.
  8. I am only prepared to make orders that Dr Masters and Mrs Masters are liable for such loss as they had caused Ms Lee to suffer.  It would be unjust to do otherwise.  Any supposed difficulties such as the risk of double recovery can be addressed by an order that prevents FWO seeking to execute the order for compensation as against Mrs Masters without leave of the court.  If Dr Masters is true to his submission that he will pay the compensation, no difficulty will arise.  From a procedural perspective, no claim for contribution had been raised as between Dr Masters and Mrs Masters in relation to the claim for compensation.  Instead, they were essentially agreed in such orders being made.”

FAIR WORK OMBUDSMAN v NOBRACE CENTRE PTY LTD (IN LIQUIDATION) (ACN 121 556 447) & ORS (No.2) [2019] FCCA 2970 delivered22 October 2019 per Kelly J