The Fair Work Ombudsman (FWO) has again been successful in prosecuting a company and its directors and officers for breaching the provisions of the Fair Work Act 2009 (FW Act), in a case which again demonstrates the risk involved in reckless employment practices.
This matter involved a cleaning company, Grouped Property Services Pty Ltd (GPS), and the engagement of workers as “independent contractors” when they were in fact employees at law¹. The matter was heard before Katzmann J in the Federal Court of Australia. In her decision, Katzmann J summarised the case as being about “the calculated exploitation of a vulnerable workforce”.
Prior to commencing the proceedings, the FWO had received over 170 complaints, primarily from cleaners GPS had engaged with non-English speaking backgrounds. The matter culminated when one of the employees was dismissed after repeatedly inquiring about her overdue wages.
The FWO’s investigations revealed that GPS and its management had allegedly committed approximately 580 separate breaches of the FW Act, involving 51 different workers. The FWO then commenced proceedings against GPS, its sole Director (Enrico Pucci) and its Chief Operating Officer (Ross Pucci) alleging a range of breaches of the FW Act including the failure to:
- pay superannuation contributions;
- pay personal or annual leave;
- pay overtime and penalty rates;
- engage workers for a minimum period of time for each shift, in breach of the Cleaning Services Award 2010;
- pay employees within the time required by the Cleaning Services Award 2010; and
- pay employees in full and in money.
An adverse action claim was also made against the Respondents for the termination of Ms Moona Hasan, following inquiries she made into her wages.
The FWO alleged that GPS, the Director and the COO, had engaged in a concentrated campaign to prevent 51 employees from receiving their legal entitlements.
GPS and Mr Enrico Pucci denied that GPS hired the workers. Saying that the workers were instead hired by a separate third party (called National Contractors), who were named as the Second Respondent and were closely connected to GPS.
In relation to GPS’ argument that the workers were supplied through a labour hire arrangement with National Contractors, Her Honour found that National Contractors failed to have any of the features of an independent business and generated little income in its own right. She continued to find that it was disingenuous for GPS and Mr Enrico Pucci to claim that the workers were engaged by an independent labour hire company.
Ultimately, Her Honour found the Respondents’ position (that the workers were not employees of GPS) was untenable and that the relevant workers were clearly servants of GPS which was the entity that had ultimate control over the workers. The workers themselves:
“…had no control over the allocation, manner or hours of work. They were not able to delegate their work to others. They did not supply their own equipment or materials. They did not carry their own insurances. They did not advertise their services. There was little or no scope for bargaining either over wages or conditions. Although many of them were required to have ABNs, that alone did not make them contractors. Nor did the fact that they invoiced for their services. In each instance they did so because it was a condition of their employment. Although some submitted “Sub-Contractor Expressions of Interest” and some entered into written agreements as independent contractors, they were not in truth sub-contractors. They had no businesses of their own and none of the trappings of a business. Nor did they intend to pursue their own business interests. They were servants of GPS"².
In regards to the adverse action claim, Her Honour found that the adverse action (the constructive dismissal) was taken because Ms Hasan had repeatedly inquired, and ultimately complained, about her unpaid wages.
In finding GPS guilty of the alleged breaches, Her Honour noted that it had been made aware of its obligations numerous times before the prosecution commenced but continued in “flagrant disregard” of its known legal obligations. Mr Enrico Pucci was also found vicariously liable for all breaches under section 550 of the FW Act, while his brother Ross Pucci was found guilty of some of the 36 breaches.
A full copy of the case can be found here.
Orders as to penalties and compensation are yet to be made by Her Honour but the FWO is seeking compensation and penalties totalling $327,111.
The Court has, however, already ordered GPS to:
- engage a third party with qualifications in accounting or workplace relations to undertake an audit of GPS’s compliance with the FW Act and the relevant Awards and
- take part in workplace training at its own cost in regard to its legal obligations as an employer.
Beware - accessorial liability
The case is another reminder of the FWO’s vigorous approach to stamping out breaches of the FW Act by prosecuting not only the company but also all individuals involved in the contravention.
Section 550 of the FW Act allows the FWO to prosecute any individuals involved in a contravention. In the 2015/2016 financial year 92% of the proceedings that the FWO commenced against companies for breaches of the FW Act also sought orders against individuals as accessories³.
In an address on 27 July 2016 to the AHRI Employee Relations / Industrial Relations Network NSW Forum, Ombudsman Natalie James explained that traditionally the FWO has sought to prosecute directors and officers using section 550 of the FW Act for reasons which she says are obvious:
“The director is the person who leads, manages and controls the employing entity. And is intimately involved in, and ultimately responsible for, the decisions of that entity – including decisions to comply (or not comply) with workplace laws”
Ms James continued to advise that the FWO has now extended its approach to target not just directors and officers involved in contraventions but also human resources staff, managers and recruitment staff.
The tough new stance of the FWO has also seen it not just seeking the payment of penalties by persons involved in the contravention, but also payment of damages, for example, the amount of unpaid entitlements particularly where a company does not have the finances to cover the damages awards4 .
Ms James also explained how the FWO was “getting creative about the nature of the orders” it is now seeking against offenders. The FWO is not just targeting the offending corporation but also using section 550 to target other organisations up and down the supply chain and the entire franchise network. It is currently prosecuting a frozen yoghurt outlet for underpayments of approximately $17,827 but is also seeking orders under s550 in respect of the head company and master franchisor, the payroll company and a manager of the head company for their involvement in the contraventions.
We are clearly beyond the point where individuals can pretend that incorrect employment practices are not happening within their organisation. It is an organisation’s duty to know and comply with its legal obligations. Those individuals involved in running the organisation’s business are the ones who have the power to ensure compliance, if you fail to do this or ignore these matters, the FWO has made its position clear, you will be personally liable. The time to act is now.