Two Jetstar companies have been fined a total of $90,000 after admitting to unlawfully requiring six cadet pilots to pay the costs of their training and making unauthorised salary deductions, despite having received advice that this was unlawful.

Implications for employers

This decision acts as a reminder to employers of:

  • their obligation to comply with award terms around matters such as training and expenses;
  • the fact that the Fair Work Act 2009 (Cth) (FW Act) contains restrictions on when employers may lawfully make deductions from employees’ wages; and
  • reinforces the position that penalties function as both specific and general deterrence for contraventions of the FW Act, and that an employer’s failure to admit liability and demonstrate remorse will be relevant factors in calculating penalties.

Background

Jetstar set up a cadet pilot program with the intention of recovering the costs of training the cadet pilots through a salary sacrifice arrangement. This was despite advice Jetstar had obtained that it (not the cadets) was responsible for the training costs under clause 16.5 of the Air Pilots Award 2010 (Cth) (Modern Award).

The cadet pilots were originally employed in New Zealand while undergoing training, but it was generally understood that they would ultimately work in Australia. The cadet pilots signed funding agreements that provided for the repayment of their training by salary sacrifice. At the conclusion of their training, the cadet pilots were offered employment in Australia on the basis that they would pay a bond in addition to repayment of the training costs. All but one of the cadet pilots accepted the proposal, but all six cadet pilots were employed.

From June 2011 until September 2011, Jetstar made deductions from the cadet pilots’ salaries, including from the cadet pilot who had not agreed to the deductions.

Before the first deduction was made, proceedings were commenced by the AFAP with respect to the bond and salary sacrifice arrangements. The AFAP proceedings were discontinued in December 2011 when the parties reached an agreement whereby the funding agreement and bond would no longer apply and the cadet pilots would be reimbursed the relevant deductions from their salaries.

Proceedings seeking an order that Jetstar pay civil penalties were brought by the Fair Work Ombudsman for breach of:

  • section 45 of the FW Act, which prohibits contraventions of any applicable modern award; and
  • section 323(1) of the FW Act, which requires salaries to be paid in full unless deductions are authorised by the employee or at law.

Jestar admitted the contraventions. Accordingly, the task of the Court was to determine the appropriate penalty. The maximum available penalty for each contravention was $33,000.

Decision

Justice Buchanan of the Federal Court held that the appropriate penalty for each of the two Jetstar companies was $20,000 for the contravention of section 45 of the FW Act, and $25,000 for the contravention of section 323(1). In so concluding, Justice Buchanan:

  • observed that the evidence did not demonstrate any contrition or remorse from Jetstar. Rather, the remedial action taken by Jetstar was merely in response to the AFAP proceedings and Jetstar’s prospects of a successful defence;
  • indicated a need for the penalty to incorporate elements for both general and specific deterrence, as Jetstar abused its superior bargaining power to subdue any resistance by the cadet pilots, and never indicated any practical acceptance of the illegality of the conduct;
  • noted the relevance of the fact that Jetstar implemented the arrangement for recovery of training costs, despite advice that it was in contravention of the Modern Award and FW Act; and
  • commented that a penalty should be fixed so as to ensure “that the risk of punishment is not seen as an acceptable cost of doing business”.

The penalty amounts imposed were greater than those suggested by the parties as being appropriate.

Fair Work Ombudsman v Jetstar Airways Ltd [2014] FCA 33 (6 February 2014)