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Industrial RelationsCommission NSW Annual Members Conference

The Fair Work Ombudsman litigation policy in practice

Nicholas Wilson and Lynda McAlary-Smith[1]

Thursday 18th October 2012

“Regulators, under unprecedented pressure, face a range of demands, often contradictory in nature: be less intrusive – but more effective; be kinder and gentler – but don’t let the bastards get away with anything; focus your efforts – but be consistent; process things quicker – and be more careful next time; deal with important issues – but do not stray outside your statutory authority; be more responsive to the regulated community – but do not get captured by industry.

Conflicting demands should surprise no one in government. Such is the nature of governance.”[2]

  1. Wewouldlike to thank the New South Wales Industrial Relations Commission for the opportunity to speak at this conference. The views expressed are our own and do not necessarily reflect Government policy. We take responsibility for any errors in the text.
  2. Webegin by respectfully acknowledging the traditional owners of the land on which we meet today, the Eora people, and pay my respects to Elders both past and present.
  3. It is also appropriate to acknowledge the Fair Work Ombudsman institutes proceedings in the Federal Magistrates’ Court and Federal Magistrate Driver, who you have just heard from, is one of the judicial officers who hear those cases. Nothing said today will involve a matter that is before Federal Magistrate Driver and nothing in this presentation is intended to influence His Honour in anyway.
  4. This paperaddresses the role of the Fair Work Ombudsman and the relationship we have had, and continue to have, with the Federal Magistrates Court of Australia. The Fair Work Ombudsman’s litigation policy is also discussed; including when and why matters may be brought before the Federal Magistrates Court or another Court and alternatives to litigation.
  5. There are several things that connect with our current operating form and why that form is likely to continue;

a)first of all is the observation that while now more than a third of all employees have their employment regulated by collective agreements, there is now only a fraction of the industrial disputation that once occurred[3]; and

b)secondly, as said to the NT Industrial Relations Society in 2008[4];

“There is also severely declining private-sector union membership which is now only 13.2%. This rate is less than half what it was in 1990, at the start of the modern collective bargaining era, when almost 31% of private-sector employees were union members. There are now 350,000 fewer private-sector employees in unions than in 1990. In this kind of environment, where our obligations continue, and workloads remain pressured, we must find ways in which workplace inspectors can be more effective. Given that on average, our workplace inspectors might spend just 20 hours on each matter, more effective inspection methods are largely going to be a function of the tools and techniques we have at our disposal.”

  1. Or, looking at this from another direction, David Weil notes three “changes in external conditions surrounding the workplace [that] have made the basic structure of [the] employment relationships more complicated”, namely the growth of contracting; the “secular decline” of trade union representation; and reductions in the fit of the “factory-centric” model around which many workplace inspection policies developed.[5]
  2. Taken together, there are demonstrably far fewer of the larger formal disputes as well as a greater number of people without access to assistance for their personal rights and grievances. Much of the work of this Office surrounds this current feature of Australia’s workplace relations system and in some ways this is not unexpected[6].
  3. Where this takes us is back to some of the things we are all very good at – explaining rights and obligations and resolving disputes about those things.
  4. In many ways, the first task to be done by a newly formed regulator is to establish a broad-based understanding and acceptance of the law. The Agency’s work has primarily focussed on this task since its commencement reference point in 2006 when the inspectorate first became independent of Ministerial control.
  5. The Office of the Fair Work Ombudsman was established on 1 July 2009 under the Fair Work Act, which is the same date as the amendment to the Federal Magistrates Act 1999that established two divisions within the Federal Magistrates Court; a Fair Work division and a general division. The traditional jurisdiction of inspectors expanded in July 2009 when the authority was gained to investigate and litigate claims of unlawful discrimination that resulted in adverse action against an employee. Six months later, from January 2012, the Agency’s national system coverage was expanded when fours States (NSW, Qld, SA and Tas) referred their unincorporated business sectors to the Commonwealth coverage. As part of this development of the national system, certain investigation services were contracted back to public servants employed in the NSW, Qld and SA Governments.
  6. In a broad sense, the Fair Work Ombudsman is responsible for educating workplace participants and ensuring compliance with Commonwealth workplace laws.
  7. Fair Work Ombudsman staffinteract with more than 3 million people a year – we advise; we assist; we educate; and we ensure compliance.Our vision is Fair Australian Workplaces and we are committed to promoting harmonious, productive and cooperative workplaces. We recognise that the greatest public good to be achieved from the safety net will come as we find better ways for Australians to be aware of their rights and obligations and to be given confidence their rights and obligations can be accessed.
  8. The Fair Work Ombudsman’s litigation policy[7]has developed since March 2006, and is reflective of two core philosophies. First, that the social good which is the workplace relations safety net will be most beneficial to the Australian community if it really operates as a universal safety net. Of course, part of that belief is that coercive activities will be a necessary component of achieving the wider goal. Second, is the strongly held and mostly self evident, view that it is neither desirable nor necessary to penalise every offender in order to achieve the wider goal. This second element is consistent with the Commonwealth Director of Public Prosecutions Prosecution Policy, which deals with the constraint of resources in this way;

“It has long been recognised that not all criminal offences must automatically result in a criminal prosecution. The resources available for prosecution action are finite and should not be wasted pursuing inappropriate cases, a corollary of which is that the available resources are employed to pursue with appropriate vigour those cases worthy of prosecution.”[8]

  1. The FWO litigation policy is first of all a statement of the highest level and most formal actions that can be taken against an errant duty-holder. It also happens to be a policy that is formally invoked in a relatively few occasions in the course of the year. The context is of a document that sets the overall direction and ensures compliance far beyond those taken to Court;

“… the greatest potential impact of [labour inspectorate] activities arises through deterrence: the threat of inspection spurring on changes in compliance or practices prospectively. Deterrence is related to the perception that the expected costs of investigation (in the most simple case the probability of inspection multiplied by the penalties associated with violations) are significant enough to lead firms to comply voluntarily.”[9]

  1. In practice, the Litigation Policy is played out as the result of decisions by managers on individual cases, and the policy is being strengthened through decisions in two ways – firstly by moving thestandard interaction away from an investigation model, and increasingly toward a dispute resolution model; and secondly by endeavouring to shift theuse of the Courts to cases which highlight the worst allegations of wrong-doing or exploitation of vulnerable workers, or to cases which highlight concerns held with procurement chains or coordinated corporate behaviour. Litigation activities by the Fair Work Ombudsman are transparent and accountable, and are not made capriciously. Each decision is backed by independent external legal advice that confirm there are reasonable prospects of success and that the action is in the public interest to pursue.
  2. When the Fair Work Ombudsman institutes legal proceedings it does so unapologetically and on the basis that the 50 odd matters a year are of significant factual or jurisdictional gravity to warrant the attention and accompanying authority of the Courts, which consider very well the factual and legal questions before them and approach the complexity of determining quantum of penalties with diligence and balance.
  3. Commencing matters in the federal courts required the development of uniform reasoning. Cases such as Kelly v Fitzpatrick[10] and Australian Ophthalmic Supplies Pty Ltd vs McAlary-Smith[11] have been instructive for us, and others, in setting out the factors to be considered when assessing the relative levels of culpability and application and calculation of penalties.
  4. There is occasionally discussion over and under what circumstances the Fair Work Ombudsman will institute legal proceedings, especially over money claims. There is no magical dollar amount that qualifies or precludes an underpayment matter from being commenced. As enunciated in FWO v Mineeff[12]:“the consequences of ... contraventions cannot be measured in purely monetary terms”. Each matter considered for litigation is assessed against various objective and subjective tests set out in the litigation policy.[13] In the past year, litigation was generally commenced as a result of alleged offenders refusing to rectify non-compliance issues voluntarily, or where serious or repeated contraventions were involved.
  5. These are three illustrations of the application of the policy;

a)Henna Group Pty Ltd[14]– Litigation commenced in 20XX in the Federal Magistrates’ Court against company, which formerly operated a chain of shoe stores and a warehouse in Melbourne, and the company’s group manager and sole director. Alleged that three store managers and a sales assistant were underpaid over $16 000.Federal Magistrate Riethmuller ordered Henna Group to pay a penalty of $160,000 and to back-pay the workers. The director and group manager were each ordered to pay a further $30,000 in penalties. The judgment noted: “The history of the matter indicates a deliberate disregard of industrial obligations. The lack of co-operation with the Fair Work inspectors also suggests that the Respondents have a complete disregard for the entitlements of their employees”, and “[t]here is a need for general deterrence and to send a message to the community, and in particular small employers, that employers must make steps to ensure correct employee entitlements are paid.”

b)RFJCO Pty Ltd (trading as Jayco Canberra)[15]– Litigation commenced in 2012in the Federal MagistratesCourt against RFJCO Pty Ltd (trading as Jayco), which had dismissed an employee for taking leave, to which he was entitled, to be with his dying mother. The nature and circumstances of this contravention, together with the emotional vulnerability of the employee at that particular time, indicated it was clearly in the public interest to commence court proceedings. The company in this case and its directors faced penalties adding up to $18,700.

c)Hungry Jack’s Pty Ltd[16]– Litigation commenced in the Federal Magistrate’s Court in February 2011, against Hungry Jack’s Pty Ltd underpaying almost 700 of its Tasmanian employees hundreds of thousands of dollars over several years. The case was commenced because the amount owed was substantial and affected literally hundreds of workers; and a great number of affected employees who would typically be deemed ‘vulnerable’; being junior workers or workers for whom English is a second language. The result was a penalty of $100,500, handed down after Hungry Jack’s admitted to underpaying 693 Tasmanian employees a total of $665,695. In his judgement, Federal Magistrate Burchardt described the conduct of Hungry Jack’s as “contravention on a major scale”and the total underpayment as “enormous”.[17]

  1. Wherever possible, thepreference is to achieve compliance through less formal means than litigation. Even in high culpability matters, if a contravention of Commonwealth workplace laws has been identified and the matter is not able to be resolved through voluntary compliance, thereare a number of alternatives to litigation. These include Compliance Notices, Penalty Infringement Notices and Enforceable Undertakings, and more recently, Deeds of Proactive Compliance.
  2. Increasinglylitigations are moving to reflect an interest in alleged offending that has a wide scale; or where there is a connection between corporations or their officers; or where the subject raises questions about the integrity of a procurement chain. In particular these more recent litigations are noted, which are yet to be completed;

a)Pocomwell & Others[18] – which alleges three companies and one company director owea total of $127,425to four Filipino nationals who worked on oil rigs off Western Australia;

b)Al Hilfi and Al Basry and Coles Supermarkets[19]– which allege significant underpayment of trolley collectors, and alleges the supermarket chain was “involved” in the contravention (for the purposes of s550 of the Fair Work Act);

c)TSA Telco[20] – which alleges sham contracting activity affecting thousands of call centre workers and door-to-door salespeople;

d)Jetstar[21] – which alleges the Australian and NZ entities of the airline breached workplace laws when they engaged trainee pilots on New Zealand individual contracts, when it was foreseeable the work they were to perform was predominantly in Australia and therefore covered by Australian law.

e)Valuair, TET and Jetstar[22] – which allege foreign cabin crew were used by the airline in such a way that certain portions of flying time should be paid under Australian law.

  1. While it is acknowledged consideration of these type of subjects presents significant risk for the Agency, as the bounds of the Fair Work Act are explored, there is on the other hand, an obligation to endeavour to prove these points.
  2. The use of Enforceable Undertakings adds flexibility in addressing cases of significant non-compliance and provide an alternative to litigation in addressing matters of significant non-compliance, avoiding the expense and delay associated with litigation. They give opportunities for ensuring ongoing compliance as well as sustainable behavioural change, which may not be achievable through litigation. In the last financial year, eight Enforceable Undertakings were entered into with employers, and an example is Buxton Real Estate, which arose out of an adverse action claim surrounding unlawful discrimination
  3. As much as a firm litigation posture assists with positive compliance; self-resolution processes assist with complaint handling in a way that neither undermines the wider compliance strategy or public confidence that duty-holders will be held to exercise their obligations. For the Fair Work Ombudsman and no doubt other regulators, this means creating capacity to get to the planned targeted compliance activities in industries and regions most in need of assistance.
  4. Research undertaken by the Department of Innovation, Industry, Science & Research has shown self-resolution mechanisms provide benefits to employers, employees and the economy as they improve employee engagement; are more cost effective and less formal than investigation, arbitration and especially litigation, and help maintain and improve the employment relationship.[23] Consistent with this, the Agency is in the process of reshaping its education and compliance activities; placing greater focus on helping workplace participants prevent disputes and, when they inevitably occur, to manage them at the workplace level. Our objective is to direct services where they are most effective; and this means actively working to find ways in which higher level, and more costly, services are offered where they can have most effect; and that citizens approaching us for basic or non-contentious issues are encouraged to use voluntary resolution or self-service inquiry tools.
  5. Encouraging people to self-resolve their problems is not easy, especially where there might be an imbalance of skill, information or economic power. Even so, this encouragement is being turned into practice through the greater use of structured assisted voluntary resolution (in the last year, over one-third of all underpayment complaints were resolved in this way[24]) and formal mediation conducted by internal FWO mediators (which has successfully resolved 835 matters so far this year in a pilot phase[25]). Of course, self-resolution or alternative dispute resolution will not always be possible and in manycases will not be appropriate.
  6. Overall, our litigation posture is strategic and used sparingly. At one level, the facts should speak for themselves. Since 2006, the Fair Work Ombudsman and predecessor agencies have completed about 241 litigations. We’ve won most of those (all but 10) and 12 have been appealed by either party (only 3 of those appeals were successful). Of the 28,412 “breach” complaints and investigations completed by my staff in the past year, there was a need perceived by for the Fair Work Ombudsman to proceed to Court in only 51 of them. Of the $39.8 million in underpaid money recovered by Fair Work Inspectors in the past year, just $0.4 million was recovered as a result of determinations by the Courts.[26]
  7. While it is entirely understandable that individuals and entities pursued by my Office through the Courts may object to the commencement of litigation, or they and their representatives may describe the action in all sorts of unflattering ways or claim it is heavy-handed, the use of litigation as an enforcement methodology is used sparingly and carefully. It is also used very rarely where the duty-holder has corrected any underpayment and recognised that until that point they were acting in breach of their obligation. By the time a litigation is filed in Court, the duty-holder has always had a chance to explain what has gone on and has had many opportunities to rectify underpayments or the practices said to have led to their non-compliance. It would be difficult to allocate more resources to litigation, and the marginal benefit to be had from new expenditure would probably not match the marginal cost.[27]
  8. As a further alternative to FWO initiated litigation, the Federal Magistrates CourtSmall Claims Procedure is used to provide parties to a workplace complaint with an efficient and effective means to progress matters through court. The procedure is available for claims of up to $20,000 where the applicant is not seeking a penalty order against the respondent.
  9. Matters heard under the Small Claims Procedure are run in an informal manner, and the court is not bound by any rules of evidence or procedure. Legal representation is generally not permitted. A Fair Work Inspector or lawyer from the Fair Work Ombudsman however can appear as a ‘friend of the court’. In practice this means they do not act for either party, but can assist the court on points of law or raise awareness of important aspects of the case.
  10. Following dialogue with the Federal Magistrates Court in Victoria, the Fair Work Ombudsman commenced a pilot using the Small Claims Procedure in the 2010-2011 financial year. This pilot was successful and so our activities were expanded in this area the following year. With the support of the Federal Magistrates Court, the Fair Work Ombudsman has now assisted over 100 parties in Victoria, New South Wales, Queensland and the Australian Capital Territory with underpayment complaints, utilising the Small Claims Procedure. Much of the small claims work was undertaken by the in-house legal team. The Fair Work Ombudsman has approximately 50 staff members in its legal group headed by our Chief Counsel, Janine Webster[28]. This consists of 40 lawyers and their support staff. All of our 40 lawyers hold a local practicing certificate and of course, hold and maintain the same ethical standards as external lawyers.[29]
  11. Last year the Attorney-General granted approval to use in-house lawyers to conduct all civil penalty litigations, which was an expansion of theprevious approval which approved only the use of in-house lawyers for court matters involving employee under-payments. This approval has had a number of benefits. Not only is our own legal team invested in and developed, but also the external legal spending has been significantly reduced, from $5 million in 2009-10 to $3.5 million in 2011-12. Over this time, our legal spending has gone from an average minimum rate of $303 an hour for an external lawyer and up to $515 for a partner, to a blended hourly rate of $150 for using our own team.[30] This cost saving has freed up resources to explore and implement alternative enforcement measures such as enforceable undertakings and pro-active compliance deeds, as well as allowing more time to be devoted to those matters which are considered appropriate for litigation.
  12. There has been much discussion and debate in recent times regarding the architecture and effectiveness of the Fair Work Act and its enabling institutions. As you will be aware, Minister Shorten recently released the Fair Work Act Review Panel’s final report into its evaluation of the Fair Work legislation. The Report concluded that the Fair Work Ombudsman has been successful in carrying out its education and enforcement facilities. It is also notable that despite commentary from some quarters on the appropriateness, or otherwise, of the Agency’slitigation policy from time to time, there was no such criticism levelled in the Report.
  13. This is not to say that there were not some messages for us in the Report. The Report noted concerns regarding the consistency of advice provided through the Fair Work Infoline and identified opportunities for us around flexibility options and productivity enhancements in workplaces. These observations have validity and the Agencywill work to address them.
  14. As a regulator, some confidence is taken from the fact that no one is usually completely happy with all of our activities and our focus. That suggests the balance is about right.

NSW IRC Annual Members Conference17 October 2012