Inspector Carpenter v Delaware North Services Pty Ltd & Ors [2009] FMCA 36 (29 January 2009)

Last Updated: 2 February 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

INSPECTOR CARPENTER v DELAWARE NORTH SERVICES PTY LTD & ORS

[2009] FMCA 36

INDUSTRIAL LAW – Conduct of employer – pre-Work Choices regime – duress applied where 5 persons to sign AWA’s – whether proceedings properly brought – agreed facts and penalty factors to consider.

Crimes Act (Cth), s.4AA Workplace Relations Act 1996 (Cth), ss.4(8), 167(2), 170VV and s.170WG(1) Workplace Relations Amendment (Work Choices) Act 2005 (Cth), reg.2.14

Glenn Jordan v Mannington Inn Proprietary Limited [2007] FCA 1384 Hills v Sutton [2007] FCA 2033 Jones v Hanssen Pty Ltd [2008] FMCA 291 Mason v Sereo Sodexho Defence Services [2008] FMCA 373 Raymond Murray Smith (Office of Workplace Ombudsman) v ZiniFex Australia Limited & Anor [2008] FCA 532 Smith v Granada Tavern & Ors (No2) [2007] FMCA 904

Applicant:

INSPECTOR CARPENTER (WORKPLACE OMBUDSMAN)

First Respondent:

DELAWARE NORTH SERVICES PTY LTD (ACN 094 248 325)

Second Respondent:

DELAWARE NORTH RETAIL SERVICES PTY LTD (ACN 001 341 073)

Third Respondent:

DELAWARE NORTH COMPANIES AUSTRALIA PTY LTD (ACN 003 435 345)

File Number:

ADG 268 of 2007

Judgment of:

Simpson FM

Hearing dates:

12, 14 August 2008

Date of Last Submission:

14 August 2008

Delivered at:

Adelaide

Delivered on:

29 January 2009

REPRESENTATION

Counsel for the Applicant:

Mr R Dalton

Solicitors for the Applicant:

Hunt & Hunt - Adelaide

Counsel for the Respondents:

Mr M Rinaldi

Solicitors for the Respondents:

Deacons - Melbourne

ORDERS

(1) By consent a total penalty of $50,000 be imposed on the third respondent for its contraventions of s.170WG(1) of the Workplace Relations Act 1996 (Cth) as it existed prior to the commencement of the Workplace Relations Amendment (Work Choice) Act 2005 (Cth) in relation to the application of duress in connection with AWA’s being offered to Janette de Leur, Jane Draper, Tony Malavazos, Linda Rowell and Michael Thompson.
(2) The penalty is to be paid to the Commonwealth.
(3) Paragraphs 3, 4, 8, 9 and 10 of the Amended Application filed on 31 January 2008 are dismissed.
(4) No order as to costs.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE

ADG 268 of 2007

INSPECTOR CARPENTER (WORKPLACE OMBUDSMAN)

Applicant

And

DELAWARE NORTH SERVICES PTY LTD (ACN 094 248 325)

First Respondent

DELAWARE NORTH RETAIL SERVICES PTY LTD (ACN 001 341 073)

Second Respondent

DELAWARE NORTH COMPANIES AUSTRALIA PTY LTD (ACN 003 435 345)

Third Respondent

REASONS FOR JUDGMENT

1. This is an application by a Workplace Inspector brought against three Australian companies forming part of the Delaware North group of companies, a large multinational food and hospitality services organisation. The applicant seeks an order imposing a penalty on the third respondent, Delaware North Companies Australia Pty Ltd (“DNCA”), for contravention of a pre-reform provision of the Workplace Relations Act 1996 (Cth) (“the Act”). By “pre-reform” I mean the Act as it existed immediately prior to the reforms that took place on 27 March 2006 with the commencement of the Workplace Relations Amendment (Work Choices) Act 2005 (Cth) (“the Work Choices Act”).
2. The penalty that the applicant seeks is in relation to contravention of s.170WG(1) of the pre-Work Choices Act (“the old Act”) which section prohibited a person (including a company) from applying duress to an employee in connection with an Australian Workplace Agreement (“AWA”). Section 170VV of the old Act provided that the penalty for contravention of s.170WG(1) would be a maximum of 300 penalty units for a company.
3. Although both s.170VV and s.170WG(1) have been repealed with the commencement of the Work Choices Act, reg.2.14, to be found in Chapter 7 of the current Workplace Relations Regulations with the heading “Transition and Other Provisions for the Work Choices Act” provides that a Workplace Inspector can take legal proceedings in relation to any alleged breach of a matter under the old Act despite the amendments that were brought about by the Work Choices Act. I am satisfied that these proceedings are properly brought by the applicant. (see Raymond Murray Smith (Office of Workplace Ombudsman) v ZiniFex Australia Limited & Anor [2008] FCA 532).

Background facts

4. The parties have been able to reach agreement about the facts in this case as well as the legal consequences of those facts. I acknowledge that the following summary of the facts and the consequences of those facts relies heavily on the document of the parties that provides details of the agreements reached.
5. The applicant, Allyson Carpenter, is a person appointed by instrument as a Workplace Inspector under sub-s.167(2) of the Act and in that capacity is able to bring these proceedings.
6. The first respondent, Delaware North Services Pty Ltd (“DNS”) is a company incorporated in the State of Victoria on 24 August 2000 and is a wholly owned subsidiary of DNCA.
7. The second respondent, Delaware North Retail Services Pty Ltd (“DNR”) is a company incorporated in the State of Victoria on 18 February 1976 and is a wholly owned subsidiary of DNCA.
8. DNCA is a company incorporated in the State of Victoria on 24 December 1987 and is the parent company of DNS and DNR.
9. The Delaware North group of companies has business streams which include venue, retail and food services. Its Australian organisations are conducted by DNCA. DNCA manages the Australian operations out of its head office in North Melbourne. Various of DNCA’s operating subsidiaries conduct the operations of particular parts of the operations. For example, DNR operates food and beverage outlets at sites including airports. DNCA employs senior managers who are responsible for various aspects of the overall operations including, overseeing the operations of the subsidiaries. From about October 2005 DNS has operated the food and beverage outlets at the new Adelaide Airport which itself became operational at that time.
10. DNR had operated a series of catering outlets at the old Adelaide Airport domestic and international terminals including the “Squeeze & Grind” and “International Cafe”.
11. At all material times, DNR was bound by an industrial award known as the Airport Catering Award 2002 (“the Airport Award”) in respect of all persons employed by it who performed work covered by the Airport Award.

The relevant employees

12. DNR employed the following persons (“the Relevant Employees”) in the positions identified:
    1. Tony Malavazos was employed from 19 April 1997 as a Casual Supervisor. After approximately 2 years his employment status was converted to permanent part time with his classification unchanged.
    2. Linda Rowell was employed from 27 April 2001 as a Casual Food and Beverage Attendant. After approximately one year her employment status was converted to permanent part time. Her classification initially remained unchanged but shortly afterwards she was made a Supervisor.
    100. Michael Thompson was employed from early January 2002 as a Casual Food and Beverage Attendant.
    4. Jane Draper was employed from late January 2005 as a Casual Food and Beverage Attendant.
    5. Janelle de Leur was employed from 25 August 2005 as a Casual Food and Beverage Attendant.
13. At all material times whilst employed with DNR. The Relevant Employees were covered by the Airport Award. As at September 2005, the Airport Award resulted in the Relevant Employees being entitled to the following from DNR:
    1. the minimum hourly rate of pay prescribed by the Airport Award for their respective classifications. For each of the Relevant Employees this was $14.61 for ordinary hours of work from Monday to Friday;
    2. with the exception of Mr Malavazos and Ms Rowell, who were not casual employees, the Relevant Employees were entitled to a casual loading of 33.3% on top of their minimum hourly rate of pay, giving them an effective minimum hourly rate of $19.43 per ordinary hour worked from Monday to Friday;
    100. penalty rates for early morning work and evening work and work on Saturdays, Sundays and public holidays (set out in clause 13.3 of the Airport Award), which gave each of the Relevant Employees, with the exception of Mr Malavazos and Ms Rowell, an effective minimum hourly rate of:
         1. $25.57 on Saturdays,
         2. $29.22 on Sundays; and
         3. $36.53 on Public Holidays.
    4. The effective minimum hourly rates of pay for Mr Malavazos and Ms Rowell were:
       1. $21.92 on Saturdays;
       2. $29.22 on Sundays;
       3. $36.53 on Public Holidays; and
    5. various other allowances prescribed in the Airport Award.
14. The Relevant Employees were in fact receiving the following from DNR:
    1. a casual loading of 44.4% on top of their minimum hourly rate of pay, giving each of the Relevant Employees an effective minimum hourly rate of $21.10 per ordinary hour worked from Monday to Friday;
    2. penalty rates for early morning and evening work and work on Saturdays, Sundays and public holidays, giving each of the Relevant Employees an effective minimum hour rate of:

(a) $27.20 on Saturdays;

(b) $30.85 on Sundays; and

(c) $38.16 on Public Holidays; and

3. various other allowances prescribed in the Airport Award.

DNCA tenders to operate outlets at the new Adelaide Airport terminal

15. On 9 September 2004 DNCA submitted a tender for the operation of a number of outlets at the new Adelaide Airport terminal, which was then under construction.
16. In or around February 2005 employees of DNR, including the Relevant Employees except Ms de Leur who had not yet started, were advised by DNCA through staff meetings and informal conversations with their respective managers that DNCA had submitted a tender for a number of the catering outlets at the new Adelaide Airport.
17. In the course of these communications, management of both DNCA and DNR encouraged the staff at the old Adelaide Airport to perform well in their employment duties and to present a professional and efficient image on behalf of DNCA. They were told that by making a special effort they would give DNCA the best chance of winning the tender.
18. In or about February 2005 DNCA became aware that it had secured a contract for the operation of a number of food and beverage outlets at the new Adelaide Airport terminal. Those outlets included those that were to trade under the names of “Terra Rosa”, “Billie Chu”, “Beetroot”, “Opals” and “Coopers Ale House”.
19. On 1 March 2005, DNCA management issued a memorandum to all DNR staff to inform them of this tender outcome which relevantly stated:
    • We are delighted to advise that Delaware North Companies Australia (DNCA) has been successful in attaining a new contract to deliver food and beverage services at the new Adelaide terminal.
20. In that memorandum, DNCA gave no indication to the employees, including the Relevant Employees, that their employment with DNR would be terminated or that they would have to apply for positions with DNS at the new Adelaide Airport terminal. Further, DNCA gave the Relevant Employees no indication that if they were offered a position at the new airport the offer would be conditional upon them signing an AWA. Further, no indication was given to the Relevant Employees that employment at the new terminal would be on terms and conditions materially less favourable than the terms and conditions they were currently on and to which they were entitled under the Airport Award.
21. DNR only employed around 17 employees at the old airport terminal. With DNCA having secured the contract to operate several outlets at the new airport terminal, there would be at least 60 employees required to cover the rosters. The Relevant Employees were aware that there would be significantly more employees at the new terminal to attend the several outlets.
22. In the period following the announcement of the tender outcome by DNCA, employees of DNR had informal discussions with their local management, asking about the impact of the tender outcome on their employment. Employees were advised by Mr Alan Barnden (the then Catering Manager for DNR) that they had nothing to worry about because nothing would change for them, except that they would be working from the new airport terminal premises. DNCA says that if this was said, it was not on the instruction of DNCA.
23. The Relevant Employees expected that their employment would continue at the new Adelaide Airport terminal on terms and conditions not materially inferior to their existing terms and conditions of employment. By reason of the above matters, that expectation was reasonable and legitimate, until they were told otherwise.

DNCA’s AWA strategy

24. Beginning in late 2004 and continuing well into 2005, the most senior executive and human resource management of DNCA decided to implement AWAs that would result in substantial labour cost savings by avoiding the requirement to pay the Airport Award penalty rates and allowances. The new AWAs would contain a flat rate of pay for the respective classifications (to apply irrespective of when work was performed) and would remove other entitlements.
25. Under the old Act, AWAs had to be lodged with the Office of the Employment Advocate who was required to apply the no-disadvantage test. That test required that the terms and conditions in the AWA had to be no less favourable than those in the applicable award when those terms and conditions were viewed overall. DNCA saw an opportunity to establish employment arrangements at the new airport terminal to which the Airport Award would not apply. If that could be achieved, the industrial instrument that would apply by common rule to employees engaged to work at the new airport terminal would be the Cafes & Restaurants (SA) Award (“the Café Award”). The terms and conditions of employment under the Cafe Award represented a lower threshold barrier to be overcome for the purpose of the no-disadvantage test. DNCA believed that the content of its proposed AWA would have passed the no-disadvantage test when compared with the Café Award. DNCA believed that the proposed AWA would not have passed the no-disadvantage test if compared to the Airport Award.
26. DNS was not named as a respondent to the Airport Award. DNCA believed that if it made DNS the employer at the new terminal, the Airport Award would not apply. DNCA believed that the Airport Award would cease to apply if DNR ceased to be the employer when the catering contract at the old terminal expired and if DNS became the employer of the employees at the new airport terminal under the new catering contract. It was therefore a significant part of DNCA’s plan for future employment arrangements at the new airport terminal that all employees of DNR at the old terminal, including the Relevant Employees, would have their employment with DNR terminated and employment at the new terminal would be with DNS. On that basis, DNCA believed that the offer of employment at the new airport could be on an AWA the contents of which would not have to be compared with the Airport Award for the purposes of the no-disadvantage test, but could be compared with the lower threshold of the Café Award.
27. On 3 June 2005, DNCA’s HR Manager and its Airport Operations Manager presented a report to the Senior Executive team concerning the proposal for employment arrangements at the new Adelaide Airport. The brief Minutes of that meeting state as follows:
    • “... sought consultancy advice re the design of the most appropriate Industrial Instrument of the redeveloped Adelaide Airport. Summary will be presented to the Executive in the next week. Seeking a new AWA which will distance DNCA from the Federal Airport Catering Award. Significant savings in salaries and minimal set up fee, around $10K.”
28. Beginning in 2004 as part of the bid review process, the HR Manager had conferred with an external consultant on an on-going basis to develop and settle the content of a template AWA. These discussions continued until at least 30 September 2005.
29. On 26 September 2005, at the Monthly Day Meeting of the Senior Executive team of DNCA, the HR Manager reported that she was working towards the implementation of the AWA and that the document was finalised 22 September 2005. At least by this stage, the Senior Executive team was aware that although it was likely to pass the statutory “no disadvantage” test as assessed against the Café Award, the proposed AWA represented a material reduction in the terms and conditions of employment for employees who were at that time employed by DNR. The minutes of that meeting record that the HR Manager reported “[d]ifficulty will be selling this AWA to current staff”.
30. DNCA decided to implement the AWA strategy as follows:
    1. DNR would terminate the employment of all of its employees at the old Adelaide Airport, the termination to take effect when its operations at the old airport terminals ended. As part of this arrangement any permanent employees were to be paid out their annual leave at the time their employment was terminated;
    2. DNS would be the entity responsible for the Delaware North group’s operations at the new airport terminal and would employ all persons required to work at the outlets there;
    100. employment with DNS would be conditional upon signing the AWA, and this requirement would also apply to staff who were employed by DNR at the old airport; and
    4. the AWA would exclude the operation of the Airport Award and, in particular, would provide for a flat hourly rate and exclude all Airport Award penalty rates and allowances.

Interview Process and Termination of Employment

31. In or about mid-September 2005, the employees of DNR, including the Relevant Employees, were advised that interviews would be conducted for all staff wishing to work at the new airport. Management advised staff by an internal memorandum that they should submit an up-to-date resume. Employees were also asked to apply in writing to DNCA management indicating their preferences about which outlets they would work in at the new airport terminal.
32. On or about 23 September 2005, the majority of employee interviews were conducted by the HR Manager and the Director Retail Services, DNCA. Michael Thompson was interviewed by the HR Manager. Mr Malavazos was interviewed by both the HR Manager and the Director Retail Services. The other Relevant Employees were interviewed by the Director Retail Services. These interviews were conducted on site at the old domestic airport. In the area where employees waited for their interviews, there was left on a table a bundle of pro forma documents titled “Application for Employment at Adelaide International Airport”. Employees filled in the form prior to attending the interview whilst waiting for their appointment. The completed applications were given by the employees to the HR Manager or the Director Retail Services, DNCA, depending on who conducted their interview.
33. In the course of the interview process, Michael Thompson was shown an AWA template by the HR Manager who told him that signing the AWA was a requirement of getting employment at the new airport. The same thing possibly occurred with other employees. However none of the other Relevant Employees recall that they were shown or told of the AWA template or the pay rates in their interviews.
34. On 28 September 2005 the DNR employees, including the Relevant Employees, were advised by letter by DNCA that their employment with DNR was to terminate effective 17 October 2005. The letter further stated that employees who have applied to work at the new airport terminal would be advised shortly of the employment opportunities.
35. Neither the 9 September nor the 28 September letters gave any indication that the employment opportunities for the Relevant Employees at the new airport terminal would be conditional upon their entry into AWAs on terms and conditions that were materially inferior to those they enjoyed at that time and to which they were entitled under the Airport Award.

The offering of the AWAs

36. On or shortly after 30 September 2005 DNCA settled the final content of the AWA including the classification descriptors and the applicable pay rates.
37. The AWA was in several respects materially inferior to the wages and conditions under which the Relevant Employees were employed by DNR at the old airport terminal and to which they were entitled under the Airport Award in that employment. In particular:
    1. Operation of the AWA – the AWA expressly provided that the AWA would operate in lieu of the Cafe Award and any otherwise applicable industrial instrument;
    2. Hours of work – the AWA provided that an employee's ordinary hours could be worked over any day of the week, Monday to Sunday inclusive;
    100. Hourly rate of pay – the AWA expressly states that the rates of pay contained in the schedules to the AWA “apply at all times” and that “[a]ll the rates include a loading to compensate for all shift weekend overtime, public holidays and other penalties and no additional penalties are payable”. The hourly pay rate for the Relevant Employees under the AWA was $17.86;
    4. Public holidays - the AWA made no mention of entitlements to penalty rates applicable to the public holidays, thereby excluding any such entitlement from the AWA;
    5. Allowances - the AWA made no mention of allowance entitlements, other than a meal allowance, thereby excluding any such entitlements from the AWA; and
    6. Casual loading – the AWA provided that, instead of the 33% loading that the Relevant Employees had been entitled to the rates of pay for “Non Trainees who do not receive paid leave (Unpaid Leave Option)” were 10.55 per cent higher than for “Non Trainees who do receive paid Leave (Paid Leave Option)”.
38. Within a week or two, the AWAs were issued to proposed DNS employees. The Relevant Employees were only offered employment at the new Adelaide Airport on the basis that they enter into employment with DNS on the terms of the AWA. The Relevant Employees were not given the option to retain the employment conditions they had at the old terminal. The Relevant Employees were faced with the prospect of not being employed at the new Adelaide Airport terminal or signing an AWA that would materially reduce their terms and conditions.
39. Consistent with its overall AWA strategy, DNCA adopted and implemented a policy that, after a brief grace period from the time that the AWAs were issued, if any proposed DNS employee (including any of the Relevant Employees) did not sign the AWA then they would not be offered any work at the new terminal. Senior management made this clear to local management. The administrative office kept a record of who had signed and returned their AWA. The office asked local management to follow up on the employees whose AWAs had not been signed and returned. The local manager and a supervisor followed up the Relevant Employees and told them that they had to sign the AWA if they wanted to work at the new airport.
40. It was not until late September/early October 2005 when the Relevant Employees were given an AWA to sign that they understood that the only way to maintain employment at the new airport was to enter into employment with DNS on the terms of the AWA on materially inferior terms and conditions. At this point, DNCA removed the reasonable expectation held by the Relevant Employees that their employment would continue at the new airport terminal without any material change to their hours or pay.
41. The Relevant Employees did not want to sign the AWA but felt under pressure to do so. Each time they were followed up by the local manager or supervisor about the AWA, they were told that the move to the new airport was imminent. With the exception of Ms Rowell, all of the Relevant Employees ultimately signed the AWA to maintain employment within the Delaware North group and to start work at the new airport.
42. In the circumstances, by its conduct DNCA placed the Relevant Employees in a position where their AWAs could not be the product of free and fair bargaining. The AWAs that were entered into were not the product of free and fair bargaining.
43. Ms Rowell’s employment transferred from DNR to DNS, with a change in status from part-time to casual, when she started working at the new airport. Between February and May 2006 Ms Rowell was subjected to ongoing duress by DNCA to sign the AWA.
44. As a result of the conduct of DNCA, the Relevant Employees lost remuneration. DNCA agreed to compensate the Relevant Employees for that lost remuneration.

Conduct is conduct of DNCA

45. Having regard to the principle of vicarious liability and the operation of s.4(8) of the old Act, the conduct described above was for all relevant purposes, the conduct of DNCA.

Admission by DNCA

46. Based on the agreed facts set out above, DNCA admits that it has committed a single contravention of s.170WG(1) of the old Act in relation to each of the named Relevant Employees, making a total of five contraventions. The maximum penalties that can be imposed in relation to each of these five matters as prescribed by s.170VV of the old Act at the relevant time (October 2005) as translated by s.4AA of the Crimes Act (Cth) is $33,000. The total possible penalty is therefore $165,000.

Agreement as to penalty

47. The applicant and DNCA agree that $50,000.00 is an appropriate total penalty for the 5 contraventions having regard to all relevant matters. The parties agree that circumstances in which the contraventions occurred and the nature of the conduct require a meaningful penalty to be imposed having regard to the objects of the Act and the need for general deterrence in particular.
48. It was submitted by the parties that whilst it is ultimately for the Court to fix the appropriate penalty, where the parties agree on a penalty, the Court should not disturb it unless if falls outside the appropriate range. This approach is supported by recent authority. In Hills v Sutton [2007] FCA 2033, a case also concerning an agreed penalty for breach by an employer of the Act, Tracey J came to the same view stating at para.7 of his reasons;
    • “The Court is not bound to accept and impose these proposed penalties but will do so if persuaded that, in all the circumstances, they fall within the permissible range: cf NW Frozen Foods Pty Ltd v Australian Consumer and Competition Commission [1996] FCA 1134; (1996) 71 FCR 285 at 290-1. In Ponzio v B & P Caelli Constructions Pty Ltd [2007] FCAFC 65; (2007) 158 FCR 543 at 565 Jessup J expressed the view, with which I respectfully agree, that the phrase “permissible range” in this context “refers to a range which would be permitted by the court, that is, a range within which the penalty is neither manifestly inadequate nor manifestly excessive.”
49. It is agreed between the parties and submitted that:
    • The Court can be satisfied the agreed penalty falls within the permissible range of appropriate penalties;
    • As a rough starting point, the conduct falls somewhere around 50 to 60% along the spectrum of seriousness; and
    • There is no evidence of DNCA having previously breached workplace laws so it is appropriate to give DNCA the benefit of the low end of the appropriate range, around 50%.
50. It is also agreed and submitted that there are further mitigating factors, namely;
    • DNCA admitted the contravention at an early stage; and
    • DNCA agreed to pay compensation to the Relevant Employees at an early stage revealing a level of contrition and demonstrated readiness to accept responsibility.
51. Finally it is agreed and submitted that when the totality principle is taken into account together with the facts that the impugned conduct in respect of each of the 5 employees was part of an overall course of conduct, a total figure of $50,000 falls within the permissible range.
52. I have considered the circumstances of other cases where employers have been penalised for contravening the duress provisions of the Act. These cases include the following: Smith v Granada Tavern & Ors (No2) [2007] FMCA 904; Glenn Jordan v Mannington Inn Proprietary Limited [2007] FCA 1384; Jones v Hanssen Pty Ltd [2008] FMCA 291; and Mason v Sereo Sodexho Defence Services [2008] FMCA 373.
53. I have also taken into account that DNCA’s conduct was deliberate and executed by stealth so far as the Relevant Employees were concerned. Further, it involved sustained conduct by it over many months before it was in a position to be able to effectively apply the duress that is complained of. DNCA had plenty of time to reflect on whether it should embark on its reprehensible conduct.
54. After taking into account all the matters referred to above I have come to the conclusion that the penalty proposed adequately reflects the seriousness of DNCA’s conduct and that the proposed penalty is within the permissible range.
55. I make the orders to be found at the beginning of these reasons.

I certify that the preceding 55Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !fifty-fivefifty-five (55) paragraphs are a true copy of the reasons for judgment of Simpson FM

Associate: Julie Davey

Date: 29 January 2009