$184,000 fine for employer who failed to pay entitlements on termination
When an employee resigned from her employment as General Manager at Atanaskovic Hartnell Corporate Services (AHCS), the employer refused to pay her final pay entitlements, including outstanding wages, annual leave and long service leave.
In March 2022, the Federal Circuit and Family Court of Australia (the Court) ordered AHCS to make payment of the employee’s final entitlements of $130,000 (plus interest) and $30,000 in general damages within 21 days of the judgment.
AHCS failed to make the payment within this timeframe, and in March 2023, the Court awarded the employee $184,000 in penalties.
Initial adverse action claim filed by employee in 2017
The employee filed proceedings with the Federal Circuit and Family Court of Australia in 2017, alleging that AHCS had:
- contravened s.340 of the Fair Work Act 2009 (Cth) (FW Act) by taking a number of actions against her during her employment (Adverse Action Claim);
- failed to pay her entitlements on resignation in breach of the FW Act and her contract of employment (Entitlements Claim); and
- breached an implied term in her employment contract which required AHCS to avoid exposing her to any unnecessary risks of injury to her person or reputation (Contract Claim)
AHCS subsequently filed a cross-claim seeking to set off the employee’s entitlements and wages against the loss the employer claimed it had suffered as a result of:
- the employee’s failure to provide the correct documentation to enable AHCS partners to practice in the UK (the loss being the payment of fees to Deloitte for its advice to rectify a failed visa renewal application for Mr Atanaskovic); and
- the failure to notify Lexis Nexis that it was not renewing a contract for its legal publishing services.
AHCS ordered to pay final entitlements to the employee
In its judgement handed down in March 2022, the Court found that AHCS’s failure to pay the employees entitlements contravened ss.90(2) and 323 of the FW Act and ordered both Atanaskovic Hartnell Corporate Services and John Atanaskovic (a director and founding partner who was found to be knowingly involved and jointly liable) to pay the employee her full entitlements of $130,000 plus interest and $30,000 in general damages for “… distress, hurt and humiliation”. Whilst the employee's Entitlements Claim and Contract Claim were successful, the Adverse Action Claim was not.
The employer’s cross-claim was dismissed, with the Court finding that an employer cannot “set off” a cross-claim against statutory entitlements. The Court ultimately found that the employer had suffered no loss and had “constructed a contractual artifice” in an attempt to shift loss from the law firm partnership to the employer (AHCS) so that the alleged loss could be set off against the employee’s entitlements claim.
Penalty after AHCS fail to make Court ordered payment
In the Court’s March 2022 judgment, AHCS was ordered to pay final entitlements within 21 days, however, AHCS did not make payment until October 2022.
The employee sought civil pecuniary penalties from AHCS and Mr Atanaskovic in respect of their contravention of ss. 44(1), 90(2) and 323(1) of the FW Act by failing to pay the employees outstanding wages, annual leave and long service leave.
In considering the quantum of the penalties, the Court found that:
"Such blatant, wilful and contumelious conduct ought not occur in any employment context and weighs strongly in favour of the imposition of meaningful penalty"
Other relevant considerations in determining penalty included:
- the employer’s cross-claims were"unreasonable" and formed part of the employer’s scheme of "artifice and deceit" to avoid paying the entitlements claimed;
- there was a "strong interest" in specific and general deterrence because "employers must be dis-incentivised from shirking their legal obligations";
- the employer’s "total disregard" for the court's March orders requiring payment of the entitlements and damages owed within 21 days. The employer only paid the entitlements and damages owed three days before the penalty hearing. The Court stated that "To describe this corrective action as 'eleventh hour' would be generous”. This resulted in a finding that the employer’s actions were "wilful, sustained and continued even after the time for rectification was ordered by the court"; and
- the employer did not show any contrition for their conduct.
In considering the above, the Court found that the maximum penalty should only be reduced by 5% on account of the employer paying the amounts owed "even if only within 72 hours of the penalty/costs hearing".
The Court ordered AHCS to pay a penalty of $153,900 ($51,300 per contravention) and its director and founding partner John Atanaskovic $30,780 ($10,260 per contravention) for failing to pay the employee’s wages and leave entitlements.
These penalties were ordered to be paid to the employee in addition to the employee’s final pay entitlements.
Costs awarded against the employer
Section 570 of the FW Act provides that in proceedings brought under the FW Act (such as an adverse action claim), a party may only be ordered to pay the other party’s costs if:
- the party instituted the proceedings vexatiously or without reasonable cause; or
- the party's unreasonable act or omission caused the other party to incur costs; or
- the party unreasonably refused to participate in a matter before the FWC, and the matter arose from the same facts as the proceedings.
The employee and employer both made separate costs applications pursuant to s.570 of the FW Act.
The Court found that under Atanaskovic’s instruction, the employer unreasonably pursued cross-claims which caused the employee to incur costs in an attempt to defeat the employee’s entitlement claims and ordered the employer and Atanaskovic to pay the employee’s costs in relation to:
- the employer’s contraventions of ss 44, 90(2) and 323 of the FW Act;
- the employer’s contravention of s 4(5) of the Long Service Leave Act;
- the employer’s cross-claims; and
- the employee’s application for penalties and costs.
The Court dismissed AHCS’s costs application on the basis that, given the factual background, it was not unreasonable for the employee to maintain her ultimately unsuccessful adverse action claim.
Significance of this decision for workers
This outcome demonstrates that significant penalties will be imposed by the Court when employers demonstrate blatant disregard for their legal obligations to their employees. Those penalties can be ordered to be paid to the relevant applicant to an application, in this case, the employee.
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This article relates to Australian law; either at a State or Federal level.
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