Last week, the Federal Court imposed a $90 million civil penalty on Qantas Airways Ltd, the largest civil penalty ever awarded for a breach of the Fair Work Act 2009 (Cth) (FW Act).
Justice Lee delivered judgment in what he described as the “largest and most significant contravention” of the general protections in the FW Act since their inception. The judgment outlines the principles that dictate how courts determine large civil penalties.
This landmark penalty, $50 million of which will go to the Transport Workers Union (TWU), is likely to incentivise and bolster the confidence of unions to pursue legal action for contraventions, including where corporate regulators have not taken any enforcement action. This could include other matters that are typically prosecuted by the Fair Work Ombudsman such as underpayment cases.
Background
At the height of the pandemic, international borders were shut and domestic travel was limited and erratic. Australia’s largest airline was in a position of financial jeopardy. Against that backdrop, senior management began work on a proposal to outsource 2,000 ground-handling positions at ten Australian airports. The proposal was part of ‘Project Restart’. It was a package of measures said to be essential for the airline’s survival.
On 30 November 2020, Qantas decided to outsource the vast majority of directly employed baggage handlers, cabin cleaners and ramp workers. Those employees, many members of the TWU, were anticipating the renegotiation of their enterprise agreements, bringing with it the potential for employees to take lawful industrial action. The TWU alleged that Qantas’s decision to terminate the ground handling positions was at least partly driven by a desire to head off that potential action.
In the earlier liability judgment, Justice Lee found that Qantas failed to prove that these prohibited reasons played no part in the outsourcing decision. In particular, Justice Lee was satisfied that senior managers were motivated by a desire to prevent the industrial disruption caused by the bargaining process in 2021 when flying volumes were likely to recover.
After liability was confirmed, attention turned to compensation for affected workers. Mediation resulted in a $120 million settlement for the workforce, but no agreement on the penalties could be reached. The TWU pressed for the statutory maximum of $121 million. Qantas accepted a substantial penalty was inevitable but argued that the maximum would be oppressive.
Findings on considerations
Justice Lee considered several matters when determining the penalty to apply, including:
the nature and extent of the contravening conduct
senior management involvement
the deliberateness of the contraventions
whether the corporate culture contributed to the contraventions
the level of Qantas’ cooperation with authorities
specific and general deterrence.
Justice Lee’s comments in respect of these matters included the following:
Scale of the contravention
The outsourcing decision caused 1,820 discrete breaches of s 340(1)(b) of the FW Act. Although the Court recognised the ‘one transaction’ principle (that is, the contraventions arose from the same course of conduct), scale mattered because the decision effectively terminated an entire category of frontline jobs. In this way, it struck at the heart of the purpose of the general protections in the FW Act.
Involvement of senior management
The decision to take the action was decided at the executive level. The decision-makers were described as “sufficiently senior members of management to propose, evaluate and then make such a signally important decision on behalf of the company”.
Adverse publicity
Justice Lee accepted that Qantas’ brand had taken a battering during the proceeding. His Honour recognised that reputational damage provides some incentive for deterrence, but he regarded it as a modest mitigating factor when set against the gravity of the contraventions.
Deterrence
Justice Lee emphasised that the prime objective of imposing a penalty is deterrence. Management forecast annual labour savings of $125 million from the terminations, however Justice Lee found that Qantas’ net savings were probably closer to $20 million. His Honour considered that a penalty smaller than the financial upside would license large employers to weigh litigation risk against profit. A substantial penalty was required to ensure the conduct was an economically disincentivised.
The penalty
Justice Lee ordered a penalty of $90 million, with $50 million of that amount to be paid to the TWU, reflecting its role in prosecuting the case at substantial cost and risk. The final resolution of the balance of the penalty is to be dealt with at a future hearing, where the interests of individual workers may be further considered.
Takeaway
The decision has left Qantas with a landmark penalty, reputational scars and a directive to correct cultural blind spots. More broadly, it shows that in the face of significant contraventions, the Federal Court will respond with penalties of commensurate size.
The decision is also likely to incentivise unions to become more litigious and where successful, bolster their resources to prosecute further claims.