Federal Court of Australia: Payment of union’s fees by employer unlawful
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Introduction
As was the methodology of some unions in many years gone by, employers would give the union organiser a paper bag of cash (usually at Christmas to pay for its employees union’s fees. In return, industrial peace. But don’t caught!
In the matter Registered Organisations Commissioner v Australian Workers’ Union (No 2) [2020] FCA 1148, Justice Snaden of the FCA penalised the Australian Workers’ Union (AWU) $148,100.00 as “general deterrence” in such matters.
The Fair Work (Registered Organisations) Act 2009
The Fair Work (Registered Organisations) Act 2009 (Cth) regulates the creation and management of industrial organisations that operate within the landscape of federal industrial law. Amongst other things, it imposes a number of administrative obligations with which such organisations must comply. Broadly speaking, the “Commissioner” — the holder of a statutory office established by this Act—is charged with ensuring that compliance.
AWU falling foul of the Act
In this case, the AWU failed to comply with its statutory obligations over the period spanning January 2008 to March 2013. At the core of that accusation are arrangements that the AWU struck with seven entities: Cleanevent Australia Pty Ltd, Winslow Contractors Pty Ltd, BMD Constructions Pty Ltd, the Australian Jockeys’ Association, the Victorian Jockeys’ Association, the Australian Netball Players’ Association and Geotechnical Engineering Pty Ltd. Principally, those arrangements were struck via the agency of its former Victorian branch secretary, Mr Cesar Melhem.
Each of the six entities (the Australian Jockeys’ Association and the Victorian Jockeys’ Association were, in effect, treated as a single body) agreed to pay to the AWU certain sums of money that, in each case, the AWU accounted for internally as membership revenue, specifically in respect of certain employees or members of those entities. Details of those employees or members were then entered into the AWU’s own membership records. Effectively, the AWU admitted to the ranks of its membership persons who had not applied to become members and did not know (at least not directly on account of anything that the AWU told them) that they were such. Those people became unwitting subjects through whom the AWU (or its Victorian branch) artificially inflated its membership levels over a period of many years.
Formal arrangement
This was considered a legitimate industrial process. For example the AWU struck a Memorandum of Understanding (a quasi-legal agreement) that it would pay, on behalf of employees of Cleanevent who are or become members of the AWU, the employees’ union fees up to $25,000 for each financial year up to 30 June 2013. Payments will be made by Cleanevent biannually (December and June) to the AWU on receipt of a list of Cleanevent employees and the associated membership fees that Cleanevent are being requested to pay.
In return, Cleanevent would:
“During the period of operation of the MOU it is understood that the AWU will not commence or take any step which may result in the commencement of enterprise bargaining under the Fair Work Act 2009; or seek to terminate (or support or encourage the termination of) the Cleanevent EBA or the aforementioned MOU”.
“Ghost” training and OH&S inspections
Another tactic of the AWU was to invoice the company for the union fees, which the company would then pay. As was the case in Winslow Contractors Pty Ltd. The union fees were cloaked in the description of “OH&S Training & Workplace Inspections”. The AWU also invoiced the company $23,166.00 for “red Card” (industry OH&S training) not undertaken. And so, it went on: $23,166.00, $44,401.50, $38,857.50, $81,640, $85,280…
In the case of BMD Constructions Pty Ltd, the amounts were $14,300, $19,800, $19,800.00
“Service payment”
In the case of the Australian Jockeys’ Association/Victorian Jockeys’ Association, contribution was recorded in the minutes of its 2009 annual general meeting:
“Paul proposed that the AJA to show its good faith in the AWU in each of the states make a contribution for their support in the past and particularly with industrial matters that might occur in the future. Paul advised that in the budget he had allocated approx. $30,000 per annum to the AWU which would be on a state by state basis depending on the number of jockeys in that state. All agreed that the payment would be a service payment, not membership."
This payment was followed by subsequent “service payments” of $7,500, and $8,250…
And the amounts and subterfuge were similar for the rest of the names parties.
New broom
The so-called “architect” of this scam was (now) Victorian state parliamentarian, Mr Cesar Melhem in his (then) role as secretary of the AWU’s Victorian Branch.
The new secretary, Mr Davis, set about implementing measures to ensure that the AWU’s Membership Register was and remained up to date. Including from May 2015, putting in place a process whereby membership forms pertaining to members whose employers paid for their membership subscriptions were more closely scrutinised. “Company paid” members were identified and, if a membership form could not be found for them, they were either asked to fill one out or their details were removed from the Membership Register. That has resulted in the position today being that, as Mr Davis put it, “[t]he Victorian Branch no longer accepts as members anyone who has not submitted a membership application form as required by the AWU Rules”.
The statutory framework
Two provisions of the FW(RO) Act assume primary significance in this matter. Section 230 provides (and, at all times since 1 July 2009, provided) as follows:
230 Records to be kept and lodged by organisations
(1) An organisation must keep the following records:
(a) a register of its members, showing the name and postal address of each member and showing whether the member became a member under an agreement entered into under rules made under subsection 151(1);
…
Note: This subsection is a civil penalty provision (see section 305).
(2) An organisation must:
(a) enter in the register of its members the name and postal address of each person who becomes a member, within 28 days after the person becomes a member;
(b) remove from that register the name and postal address of each person who ceases to be a member under section 171A, or under the rules of the organisation, within 28 days after the person ceases to be a member; and
(c) enter in that register any change in the particulars shown on the register, within 28 days after the matters necessitating the change become known to the organisation.
Note: This subsection is a civil penalty provision (see section 305).
Note: An organisation may also be required to make alterations to the register of its members under other provisions of this Act (see, for example, sections 170 and 172).
It is common ground that s 230(1) serves to prohibit the addition to an organisation’s register of members the details of persons who are not members. Although the section does not say so in terms, I accept that it should be construed in that way. A membership register that records the details of persons who are not members of the organisation by which it is maintained is not a register of the kind whose maintenance s 230(1)(a) mandates.
Section 172(1) of the FW Act provides as follows:
172 Non?financial members to be removed from the register
(1) If:
(a) the rules of an organisation require a member to pay dues in relation to the person’s membership of the organisation; and
(b) the member has not paid the amount; and
(c) a continuous period of 24 months has elapsed since the amount became payable; and
(d) the member’s name has not been removed from the register kept by the organisation under paragraph 230(1)(a);
the organisation must remove the name and postal address of the member from the register within 12 months after the end of the 24 month period.
Note: This subsection is a civil penalty provision (see section 305).
…
Contraventions
The 11 contraventions of the FW(RO) Act (or its predecessor), from six discrete courses of conduct; that is, as one contravention in respect of each of the organisations from which members (or “members”) were sourced.
Pecuniary penalties
General principles
The court commenting:
“The sole object to which the court must give effect in setting an appropriate penalty is to deter repetition of the conduct in respect of which it is imposed…the court should strive to “…put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene”: I turn, then, to consider the matters by which the penalties to be imposed should relevantly be informed”. [Numerous citations removed].
Applicable maximum penalties
The court is empowered to impose penalties of up to $33,000.00 each—that is, 300 penalty units multiplied by $110, which was the value of a penalty unit in June 2012—or a total of $33,726,000.
Insofar as concerns the 11 Agreed s 230 Contraventions, the Commissioner appended to his written submissions the following helpful table, with which the AWU took no issue:
The parity principle
The AWU submitted that the penalties to be imposed presently should take account of the penalties that Mortimer J imposed upon Mr Melhem by means of the Melhem Judgment. In that regard, the AWU submitted:
“…that the Court should pay close regard to what Mortimer J has said in the Melhem Judgment, because the AWU’s contraventions flowed from the conduct engaged in by Melhem for which he has been subjected to pecuniary penalties. To avoid unwarranted inconsistency, and thus to uphold the administration of justice, this Court should take into account what Mortimer J has said about Melham’s contravening conduct and its connection to the AWU’s contraventions”.
Nature of the contravening conduct
The judge finding:
“…Over a period of many years, the Victorian branch of the AWU dishonestly employed the concept of “company paid” membership to artificially inflate its membership ranks. As Mortimer J was at pains to point out in the Melhem Judgment (at, for example, [129], [138] and [140]), the evidence does not permit a finding as to why that process of artificial inflation was pursued. It seems sufficiently uncontroversial to observe that there must have been some benefit—either to the branch or, perhaps, to Mr Melhem himself—in doing so. Why, one might ask rhetorically, would that process otherwise be carried out? The capacity to wield greater influence within the AWU’s administrative structures…would seem to be one possible (if not obvious) explanation.
“It is unnecessary that the court should—and I do not attempt to—identify a motive for the conduct that sits at the heart of the Agreed Contraventions. It suffices to note that that conduct constitutes a serious departure from the important record-keeping standards with which the FW(RO) Act requires that all organisations comply. In a number of respects, it qualifies as more serious still in light of the apparently fraudulent documentation that the AWU supplied to many of the entities from which the “company paid” members (or “members”) were sourced and the communication protocols—more accurately, the non-communication protocols—that the evidence suggests were engaged in respect of at least some of those individuals”.
Could have put their hands up earlier
“The AWU’s decision not to contest the charges that constitute the Agreed Contraventions is to its credit, no matter the late stage at which it was made; although, plainly, that credit would have been all the greater had concessions been made earlier. Likewise, there is little doubt that the AWU has accepted a need to implement measures to avoid similar mismanagement in the future, and that it has expressed genuine contrition in respect of the conduct that assumes present relevance. All of those are factors properly to be taken into account in the setting of pecuniary penalties—all inform how largely the need for specific deterrence looms.”
Determining the penalty
The parties are agreed that the total of the penalties that the court should impose should fall between 60% and 90% of the maximum (that is to say, between $96,600.00 and $144,900.00). The judge determining that the higher end is appropriate.
Conclusion
Pursuant to s 306(1) of the FW(RO) Act, the court will order that the AWU pay pecuniary penalties totalling $148,100.00, comprising:
(1) penalties totalling $15,400.00—and comprising:
(a) $8,000.00 in respect of the addition to the Membership Register of the 98 Cleanevent employees referred to at [32] above; and
(b) $7,400 in respect of the addition to the Membership Register of the 66 Cleanevent employees referred to at [34] above—
for the two Agreed s 230 Contraventions that relate to Cleanevent (above, [32], [34], [36] and [80]);
(2) Penalties totalling $33,000.00—and comprising:
(a) $5,650.00 in respect of the addition to the Membership Register of the 43 Winslow that the AWU admitted as members in 2008 (above, [45]);
(b) $5,700.00 in respect of the addition to the Membership Register of the 58 Winslow that the AWU admitted as members in 2008 (above, [45]);
(c) $8,700.00 in respect of the addition to the Membership Register of the 169 Winslow that the AWU admitted as members in 2008 (above, [45]);
(d) $4,750.00 in respect of the addition to the Membership Register of the 15 Winslow that the AWU admitted as members in 2008 (above, [45]); and
(e) $8,200.00 in respect of the addition to the Membership Register of the 116 Winslow that the AWU admitted as members in 2008 (above, [45])—
for the five Agreed s 230 Contraventions that relate to Winslow (above, [45] and [80]);
(3) a penalty of $7,425.00 for the Agreed s 230 Contravention that relates to BMD (above, [49] and [80]);
(4) a penalty of $8,250.00 for the Agreed s 230 Contravention that relates to the AJA and VJA (above, [55] and [80]);
(5) a penalty of $7,425.00 for the Agreed s 230 Contravention that relates to the ANPA (above, [60] and [80]);
(6) a penalty of $25,500.00 for the Agreed s 230 Contravention that relates to Geotech (above, [62]-[63] and [80]);
(7) a penalty of $51,100.00 for the Agreed s 172 Contraventions (above, [66] and [81]).
Those penalties will, in each case, be payable to the Commonwealth (FW(RO) Act, s 306(2)) within 28 days. Presumably conscious of the effect of s 329(1) of the FW(RO) Act, the Commissioner does not seek an order for costs and none will be made.