Employ…sure to have a penalty increase

The ACCC has achieved a threefold penalty increase on appeal against Employsure for misleading conduct and false representations.

In a recent decision by the Full Court of the Federal Court of Australia (Full Court), the ACCC has succeeded in its appeal on penalty against Employsure Pty Ltd (Employsure) for misleading business owners that Employsure was affiliated with a government agency. The Full Court increased the penalty imposed on Employsure from $1 million to $3 million, finding that the $1 million penalty originally imposed was ‘manifestly inadequate’.

The decision adds clarity to the approach the Court might take in assessing penalty for contraventions of the ACL, including by emphasising that:

• too much weight should not be placed on the modesty of the profit from the conduct;
• the primary purpose of a civil penalty regime is to deter future contraventions such that others would not regard the penalty as just ‘an acceptable cost of doing business’; and
• previous penalties imposed in other cases do not necessarily establish the correct range that the court must consider in its assessment.

The ACCC’s decision to appeal also provides further insight into its considerations when deciding enforcement action.

How did it get to a penalty appeal?

A brief timeline of the procedural history before the decision was handed down is as follows:

• December 2018:  The ACCC instituted proceedings against Employsure for allegedly misleading small businesses and consumers that it was endorsed by, or was affiliated with, a government agency when that was not the case.
• October 2020: Justice Middleton of the Federal Court dismissed the ACCC’s case finding that a reasonable business owner would not infer an affiliation with government because of the word ‘Ad’ accompanied by a .com (not .gov) URL and that “fair work” was a broad term not limited to government agencies.
• August 2021: The ACCC successfully appealed to the Full Court who found that Employsure had arranged Google advertisements to be displayed in response to Google searches for keywords such as “fair work ombudsman”, “fair work commission” and “fair work Australia” (which were government agencies) and for the advertisements to feature headlines such as “Fair Work Ombudsman Help – Free 24/7 Employer Advice”. By doing so, the Full Court found that Employsure had misled small businesses and consumers that it was, or was affiliated with, a government agency. As a result, Employsure was found to have engaged in misleading and deceptive conduct and made false and misleading representations respectively under ss 18 and 29 of the ACL.
• November 2021: The Federal Court imposed a penalty of $1 million.
• January 2022: The ACCC appealed the $1 million penalty on the basis that it was manifestly inadequate and did not accurately reflect the seriousness or extent of the conduct, and was insufficient to achieve specific and general deterrence.

What factors helped the Full Court reach its decision?

Penalty imposed

The Full Court found that $1 million was manifestly inadequate. It considered that the penalty failed to adequately reflect the seriousness of the contravening conduct, the variety of forms that it took and the period over which it occurred so that it did not achieve the necessary general deterrence.

The Full Court also found that:

1. the primary judge had placed too great an emphasis on the modesty of the profit Employsure generated from the conduct.
2. the evidence that showed that the relevant time period for the conduct was 2 years rather than 10 months, reflecting the period in which the ads could be viewed.
3. misrepresenting government sponsorship or approval is very serious and those misled were likely to be small business owners in commercial distress.

Accordingly, the Court increased the penalty to $3 million.

Approach to penalty 

The Court made it clear that to find a pecuniary penalty as manifestly inadequate there must be an error in discretion when exercising how the penalty was calculated. It is not enough that the appellant court merely would have made a different decision had it been the primary judge.

In this case, the Full Court found that there were “at least hundreds if not thousands of individual contraventions” and at least three different courses of conduct (one for each government organisation). The primary judge, on the other hand, had only considered one course of conduct, noting that the representations were via the same medium. The maximum penalty for one contravention was $1.1 million, meaning the penalty given for multiple contraventions was less than the maximum for one contravention and whilst it was stressed that the maximum penalty should not be overstated, it is a relevant factor.

Employsure compared its conduct to that in Reckitt Benckiser arguing that conduct was far more serious and resulted in a $6M penalty. The Full Court agreed that the conduct was more serious, but context was necessary when using comparable penalty cases as a guide to the assessment of penalty – “the consistency sought is not numerical consistency, but rather consistent application of relevant legal principles“. The Full Court made it clear that “each case must turn on its own facts“. Previous penalties imposed do not necessarily establish a correct range or upper or lower limits, and “any reference to comparable cases must encompass the particular circumstances in which the penalty was imposed“.

This case emphasises the importance of deterrence to penalty assessment and the ACCC’s enforcement criteria. It was noted that profit generated (which in this case was unascertainable) is not always important, explaining that in this case, for example, Employsure thought the conduct to be sufficiently worthwhile to continue its use over different forms and a significant period of time. It is more relevant to consider the size and profitability and also the context in which the conduct occurred in assessing whether the penalty will be an appropriate deterrent (in this case the use of Google Ads which is a prevalent form of digital marketing, and the fact Employsure was a start-up or growth company at the time).Moreover, the ACCC made it clear in its media release about its decision to appeal that it “believes a higher penalty is necessary…to ensure that internet advertisers are sufficiently deterred from misleading consumers about who they are dealing with.”

The Full Court considered specific deterrence to be less relevant because Employsure increased its compliance systems, however, noted that any limitation on the need for specific deterrence does not diminish the significance of general deterrence in the penalty imposed.

Key Takeaways 

This decision adds clarity to how penalty must be calculated under the ACL. Importantly, while comparing penalty range to other similar cases is usual practice, this decision makes clear that:

• each matter turns on its own unique facts; and
• parties should not unduly rely on the penalties imposed in previous matters.

The decision of the ACCC to appeal the primary judge’s decision based on a perceived “manifestly inadequate” penalty emphasises that the ACCC has a particular objective in bringing about enforcement action and is committed to its enforcement decisions.

This post was written by Laura Kiss and Wilson Huang.

Image credit: Judge gavel and money on white background, wuestenigel, Creative Commons (resized and remixed to black and white) / CC BY 2.0