Australia moves to criminalise 'wage theft'

Wage theft is not a term of art, nor is it legally defined. Broadly, in Australia, it is used by politicians, industry bodies, representative groups and sometimes even regulators to refer to employers who underpay employees or fail to provide them with all their entitlements either wilfully or due to ignorance.

This year, a series of large and presumably well-resourced employers have reported extensive miscalculations in the payment of wages and other entitlements to their workforces. Ensuring that employees are receiving the correct levels of pay and other entitlements is clearly a major issue, and there is no doubt that Australia's system is complex. However, questions need to be raised over the extent to which workplace compliance has been prioritised.

Corporate boards need to take note of the extent of the problem, the level of potential liability for repayments and civil penalties and the current prospect of criminal prosecution. Given the current legislative and compliance climate in Australia, there has never been a better time to consider your own in-house arrangements when it comes to wages and employee entitlements.

What does the current law require?

The Fair Work Act prohibits employers from failing to pay employees at the correct level for their statutory entitlements. It prohibits employers from contravening the national employment standards (NES); a modern award; an enterprise agreement; or the national minimum wage order.

Each of these is a civil remedy provision, meaning that the courts may order the recovery of underpayments or impose a pecuniary penalty. Courts may also make any other orders they see fit in relation to such contraventions, which may include an injunction to restrain a contravention or the award of compensation to a person who has suffered a loss. However, none of these are criminal offences.

Why is the government acting now?

Wage theft has featured prominently in this year's headlines, with a series of reports of underpayments by large employers including 7 Eleven and Bunnings Warehouse. Particularly notable was the announcement of the high profile undertaking entered into between the Fair Work Ombudsman and MAdE Establishment Pty Ltd, whose founding shareholder is former MasterChef judge George Calombaris.

Following self-disclosure of underpayments by MAdE, ombudsman inspectors found that significant underpayments had occurred because MAdE failed to:

• correctly apply annualised salary arrangements for some staff;
• conduct annual reconciliations to check that workers on annual salary arrangements were paid for overtime and penalty rate hours worked;
• pay some staff at the correct classification level for their duties under the 2010  Restaurant Industry Award, which particularly affected casual employees.

Unusually, the undertaking required Calombaris to personally conduct a minimum of seven agreed speaking engagements to communicate "the need for compliance with workplace laws and the consequences of not doing so" in a manner consistent with his "usual language and style".

Announcing the undertaking, the ombudsman stated that MAdE had back paid workers over A$7.8 million (US$5.38m) in wages and superannuation; was required to pay a A$200,000 'contrition payment'; and would face ongoing regulatory scrutiny. However, these sanctions were not enough to satisfy the government, which subsequently announced that the attorney-general was drafting laws to criminalise wage theft.

The MAdE story has since been upstaged by the revelation in late October by national retailer Woolworths that it had underpaid 5,700 staff to an estimated total of between A$200 and A$300m. According to Woolworths, this had arisen from miscalculating the annualised salaries for staff who in fact worked more overtime hours and earned higher rates than the level set by their annualised salaries. The absence of any reconciliation process between what they worked and what they were being paid resulted in underpayments to a large number of staff over a significant period of time.

Responding to this disclosure, Fair Work Ombudsman Sandra Parker expressed her frustration and blamed "ineffective governance combined with complacency and carelessness toward employee entitlements". She confirmed that self-disclosure would not absolve employers, and put companies and boards "on notice that we will consider the full range of enforcement options available under the Fair Work Act, including court enforceable undertakings and litigation where appropriate".

The prospect of criminal penalties

The Attorney-General's Department recently published a discussion paper (15-page / 526KB PDF) as part of the current proposals for legislative reform, in which it stated: "Adding criminal sanctions to the suite of penalties available to regulators will provide the regulators and the courts with the appropriate tools to address serious contraventions of the Fair Work Act, and send a strong and unambiguous message to employers that they cannot get away with exploiting vulnerable employees".

Such sanctions "should be reserved for the most serious and culpable forms of workplace misconduct and would not be designed to capture employers who have made inadvertent mistakes leading to underpayment".

Employer bodies have been critical of the move to a criminal law regime, pointing to the difficulty in distinguishing genuine mistakes from wilful or negligent ones and calling on the government to focus on simplifying the complex legal regime for employee entitlements so that employers are better placed to ensure compliance. It remains to be seen whether the legislative proposals will be implemented.

Changes to salary payments from March 2020

Changes to the rules governing payment of annualised salaries to employees covered by particular modern awards take effect on 1 March 2020. Employers will need to comply with new notification, record-keeping and reconciliation obligations to ensure employees receive their proper entitlements. Employers should take steps now to ensure compliance.

Katie Williams and Patrick Williams are employment law experts at Pinsent Masons, the law firm behind Out-Law.