Directors beware: more Australian States legislate to criminalise wage theft by employers

Key Takeaways

●???????Australian States are increasingly attempting to supplement industrial relations legislation, a power that they formerly referred to the Commonwealth.

●???????Deliberate wage theft is a civil liability offence under the Fair Work Act 2009 (Cth) (FWA).

●???????VIC and QLD have criminalised deliberate wage theft and introduced criminal liability punishable with imprisonment for individuals who knowingly allow wage theft to occur.

●???????Most other States impose civil penalties for deliberate wage theft.

●???????The Albanese Government has confirmed its commitment to criminalising deliberate wage theft while the NSW Labor Party pledged to do the same if elected.

Introduction

Wage theft occurs when employers knowingly withhold ?from their employees (including paying below the minimum rate), entitlements (including wages allowances, loadings, penalty rates, superannuation, etc), which often involves employers paying below the mandated minimum rate, or when employers fraudulently manipulate or, intentionally fail to keep employees’ entitlement records to benefit themselves.

Some examples of wage theft include an employer:

●???????paying less than the minimum hourly rate;

●???????failing to pay overtime, penalty rates, superannuation and allowances;

●???????making unlawful cash deductions from wages for breakages, till shortages and accommodation;

●???????refusing to grant leave;

●???????demanding employees pay wages back in illegal “cash-back” schemes;

●???????paying employees cash-in-hand to keep transactions “off the books.”; and

●???????offering unpaid work experience or internships.

Background

In recent years media reports have highlighted non-compliance with labour standards as a big issue within many Australian workplaces, with “wage theft” at the top of the list. Wage theft is widespread in many industries, including retail, fast food, hospitality and hair and beauty. Private entities, including ASX 200 companies such as Coles, CBA, and Qantas, and institutions funded by tax-payers such as the ABC and Deakin University, have been accused and found to have underpaid their workers.

Before the enactment of the FWA in 2009, each Australian State other than Western Australia had referred the majority of its industrial relations law-making power to the Commonwealth. However, over the last few years, certain Labor-led States seem to be attempting to claw back some of those powers by enacting laws that impose penalties for contraventions of the employee entitlement provisions set out in the FWA.

Penalties in Victoria and Queensland include periods of imprisonment for individuals – directors and officers of body corporates included – which could soon become a national reality. The first criminal trial for wage theft will be held this year in Victoria. The case, which is detailed further below, involves two restaurant owners facing up to 10 years in jail for allegedly “stealing” a total of $7,000 of employees’ entitlements.

The penalties for intentional and unintentional underpayments are significant, with the latter applying even if the employer can demonstrate that they made an honest mistake. As such, employers in the industries identified above must mitigate these risks.

A snapshot and matrix of the legal frameworks currently in place both federally and in each major Australian State insofar as wage theft penalties are concerned is provided below.

Is criminalisation effective as a deterrent?

Legal academics and scholars are divided on whether wage theft should carry criminal responsibility. Some legal practitioners have expressed concern about using criminal sanctions to deter employers from non-compliance. Experience suggests, however that in most instances, underpayments result from a genuine misunderstanding of complex workplace laws or payroll system errors rather than deliberate or dishonest conduct and criminalisation would only apply to intentional breaches. In other words, to secure a criminal conviction, the prosecution must demonstrate that there was a deliberate and dishonest underpayment or withholding of wages.

Commonwealth

A Senate inquiry held in 2022 recommended, amongst other things, making any type of remuneration theft, which includes failures to pay loadings, penalty rates, leave allowances and superannuation – a criminal offence and raising civil penalties for non-compliance.

During the Employment and Skills Summit held by the Federal Government last September, an event that brought together unions, employers, civil society and government to discuss key issues in the employment space, the Albanese Government committed to a series of other employment-related reforms, including the criminalisation of wage theft.

As at the date of this article, the FWA imposes civil liability on employers that engage in any type of deliberate non-compliance with the Act, including wage theft and the F. This extends to employee entitlements, for example, failure to adhere to a direction by the Australian Taxation Office (ATO) to pay superannuation, can result in a fine up to $10,500 or 12 months imprisonment.?The Fair Work Ombudsman (FWO) is tasked under the Act to police compliance and to investigate workers complaints.

Interestingly, the introduction of criminal liability for perpetrators of wage theft was omitted in the amendments to the FWA, which the Federal Government passed in its last sitting week for 2022. Victoria

In Victoria, the Wage Theft Act 2020 (Vic) (Vic Act), which has been in operation since 1 July 2021, makes the dishonest withholding or underpayment of employee entitlements, including superannuation, by an employer unlawful. The commission of an offence under section 6 of the Act is punishable by:

●???????6,000 penalty units (or $1,109,250 as at the date of this article) in the case of a body corporate (such as a company); or

●???????10 years’ imprisonment in the case of a natural person (such as a company director).

Victorian companies are vicariously liable for actions taken by officers, directors, associates and agents within their scope of employment or engagement, and there will be “implied authority” if there is a corporate culture of “wage theft”. Decision-makers will be liable if they fail to take reasonable precautions, which includes exercising due diligence.

In November 2022, the Inspectorate laid the first criminal charges regarding wage theft against two restaurant owners alleged to have withheld over $7,000 in wages, penalty rates and superannuation from four vulnerable employees. The two owners of the business are facing 47 charges each under the Victorian wage theft laws.

Without any doubt, the Inspectorate conceived by the Vic Act is one of the greatest aspects of the Victorian reforms. The Inspectorate has been empowered by legislation with prosecutorial abilities that may include criminal consequences for individuals. The Inspectorate has been allocated extraordinary levels of funding and resourcing, which have enabled it to investigate and enforce the law and act as a true deterrent for non-compliance.

Queensland

Thanks to bi-partisan support, in 2020 the Palaszczuk Government passed amendments to the Criminal Code in the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020 (Qld Act), imposing criminal responsibility on persons who deliberately fail to make requisite payments to an employee.

The amendments in the Qld Act were modelled around the Victorian legislation, making employers criminally liable if they wilfully or deliberately fail to pay an employee (“the stealing offence”). Under the Qld Act, an individual employer or a company may be charged with wage theft, and a director or senior officer of a company (or any other person) may be liable if they intentionally assist or encourage a company to commit wage theft. Individuals risk up to 10 years imprisonment if found guilty.

In addition to the stealing offence, the Qld Act imposes a more severe maximum penalty of 14 years in prison in the event that the employer guilty of the stealing offence has also defrauded an employee.

Western Australia

In 2021, as part of a suite of industrial relation reforms, the McGowan Government considered the State’s penalty regime applicable to wage theft, deciding that only increased civil penalties were needed. Later that year, the WA Government introduced the?Industrial Relations Legislation Amendment Bill 2021 (WA)?which offered increased protections for employees and imposed heftier pecuniary penalties for non-compliant employers.

New South Wales

In New South Wales, the notion that responsibility for industrial relations rests with the Federal Government seems to be widely held amongst the NSW Liberal-National Coalition party room, withthe NSW Government standing by the 2009 State’s referral of such powers to the Commonwealth (under then Premier Kristina Keneally).

However, despite that widely held view, in 2021 the NSW Government introduced to the House the Tax Administration Amendment (Combating Wage Theft) Bill 2021 (NSW Bill) which sought to increase the penalties imposed on entities and individuals who undertake certain dishonest conducts associated with, or that leads to, non-compliance with the Payroll Tax Act 2001 (NSW) (PR Act), such as failing to keep records, failing to lodge a document or statement as required by the PR Act or deliberately giving false or misleading information to a tax officer (or omitting information). The NSW Bill also sought to create criminal liability for individuals who knowingly mislead a tax authority – punishable with a maximum of 2 years’ imprisonment. However, after its Second Reading, the NSW Bill was referred for amendments by the NSW Upper House and subsequently abandoned by the Government.

On the other hand, the position of the NSW Labor Party on wage theft has been elusive since the demise of Luke Foley as Opposition Leader. During the 2018 NSW election campaign, the then Labor leader, Luke Foley, pledged that if Labor won the election the following year, it would criminalise the deliberate failure to pay wages and entitlements. However, to the date of this article, there has been no indication by the Labor Party or the Opposition Leader, Chris Minns, as to whether that commitment forms part of the Party’s 2023 policy platform.

The industrial relations reforms undertaken over the last couple of years by the other three Labor States suggest that a Minns-led Government is more likely to follow the Victorian and Queensland approaches to tackling wage theft. With an upcoming election in March this year, electors and the media have the opportunity to seek clarity on this issue so that the future Government can be held to account.

Conclusion

In Victoria, the Wage Inspectorate conceived by has been empowered by legislation with prosecutorial abilities that may include criminal consequences for individuals. Its greatest weapon is undoubtedly the resourcing levels it has been conferred which will enable it to investigate and enforce the law and act as a true deterrent for future non-compliance.

The role of the FWO under the FWA is to protect workers first and foremost. Nevertheless, in exercising its powers, the FWO must balance the desires of the Government at the time while also appearing tough on wrongdoers without coming off as anti-business or too draconian. The success of the Victorian Inspectorate suggests that a more effective approach to deter employers from stealing wages would be to focus on enhancing enforcement, expanding the role of the FWO to investigate, uphold the law and recoup unpaid entitlements.

It is patent that there is still a high probability that criminalisation of wage theft will be brought in the near future with other anticipated changes and reforms the Federal Labor Government has been promoting as a means to harmonise the regime nationally. For the same reasons, it is also likely that the NSW Labor party would follow the same course of action as Victoria and Queensland if it is elected in March.

Irrespective of the outcome at a federal or NSW level, any employer concerned about potential underpayments to employees should consider three key actions. First, arranging with its accountant for an audit of entitlements paid - at least since 14 September 2020 (for businesses with Qld employees) and / or 1 July 2021 (for businesses with Victorian employees). Second, ensuring that it has in place a robust framework that monitors compliance with the employer’s remuneration obligations, which has regard for the relevant rates that apply to employees based on their location. Third, ensuring that they have strong employment policies that include ?complaints processes. As affirmed in Nikolich v Goldman Sachs J B Were Services [2006] FCA 784, employer policies can form part of an employment contract. Having clear policies around wage complaint processes provides another layer of security for employers.