Federal government moves to criminalise wage theft: Major element of “Closing Loopholes” bill
Published on December 4, 2023 by Peter Punch
Movement towards the criminalisation of wage theft in Australia
Australia has long prided itself on its fair and equitable workplace practices – going back as far as 1907, when Justice Higgin’s judgment in the Harvester case established the “basic wage”. That concept was built on and developed under Australia’s unique system of compulsory industrial arbitration over the following 100 years, with the underlying principles being that employees were entitled to the protection of fair wages enshrined in the law and enforced by courts and regulators.
However, beneath the surface, a hidden has been plaguing the nation’s workforce for years – a phenomenon generally referred to as “wage theft”.
Over about the last 10 years, there have been a number of high-profile scandals involving well known employers being revealed to have underpaid their employees the wages or monetary conditions to which they were entitled by law, with the underpayments being widespread, long lasting, and amounting to many millions of dollars.
As the extent of the issue has become increasingly clear, there has been movement to reform Australia’s industrial relations laws by criminalising “wage theft” to protect the rights of workers. Such a step will have a significant impact on employers, employees, principals, and contractors. This article explains what wage theft is, the extent of the problem and the proposed legislative change to address the issue.
Understanding “wage theft”
The expression “wage theft” has been used in political and industrial debate in Australia for some time and has been applied in a pejorative way to a range of situations where an employer has not paid its employees the wages to which they are entitled by law.
Wage theft in this general sense refers to the unlawful withholding or underpayment of a worker’s wages and entitlements by their employer other than by purely innocent mistake. This phenomenon can take various forms, including paying employees less than the minimum wage, failing to provide overtime pay, denying rest and meal breaks, and neglecting to pay superannuation contributions. This generalised notion of “wages theft” embraces a number of different situations where an employer has underpaid employees through an element of fault by the employer, the main ones being these:
(i) Failing to pay the wages to which an employee is entitled when the employer knew that it was underpaying the employee – that is, deliberate underpayment;
(ii) Mistakenly failing to pay an employee’s entitlement and then deliberately failing to rectify the mistake when it becomes aware of it;
(iii) Recklessly failing to pay the wages to which an employee was entitled, by failing to make any enquiries, or seeking advice to determine what was the employee’s entitlement before paying the wages;
(iv) Negligently failing to pay the wages to which an employee was entitled by failing to institute or maintain payroll systems that ensured employees were paid their legal entitlements.
All of these failures by employers are currently subject to Federal and State statutory regimes that provide for recovery of underpayments for employees as well as interest, with civil penalties on employers. But currently under Federal law there is no provisions which criminalise wage theft – i.e., deliberate underpayment of entitlements by an employer is covered by the same civil law regime that applies to all other kinds of underpayment.
The extent of the problem
Wage theft in the various categories referred to above is a widespread issue in Australia, affecting workers across various industries. A 2023 report by the McKell Institute has conservatively estimated that up to $850 million in unpaid wages are withheld from Australian workers every year. In sectors like hospitality, retail, agriculture, and the gig economy, vulnerable workers are particularly susceptible to wage theft due to their limited bargaining power.
It has been argued, with some persuasive force having regard to the scandals in this area in recent years, that the current sanctions that can be imposed by courts on employers for failing to afford their employees their full entitlements are clearly not a sufficient deterrent to underpayment of employees.
Proposed legislative change
Recognising the urgency of addressing wage theft, there has been a growing push to reform Australia’s industrial relations laws and hold employers accountable for their actions.
On 4 September 2023 the Federal Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (the Bill).
One of the most significant changes to the law proposed in the Bill is the criminalisation of wage theft.
That is, the Bill will make it a criminal offence for an employer to intentionally engage in conduct that results in underpayment of their employees (i.e., circumstances (i) and (ii) described above). Employers who are found guilty of this offence would be exposed to very serious potential sanctions. In the case of an individual employer who is found guilty of this offence, a prison sentence of up to 10 years, or a very large fine (possibly as high as $1.5 million), or both, could be imposed by a Court. In the case of a body corporate employer, even heavier fines could be imposed by a Court than those imposed on individuals (i.e. possibly as high as $7.8 million).
The Fair Work Ombudsman (FWO) would be placed in charge of investigating this new criminal offence and will thereafter refer matters to the Australian Federal Police or the Commonwealth Director of Public Prosecutions for consideration and where appropriate, prosecution.
Further changes proposed by the Bill include higher civil penalties and lowering the bar regarding what constitutes a ‘serious contravention’ of civil remedy provisions.
It has been argued that making wage theft a criminal offence sends a strong message to employers and serves as a powerful deterrent, and this approach aligns with the belief that wage theft should be treated as a serious crime, similar to other forms of theft or fraud. In this context it is not to the point that the conduct criminalised by the proposed legislation is restricted to the deliberate failure to honour wages entitlement, rather than all the various situations where an employer is at fault in not paying the entitlement – this is because the legislation, if enacted, will serve as a powerful new deterrent to all the types of improper employer behaviour that can deprive employees of their entitlements, and will be an additional deterrent to the existing penalty regime that applies to underpayment of employee entitlements.
However, critics of criminalisation proposals worry that it may unintentionally discourage employers from hiring vulnerable workers, particularly those from marginalised communities, as they may fear legal consequences for inadvertent errors in payroll calculations. Striking the right balance between criminalising wage theft and protecting legitimate business interests is a key challenge in the reform process. The Minister for Employment and Industrial Relations (Mr Burke), in his Second Reading Speech on the introduction of the Bill to the Federal Parliament, has confirmed that honest mistakes or miscalculations would not be caught by the wage theft provisions. Furthermore, the proposed amendments will provide certain pathways for employers to self-disclose, for example, underpayment of their workers and if they do so then in turn, they will not be referred by the FWO for criminal prosecution for wage theft. While the FWO may still take non-punitive action or civil action if it considers it appropriate (e.g. seek the imposition of civil penalties on the employer), it may agree not to refer the relevant conduct for persecution following the assessment of the employer’s action against a non-exhaustive list of various factors.
Enactment of Wage Theft provisions still awaited
The changes proposed are subject to the passage of the Bill through the Parliament, following debate in the House and Representatives and the Senate. The Senate has referred the Bill to the Senate Education and Employment Legislation committee which will seek submissions and thereafter provide feedback to the Senate. The Bill may be amended following any proposals by Government, the Opposition of the cross bench during the legislative process. It is not anticipated that the Bill will be passed by the Parliament until at least the early months of 2024 (if at all), so it is impossible to predict as yet when (or indeed if) the Wage Theft provisions of the Bill will become law.
Australia’s battle against wage theft underscores the importance of protecting the rights of workers and upholding the nation’s reputation for fairness and justice. As Australia continues to navigate this complex issue, it is essential to strike a balance that deters wage theft while ensuring businesses can operate without undue burden, ultimately benefiting both workers and our economy.
Further article when Wage Theft provisions are enacted
While it is thought likely that at some time in the relatively near future the Wage Theft provisions in the Bill will pass the Parliament (perhaps in amended or modified form), there is no certainty as yet on this matter.
If Wage Theft provisions become law, whether in the form contained in the Bill or some modified form, Carroll & O’Dea Lawyers will publish another article which will detail all the significant changes to the law and their likely consequences. Whether you are an employer or an employee, these changes will be important.
If you need advice on questions relating to underpayment of wages or other entitlement entitlements (whether you are an employer or an employee), you can contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will examine your situation with you.