Businesses in Australia typically enjoy the protection of the ‘corporate veil’, that is, the actions done by a company rest with the company, and liability does not pierce the veil to the individuals operating the business unless the law specifically allows for it.
However, it is becoming more common for industrial laws to reach through the corporate veil and assign additional liability to directors and officers, including criminal liability.
In recent years, we have seen many front-page news stories about wage underpayments by Australian businesses, with particular attention on vulnerable workers who have been exploited by their employers by not receiving appropriate minimum wages, by being required to “repay” their employer, or by other poor practices, including sub-standard record keeping.
Concerns about this prevalence of significant underpayments has led to the Victorian Parliament passing Australia’s first laws on wage theft, which from 1 July 2021, create a criminal offence for employers who dishonestly withhold or deduct any employment entitlement. Criminal liability also extends to individual officers (such as directors, and management) who engage in such conduct.
In light of the imminent commencement of wage theft laws in Victoria (as previously discussed here), we provide the following update regarding the status of wage theft laws around Australia and the increasing risks associated with underpayment of employee wages.
It is important to bear in mind that these changes and possible criminal penalties are in addition to civil penalties which can be levied against employers and officers for underpayments at a federal level, and Fair Work Ombudsman investigations and prosecutions.
The Wage Theft Act 2020 (Vic) comes into effect on 1 July 2021, which means that it will become a criminal offence for Victorian employers and officers who:
- intentionally underpay their employees;
- dishonestly withhold employee entitlements (such as wages, leave or superannuation); or
- create false employee records, or intentionally fail to keep required employee records, to gain a financial advantage.
Further, a person who assists, encourages or directs the commission of the offence under this legislation is also taken to have committed the offence. For example, franchisors that assist, encourage or direct franchisees to dishonestly withhold employee entitlements could be found guilty of an offence.
Wage theft of any of the above kinds will be punishable by a fine of up to 1200 penalty units (currently $198,264), or up to 10 years’ jail for individuals, and a fine of up to 6000 penalty units (currently $991,320) for companies. As outlined above, this liability can extend to officers of the business.
The criminal offence of wage theft does not necessarily apply to all underpayments or record keeping failures, but rather it will apply to intentional or dishonest acts that involve the above elements.
However, in order to avoid the imposition of criminal charges, it will be crucial for Victorian employers to show that they exercised due diligence to ensure that they have paid employees their entitlements and kept proper records. Genuine and honest mistakes generally will not trigger criminal liability under the new laws, but systemic issues may appear to be intentional if neglected for long periods of time.
The legislation also establishes a new statutory authority, the Wage Inspectorate of Victoria, which will have the powers to:
- Investigate the commission of offences under the Act;
- Bring criminal proceedings in relation to those offences;
- Promote, monitor and enforce compliance with the Act.
It has recently been announced that a former Fair Work Ombudsman executive, Robert Hortlewill, will take up five-year appointment leading the Inspectorate.
The Inspectorate does not have the power to investigate claims of wage theft prior to 1 July 2021, however entitlements from that time-period may be included in investigation of allegedly ongoing wage theft.
In September 2020 the Queensland Government updated Queensland’s Criminal Code to amend the definition of ‘stealing’ to include a failure to pay an employee an amount payable to them in relation to the performance of work. In effect, this means that wage theft by way of employers ‘stealing’ wages will be a criminal offence, including deliberately underpaying wages, withholding entitlements to leave and penalty rates, and deliberately failing to pay superannuation contributions which will now be punishable by up to 10 years in prison.
Unlike Victoria, there is no separate body or inspectorate who will investigate wage theft in Queensland, but rather this responsibility rests with the Queensland Police Service (QPS) who will investigate and prosecute claims (but cannot pursue and recover unpaid wages). Importantly, the QPS will need to prove that the employer had intentionally stolen wages from an employee or had intentionally sought to deprive the employee of their entitlements. Similar to Victoria, this legislation will not apply to employers who have accidentally underpaid staff and who seek to rectify any underpayment when it is identified.
While wage theft is not currently a crime in Western Australia, other steps are being taken to prevent wage theft in that state. Currently, the Industrial Relations Legislation Amendment Bill 2020 (WA) is before the WA Legislative Council for a Second Reading.
If passed, the Bill will create additional penalties for businesses that impose illegal ‘cash back’ schemes on their employees (where employees are unreasonably compelled to spend their wages in a given way, or to pay an amount back to the business).
South Australia has established a Select Committee on Wage Theft, who released an interim report in July 2020indicating that there was a significant amount of interest among submissions for the criminalisation of wage theft. However, formal wage theft laws have not yet been introduced.
Australian Capital Territory
In the ACT, in October 2019, the Magistrates Court Act 1930 (ACT) was amended to allow the Magistrates Court in ACT to hear relevant wage theft or underpayment claims within its jurisdiction, however these changes do not create a formal criminal offence of wage theft at this stage.
New South Wales
Recently the NSW Government has announced that it will be moving to increase fines against business owners who cheat tax laws to more than $100,000 as a way to combat wage theft (rather than specifically criminalising such conduct).
Under this proposal, maximum penalties issued to employers who lie to tax inspectors or make false records to conceal tax evasion will be increased from $10,000 to $110,000 per breach and the penalties are not constrained to payroll tax offences.
The Tax Administration Amendment (Combating Wage Theft) Bill 2021 (NSW) was introduced into NSW Parliament on 5 May 2021 and is still before the Legislative Council.
Other States & Territories
While there have been calls for wage theft laws elsewhere, the Northern Territory and Tasmanian governments have not yet indicated that they will look to criminalise wage theft at this stage.
Wage theft was originally intended to be covered by the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 (Cth) to criminalise deliberate and systematic underpayments. However, these elements addressing wage theft were removed before the Bill was passed in March 2021.
Although the push for federal wage theft legislation has been temporarily stalled, there may yet be enough impetus at a federal level that we could see another bill seeking to introduce the charges nationally in the near future.
The future of wage theft
The wave of wage theft discussion and legislation demonstrates the rapid rise in interest in the subject amongst the Australian states, and even the federal government, and it is likely that in the future we will see wage theft as a criminal charge more broadly.
It is therefore crucial that Australian businesses understand their minimum wage obligations and pay at least in accordance with those requirements, so it cannot be said that they have deliberately underpaid their employees. Where underpayments of employees’ wages may once have resulted only in civil penalties, it land dishonest officers in prison for a long time.
Moving forward, employers should ensure as a minimum that:
- Employees are being paid correctly in line with the applicable modern award, enterprise agreement and/or employment contract (including overtime and penalty rates);
- Employee records are being maintained in accordance with requirements under the Fair Work Act 2009; and
- Officers (including non-executive directors), payroll and human resources staff are aware of obligations of the employer, which may include training on the application of workplace laws, modern awards and/or enterprise agreements, including compliance and minimum entitlements.
Please contact HR Legal should you require any advice regarding underpayments or wage theft.