Navigating the implications of a federal overlay of wage theft laws

It is unarguable that underpayment and non-payment of wages in Australia has become an area of heightened focus in recent years with high profile prosecutions, class actions and public relations nightmares often travelling in lockstep. This has only intensified regulatory focus.

Significantly, and recently, the Australian Government’s Department of Employment and Workplace Relations (DEWR) initiated workplace reform consultations focusing on the introduction of national wage theft laws that would criminalise non-payment and underpayment of wages across all industries. That framework will likely introduce criminal sanctions for deliberate and dishonest underpayment by businesses and individuals involved in the contraventions. There is also a possibility that the changes will also criminalise ‘reckless’ underpayment and non-payment of workers.

Wage theft in Victoria and Queensland

In recent years, both Victoria and Queensland have introduced schemes criminalising wage theft.
Whilst the legislative approaches differ, both frameworks criminalise intentional and dishonest conduct resulting in underpayment of employees.

Victoria’s Wage Theft Act 2020 (VIC) (Wage Theft Act) criminalises dishonestly withholding employee entitlements and extends liability to individuals who expressly or impliedly authorise or permit another person to engage in underpayment.[1] Since 1 July 2021, the Victorian Wage Inspectorate has pursued 10 prosecutions under the Wage Theft Act, signaling a strong focus on combatting the issue. It is worth noting that the constitutional validity of the Wage Theft Act is currently being examined by the High Court of Australia in Rehmat Mehar Pty Ltd v Hortle.[2]

By contrast, the Queensland scheme prohibits wage theft under the Criminal Code Act 1899 (QLD) by extending the definition of ‘stealing’ to include ‘deliberate, intentional behaviour leading to under or non-payment of entitlements’.[3]

What will the Federal Framework look like?

On 13 April 2023, DEWR released the consultation paper titled Criminalising wage underpayments and reforming civil penalties in the Fair Work Act 2009 (Paper), which explores various approaches to implementing a new wage underpayment offence, including the application of ancillary liability to company directors. While the Paper explores many related questions and approaches, the two key considerations underpinning the legislative scheme are the basis of the criminal offence for underpayment, and whether liability for the offence should be extended to officers of businesses.

The Paper proposes three options for a criminal offence: a knowledge-based offence, a recklessness-based offence, and a tiered approach. A knowledge-based offence would target businesses who deliberately withhold entitlements from an employee. A recklessness-based approach goes further and would capture businesses who underpay their employees in circumstances where they are aware there is a significant risk they are not acting in compliance. The third approach would introduce both offences into the legislation accompanied by varying penalties, depending on the severity of the conduct.

The Paper also considers whether liability for any of these offences should be extended to individual businesses and officers of bodies corporates (including directors). Individual liability was first considered on the basis of the current provisions of the Criminal Code Act 1995 (Cth), reflecting the approach used in Queensland. These provisions allow for ancillary liability, meaning individual businesses or officers can be prosecuted if they played a role in aiding, abetting, counselling or procuring the underpayment. If this approach is adopted, the degree of risk for individuals will depend on whether the offence is knowledge-based - or based on recklessness as to risk. A knowledge-based offence will be more difficult to prove, whereas a recklessness-based alternative would enable more successful prosecutions. 

The Paper also explored a more stringent approach that would hold individual businesses or officers accountable for wage underpayment regardless of their knowledge or involvement. In these circumstances, an individual would only be able to avoid liability if they could establish that they took all reasonable steps to prevent the offence from occurring.

Changes to the serious civil contraventions regime & maximum civil penalties

The serious civil contraventions regime (SCC Regime) under section 557A of the Fair Work Act 2009 (Cth) (Act) currently deems a business to have committed a ‘serious contravention’ if they knowingly underpay an employee as part of a systematic pattern of conduct. The Paper proposes adjusting the SCC Regime in order to address the “full spectrum of non-compliance with workplace obligations”. Any changes to the SCC Regime would work alongside the new offence(s) to target conduct which is more culpable than the most serious circumstances covered by the civil framework. Amendments would likely decrease the current standard to conduct that was reckless, instead of knowing. An amendment in this form would broaden the definition of a serious contravention to capture conduct that is unintended.

Increased maximum civil penalties are also proposed for various offences in connection with underpayment of entitlements already codified in the Act. The Paper proposes increased penalties up to 10 times the current maximum, moving to potential new maximums of $825,000 for individuals involved in serious contraventions and $4,125,000 for businesses. The increased maximum penalties clearly seek to deter businesses from underpaying employees.

Consequences for businesses

Introduction of federal wage theft legislation will have significant implications for businesses. We do not anticipate that it will be possible for businesses to adopt a ‘set and forget’ attitude to compliance. This will particularly be in the case where recklessness is criminalised. New strident measures will require closer scrutiny of businesses wage payment practices and businesses would be served well by proactively reviewing their systems and evaluating compliance ahead of time.

Read other items in the Australian Employment Brief - July 2023. 

[1] Wage Theft Act, s 6(1).

[2] Rehmat Mehar Pty Ltd v Hortle Case M16/2023.

[3] Criminal Code Act 1899 (Qld), s 391(6A)-(7).

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