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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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