Federal government to introduce reforms criminalising wage theft across Australia

In its next tranche of workplace law reforms, the Federal government is proposing to significantly strengthen the compliance and enforcement framework of the Fair Work Act 2009 (Cth) (FW Act) in relation to the underpayment of wages, including by making wage theft a criminal offence and significantly increasing the civil penalties for contraventions of the FW Act involving the underpayment of wages.

Key takeaways

• The Federal government has proposed law reforms introducing a criminal offence of wage theft in circumstances where an employer either has actual knowledge of, or was reckless as to, an underpayment.
• The Federal law reforms also propose a five-fold increase to the civil penalties for underpayment offences under the FW Act, up to $82,500 for individuals and $412,500 for companies, per contravention ($825,000 and $4,125,000 respectively for serious contraventions).
• Wage theft is already a criminal offence in both Victoria and Queensland.
• The Fair Work Commission has recently announced a 5.75% increase to rates of pay under modern awards, effective from 1 July 2023.
• Practices are encouraged to review their existing pay arrangements with employees to ensure that they are paying them in accordance with applicable laws, including any applicable industrial instruments.

Existing underpayment provisions of the FW Act

The Department of Employment and Workplace Relations has announced a suite of proposed law reforms to crack down on wage theft and underpayment of wages in its Criminalising Wage Underpayments Consultation Paper (Consultation Paper).
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Under current laws, an employer that underpays an employee contravenes the FW Act, including but not limited to provisions of the FW Act regarding:‍

• the National Employment Standards;
• the terms of modern awards or enterprise agreements;
• the method and frequency of pay;
• sham contracting; and
• paid leave entitlements.

The above are civil remedy provisions, the contravention of which attracts penalties of up to $16,500 for individuals and $82,500 for companies, per contravention ($165,000 and $825,000 respectively for serious contraventions).
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Civil penalties are cumulative and are payable in addition to any damages an employer or individual may be ordered to pay to affected employees or former employees.

Proposed Federal reforms

The Consultation Paper outlines a series of options for amendments to the FW Act and the Commonwealth Criminal Code Act 1995 (Cth) that would significantly increase the consequences for employers who underpay their employees. If the proposed reforms are adopted, they will likely include:
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• the introduction of a criminal offence of wage theft in circumstances where an employer either has actual knowledge of, or was reckless as to, the underpayment of wages;
• the introduction of a criminal offence for the deliberate falsification of, or failure to keep, compliant wage related employment records; and
• a five-fold increase in the maximum civil penalties for contraventions of the FW Act that involve underpayments, up to $82,500 for individuals and $412,500 for companies ($825,000 and $4,125,000 respectively for serious contraventions).

Importantly, the proposed reforms also propose to capture instances where an employer fails to pay superannuation in accordance with applicable laws, as the Federal government has already introduced the Fair Work Legislation Amendment (Protecting Worker Entitlements) Bill 2023 to parliament which, if passed, would amend the National Employment Standards to include an entitlement to the payment of superannuation.

Existing wage theft laws at the state level

Wage theft is already a criminal offence in both Victoria and Queensland.

The Consultation Paper indicates that a criminal wage theft offence at the Federal level would operate alongside existing and future State-based legislation, however, information as to how this will work in practice is limited at this stage.

Victoria

In 2020, Victoria introduced the Wage Theft Act 2020 (Vic) which makes it a criminal offence in Victoria to:‍

• dishonestly withhold an employee entitlement;
• falsify employee entitlement records; and
• fail to keep employee entitlement records.

In December 2022, the Wage Inspectorate Victoria (the body responsible for investigating, prosecuting and enforcing compliance with Victoria’s wage theft laws) filed the first criminal charges under the Wage Theft Act 2020 (Vic) against a Victorian employer. The Wage Inspectorate has alleged that $7,000 in wages, penalty rates and superannuation entitlements were dishonestly withheld from four former employees of the relevant business.

The offence of dishonestly withholding employee entitlements under the Wage Theft Act 2020 (Vic) is punishable by a maximum fine of over $1 million for companies and up to 10 years’ jail for individuals.

Queensland

In Queensland, the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020 (Qld) introduced a criminal offence of “stealing by employers” and amended the definition of fraud to specifically include situations where the offender is or was previously an employer of the victim. The offence of “stealing by employers” includes failing to pay an employee for hours worked, penalty rates and overtime, and making unreasonable or unlawful deductions and is punishable by 10 years’ imprisonment.

The Queensland wage theft legislation is enforced by Queensland Police, however, there is no public record that any charges have been brought under the Queensland legislation, to date.

What do the proposed Federal reforms mean for practices?

Submissions to the Consultation Paper closed on Friday, 12 May 2023 and it is likely that the wage theft reforms will be included in the Federal government’s next tranche of workplace law reforms. If the reforms are passed, the consequences for employers of underpaying employee entitlements will increase substantially.

Notwithstanding the proposed reforms, practices across Australia already face significant maximum civil penalties for underpayment contraventions under the existing provisions of the FW Act, and practices located in Victoria and Queensland are already subject to State-based, criminal, wage theft laws.

Practices should be aware that they will be liable for underpayments, under both civil and criminal laws, including where an employee agrees to be paid a particular rate of pay, or agrees to a set off arrangement in a contract of employment, that results in an underpayment of wages, at law.

Importantly, the Fair Work Commission has recently announced a 5.75% wage increase for employees covered by a modern award and an effective 8.6% increase to the national minimum wage. These increases are effective from 1 July 2023.

What does your practice need to do?

All practices should carefully review their arrangements with employees and ensure that all employees are being paid in accordance with law.

Practices should pay particular attention to their obligations to employees who are covered by the Health Professionals and Support Services Award 2020 and the Nurses Award 2020 or another modern award, where applicable.

Underpayment claims can commonly arise in circumstances where an employer:‍

• fails to identify that an employee is covered by a modern award or misapplies the wrong modern award;
• misclassifies an employee under a modern award;
• does not comply with the terms of a modern award relating to minimum entitlements, including terms regarding minimum rates of pay, ordinary hours, overtime, penalties, allowances and annual leave loading;
• has a set-and-forget mindset and fails to regularly audit its compliance with minimum rates of pay for each employee following the Fair Work Commission’s annual award wage increases that take effect, on 1 July each year;
• relies on an ineffective set off clause in the contract of employment, noting that such clauses are only effective when carefully drafted and in circumstances where an employee is being paid at least the applicable minimum rate of pay (including any applicable penalties, overtime rates and allowances) based on their days and hours of work in each pay period;
• fails to pay superannuation to employees and applicable contractors in accordance with applicable laws; and
• engages in sham contracting.

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