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Wage Theft is an Epidemic and Now a Criminal Offence in Victoria

Wage Theft is an Epidemic and Now a Criminal Offence in Victoria

It is estimated that Wage Theft costs Australian workers up to $1.3 billion a year. It is a crime to underpay employers or dishonestly withhold entitlements. There are serious implications for those employers that are caught breaching the Wage Theft Act 2020 (Vic). It is reasonable to assume that most of us at some time in our working lives have been a victim of wage theft. Simply described, wage theft is a form of exploitation of workers that also gives dishonest employers an unfair business advantage over businesses doing the right thing.

Despite the vast majority of employers paying their employees correctly, the statistics of wage theft in Australia is widely known. Wage theft has been a problem in Australia since businesses have been operating in the modern era, with dishonest employers often normalising underpayment of staff. PwC Australia undertook modelling using Fair Work Ombudsman data of several industries and noted that 21% of the workforce in those industries had been underpaid.

This article briefly discusses wage theft legislation, criminal sanctions, the government body established to investigate and prosecute offences under the Wage Theft Act 2020 (Vic) (the Act) and provides examples of wage theft and defences against allegations of wage theft as well as risk-mitigation strategies for employers.

Non-Criminal Sanctions

Although the provisions of the Fair Work Act 2009 (Cth) and legislation outlined by the Fair Work Ombudsman provide protection for employees, this protection does not bring criminal sanctions against dishonest employers.

Criminal Sanctions Legislated

Victoria introduced the Act on 1 July 2021. This Act creates criminal penalties for employers who deliberately underpay their employees. Offences associated with wage theft also include falsifying employee records and failure to keep employee entitlement records. The Wage Inspectorate Victoria is the independent government body established under the Act to investigate and prosecute these offences.

The Wage Inspectorate has broad sweeping powers to investigate alleged wage theft offences, including the power to apply for and execute search warrants, enter premises, seize evidence, require a person to give evidence or answer questions under oath or affirmation. If the Wage Inspectorate believes an offence has been committed, they may refer the matter to the Office of Public Prosecutions for advice and criminal prosecution.

Criminal Penalties for Dishonest Employers

The penalties for contravening the wage theft laws are quite severe and include the following:

  • a fine of up to $218,088 for individuals;
  • a fine of up to $1,090,440 (6,000 penalty units) for companies; and
  • up to 10 years imprisonment (level 5 imprisonment) for individuals.

These criminal penalties provide a strong deterrence, which may force compliance. The list of penalties presented above is not exhaustive.

Example of Wage Theft—Dishonest Intent

The employer owns a restaurant. This owner directed his manager to instruct back-end staff (e.g. chefs and kitchen hands) to sign their timesheets at the end of service (i.e. the last order through the pass). However, these staff members needed to continue working to clean the kitchen after service and so would generally work an additional hour each night without pay. The staff signed their timesheets that cited the earlier finishing time because they were afraid that they might lose their jobs.

Clearly, there was dishonest intent by the employer in deliberately failing to pay the employees full pay for the hours they worked. In addition, the employer forced employees to provide false details in their timesheets. This employer can be prosecuted for wage theft and may be found guilty.

Example of a Defence to Wage Theft—Honest Mistake

The employer owns a restaurant and has been advised by one of his chefs that they believe they have been underpaid for the past month. The employer had originally taken reasonable steps (before the alleged offence) to ensure correct entitlements were paid to all staff. For example, the employer had retained a human resources consultant to complete a compliance audit reviewing all wages. The audit report revealed that all staff had been graded correctly. The employer had therefore completed due diligence by retaining a human resources consultant to review all employee entitlements and believed all staff were being paid correctly.

After further investigation, the employer realised that apart from cooking, the chef’s role was to supervise and train other cooks, apprentices and manage the back-end staff. The chef was also responsible for stock ordering and control.

On review of the tasks relevant to the classification structure, it was found that the human resources consultant had misclassified the chef as a Grade 2 chef when he should have been classified and as a Grade 3 chef. Once the employer realised the mistake, he took reasonable steps to correct the underpayment by repaying the employee in the next pay period and adjusting payments to his superannuation fund, as well as increasing the chef’s wage.

This underpayment was an oversight. The employer had acted honestly under professional advice and had mistakenly paid the wrong entitlement. This matter may not meet the criteria for a wage theft crime.

Employers’ Business Model Should Include Risk-mitigation Strategies

Business owners need to ensure that they meet their obligations as an employer and do not underpay employees. This should be enshrined in their business model and include checks and balances to ensure wage compliance.

Employers’ Next Step—Due Diligence and Wage Compliance

Employers should review the Act, applicable awards and enterprise agreements, and employment contracts, as well as ensure that their payroll systems, processes and practices record and pay accurate employee entitlements (i.e. wages, superannuation, allowances, overtime, long service leave). As part of continuous improvement, employers should develop training sessions that cover the Act and should conduct sessions with managers, payroll staff and human resources staff to explain what is required by the Act. If using an external payroll system, the employer should ask the provider to formally qualify how they maintain compliance with the Act, relevant awards and regulations.

In conclusion, it would be incumbent on employers to complete a compliance audit to ensure they meet their obligations under the Act. In the case that underpayment is identified, the employee(s) must be notified, and arrangements must be made in a reasonable time to rectify the underpayment.

Disclaimer: The material contained in this article is general in nature and is based on the law as of the date of publication. It does not purport to, nor is intended to constitute in any way, in relation to your particular circumstances legal advice. Markus Earl Legal make no representations or warranties as to the accuracy of any of the information contained herein. Legal advice should be sought before relying on the content of this article.

By: Raymond M Earl
DipQA, DipVET, LL.B (Hons), GDipLP, MEI, M.Ed

Principal, Markus Earl Legal