Wage Theft Act: Underpaying your staff could now end in jail time

The Wage Theft Act makes underpayments a criminal act. Here's everything employers need to know

Wage Theft Act: Underpaying your staff could now end in jail time

The criminalisation of wage theft is imminent as changes to the Fair Work Act are set to outlaw what a Senate committee – set up in 2019 to investigate the unlawful underpayment of employees – called “systemic, sustained and shameful”.

Joe Murphy, partner employment relations at law firm Piper Alderman, says the new legislation is based on wage theft laws already introduced in Victoria. Queensland and WA also outlaw wage theft and other states are talking about it, with the Labor Opposition in NSW saying they will make it illegal.

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It is the Victorian system, however, that provides the best roadmap. Whoever brings the prosecution, whether that is a union, government, individual or class action, will have to demonstrate that there is a deliberate and dishonest underpayment or withholding of wages from an employee or falsifying or avoiding keeping employee records in order to obtain an advantage.

“Those breaches will be punishable by fines as they already are, but it will be a criminal conviction not a civil conviction as it is currently. There will be fines for both companies and individuals and, in the worst-case scenario, up to 10 years imprisonment,” Murphy says.

Successive governments have become more and more focussed on making sure that individuals can be prosecuted for the breaches of the corporation, says Marcus Zeltzer, co-founder of payroll compliance company Yellow Canary.

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“We have seen this move across various pieces of legislation whereby liability is being migrated from corporate to directors down to officers and those who control outcome,” Zeltzer says.

There is currently discussion about whether the federal government should take a field approach to wage theft, which would rule out the state systems that have been created.

“But the current dual system means that businesses are subject to state and federal regulators both looking at you for these offences, so there is double the chance of being investigated and prosecuted depending on who comes after you,” Murphy says.

What should a company do if the Fair Work Ombudsman (FWO) comes knocking?

Murphy reflects on the recent history and role of the FWO.

“During the period when Natalie James was the FWO, it became a very scary and looming beast for businesses because the biggest concern was being named and shamed,” he says. “Depending on the size of the business, the fines and potential back payments were of a primary or secondary concern for a whole range of businesses.”

The clampdown came on the back of many ASX businesses – Woolworths, Wesfarmers, Qantas, Commonwealth Bank, Super Retail Group and Michael Hill Jewellers to name a few – withholding tens of millions of dollars in underpayments. Some of these investigations were managed well and some weren’t in terms of a media perspective, the ombudsman perspective and the post-event perspective, Murphy says.

Although it sounds self-serving, Murphy says one of the most sacrosanct ways a company can protect itself is by having legal professional privilege (LPP).

“If something is done in the context of LPP, then documents or communications are not something that the person who is going to prosecute you necessarily gets to see,” he says. “Often the ombudsman receives a report that was produced internally or from a consultant that sets out the prosecution roadmap for the ombudsman. They may say: ‘You have calculated 1.2m worth of underpayment: we’re happy with that.’ If you have done that under privilege, the ombudsman is not entitled to that document. You can give it to them if you like but with LLP you have that choice. If you spend a bit now you can save a lot later.”

Another key tip is to ensure that the business has adequate resources internally and that your people are trained and know what they are doing.

Zeltzer says when considering resourcing there is one key figure in every organisation who needs to be at the table.

“When you have payroll teams, HR teams and in-house legal teams, remember that these people already have full-time jobs and are then also required on an audit project that is going to take six to 12 months. The most critical person is someone who understands the payroll system inside and out and who can provide the context that sits behind the numbers. That person, who has institutional knowledge, should be put on the project and you backfill their role to make sure that folks are getting paid and pay slips are being generated,” Zeltzer says.

If the ombudsman does come knocking, have a strategy in place on how you’re going to manage that. Duking up to the FWO is not the smartest approach, Murphy says.

The approach should be sensible and measured in terms of what the issues are and what you think you can achieve appropriately through the investigation. It doesn’t pay to just open the doors and let the ombudsman in; it’s better if you can control the flow of information. The primary reason for this is control of costs.

“You don’t want the investigation to take on a life of its own and before you know it, you have spent an extra few years in an investigation that didn’t need to take that long,” Murphy says.

As the employment law landscape continues to change across Australia, it’s important that employers stay up to date on any amendments. Register for HRD’s upcoming Employment Law Masterclass here.

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