Article

Another Loophole Closed? Criminalising Wage Theft

WRITTEN BY Justine Ross

CRIME

In recent years, ‘wage theft’ has featured prominently in the headlines with reports stating that underpayments have reached ‘record highs. In 2022-2023, the Fair Work Ombudsman (‘FWO’) recovered $509 million in unpaid wages and entitlements for more than a quarter of a million workers from companies including David Jones, Bakers Delight Holdings and numerous Universities.  

In an attempt to curb underpayments, the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (‘the Bill’) contained the inclusion of a new criminal offence in the Fair Work Act 2009 (Cth) (‘the FW Act’) aimed at employers who intentionally underpay employees. The Bill has subsequently been passed by Parliament.

The Minister for Employment and Workplace Relations, Tony Burke, when introducing the Bill said:

‘It is already a crime for a worker to steal from an employer, as it should be. But it’s not a crime for an employer to steal from a worker. We will close this loophole.’

How can underpayments occur?

There are many ways businesses can intentionally or unintentionally underpay an employee. For example, employers may omit to pay penalty rates, superannuation, or other allowances. Underpayments can also arise if an employee is incorrectly classified under the relevant award or meal breaks are not accounted for correctly.

Operation of the new criminal offence

Recognising that many employers are simply trying to do the right thing, the new criminal offence will only cover intentional underpayments, not unintentional or inadvertent underpayments.

However, businesses and individuals who are found to have committed wage theft offences after 1 January 2025 (or after the Fair Work Commission’s (‘FWC’) Voluntary Small Business Wage Compliance Code starts) can expect hefty penalties for serious contraventions if prosecuted by the Commonwealth Department of Public Prosecutions (‘CDPP’).

  • Businesses may have to pay fines up to nearly $8 million or three times the amount of the underpayment, whichever is greater.
  • Individuals can be imprisoned for up to 10 years and/or must pay a fine of up to $1.5 million.
  • Default provisions in the Commonwealth Criminal Code will apply to extend liability to those who aid, abet, counsel or procure the commission of an offence.

This change is remarkable, not only because of the substantial penalties that can follow, but because it is one of only two few criminal offences in the FW Act (the other one involves employer or employee organisations giving, receiving or soliciting bribes). Whether the criminalisation of conduct is an upcoming trend in employment law or if it a singular initiative of the Labor government, remains to be seen.

What steps can employers take to avoid prosecution?

Small businesses (with 15 or less employees) will be exempt from criminal consequences if they comply with the impending Voluntary Small Business Wage Compliance Code.

Where bigger businesses become aware of intentional wage theft, they may consider self-reporting the conduct to the FWO. The FWO may – depending on how ‘voluntary, frank and complete’ the disclosure is – enter a ‘cooperation agreement’ with the employer and refrain from referring the matter for criminal prosecution. Self-reporting does not, however, immunise the employer from civil penalties and non-punitive action such as compliance notices or undertakings.

The CDPP will only prosecute where they are satisfied:[1]

  • there is sufficient evidence to prosecute the case; and
  • it must be evident from the facts of the case, and all the surrounding circumstances, that the prosecution would be in the public interest.

Given this, it is likely that the criminal offence will only apply to the most serious, widespread, and long-term underpayment issues. However, civil penalties for wage theft have also increased and could be issued to businesses and individuals more easily.

Changes to union right of entry

The Australian Council of Trade Unions advocated for unions to have expanded powers to help eradicate the ongoing ‘epidemic’ of wage theft. As a response of sorts, the FW Act now contains additional grounds on which a union may obtain an exemption certificate for the purpose of investigating a contravention of the FW Act.

So, what’s changed?

The Explanatory Memorandum (‘the EM’) to the Bill explains that the bar to obtaining an exemption certificate under the pre-amended FW Act was too high so rarely used (i.e. ‘the FWC must reasonably believe that advance notice of entry might result in the destruction concealment, or alteration of relevant evidence).

The EM implies that the additional ground (that being, s 519(1)(b)(ii) of the FW Act) imposes a lower bar for unions to obtain an exemption certificate. It states, the new provision ‘expands the grounds for the issue of an exemption certificate, so the notice period may also be waived if the FWC is satisfied that an underpayment is in relation to a union member’. Although, despite the lower bar, the FWC is likely to demand ample evidence as to why advance notice would hinder an effective investigation e.g., the FWC must also consider the right of the employer to go about their business without undue inconvenience.

It must also be recognised that unions can only seek an exemption under the additional ground where the suspected underpayment relates to a union member. If they wish to investigate underpayments in relation to a non-union member, they must meet the higher bar under the old (but preserved) provision (now, s 519(1)(b)(i) of the FW Act).

The existing safeguards against the misuse of entry powers will remain the same, these include:

  • the obligation on unions to give a copy of the exemption certificate to the occupier of the premises;
  • the obligation on unions to comply with reasonable work, health and safety requirements;
  • the prohibitions against intentionally hindering and obstructing any person or otherwise acting in an inappropriate manner;
  • the prohibition against the unauthorised use or disclosure of information or documents;
  • the FWC powers to impose conditions on the entry permit, or to suspend or revoke the permit;
  • the FWC powers (an obligation in some cases) to restrict the rights of unions or officials where they have misused their rights; and
  • the existing dispute resolution mechanisms in the FW Act.

It is unclear how this change closes any loopholes, given unions have an existing power to obtain exemptions and Fair Work Inspectors can enter premises without permission. At most, it signals to employers that underpayments are on the government’s radar. Although, it is possible that unions will investigate more employers, with or without notice.

After an investigation, if the union finds underpayments to have occurred, they can bring action on behalf of employees to recover the underpaid amounts, and they can call for the imposition of civil penalties on the employer. However, they lack a right to bring a criminal prosecution with that discretion still resting with the CDPP.

Conclusion

Employers should start checking their payroll systems to ensure there are no on-going underpayment issues, intentional or otherwise prior to the new provisions coming into force. For advice in relation to underpayments and for all employment related queries or concerns, please contact our Employment Law & Investigations team at BAL Lawyers.


[1] https://www.cdpp.gov.au/prosecution-policy


Justine would like to acknowledge Jacinta Moss-Pinch, Giulia Raneri and Varshini Viswanath for their assistance in writing this article.

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