Remedying Wage Theft: The Evolution of the Fair Work Ombudsman’s Enforcement Approach
The last few years have seen extended public outcry over what appears to be systemic wage theft in Australia. In response to the ongoing underpayment of wages, the Fair Work Ombudsman has beefed up its enforcement priorities, with - among other things - Company Directors now significantly liable and a range of civil and criminal remedies at its disposal.
Before the arrival of COVID-19, there was strong community support and political momentum behind the idea that the FWO needed to send a strong message of deterrence to would-be lawbreakers. During the 2019-20 financial year Fair Work Ombudsman (FWO) recovered $123 million in unpaid wages for over 25,000 workers and dealt with a significant increase in unfair dismissal and general protections applications.
However, with Australia and the world engulfed in the current health and economic crisis, it is far less clear as to which way the regulatory pendulum will to swing.
Tess Hardy, Senior Lecturer at Melbourne Law School states “wage theft is now perceived as seriously troubling from a political, social, economic and regulatory perspective” in the article Trivial to Troubling: The Evolution of Enforcement under the Fair Work Act.
In the early years of the Fair Work Act, employer noncompliance with employment standards regulation was perceived as relatively benign, if not trivial.
With sweeping industrial relations reforms in the early-mid 2000s that - for the most part - left businesses with a stronger position in relation to their workers, the Fair Work Act 2009 (Cth) (the Act) sought to broaden and clarify the powers of the federal statutory body now known as the Fair Work Ombudsman (FWO). The Act did this without providing much increase or change to the enforcement options, maximum penalties and liability limits that had been in place for many years prior.
However, the tide turned in 2015 in response to number of high profile underpayment scandals - perhaps the most notable of these being the 2015 7-Eleven case - the term ‘wage theft’ entered the common lexicon and the FWO faced immense public pressure over what appeared to be systemic mistreatment of vulnerable workers in some sectors.
While industrial relations changes represented a significant step forward, practical constraints such as funding and resourcing limited the FWO’s ability to create the sort of change that was required. Driven by Governmental pressure for efficiency, the Office of the FWO focused only on ‘serious’ cases, exposing it to allegations that it was failing vulnerable workers and that those contravening the Act were doing so largely with impunity.
The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth), vastly extended liability and raised the maximum penalties for ‘serious contraventions’ of the Act. Among the changes were the extension of liability for breaches to franchisors and holding companies in certain circumstances, the introduction of statutory presumptions for failure to provide adequate employment records, or falsified records, and the further strengthening of the investigative powers of the FWO.
What is the FWO’s approach to compliance promotion and enforcement?
In 2019 a new Compliance and Enforcement Policy was launched by the FWO which focuses more on the FWO’s statutory powers, and less on other novel initiatives. It also sets out criteria for when the FWO will launch an investigation or commence litigation.
Under this regime, the FWO engages in specific enforcement practices and outcomes, which can be grouped as below.
- - Dispute resolution and mediation
- - Prioritising self-help and dispute resolution strategies over investigation and deterrence-based approaches is a preferred approach of the agency. By shifting the burden of calculation and resolution to the Parties a speedier and less-resource intensive outcome can be reached.
- - Administrative tools and coercive sanctions
- - Following an investigation, the FWO may choose from a range of tools including assessment letters, infringement notices, compliance notices, entering to enforceable undertakings and even civil litigation. These tools were originally introduced to the FWO to provide additional options to undertaking court proceedings, but the FWO has been somewhat reticent in using them.
- - Infringement notices, compliance notices and contravention letters
- - These tools were historically used sparingly, likely due to their limited scope and ability to be used only when civil remedy provisions under the Act had been contravened. As of 2019/20 their use is quickly increasing as more powerful tools gain favour in remedying underpayments.
- - Enforceable undertakings and proactive compliance deeds
- - Enforceable Undertakings and Proactive Client deeds are both voluntary reparation agreements that can be entered into when the FWO believes a party has contravened a civil remedy provision under the Act. They are sometimes perceived to be an easy way out for businesses who have underpaid workers and thus they are now commonly accompanied by contrition payments and are being used only in limited circumstances.
- - Civil remedy proceedings
- - As confirmed by the FWO’s Compliance and Enforcement policy, civil proceedings are generally reserved for the most serious breaches. Due to the length of time that proceedings may take and the resourcing and financial constraints of the FWO, only a fraction of cases are resolved this way.
“Following the 7-Eleven underpayment scandal… there has been, and continues to be, a sense that there is now an enforcement crisis.”
–Tess Hardy, Senior Lecturer, Melbourne Law School, University of Melbourne.
Wage theft as a criminal contravention
There is an ongoing debate across jurisdictions about whether serious underpayment contraventions should be classed as criminal contraventions. Some states such as Victoria, Queensland and Western Australia have passed, or are in the process of passing wage theft crime bills.
In Victoria, the Wage Theft Bill was passed in June 2020 (with the Act to commence in 2021) and provides for three wage theft offences:
- theft of employee entitlements;
- falsifying an employee’s record; and
- failing to keep employee entitlements records.
Victorian companies will be vicariously liable for actions taken by officers, directors, associates and agents within their scope of employment or engagement, and there will be “implied authority” if there is a corporate culture of “wage theft”. Decision-makers will be liable if they fail to take reasonable precautions, which includes exercising due diligence.
Maximum penalties for these offences are 6000 penalty units ($991,320) for corporates and 1200 penalty units ($198,264) and 10 years’ imprisonment for individuals. If determined summarily in the Victorian Magistrates Court, the maximum fine is 2500 penalty units ($413,050). A penalty unit was $165.22, as at 1 July 2019, however this will shortly increase.
Read more here: Victoria criminalises Wage theft (inside Practical Guidance, Lexis Advance subscribers only.)
In Queensland, amendments to the Criminal Code in the Criminal Code and Other Legislation (Wage Theft) Amendment Bill 2020 were recently passed with the Queensland Parliament's bi-partisan support.
The FWO and its powers under the Act exist to protect workers but must do so while tenuously balancing the desires of the Government at the time and while also appearing tough on contraveners, without coming off as anti-business or too draconian.
It seems these competing pressures will not be abating any time soon and thus we may see further changes to both the remit of the FWO, and the structure of its Enforcement and Compliance Policy, in the near future.
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