Wage theft: what risks lie ahead for businesses?

Underpayment has continued to be a very serious legal and reputational issue for business during this crisis year of changing rules and employment schemes. The Fair Work Ombudsman (FWO) has stated its intention to continue to focus on underpayments, so businesses should be auditing regularly to avoid litigation and to ensure that they have appropriate governance and systems in place.

Systemic underpayments by large corporates a priority for FWO during 2020/2021

The FWO has beefed up its enforcement capabilities during 2020, and now has a range of civil remedies (and soon, criminal remedies) at its disposal.

In its latest annual report, the Fair Work Ombudsman (FWO) identified that investigating systemic underpayments by large corporates are a priority for 2020/21.

The focus on underpayments by the FWO continues and interestingly is now extending into industries that fall outside the traditional vulnerable worker sphere.

The FWO is already working with around 70 large corporates who have admitted underpayments and indicates there will be an immediate focus on industries affected by COVID-19 such as fast food; restaurants and cafes; horticulture; sham contracting; and franchise arrangements.

This is a clear sign to employers within target industries or those who have vulnerable workers (e.g., visa workers or younger workers), sham contracting or franchising issues that the risk of an investigation or litigation will be higher.

Primary liability for wage theft lies with the employer, however persons involved in the contravention can be liable as accessories (including franchisors or holding companies).

Where the liability relates to vulnerable persons and/or is particularly serious, penalties can be significantly higher.

Read more inside LexisNexis Practical Guidance:  FWO bares its teeth with systemic underpayments by large corporates a priority for 2020/21 full article.

Adding to COVID-19 woes for business, the WorkPac Pty Ltd v Rossato [2020] case recently clarified the mischaracterisation of casual employees and sent shock waves through the business community, already struggling in the face of the COVID-19 pandemic.

The potential expansion of accessorial liability, extending sham contracting provisions, increasing penalties and enforcement

As the Commonwealth government canvasses various changes to the civil liability provisions under the Fair Work Act 2009 (Cth) (FW Act) businesses face the potential expansion of accessorial liability, extending sham contracting provisions, and increased penalties and enforcement, according to the article Beyond COVID-19: The unresolved epidemic of wage theft and underpayments.

These amendments could increase the risk of liability for employers and accessories regarding underpayments.

Employers must conduct due diligence regarding employee entitlements and take steps to resolve identified underpayment risks. Individual company officers should cease processing underpayments and raise their concerns with senior management or the board.

Wage theft to become a criminal offense in Victoria and Queensland

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:

  1. theft of employee entitlements;
  2. falsifying an employee’s record; and
  3. failing to keep employee entitlements records.

Victorian companies will become 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. “Dishonesty” will need to be proven but only to the standards of a reasonable person, which negates the defence that it was a “mere mistake” when there is substantial evidence that the employer did or should have known.

Read more inside Practical Guidance: Victoria criminalises Wage theft.

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 Criminal Code and Other Legislation (Wage Theft) Amendment Bill 2020 amends not only the Criminal Code, but the Industrial Relations Act (Qld), the Magistrate’s Court Act 1921 (Qld) and the Queensland Civil and Administrative Tribunal Act 2009. It is expected that more states will follow suit in the near future.

There are also jurisdictional issues that will likely need to be addressed in the pursuit of a clearer, easier to follow, statutory framework. Jurisdiction sits between the Federal Court, the Federal Circuit Court, State and Territory Courts and the Fair Work Commission - some of which can determine pecuniary penalty orders, payment of owed money and the making of any court orders deemed appropriate in relation to a contravention.

What should businesses be doing to mitigate their risks?

Boards, senior management (particularly HR professionals) and external advisers should continue to carefully monitor changes this area and conduct appropriate due diligence in their workplaces and, where relevant, their supply chains.

Businesses should be prepared to understand its supply chain to be able to assess the risk of slavery within it.

Employers must ensure that they behave lawfully when terminating a person’s employment, so they do not feature in the significantly increased numbers of unfair dismissal and general protections claims.

To remain compliant, audits must be conducted as a priority to ensure compliance with industrial instruments (i.e. payment for all hours worked), worker status must be reviewed to ensure correct classification (i.e. sham contracting) and franchisors and holding companies must take reasonable steps to ensure compliance with workplace laws in the supply chain.

Read more inside LexisNexis Practical Guidance: Liability for underpayments / Fair treatment in the workplace: Underpayments.

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