While underpayment of employees is nothing new, the risk of getting caught has increased significantly in recent years in Australia.   Large employers and small have found themselves on the wrong side of the law and with their treasured reputations damaged in the court of public opinion.   ‘Wage theft’ is a term which is no longer used only by the media or the union movement, it has now been adopted by the Commonwealth Government.

So why has it never been a better time to get your (employment) ducks in a row?

1. It’s the law

Most employees in Australia are the subject of an Award; an industrial instrument which prescribes 10 minimum terms of employment and has the same legal status as legislation.  Among other things, Awards prescribe minimum wages, allowances, penalty rates and overtime, all of which must be complied with.

Even if an Award does not apply, the national minimum wage prescribed under the Fair Work Act 2009 (‘FWA’) will apply to all other national system employees.   

A failure to comply with any provision in an Award or the FWA means you are in breach of the law.    

Not complying with an Award or the minimum wage is a lot like speeding; you may get away with it 99 times out of 100 but if you get caught there will be no question that you are in breach and the penalties for breach can be severe.

2.            Wage theft will soon be a criminal offence

In September 2019 the Commonwealth Attorney-General (‘Cth A-G’) and Minister for Industrial Relations, Christian Porter, announced that the Government is ‘committed to introducing strong and effective criminal sanctions to help stamp out deliberate and systematic wage theft by Australian employers’ and that a Bill to this effect was being drafted. The Bill will most likely be introduced to Parliament in either late 2019 or early 2020. 

3.            Your employment practices may be built on sand, not rock

Despite the high-profile changes to Australian workplace laws in 2006 and again in 2009, there are many Australian employers who have an outdated understanding of the basics of employment law.  Various myths about employment law continue to persist and are reflected in the employment practices of these employers; exposing them to the risk of being in breach of one or more of their obligations.

One of the most persistent and inaccurate myths in Australian workplaces is that paying an employee a particular wage or salary means that an Award will not apply to their employment.   There are in fact only very limited circumstances in which a modern Award will not apply to an employee who is otherwise covered by it; namely, where an employer provides a ‘high income’ employee with a guarantee of annual earnings.  High income employees are full-time employees who earn above the applicable high-income threshold (currently $148,700) and have received a guarantee of annual earnings from their employer in writing for a guaranteed period. 

In reality, only a small percentage of Award employees are ‘high income’ employees.  Even when a guarantee has been given to a high-income employee the employer remains obliged to ensure, during or at the conclusion of the guaranteed period, that the amount paid to the employee is the same or greater than what that person would have been entitled to receive under the Award. If there is a shortfall, the employer needs to ensure that this is rectified promptly.

For the majority of employees who are not high-income employees, it is the coverage clause and classifications in a particular Award which determine whether an Award applies to an employee. 

The risks associated with an employer incorrectly believing an Award does not apply is compounded by the fact that they may also believe that they are paying above the Award even though they have not taken the step of testing their assumption.  An employer will only know if they are paying above the Award if they first identify which Award or Awards apply to their employees and then identify the applicable classification within an Award for the employees who are covered by it and then compare the Award rates with what they pay the employee.

4.            The risk of getting caught has increased

While underpayment of wages is nothing new, the high-profile cases of recent years and months has certainly had the effect of ensuring that it is squarely on the workplace regulator’s radar.  In its most recent Annual Report (www.fairwork.gov.au) the Fair Work Ombudsman (‘FWO’) reported that it had recovered $40 million for 18,000 employees during the 2018-2019 financial year; the highest total recoveries figure in its history.  In response to the increasing demand on its resources, the FWO has sought additional funding from the Government.

In addition to the FWO, individuals and unions are also actively involved in bringing legal proceedings to recover unpaid employee entitlements.  The rise and rise of self-represented litigants is a well-recognised phenomenon.  It may not be the FWO who prosecutes you but your (former or current) employee or a union.

5.            Penalties have increased and may increase further

In 2017 the ‘Protecting Vulnerable Workers’ amendments to the FWA resulted in a new penalty regime for breaches of the FWA (including non-compliance with Awards).  This new regime involved the introduction of the ‘significant contraventions’ penalty for deliberate and systematic contraventions ($630,000 per contravention for companies, $126,000 for individuals), doubling of penalties for record-keeping and pay-slip breaches, extension of liability for franchisers and holding companies, additional evidence gathering powers for the FWO, outlawing of cashback arrangements, new penalties for hindering an investigation or providing false or misleading information, documents or records  and a reverse onus of proof in underpayment cases requiring employers who fail to keep records or issue payslips have to disprove an allegation of underpayment.

In the recent discussion paper Improving protections of employees’ wages and entitlements: strengthening penalties for non-compliance’ (available at www.ag.gov.au), the Cth A-G sought feedback about whether the abovementioned amendments to the FWA had influenced employer behaviour, whether the serious contraventions category of penalty had or is likely to have a sufficient deterrent effect and whether further modifications were warranted.  Subject to the submissions made and how they are assessed by the Government, there is potential for a further increase in penalties and associated amendments to the FWA in 2020.

6.            The risk of being held personally liable has increased  

Section 550 of the FWA provides that any person who is ‘involved’ in the contravention of a civil remedy provision of that Act (including the provisions which prescribe compliance with Awards and the minimum wage) may be held personally liable.  While a similar provision was in the legislation which preceded the FWA, it is a provision which has increasingly been relied upon both by the FWO and by individual litigants since 2010.  In the past few years the scope of those who have been found to be personally liable has broadened to include not only Company directors but also managers, human resource professionals and advisers.   The case law in relation to section 550 is now well-established. 

The Cth A-G has accepted, in principle, the recommendation of the Migrant Workers’ Taskforce that the Government ‘consider additional avenues to hold individuals and businesses to account for their involvement in breaches of workplace laws’ (specifically to cover a broader range of business models) and sought feedback in its wage theft discussion paper about whether actual knowledge or knowing involvement in a contravention of a workplace law should be the decisive factor in determining the liability of an individual or company.   In 2020 we may see amendments being made to section 550 which to the FWA which will make it easier to establish accessorial liability.

7.            It is not as hard as you might think

A common refrain among employers who have self-disclosed or been found to have underpaid workers is that the reason for the underpayment is the complex award system.  While this may have been a contributing factor prior to January 2010, the fact that it is now almost 10 years since the streamlined modern award system was introduced means this claim does not hold up.   Modern awards contain a mere 10 key provisions and are written in plain English; when an employer focuses their attention on the awards which apply to their employees and they become familiar with those awards, compliance is a fairly straightforward matter.  The issue is not the complexity of the Award system; it is getting employers to pay attention, on an ongoing basis, to what they are required to do to comply.

Award and FWA entitlements are the bread and butter of workplace compliance.  While compliance is not an area that many employers find particularly interesting, it is as vital to the functioning of a business as products and services, administration and finance.

So what can you do?

Identify the Awards which apply to your employees – it is likely that at least one Award will apply in your workplace.

Test your assumptions – conduct an audit on payments which have been made to a sample of your employees for a selected period. If the audit finds that you are compliant you can rest easy; if it finds you are not compliant, you can get on the front foot to rectify the situation and protect your business from reputational damage and significant financial penalties.

Get help – from the Fair Work Ombudsman (www.fairwork.gov.au) or from an employment lawyer; while the Fair Work Ombudsman is free, they provide information and not advice; while an employment lawyer will charge you for their advice, the cost effectiveness of getting help from an expert means it may not be as expensive as you think.

Do you need help to get your (employment) ducks in a row? Reach out to me at elizabeth@devinelaw.com.au

Elizabeth Devine of Devine Law at Work is a specialist in Australian employment law and in conflict management.  Based in Sydney, Australia, Elizabeth provides advice to employers across Australia and to their related entities across the Asia Pacific, North America, the United Kingdom and Europe.