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Published: 01 June 2018
Author: Rex Punshon

"Wage theft" could be made a crime soon in Victoria 

Proposed new anti "wage theft" laws proposed by the Andrews Government may make it faster, cheaper and easier for employees to pursue their claims against employers. More importantly, they would create a greater disincentive for employers to underpay their staff in the first place.

In its announcement, the Government declared that it will introduce a suite of tough new laws aimed at curbing "wage theft" practices if re-elected in November’s Victorian State election.

Wage theft has received significant media attention lately, with many prominent businesses being accused of failing to pay staff their full entitlements.

While the full details are yet to be confirmed, the Government’s media release indicates that the proposed new laws will contain the following features:

  • Employers will face criminal penalties if they deliberately:
    • withhold wages, superannuation or other employee entitlements;
    • falsify employment records; or
    • fail to keep employment records.
  • These penalties will include fines of up to $190,284 for individuals, $951,420 for companies and imprisonment for up to 10 years.
  • Court processes will be simplified in order to make it “faster, cheaper and easier” for employees to pursue claims. For example, for claims of up to $50,000, court filing fees will be reduced and matters will be heard within 30 days.
  • If a court finds that an underpayment has occurred, employers will be required to rectify the situation under a strict “automatic enforcement model”. This model will put the onus on employers to show that they have complied with the court’s orders and paid the entitlements owed to workers.
  • An agency known as the Victorian Wage Inspectorate will be established to carry out investigations and prosecutions under the new regime. The Andrews Government has already allocated $22m in funding to the proposed agency under the 2018/19 Victorian Budget. 

Why are the new laws needed?

Under Commonwealth legislation, it is already clearly unlawful for employers to underpay their staff. The Fair Work Act 2009 (Cth) ("FWA") provides that an employer must not contravene a term of:

  • a modern award (section 45 FWA);
  • an enterprise agreement (section 46 FWA); or
  • a national minimum wage order (section 293 FWA). 

These sections are known as "civil remedy provisions". This means that, in the event of a contravention, an employee can apply to the Federal Court or the Federal Circuit for a "civil remedy". Civil remedies can include:

  • compensation for lost entitlements (s 545 FWA); and / or
  • a pecuniary penalty order, which is an additional financial penalty that the Court may order to be paid to the Commonwealth Government, an organisation (such as a union) or the affected employee (s 546 FWA).

Where a company contravenes a civil remedy provision, an individual (such as a manager or director) may be held personally responsible if they are "involved" in the company’s contravention. The individual can then be made to pay compensation and / or a pecuniary penalty out of their own pockets. The maximum pecuniary penalties which the Court may order under the FWA are $126,000 for individuals and $630,000 for companies.

Despite these Commonwealth laws, the issue of employers failing to pay staff their full entitlements – either deliberately or due to poor record-keeping practices – remains rife. Over the past year, the media has reported heavily on scandals involving 7 Eleven, Domino’s Pizza and many high-profile operators in the hospitality industry, to name just a few.

Frustratingly for employees, identifying an underpayment is one thing, but actually recovering backpay can be another thing altogether. As we discussed in a recent blog post, in deciding whether to pursue an underpayments claim, an employee will generally need to weigh up whether the size of their claim justifies the time, costs and risks of litigation.

If re-elected, the Andrews’ Government’s proposed new laws will hopefully:

  • make it faster, cheaper and easier for employees to pursue their claims; and
  • perhaps more importantly, create a greater disincentive for employers to underpay their staff in the first place – given that they could be subject to criminal, as opposed to merely civil, penalties.

How will new laws work in practice?

While the Government’s recent announcement is certainly promising, precisely how the new laws will operate in practice remains unclear. Some of the key issues will be:

  • How will individuals be held criminally responsible for withholding entitlements or failing to keep proper records where the employer is a company? In other words, what basic elements will need to be proven in order to link a particular individual to the company’s wrongdoing? The Government’s media release indicates that criminal penalties will only apply to "deliberate" breaches, which would appear to be a higher threshold than the "involvement" test set out in the FWA. However, proving that a particular individual has committed a "deliberate" breach could be difficult where systematic underpayments result from failures across many parts of the business and not the actions of any one individual. While criminal offences usually do require some level of intention, particularly if they attract a potential jail term, the bar should not be set so high as to render the laws impractical to enforce.
  • How will the Government uphold its commitment to ensure that claims of less than $50,000 are heard within 30 days? Furthermore, what court or tribunal will have jurisdiction to deal with these disputes? At present, pursuing an underpayments matter in the Federal Court or the Federal Circuit Court can take months or even years. This can be a significant barrier to justice for employees who do not have the resources to take on deep-pocketed employers.
  • How will the Victorian Wage Inspectorate interact with the Fair Work Ombudsman, the Commonwealth-funded employment law watchdog? Last year, the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) increased the penalties for breaches of the record-keeping and pay slip obligations under the FWA, while also granting new powers to the Fair Work Ombudsman to collect evidence in investigations. Despite these reforms, the Fair Work Ombudsman’s stated policy is that it will only commence an investigation if it involves "very serious issues" or it is in "the public interest" to do so. The Victorian Wage Inspectorate will hopefully have greater powers and resources to investigate and enforce compliance with the law in cases affecting individual employees.

When will the new laws come into force?

The proposed "wage theft" reforms are an encouraging sign for all Victorian workers. However, whether they become law will hinge in the first place on the results of this year’s State election.

The Andrews Government has foreshadowed that, if re-elected, it will seek to consult with employer groups and unions before putting a proposed bill to Parliament. This consultation process will take some time.

As such, any changes to the law appear to still be a significant way off. We will be monitoring the situation with interest over the coming months.