What is Wage Theft?
Wage theft is the underpayment of employees. Wage theft can occur in a number of ways, for example underpaying wages, not granting entitlements or refusing to pay penalty rates, superannuation, overtime or commissions.
While, generally speaking, wage theft has long been illegal under various criminal and corporate laws, it is also now a specified offence under various state laws. In this article, we explain this new type of offence and how wage theft relates to various other existing laws. Specifically, we look at:
Why the need for new laws on wage theft?
Wage theft is not new. A Queensland Parliament Inquiry into the practice in 2018 noted that wage theft has been an issue since (at least) the 1970s. However, a range of high-profile cases involving many of Australia’s leading retailers has brought the issue into the spotlight in recent years. A series of Fair Work Ombudsman (FWO) reports, a report from the Senate and a Black Economy Taskforce report all identified employee underpayment as widespread.
In response Queensland, Western Australia, New South Wales, Victoria, South Australia and the Australian Capital Territory have either amended their state criminal laws to further penalise the practice, or are considering doing so.
Which behaviours might be classified as wage theft?
Wage theft can cover a broad range of conduct, including, but not limited to:
- paying wages/salaries at less than minimum wage, award or agreement rates;
- failing to pay employee entitlements, such as superannuation;
- failing to pay for breaks or overtime
- ‘sham contracting’ where an individual is classified as an independent contractor in circumstances where they should have been classified as an employee (hence depriving them of benefits;
- failing to remit tax or superannuation contributions to the appropriate authorities; and,
- ‘phoenixing’ activity (more on this below).
How did existing laws prevent wage theft?
Existing laws already prohibited businesses from engaging in many of the activities identified above.
The Commonwealth Fair Work System is primarily responsible for guaranteeing employee entitlements. Through either an ‘award’ (for an industry), agreement or legislated minimum standards (ie. the ‘National Employment Standards’), employees are legally entitled to certain payments.
Workers can complain to the Fair Work Ombudsman if any of those standards are breached. If an employer continues not to meet their legal obligations, action can be taken in the Small Claims Court (amount under $20,000) or the Federal Circuit Court (amount more than $20,000).
Civil penalties apply under sections 45, 50 and 293 of the Fair Work Act 2009 (Cth) if wages are underpaid.
Note, under the Fair Work Act 2009 (Cth), directors can be found personally liable for underpaying employees their entitlements. A director who was ‘involved’ (that is, induced, or was knowingly concerned) with a contravention of that Act, can be subject to personal liability under section 550 of that Act. For further information see Fair Work Ombudsman v Priority Matters Pty Ltd & Anor (No 4)  FCCA 56.
In addition to obligations under the Fair Work System, employers have superannuation obligations. If an employer does not pay the correct SG contribution by the quarterly payment date, they may be liable for the SG charge to the Australian Tax Office (ATO). Further enforcement action may be taken by the ATO in some cases.
What is the connection between insolvency and wage theft?
Where a company is insolvent and therefore goes into liquidation, it is common for employees not to have been fully paid their wages and entitlements.
The situation of employees is recognised in the Corporations Act 2001 (Cth), by making employees priority unsecured creditors, thereby receiving payment before other creditors.
In addition, if an insolvent business does not have the ability to pay employee entitlements, the employee may have access to the ‘Fair Entitlements Guarantee’ (FEG) Scheme which covers unpaid wages (up to 13 weeks), unpaid leave and redundancy payments (though not superannuation contributions).
If directors or officers enter into agreements so as to intentionally avoid or prevent employees from recovering what they are entitled to, this activity may be subject to criminal penalties under section 596AB of the Corporations Act 2001 (Cth). This could occur especially where an individual has engaged in ‘illegal phoenix activity’ which involves transferring assets from the company (for less than market value) before liquidating that company so as to defeat creditors (such as employees) of their entitlements.
For more information on employer obligations in an insolvent liquidation and the FEG Scheme see The Ultimate Guide to Liquidation: Part 1.
What do the new wage theft laws do?
Due to a perception that existing laws did not sufficiently deter wage theft, new criminal penalties have been introduced for the intentional deprivation of employee entitlements.
However, the details of the new wage theft laws differ significant by the state law in question. For example, New South Wales’ proposed wage theft law is less extensive than that already in operation in Queensland and Victoria. Individuals need to check the specifics of the wage theft law that applies in their jurisdiction.
For example, under the Queensland Criminal Code wage theft is now punishable by up to ten years imprisonment. Employees can complain to the police (as with any crime) since there is a special reporting form for wage theft.
Note, in addition some states have also criminalised false reporting in association with wage theft. For example, Victoria has created specific offences for employers who falsify employee entitlement records or who fail to keep employment records. There, a special agency, the wage inspectorate, has been created to investigate and enforce breaches of these laws.
While a range of laws such as the Fair Work Act 2009 (Cth) and the Corporations Act 2001 (Cth) already prohibited many of the behaviours that we might consider to count as employer wage theft, they do not appear to have been deterring the behaviour. In response, states have introduced their own legislation to criminalise wage theft by employers. It remains to be seen whether this will have any impact on entrenched criminal behaviour.