For everyone The law & you: Cracking down on wage theft

On 16 June, the Victorian parliament passed the Wage Theft Act 2020 (Vic), criminalising the misappropriation of employee wages and entitlements. This comes after years of effective union campaigning on the issue.

Delivering on its 2018 election commitment, the government has created a series of offences that criminalise the conduct of employers who deliberately underpay employees’ wages and other entitlements. The legislation applies not only to wages but also to leave entitlements, superannuation contributions and other payments, such as bonuses or piece-work payments. The legislation will commence operation on 1 July 2021.

Employers that engage in such conduct face the prospect of fines of up to $198,264 for individuals, and up to $991,320 for companies. Individuals involved in committing offences face up to 10 years imprisonment. The severity of the penalties in the legislation reflects how seriously the government is taking the issue of wage theft. The offences will need to be proven against the criminal standard of proof “beyond reasonable doubt”, rather than the civil standard of “on the balance of probabilities”.

The legislation also establishes the Wage Inspectorate Victoria, which is tasked with enforcing the legislation and undertaking prosecutions. The inspectorate has broad powers to undertake investigations into possible breaches of legislation. The legislation authorises the inspectors to enter workplaces and undertake searches of employee records held by employers. The inspectorate will also have an oversight and enforcement function in respect of the Long Service Leave Act 2010 (Vic), the Child Employment Act 2003 (Vic) and the Owner Drivers and Forestry Contractors Act 2003 (Vic).

A 2019 report put the annual figure for wage theft at more than $1.35 billion and estimated that as much as 13% of the total workforce has been affected.

Predictably, the legislation has been met with opposition from employer groups. In some sectors of the economy, wage theft is not a fringe activity but has become a business model, and the process for recovering stolen wages has often been expensive and time-consuming, favouring employers over victims.

A 2019 KPMG report put the annual figure for wage theft at more than $1.35 billion and estimated that as much as 13% of the total workforce has been affected – more than a million people. Migrant workers are particularly vulnerable as their bosses have power over both their pay cheque and their residency status.

According to Industry Super Australia, a staggering one-third of eligible Australian workers are being underpaid super. This is 2.4 million workers collectively having $3.6 billion stolen from them each year.

Pressure on the Morrison government to act has increased significantly since George Calombaris’ restaurant empire was forced to pay its staff $7.8 million in unpaid wages last year as part of an agreement with the Fair Work Ombudsman. It also made a $200,000 “contrition payment” to the federal government.

Employers have raised the possibility of challenging the Victorian legislation on the basis that it is inconsistent with Commonwealth law, in that the Fair Work Act 2009 (Cth) operates to exclude state laws like the Wage Theft Act 2020. Time will tell whether any such challenge to the validity of the legislation is mounted by an employer.

A more practical issue confronting the legislation and the operation of the inspectorate is how inspections and prosecutions will be conducted in the context of the COVID-19 pandemic and weak forecasts of commercial activity. In this regard, the inspectorate has published guidelines on when it will and will not prosecute failures to pay wages.

The legislation clearly demonstrates the Victorian government’s commitment to addressing the serious issue of wage theft. Criminal offences, with the prospect of stiff penalties and imprisonment, enforced by a new inspectorate, attest to this. Employers who regard their employees’ entitlements as a piggy-bank to dip into now do so at their own peril.

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