Posted: 05 Nov. 2021 5 min. read

Fair Work Disrupted

The changing face of wage underpayment

Five years ago, what did you imagine when someone mentioned ‘wage underpayment’?

You may have pictured an ugly image of exploited vulnerable workers in well-known non-compliant sectors. Visa workers on the harvest trail, franchise arrangements or fast food workers paid being paid rates like $8, $12, $15 per hour.

That was certainly the picture that I saw every day as Fair Work Ombudsman.1 We commonly investigated cases of workers being paid well below the minimum wage in what was blatant non-compliance.

The Fair Work Ombudsman (FWO) rightly prioritised serious enforcement action when confronted with this deliberate conduct.

All this is still happening. And still a priority for FWO. But a couple of years ago something else began to emerge…

Largescale, legacy corporate underpayments...

We’ve all read the headlines with brand names familiar to us.

Fast forward to 2021 and the FWO completed more than 49 investigations into self reports in the 2020-21 financial year from large corporates.2 It has set up a Corporate Sector Taskforce with dedicated funding of $22.3 million over four years.3

FWO has listed Corporate Underpayments as a priority in both 2020-21 and 2021-22. It sits alongside some not so esteemed company: chronically non-compliant sectors such as horticulture and fast food.4

With the emergence of underpayments by large corporates, we can also observe a significant increase to wage recoveries. Backpay, as a result of self-reports, for the 2020 financial year amounted to $90 million of a total of $120 million, involving more than 12,000 employees and for the 2021 financial year, amounted to over $100 million of a total of $148 million, involving more than 54,000 employees.

Who's afraid of the FWO?

Many have been speculating about the regulatory response to corporate wage underpayments. I posed that very question in an article published here.

In my experience, businesses are mortified they have not correctly paid their employees and committed to fixing it: back paying monies owed and putting in place systems to ensure it never happens again. They report to the FWO and submit to its supervision as it investigates and decides an appropriate outcome.

These legacy corporate underpayments are complicated – something acknowledged by the FWO, who refers to them as ‘large and complex’ and ‘extremely disappointing'5

In my experience, informed by dozens of million-dollar wage remediations, the reasons behind corporate underpayments are not the same as deliberate non-compliance.

Usually there has been an intention to comply by these businesses. Often, we see one or a combination of the following have occurred:

  • effective systems have not been implemented, properly coded or maintained
  • systems haven’t done their job
  •  people coding them don't understand the complexity of the entitlements, or complex entitlements can't easily be automated, or
  • insufficient or inaccurate information has been put into the systems.

The bottom line? Businesses have underestimated the complexity and risks associated with wage compliance.

So how has FWO dealt with the unsurprising community concern about these outcomes?

The most common resolution of corporate and not-for-profit self-reported underpayments has been Enforceable Undertakings (EU).

These EUs, which the businesses need to agree to, generally contain admissions, ‘contrition payments’ (as a substitute for court ordered penalties) and a set of forward-looking commitments to ensure compliance into the future.

EUs are published on the FWO’s website and the subject of media releases.

Now, for the first time, we’ve seen the most severe regulatory response in FWO's arsenal deployed on a corporate self-report: In June FWO initiated legal proceedings in such a case for the first time.

Signals

What can we take from the FWO’s approach to resolving corporate underpayment matters so far? These developments show:

  1. The FWO will closely interrogate the details of the remediation and form its own view as to whether it properly corrects underpayments. It will assess the appropriateness of the approach to calculations, the reasonableness of any assumptions adopted and test whether any ‘unlawful offsetting’ has occurred. 
  2. Merely confessing to FWO and backpaying employees is not enough. FWO will expect businesses to properly compensate employees, with interest, demonstrate it will put in place sustainable compliance practices going forward and be subject to ongoing scrutiny to ensure those systems and practices are working. FWO will often require the business pay a form of penalty or contrition payment.  
  3. The regulator has an increasing interest in taking the strongest of enforcement actions. We can be under no illusion now that FWO is prepared to take a matter to court if it is not satisfied that workers have been appropriately back paid.

Is there a get out of jail free?

As FWO matures its approach to large corporate wage conduct, we will likely see more court cases emerging known brands, including listed companies. This highlights the importance of identifying and resolving these matters and ensuring processes and controls are in place so that problems do not arise in the future. Investing in the right systems and capability has never been more important.

One thing is clear. There are consequences for getting it wrong, beyond having to backpay employees. There is no get out of jail free card when it comes to industrial relations compliance.

1. Natalie James was Fair Work Ombudsman for five years from July 2013

2 FWO Annual Report, 2020-21, p.18

3 Attorney-General’s Fact Sheet on Industrial Relations Reform December 2020

4FWO Enforcement Priorities, 2021-2022

5Sandra Parker, Year in Review, 2020-21 Annual report, p. 2.

More about the author

Natalie James

Natalie James

Partner, Risk Advisory

Natalie James is a Partner in Deloitte’s Regulatory and Risk Insights practice. She leads Deloitte’s Workplace Integrity Team working with businesses to enhance their workplace integrity and ensure compliance with work laws. She brings deep expertise and insight to helping companies identify and resolve compliance risks, reduce complexity and build fit for purpose, compliant and sustainable workplace practices. Natalie was the Fair Work Ombudsman, leading Australia’s national workplace relations regulator, from July 2013 to July 2018. Prior to that she led the development of work laws as Chief Counsel for the Commonwealth Government. Natalie has a Bachelor of Arts Law and a Masters in Law (Commercial – Labour Law).