Fair Work Disrupted - The changing face of wage underpayment - Risk Advisory Blog | Deloitte Australia has been saved
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…
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.
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:
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.
What can we take from the FWO’s approach to resolving corporate underpayment matters so far? These developments show:
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
4. FWO Enforcement Priorities, 2021-2022
5. Sandra Parker, Year in Review, 2020-21 Annual report, p. 2.