Posted: 05 May 2021 10 min. read

Get out of jail free? The fate of wage underpayment penalties

The Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021, colloquially known as ‘the Omnibus Bill’, included measures to bolster the Fair Work Ombudsman’s (FWO) armoury to respond to underpayment of wages. These reforms responded to an increasing number of large-scale, legacy corporate underpayments running to millions of dollars. But they didn’t make the final cut. The Government removed them during the Parliamentary debate. What happened and does this mean employers are ‘off the hook’?

Jailed for ‘wage theft’?

The compliance reform that attracted the strongest reaction was the introduction of criminal penalties for intentional underpayment of wages. Parties were divided on these measures – some employer organisations noted the need for effective penalties but expressed the view that jail time was not necessary or appropriate.

The criminal penalties would have sat alongside the existing civil penalty regime.

It would be reasonable to expect the criminal penalties would be reserved for the most serious and deliberate conduct. Criminal penalties are not easy to prosecute: the criminal standard of proof paired with the need to provide evidence of intent to underpay employees is a high bar. The offences would be added to the workload of an already busy Director of Public Prosecutions who may not be able to prioritise this work. In deciding whether to take this path, the FWO would need to consider that jail-time won't get employees their wages back. And the civil based actions seeking recovery of wages, would need to wait until a criminal proceeding was complete, meaning that punishment may be prioritised over restitution.

State 'wage theft' offences live on

The Commonwealth's criminal penalties would have overridden state government ‘wage theft’ offences on the basis of Constitutional inconsistency.

The Commonwealth's abandonment of criminal penalties for underpayment of wages means new state criminal offences will continue to operate. The state penalties are more severe, potentially more far reaching and in the hands of state regulators with a different approach and posture to the FWO.

The continued operation of the state laws creates a lack of consistency across the nation and means employers may be dealing with multiple regulators in relation to the same conduct.

Other compliance enhancements

The Omnibus Bill included penalties based on the value of the benefit/underpayment. These penalties could have accumulated fast for some of the large-scale corporate underpayments we have been seeing given they run to hundreds of millions of dollars. These were also thrown off the OmniBus before the final stop.

More resourcing for the regulator

While these reforms did not proceed, the FWO has received additional funding – $47.3 million over 4 years. At least half of these funds will support the establishment of a dedicated Corporate Sector Assurance team, whose role will be to identify, investigate and respond to non-compliance by large corporates. Evidence at Senate Estimate indicates the FWO is beefing up its numbers and capability when it comes to investigating these complex matters. It would be wrong for employers to assume these matters will always be resolved without court action, even when they have self-reported to FWO. The FWO always reserves its right to litigate. And with more resources and a growing capability, business should not make any assumptions that the fact they are ‘fixing’ the underpayment means they won’t face court.

Will the reforms be back?

These proposed measures along with others were removed. Only the measures clarifying casual work were retained in the final Bill – now an Act, made law on 26 March 2021.  Many parties, including some employer representatives, expressed strong disappointment that these and other reforms were jettisoned from the Bill prior to is passage. There’s no current vehicle advancing the reforms, so it’s watch this space for the moment as to whether they along with other measures return in another form.

More about our 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).