Underpayments: Where to from here?

We have continued to see news reports of wage underpayments during 2021. From recent cases involving retailers, financial institutions and aged care providers, there is little sign the trend is coming to an end. Employers now increasingly face a triple threat of regulator sanctions, private litigation and even criminal proceedings if they are found to have done the wrong thing and underpaid employees.

While high-profile companies have hit the headlines in recent years, many more are reported to the Fair Work Ombudsman (FWO) on a monthly basis. In its last annual report, the FWO noted that more than 50 businesses self-reported non-compliance with the payment of wage entitlements to employees. In fact, a dedicated Corporate Sector Taskforce has been established to investigate large employer underpayments, and there is no doubt that this issue will be in the spotlight when the FWO releases its report for 2020-2021.

We will continue to see enforceable undertakings, penalties and litigation from the regulator ­­- but the focus is unlikely to stop there.

After initially pledging to criminalise egregious cases of wage theft, the Federal Government has deferred to individual States for action. Both Victorian and Queensland governments have introduced Wage Theft legislation imposing criminal liability for employers who deliberately underpay their employees. The sanctions for these offences in each State varies, including up to ten years’ imprisonment for directors or senior officers of the business and heavy fines. Stopping short of criminalising wage theft, the NSW government has introduced a bill to increase deterrence through other measures, such as increased penalties and further tax offences. It should be noted that wage theft legislation focuses on wilful actions by employers, rather than accidental underpayment.

There is no doubt that Australia’s system of employments contracts, modern awards and enterprise agreements is complex. Mistakes can, and do, happen in the smallest and largest of organisations. More often than not however, these instances are answerable to the FWO rather than the subject of criminal charges. However, the existence of wage theft laws and new government measures reflects the pervasiveness of the issue of wage theft across the country in the eyes of government.

If the attention of the FWO and criminal legislation is not enough, employee underpayments are ripe for class actions. While instances of underpayments are being reported within businesses of all sizes and sectors, class action litigation is more likely to focus on larger employers. To name a few, there have been suits filed against hospitality group, Merivale; the retailer, Drakes Supermarkets; and health authorities in both NSW and Victoria recently. In an environment of pandemic-induced relaxation of continuous disclosure rules, there may be a reduction in shareholder proceedings and employee class actions may feature more prominently in the sights of plaintiff law firms and litigation funders.

Whatever the causes of wage underpayments, this phenomenon will continue to generate media headlines and negative public sentiment. The risk to reputation, employee and customer trust is great, as is the risk of regulatory, criminal or litigious penalties. Going forward, we expect growing scrutiny to ensure compliance.