Penalties for wage theft

A recent decision of the Federal Court is a reminder that employers will face serious consequences for underpaying their employees, especially if they are found to have committed a serious contravention(s) of the Act.

In Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81, the Federal Court fined the Commonwealth Bank of Australia (CBA) and its subsidiary CommSec $10.34 million arising from a finding that some 7,400 employees were owed around $16 million in back payment of wages.

The Federal Court found that CBA and CommSec committed serious contraventions, categorising the contraventions into the following four (4) categories:

1. Failing to ensure that employees were better off overall in the payment of entitlements under:
   1. individual agreements (IAs) as compared to the applicable enterprise agreements (EAs); and
   2. the applicable EAs as compared to the industrial award that otherwise applied (a “better off overall test” or BOOT).
2. Contravening the BOOT, in particular senior staff being aware of the underpayments, forming a systematic pattern of conduct over approximately ten years.
3. Failing to pay certain employees’ full entitlements under the applicable EA.
4. Misrepresenting to employees that they would be better off overall under an IA than under the applicable EA and that remuneration paid would satisfy their EA entitlements, when neither was true.

The Court held that CBA and CommSec failed to undertake adequate checks, regular audits and have systems in place to ensure the EAs and the IAs were implemented in a lawful manner, leaving an underpayment of wages to employees for several years.

CBA and CommSec voluntarily reported the contraventions, however, the Court considered that the contraventions “were substantial and prolonged contraventions by large and wealthy financial institutions who were amply able to prevent anything of this nature occurring in the first place, let alone over such a substantial period of time.”

Justice Bromwich emphasised that “deterrence” is the key to ensure “compliance” saying:

“Other employers, and especially large employers in the financial services sector, must be made aware that it is simply not worth the candle to have inadequate compliance systems in place. The only way to achieve this is by way of still substantial penalties being imposed, but being less than would have been necessary in the absence of cooperation (which is to be encouraged and rewarded), which also encompasses remediation for the past and extensive prevention steps and strategies for the future.”

Upcoming changes to criminalise intentional ‘wage theft’

Whilst the failings of CBA and its subsidiary were established under existing laws, it is timely to remind employers about the upcoming changes to criminalise intentional wage theft.

Following the passage of the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Closing Loopholes Act) intentional wage theft will be a criminal offence. From 25 January 2025 (or the day after the Voluntary Small Business Wage Compliance Code is approved), wage theft offence will apply to employers who fail to:

• pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee under the FW Act, or an industrial instrument (such as a modern award or enterprise agreement); and
• ‘intentionally’ engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.

There are some exceptions available to some employers. For example, the wage theft offence may not apply to some employers[1] for the purpose of the following payments:

• superannuation contributions
• payment for taking long service leave payments
• payment for taking leave connected with being the victim of a crime
• payment for taking jury duty leave or for emergency services duties

To establish the offence of intentional wage theft, the fault element of intention must be proven. The wage theft offence will not apply if the conduct is accidental, unintentional or based on a genuine mistake. The explanatory memorandum provides the following examples:

“…[i]f an employer genuinely misclassifies an employee and pays them an hourly rate of $25 per hour instead of $30 per hour (for the correct classification), the resulting failure to pay the required amount ($30 per hour) was not intentional and would not be caught by the provision.”

“If, however, an employer paid an employee $10 per hour, knowing it was below the minimum wage, the resulting failure to pay the required amount (whatever it may be) would be intentional, and caught by the provision. Exact knowledge of the required amount (to a dollars and cents value) would not be required to establish the offence.”

The wage theft offence carries a maximum penalty of 10 years’ imprisonment, and/or a maximum fine of the greater of 3 times the amount of the underpayment, (if the court can determine that amount) or:

1. for an individual: 5,000 penalty units ($1.565 million);
2. for a body corporate: 25,000 penalty units ($7.825 million).

The Fair Work Ombudsman will be responsible for investigating the new wage theft offence. It may refer matters to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for consideration, and prosecution where appropriate.

Small business employers that may have underpaid employees will not be referred for criminal prosecution for a  wage theft offence if they can show compliance with the proposed new Voluntary Small Business Wage Compliance Code. The Code is being developed by FWO in partnership with employer and employee groups.

Implications for employers

Employers need to ensure through proper systems and audits that employees are paid wages and entitlements in accordance with the relevant modern award and/or industrial instruments applicable to them, correctly and on time.  Position descriptions should be reviewed, and work performed against them also reviewed to avoid common errors including misclassification of positions.

The consequences can otherwise be severe, even in the event of a voluntary report and admission of wrong doing without adequate resources applied to the task of review and audit of systems.

EMA legal can provide advice regarding employee entitlements and assist employers in the review or the implementation of strategies to ensure industrial instrument compliance.

[1] We recommend specific advice be sought as to any exemptions which may apply.