Earlier this month, the Attorney-General's Department released two discussion papers, commissioned by the Prime Minister, investigating current issues in the industrial relations system. One of the discussion papers, concerned whether there should be stronger penalties, including criminal sanctions, imposed on employers for the non-payment of employee wages and entitlements under the Fair Work Act 2009 (Cth) (Fair Work Act).

Theories behind punishment

At the heart of the discussion, is whether the current penalties imposed in the Fair Work Act are effective in operating as both a punitive mechanism and as a deterrent. The paper describes this issue as the requisite "balance to be struck" between implementing a regulatory regime which penalises all contraventions and thereby acts as an effective deterrent, weighed against severely penalising employers who through human or technical error have underpaid employees. The latter issue advocates for a penalty regime which assesses each contravention on its facts, and applies the penalty proportionately to the degree of misconduct involved.

A third approach raised by the paper is that seen in the Tax Administration Act 1953 (Cth) and the Competition and Consumer Act 2010 (Cth) which both contain penalty provisions calculated using the tax shortfall or financial benefit obtained from the contravention respectively. This approach is both quantifiable and representative of the severity of the contraventions. However, as highlighted by the discussion paper, these penalty regimes use "overly prescriptive calculation methods [which] may limit the broad discretionary powers" of the courts.

Current penalties in the Fair Work Act

Currently, the Fair Work Act imposes a maximum civil penalty of $12,600 on an individual and a penalty of $63,000 on a body corporate for contraventions of certain provisions of the Fair Work Act, including those relating to the underpayment of wages. These penalties increase to $126,000 and $630,000 respectively, when the contravention is deemed to be a "serious contravention" a concept introduced by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth).

However, because of the operation of section 557 of the Fair Work Act, the Court is permitted to treat two or more contraventions of certain civil remedy provisions as a single contravention if they arise out of the same course of conduct, these penalties do not increase in proportion to the extent of the contravention. For example, as highlighted in the discussion paper, 10 instances of wage underpayments by a company will only attract a maximum penalty of $63,000 rather than a total potential penalty of $630,000 if the contravention arises out of the same breach e.g. a breach of the minimum wage provisions in a Modern Award for 10 employees over the course of a certain period. The provision therefore currently operates to curtail the ability of the courts to severely punish repeat recalcitrant employers.

The Fair Work Act also currently contains accessorial liability provisions extending liability to those who were knowingly involved in a contravention. The provisions operate to potentially extend liability for wage underpayments to an individual if they had the requisite knowledge of the contravention. However, as indicated by the discussion paper, with many companies arranged into complex governing structures, it is often difficult in practice to prove that a person had the requisite knowledge of the contravention to be caught by the accessorial liability provisions. In relation to this issue, the discussion paper canvasses the opinions of the Migrant Workers' Taskforce, a taskforce established by the Government to provide recommendations to reduce cases of migrant worker exploitation. One of the recommendations contained in the Migrant Workers' Taskforce report published in March this year, was to extend the law to cover contracting out business models, a suggestion the Government has since taken on board for consideration.

"Wage Theft" a crime?

The discussion paper also raises the question of whether criminal sanctions should be imposed for the more serious forms of misconduct in relation to the underpayment of wages. Currently, the Fair Work Act only applies criminal sanctions to offences relating to abuse of process, such as contempt of court and bribery. However, following the recommendations of the Migrant Workers' Taskforce, the Government has begun drafting legislating criminalising the underpayment of wages. Should such recommendations be implemented, there will be severe ramifications for employers who engage in serious and wilful wage underpayments and denial of employee entitlements. However, the same difficulties could likely arise in proving the requisite elements of a contravention to establish individual culpability as are currently experienced. Accordingly, imposing criminal sanctions may not necessarily be the answer to promoting deterrence.

The paper poses a range of discussion points on the issue of criminal sanctions, in response to which submissions are invited. These include

  • In what circumstances should underpayment of wages attract criminal penalties?
  • What consideration/weight should be given to whether an underpayment was part of a systematic pattern of conduct and whether it was dishonest?
  • What kind of fault elements should apply?
  • What should the maximum penalty be for an individual and for a body corporate?
  • Are there potential unintended consequences of introducing criminal sanctions for wage underpayment? If so, how might these be avoided?
  • Are there other serious types of exploitation that should also attract criminal penalties? If so, what are these and how should they be delivered?

Employers have the opportunity to provide their comment on these and other issues raised in the discussion paper, with submissions set to close on 25 October 2019. A copy of the discussion paper can be found here.

Complexity or culpability – inadvertent underpayments and employer liability

As it stands, it is not a defence for an employer to escape liability by arguing that underpayments were an inadvertent error. This is the case despite the fact that Australian industrial relations law is inherently difficult to navigate. Accordingly, it is imperative that employers keep abreast of changes in the law.

An example of the ever-changing industrial relations landscape is the upcoming changes to the penalty rates contained in the General Retail Industry Award 2010, which are set to come into effect on 1 October 2019. If you need any advice regarding compliance, navigating an underpayment claim or are wondering what the upcoming changes to penalty rates mean for your business, don't hesitate to get in touch.