Closing loopholes: Federal government aims to criminalise wage theft

On 4 September 2023, the federal government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill).

This legislation aims to criminalise intentional underpayments to employees and address workplace issues in the gig economy.

In this article, we examine the proposed wage theft provisions and how the changes may affect you and your business.

What is the proposed 'wage theft' offence?

The Bill proposes to introduce a new federal criminal offence of wage theft. Employers who intentionally engage in conduct that results in the underpayment of entitlements due under the Fair Work Act 2009 (Cth) (Act) or industrial agreements (such as an Award or Enterprise Agreement, but not employment contracts) would face significant criminal penalties under the proposed offences.

For companies who engage in intentional wage theft, the proposed offence will carry a maximum fine of the greater of either:

• $7.825 million
• three times the amount of the underpayment. 

For individuals who engage in intentional wage theft, the proposed offence will carry a maximum of 10 years' imprisonment and/or a maximum fine of the greater of either:

• $1.565 million 
• three times the amount of the underpayment.

Where an employer is found guilty of committing two or more offences arising out of a course of conduct (for example, where groups of employees have been underpaid in the same manner over time), for the purposes of sentencing, the employer would be taken to be guilty of a single offence. 

What is 'intentional' wage theft?

Under the proposed offence, the prosecution will need to prove beyond reasonable doubt that the employer intentionally failed to pay employees their minimum statutory entitlements. Underpayments that are accidental, inadvertent, or based on a genuine mistake would not be caught by the provisions. For example, a failure to make a payment due to a banking error, would not be caught by the provisions. 

However, it would likely be considered an intentional underpayment and therefore wage theft in this proposed offence created by the Bill, if the following occurs: 

• Any unlawful off-set imposed by an employer on an employee such as an employer requiring an employee to pay back (or deduct) a certain amount of money that is not an employee benefit or otherwise does not meet the permitted deduction regime within the Act.
• Any employer requiring an employee to spend wages on a benefit that is potentially not an employee benefit such as payment for a laptop that is owned by the employer.

What happens if I have engaged in wage theft? 

In order to encourage employers to self-disclose any potential wage theft, the Bill proposes a “safe harbour” framework. 

The safe harbour provisions will allow for an employer to self-disclose an alleged wage theft contravention to the Fair Work Ombudsman (FWO) and enable the making of a co-operation agreement with the FWO. 

What is a co-operation agreement?

The co-operation agreement will provide protection or a "safe harbour” from potential criminal prosecution in relation to intentional wage theft. Notably however, any co-operation agreement will be at the discretion of the FWO. 

In exercising its discretion to enter into a co-operation agreement, the FWO will examine a range of factors to determine whether to enter into a co-operation agreement, including:

• whether the employer has made a "voluntary, frank and complete disclosure of the conduct." 
• the employer's past compliance with the Act.

While a co-operation agreement is in force, the FWO must not refer your potentially intentional wage theft to the Commonwealth Director of Public Prosecutions or the Australian Federal Police for prosecution. However, the co-operation agreement will not prevent the FWO from instituting or continuing civil proceedings in relation to the conduct.

This means that whilst you may have protection from criminal prosecution, a co-operation agreement may still leave you exposed to civil prosecution from the FWO, which has its own set of civil penalties. As such, employers will need to consider a broader negotiation strategy with the FWO that covers both potential criminal and civil prosecutions.

Will small businesses be treated the same if they engage in 'intentional wage theft'?

Small businesses may be treated differently in the event that they intentionally engage in wage theft.

The Bill proposes that the FWO develop a Voluntary Small Business Wage Compliance Code (Code) in collaboration with employee and employer organisations.

Where a small business (to be defined by the Code) can demonstrate that it has complied with the Code in addressing any wage theft, the FWO must not refer the matter for prosecution.

What does this mean for you?

The Bill has been referred to the Senate Education and Employment Legislation Committee with a report due 1 February 2024. If the Bill is passed, the wage theft provisions will take effect on 1 January 2025 (or an earlier date to be fixed by Proclamation).

However, there are some clear and practical steps that you can take now to ensure that your risk of exposure as a business is greatly reduced:

• Review your obligations with respect to employee entitlements under the Act and industrial agreements now. We often see underpayment issues arising around unpaid allowances, the calculation of penalties for casuals and the application of loadings. The best way to undertake this work is by conducting a sample audit with your trusted legal services provider to ensure you have the protection of legal professional privilege over any wage audit you conduct.
• Conduct a review of your wage deduction regime and seek advice on whether it meets the current statutory regime and the proposed amendments to the Bill.

Adam Foster is a partner in the employment and safety team at Colin Biggers & Paisley in Melbourne.