Should employers go to gaol for underpayment of wages?
17th Sep 2020
Underpayment of wages is an increasingly frequent topic in both media coverage and public discussion. Underpayment scandals have been exposed at major employers such as Woolworths, franchises such as 7-Eleven, and high profile businesses (for example, restaurants run by celebrity chef George Calombaris).
The steady flow of non-trivial instances has led to calls for stricter penalties including suggestions that employers should face imprisonment.
While the underpayment of wages is often referred to as ‘wage theft’ in the media, ‘systemic underpayment’ might be a more accurate term.
Theft requires the intention to deprive someone of something. Yet many instances of systemic underpayment seem to originate from the reckless indifference of employers towards correct pay practices.
A 2017 report released by the Migrant Worker Justice Initiative outlines how the underpayment of wages in Australia is widespread, particularly within the food services, and fruit and vegetable picking industries.
Drawing on responses from 4,322 temporary migrants, one-third of the international students and backpackers surveyed were paid less than $12 an hour, with many reporting that their employer withheld their passports to prevent them from leaving their job.
Underpayment of wages is particularly prevalent in franchises, restaurants, cafes, cleaning companies, farms, and packing businesses. Businesses employing large numbers of unskilled, casual or seasonal employees often attract backpackers or temporary migrants – people without the resources or tenacity to pursue claims.
Defence of complex workplace laws and award wages?
Employers in the hospitality industry have argued that the combination of award provisions and complex work patterns has made compliance difficult and that underpayments have been inadvertent.
This approach carries risks. While the Fair Work Ombudsman does not investigate all claims of non-compliance with workplace laws, it has focused on industries of the kind mentioned above in an effort to pursue claims on behalf of underpaid workers.
Further, pay provisions in awards may be detailed but they are not unduly complex. And underpayments, more often than not, stem from poor record-keeping.
Consequences of underpayment
The number of employers being taken to court for the underpayment of wages is on the rise, with some found to owe their employees up to six figure amounts.
These legal actions usually result in a fine issued to the employer along with an order for them to pay any remaining unpaid wages. However in some cases, especially when a celebrity-owned business or well-known franchise is involved, widespread negative publicity can do much greater damage to the reputation and financial position of a business.
Will harsher penalties deter underpayment?
Supporters of tougher laws believe that criminal penalties for the underpayment of wages would act as a better deterrent than the issuing of fines. However there is insufficient evidence of the correlation between harsh penalties and reduced offending. The saying ‘as well hung for a sheep as for a lamb’ indeed reflects the fact that experience can be quite to the contrary.
In this particular context, the Australian Chamber of Commerce argues that nobody will benefit if the fine is too high, or if employers are sent to gaol and are forced to close their businesses.
In the same way that compliance with drink-driving laws is influenced more by the fear of getting caught than by escalating penalties, it may well be that putting additional resources into compliance auditing would have a greater effect.
Any employers feeling unsure about their obligations in paying their workers should obtain expert legal advice about their particular situation before it ends up in court, or worse.
This is an edited version of an article first published at Stacks Law.
Geoff Baldwin is a lawyer in the employment law team at Stacks Champion. He has worked at senior management levels in the public and tertiary education sectors, as an independent consultant providing management advice, and in the legal profession. His experience includes industrial relations litigation, property and leasing, commercial and administrative law advice, and workplace law. Originally trained as a scientist before being admitted to legal practice in 1977, Geoff has appeared in a range of employment tribunals and has instructed in matters before the Supreme Court. He is an experienced investigator in fields such as workers compensation, corrupt conduct and misconduct.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).