Is criminalising “wage theft” a bad idea?


More unions are calling for wage theft laws, after NSW Labor already made it an election promise. HRM takes a look at the issue.

In July last year NSW Labor flagged its intention to “criminalise the deliberate failure to pay wages and other entitlements”. And it appears the movement is growing.

The Victorian Trades Hall Council and its Young Workers Centre are campaigning ahead of Victoria’s state election for deliberate wage underpayment to become criminal, with a maximum penalty of ten years in prison.

“It’s so rampant, it’s so out of control, it’s time for police to step in,’’ Trades Hall secretary Luke Hilakari told The Age. ‘’We think this will be a game changer. We will send people to prison over this.’’

The movement isn’t springing out of nowhere. The last year has seen an unusually large number of headlining reports of underpayment and non-payment of employees (HRM has written about it as recently as last week). Fair Voice, another union, surveyed 624 workers in the hospitality industry and estimate that 76 per cent of employers are underpaying staff.

The stories of wage underpayment are too varied to list but they include not paying backpackers, not passing on penalty rates for public holiday work even though the business is surcharging customers, and not paying any overtime. And people are getting punished, just recently a Melbourne health services company was penalised $250,000 and its owner $50,000 for “flagrant” underpayment.

So the question becomes whether criminalisation is actually smart from a policy point of view. What would criminalising “wage theft” do?

The deterrent effect

Since employers that underpay are already punished when caught, the argument for introducing potential prison time for offenders is that the current civil penalties are not serious enough to act as a deterrent.

Certainly rates of underpayment in certain circumstances have been appallingly high. Last year’s report on the chronic underpayment of migrant workers found that 30 per cent of international students and backpackers earned $12 an hour (about half the minimum wage) or less.

But these statistics and stories are from before the Protecting Vulnerable Workers amendment was passed, which greatly increased the financial penalties for serious contraventions of the Fair Work Act.

The other thing that has an effect on deterrence is whether or not people willing to break the law feel they’ll be caught. To that effect, the amendment also granted the Fair Work Ombudsman new powers of investigation.

Measuring intent

Of course, the effectiveness of any criminalisation effort rests on how the law was worded. So what exactly would be criminalised?

“In our experience and practice, most employers are doing the right thing, or endeavouring to do the right thing, given the complicated industrial relations architecture they are operating within,” says Aaron Goonrey, partner at Landers and Rodgers.  

Any law that was put in place shouldn’t unnecessarily punish smaller businesses’ unintentional failure to comply with Australia’s often complex workplace laws.

The Protecting Vulnerable Workers amendment stipulates that serious contraventions are those where there are repeated offences, and offences where it’s established that breaches were systematic. That would be a good place to start for any criminalisation effort.

But is it too soon? Calls for criminalising deliberate underpayment are inspired by the same breaches that led to the Protecting Vulnerable Workers amendment, so it’s feels as if we’re jumping the gun. No deterrent effect occurs overnight, and we’re yet to see if the amendment ends up satisfying the aims of the unions.

Making the complex even more complex

“Criminalising the underpayment of entitlements would certainly introduce a new level of seriousness to the issue and may very well increase the current level of compliance,” says Trent Hancock, principal lawyer for Mcdonald Murholme.

“However it’s dangerous territory to enter into and, in my view, unnecessary for a number of reasons.”

His first concern is that there are are already effective ways for underpaid staff to ensure compliance. “All employees have the ability to institute proceedings against their current or former employer,” he says. 

Hancock is also worried about overly harsh penalties for people who shouldn’t be getting them. “What form of penalty are we proposing, other than a financial one?” he asks. “I wouldn’t expect that many employees, even those who may have been substantially underpaid, genuinely wish to see people imprisoned as a result of the underpayment.”

Considering existing laws that make sure people “involved in” underpayment can be held liable – an HR professional was found guilty accessorial liability earlier this year – the way in which any new law framed would have to be quite careful. Hancock is worried about “human resources and payroll employees acting under the direction of a superior” facing criminal charges. He thinks “it would be unreasonable to treat these types of contraveners as criminals.”

Hancock is also worried about what this could do to already overburdened courts, and what could happen in cases of a genuine dispute about the coverage of a particular award. “It can often be an area where ‘reasonable minds differ,'” he says. “Complications then arise as to whether these are considered offences of “strict liability” or whether a “mistaken belief” would act as a complete defence to any criminal prosecution.”

Criminal or civil law

While NSW Labor is campaigning on criminalising wage theft, Federal Labor is signalling that it’s a step too far. As reported in The Age, Labor workplace relations spokesman Brendan O’Connor has said they would increase civil penalties for wage theft, but that wouldn’t go so far as to make it criminal.

“Whilst there are certain extreme forms of conduct by employers that will attract criminal penalties including modern slavery and labour trafficking, the normal course of events is that industrial relations should be in the civil law realm,” he said.


Have an HR question? Access HR guidelines and policy templates with AHRI:ASSIST, or ask your questions online Exclusive to AHRI members.

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6 Comments On "Is criminalising “wage theft” a bad idea?"

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SME operator
How is this any different to an employee knowingly writing inaccurate times on a timesheet or using work time to engage in other unrelated activities? Time theft is commonplace in most workplaces and yet employers are powerless to take swift action themselves with current laws around dismissal and keep their employees accountable. Particularly small businesses with limited resources. I have recently had an experience where I was advised not to act with haste on an employee repeatedly and knowingly recording inaccurate times on their timesheet because I did not have a specific written policy that gave direction on how timesheets… Read more »
Richard Musumeci

Lock them up. Not only are they cheating workers but they are also undercutting honest businesses who are doing the right thing.
Financial penalties are not enough because many businesses fail to pay fines or fake bankruptcy to avoid creditors.

Phillip McDonald
I work with SMEs and small not-for-profits. It can be difficult for small operators to understand their obligations. I have twice been engaged to check payrolls for underpayments, and help the employer set up a process to correct inadvertent underpayments. Any laws relating to gaol terms for underpayment must be framed carefully to avoid destroying small businesses who have made errors with no intent to defraud. Where larger businesses or franchise chains have demonstrated flagrant disregard for employee entitlements, or where any employer has repeatedly failed to correct known errors, I support gaol terms for perpetrators. It is difficult to… Read more »
Robert Bailey

Maybe it would also be a good idea if we also criminalised time theft by employees

Max Underhill

Hopefully we can find a solution without more legislation, I would have thought there was legislation that covers “theft” whether the employee or employer.
We have found that with some employment cost and average cost based measures discrepancies have been detected and looking into these discrepancies or changes in trend line has picked up under payments as well as “employee based” issues (possibly similar to what is being referred to as employee time theft above).

More on HRM

Is criminalising “wage theft” a bad idea?


More unions are calling for wage theft laws, after NSW Labor already made it an election promise. HRM takes a look at the issue.

In July last year NSW Labor flagged its intention to “criminalise the deliberate failure to pay wages and other entitlements”. And it appears the movement is growing.

The Victorian Trades Hall Council and its Young Workers Centre are campaigning ahead of Victoria’s state election for deliberate wage underpayment to become criminal, with a maximum penalty of ten years in prison.

“It’s so rampant, it’s so out of control, it’s time for police to step in,’’ Trades Hall secretary Luke Hilakari told The Age. ‘’We think this will be a game changer. We will send people to prison over this.’’

The movement isn’t springing out of nowhere. The last year has seen an unusually large number of headlining reports of underpayment and non-payment of employees (HRM has written about it as recently as last week). Fair Voice, another union, surveyed 624 workers in the hospitality industry and estimate that 76 per cent of employers are underpaying staff.

The stories of wage underpayment are too varied to list but they include not paying backpackers, not passing on penalty rates for public holiday work even though the business is surcharging customers, and not paying any overtime. And people are getting punished, just recently a Melbourne health services company was penalised $250,000 and its owner $50,000 for “flagrant” underpayment.

So the question becomes whether criminalisation is actually smart from a policy point of view. What would criminalising “wage theft” do?

The deterrent effect

Since employers that underpay are already punished when caught, the argument for introducing potential prison time for offenders is that the current civil penalties are not serious enough to act as a deterrent.

Certainly rates of underpayment in certain circumstances have been appallingly high. Last year’s report on the chronic underpayment of migrant workers found that 30 per cent of international students and backpackers earned $12 an hour (about half the minimum wage) or less.

But these statistics and stories are from before the Protecting Vulnerable Workers amendment was passed, which greatly increased the financial penalties for serious contraventions of the Fair Work Act.

The other thing that has an effect on deterrence is whether or not people willing to break the law feel they’ll be caught. To that effect, the amendment also granted the Fair Work Ombudsman new powers of investigation.

Measuring intent

Of course, the effectiveness of any criminalisation effort rests on how the law was worded. So what exactly would be criminalised?

“In our experience and practice, most employers are doing the right thing, or endeavouring to do the right thing, given the complicated industrial relations architecture they are operating within,” says Aaron Goonrey, partner at Landers and Rodgers.  

Any law that was put in place shouldn’t unnecessarily punish smaller businesses’ unintentional failure to comply with Australia’s often complex workplace laws.

The Protecting Vulnerable Workers amendment stipulates that serious contraventions are those where there are repeated offences, and offences where it’s established that breaches were systematic. That would be a good place to start for any criminalisation effort.

But is it too soon? Calls for criminalising deliberate underpayment are inspired by the same breaches that led to the Protecting Vulnerable Workers amendment, so it’s feels as if we’re jumping the gun. No deterrent effect occurs overnight, and we’re yet to see if the amendment ends up satisfying the aims of the unions.

Making the complex even more complex

“Criminalising the underpayment of entitlements would certainly introduce a new level of seriousness to the issue and may very well increase the current level of compliance,” says Trent Hancock, principal lawyer for Mcdonald Murholme.

“However it’s dangerous territory to enter into and, in my view, unnecessary for a number of reasons.”

His first concern is that there are are already effective ways for underpaid staff to ensure compliance. “All employees have the ability to institute proceedings against their current or former employer,” he says. 

Hancock is also worried about overly harsh penalties for people who shouldn’t be getting them. “What form of penalty are we proposing, other than a financial one?” he asks. “I wouldn’t expect that many employees, even those who may have been substantially underpaid, genuinely wish to see people imprisoned as a result of the underpayment.”

Considering existing laws that make sure people “involved in” underpayment can be held liable – an HR professional was found guilty accessorial liability earlier this year – the way in which any new law framed would have to be quite careful. Hancock is worried about “human resources and payroll employees acting under the direction of a superior” facing criminal charges. He thinks “it would be unreasonable to treat these types of contraveners as criminals.”

Hancock is also worried about what this could do to already overburdened courts, and what could happen in cases of a genuine dispute about the coverage of a particular award. “It can often be an area where ‘reasonable minds differ,'” he says. “Complications then arise as to whether these are considered offences of “strict liability” or whether a “mistaken belief” would act as a complete defence to any criminal prosecution.”

Criminal or civil law

While NSW Labor is campaigning on criminalising wage theft, Federal Labor is signalling that it’s a step too far. As reported in The Age, Labor workplace relations spokesman Brendan O’Connor has said they would increase civil penalties for wage theft, but that wouldn’t go so far as to make it criminal.

“Whilst there are certain extreme forms of conduct by employers that will attract criminal penalties including modern slavery and labour trafficking, the normal course of events is that industrial relations should be in the civil law realm,” he said.


Have an HR question? Access HR guidelines and policy templates with AHRI:ASSIST, or ask your questions online Exclusive to AHRI members.

Leave a reply

6 Comments On "Is criminalising “wage theft” a bad idea?"

avatar
  Subscribe to receive comments  
Notify me of
SME operator
How is this any different to an employee knowingly writing inaccurate times on a timesheet or using work time to engage in other unrelated activities? Time theft is commonplace in most workplaces and yet employers are powerless to take swift action themselves with current laws around dismissal and keep their employees accountable. Particularly small businesses with limited resources. I have recently had an experience where I was advised not to act with haste on an employee repeatedly and knowingly recording inaccurate times on their timesheet because I did not have a specific written policy that gave direction on how timesheets… Read more »
Richard Musumeci

Lock them up. Not only are they cheating workers but they are also undercutting honest businesses who are doing the right thing.
Financial penalties are not enough because many businesses fail to pay fines or fake bankruptcy to avoid creditors.

Phillip McDonald
I work with SMEs and small not-for-profits. It can be difficult for small operators to understand their obligations. I have twice been engaged to check payrolls for underpayments, and help the employer set up a process to correct inadvertent underpayments. Any laws relating to gaol terms for underpayment must be framed carefully to avoid destroying small businesses who have made errors with no intent to defraud. Where larger businesses or franchise chains have demonstrated flagrant disregard for employee entitlements, or where any employer has repeatedly failed to correct known errors, I support gaol terms for perpetrators. It is difficult to… Read more »
Robert Bailey

Maybe it would also be a good idea if we also criminalised time theft by employees

Max Underhill

Hopefully we can find a solution without more legislation, I would have thought there was legislation that covers “theft” whether the employee or employer.
We have found that with some employment cost and average cost based measures discrepancies have been detected and looking into these discrepancies or changes in trend line has picked up under payments as well as “employee based” issues (possibly similar to what is being referred to as employee time theft above).

More on HRM