Following the news of George Calombaris’s eight million dollar underpayment scandal, the government has committed to criminalising wage theft. HRM weighs up the case for and against it.
If someone breaks into a safe in your house and steal its contents – your money, family heirlooms, other valuable items – you’d expect them to be punished to the full extent of the law. So, why is it that employers convicted of underpaying their staff, sometimes by millions, just get a slap on the wrist and a fairly insignificant fine?
The sentiment that we should be treating wage theft in a manner more akin to the way we treat other theft, has quickly gone from the fringes to the mainstream. During question time this week, Prime Minister Scott Morrison announced that Attorney-General and Industrial Relations Minister, Christian Porter, is currently drafting legislation around criminalising worker exploitation.
Porter has said he will consult on the language of the legislation in the next few months, so we don’t know what form it will eventually take. But is any form of wage theft criminalisation effective?
Calombaris on the chopping block
The Coalition had signalled its support for criminal sanctions for wage theft before the election (with the stipulation that it would be limited to circumstances where the behaviour was “clear, deliberate and systematic”), but there is a good reason for them to act sooner rather than later on this promise. That reason is reality TV.
Celebrity chef George Calombaris is used to having his face splashed across newspapers and on the back of buses. As one of the three (now former) judges of the widely popular TV cooking show Masterchef, he’s no stranger to the limelight. But rather than spruiking his culinary abilities or (controversially) giving him a platform to advocate for mental health, the media is now slamming Calombaris for underpaying 515 of his staff by nearly 8 million dollars across 20 of the restaurants that make up his MAdE Establishment empire.
Speaking to the Herald Sun, Calombaris claimed the underpayments were an honest mistake, but it seems people don’t believe him, or don’t think it’s a good enough excuse.
Last week, the Fair Work Ombudsman ordered Calombaris to pay a $200,000 contrition fine and back pay staff for six years of underpayments, but many are saying this punishment isn’t nearly enough.
Ben Schneiders, investigative reporter for The Age, says, “The Calombaris penalty of $200,000 in restitution is dismally low and a reflection of how weak our laws are. The main penalty for these rich men appears to be public shame. They get to keep their fortunes and spend them, if they so choose, on a public relations rehabilitation…. Too often the exploited workers – many of whom are temporary migrants – get nothing or a fraction of what they are entitled to.”
Unions Australia called his punishment a “woefully inadequate joke”, tweeting: “widespread wage theft will simply continue if dodgy bosses don’t fear the consequences of their actions.”
So, is potential jail time the only thing that will have these rich restaurateurs shaking in their boots?
A case for criminalising wage theft
Criminal sanctions for workplace related matters are usually reserved for health and safety breaches, but some people are calling for that to change.
“There’s a much bigger debate going on about why we treat white collar crime differently to blue collar crime. A lot of people would argue that they need to be treated the same,” says John Howe, director of the University of Melbourne School of Government and former do-director of the Centre for Employment and Labour Relations Law at the Law School.
More often than not, those who are being underpaid and exploited are vulnerable migrant workers who rely on their jobs to stay in the country. They’ve got a lot more riding on their employment than their bills (but they still have those to think of). Standing up to dodgy treatment isn’t always an option for them – so the argument goes that legal protections need to be put in place to safeguard these workers.
“Widespread wage theft will simply continue if dodgy bosses don’t fear the consequences of their actions.”
“This is not my area of expertise, but I’d suggest we need to strengthen our migration laws to arrange amnesty agreements or something along those lines, to protect migrant workers who come forward and report underpayment. From what I understand, it’s too easy for employers to underpay workers they’re sponsoring, sometimes even after they’ve been caught,” says Howe.
Criminalising wage theft was put forward by the recent migrant taskforce report, along with other recommendations such as changes to the Fair Work Act to clarify that migrant workers are entitled to workplace protections and increased funding for the Fair Work Ombudsman.
This last point, according to Howe, is where we should be focussing our attention.
“Research suggests that the best deterrent for wage theft is the fear of getting caught. The FWO and the state labour inspectorate need more resources to catch the bad guys. We already have high penalties in place for breaches, so the focus should be on giving these regulators more power.”
Professor Allan Fels, who chaired the migrant taskforce, told the Sydney Morning Herald that nothing less than jail sentences would “attack a systemic breakdown of our wage payment system” and that he doesn’t believe these cases of exploitation can ever be accidental.
Another argument for shifting these cases into the criminal courts is that workplace regulators like the Fair Work Ombudsman are becoming swamped with cases of underpayments – they don’t have the resources to deal with them all.
For example, in 2014/15 it’s thought that the FWO was only able to launch proceedings on 42 of 14,291 reports of underpayment. On the other hand, some will argue that kind of data is why we shouldn’t criminalise underpayment – our court systems couldn’t take the extra load.
“I doubt we’ll see many successful prosecutions under a criminal regime, but you’d hope that simply by enacting it, that would hold some value as a deterrent,” says Howe.
“Australia is the only country where paying a basic wage is this difficult.”
A case against criminalising wage theft
“Those people who are deliberately underpaying workers need to be punished. Criminalisation sends a very clear signal for how society considers that type of behaviour. But there are practical issues with criminal penalties that need to be considered,” says Howe.
One particular issue, he says, is that there’s a higher burden of proof in criminal cases, making it harder to prosecute criminals in that context. Also businesses have more money and resources to defend their actions than someone who’s caught breaking and entering into a property.
Another big issue is figuring out if underpayment was deliberate or simply a mistake, as Calombaris claims in his case. The legislation the Attorney-General is crafting will need to include provisions for genuine payroll mistakes, which we know are quite common.
Also, while orders come from the top, no one really expects Calombaris is carrying out the payroll duties himself, he’s hired someone for that. So, if it really was an administrative error, does the responsibility then lie with the person sending out the pay cheques each week?
“The corporation itself can’t be put in jail, so who should be held to account for criminal penalties? It can be difficult to prove who arranged the underpayments,” says Howe.
As HRM previously reported, there are laws in place which mean anyone considered to be an accessory to underpayment could also face civil penalties – HRM referred to a previous case where an HR manager had to pay $21,760 for following her boss’ orders to create false pay records, even though she flagged it as illegal.
Many people think it’s unreasonable for an HR manager or payroll officer to take the heat for a decision that ultimately falls on their superior. Much like many migrant workers might feel frightened to stand up for their rights for fear of retaliation, HR/payroll managers also have their livelihoods to consider.
So, what if underpayment was brought into a criminal law space? Would we really expect those charged with administrative duties to be put behind bars for following the orders of their superior?
“In this case, Calombaris is the face of the business. There may have been others who actually arranged the underpayments, deliberately or otherwise, but if he’s a director of the company, he’s still on the hook. In a corporate governance structure, it’s the directors and senior managers who are ultimately responsible for what’s being done at all levels of the company.”
Another important factor to consider is just how complex Australia’s Industrial Relations laws are. Ben Thompson, co-founder and CEO of Employment Hero, says “Australia is the only country where paying a basic wage is this difficult.
“The unfortunate reality is that Australia’s Modern Award wage system is so complex that it is inevitable that employers will continue to make mistakes even with the very best of intentions.
“We’ve seen many other large employers like Super Retail Group, Lush, Qantas and the ABC get payroll wrong. These businesses have whole departments dedicated to paying their people correctly. When you consider that large employers only make up 4 per cent of businesses in Australia, how can we reasonably expect the other 96 per cent, who don’t [always] have in-house expertise, to get it right 100 per cent of the time?”
To demonstrate the complexity, Thompson shares the following factors that payroll managers need to consider in order to pay one employee for a single shift. He also says to keep in mind that these factors then need to be put into the context of the appropriate award.
Type of employment entity (company, sole trader, partnership)
Date of incorporation (if a company)
State/Territory of operation
Industry type (not as easy as it might seem)
Award coverage (often multiple awards are relevant)
Operation of any other Industrial Instruments
Employment type (casual, part-time, full-time)
Day of the week
Time of Day
Employee’s Education Level
Award classification of the specific role/s performed during the shift
Specific responsibilities of the role (e.g. opening or closing the business)
Number of other employees working during the same shift
Specific tasks to be undertaken (e.g. operating a TAB machine, serving alcohol)
Specific tools to be used (e.g. using special tools and equipment)
When or if breaks have been taken during the shift
When or if meals were provided during or after a shift or break
Location of the worksite (special site allowances)
Distance traveled to the workplace
The length of the shift (minimum shift periods)
The time the shift started and ended
The regularity of the shifts provided
Any agreed minimum or maximum hours per week
The Attorney-General says he wants to send a “strong and unambiguous message” to employers to put an end to rampant cases of underpayment, and will announce these changes over the coming months, as part of his broader review into Australia’s IR system. Watch this space.
Do you think wage theft should be criminalised at a federal level? Let us know in the comment section below.
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