Watch out! Jail time now in play for wage thieves

On 1 January 2025, amendments to the Fair Work Act 2009 (FW Act) commenced introducing criminal penalties for companies and individuals who engage in intentional conduct that results in the underpayment of employee wages.

Under the wage theft provisions, an employer will commit an offence if:

1. 1. 1. the employer is required to pay an amount to or on behalf of, or for the benefit of, an employee under the FW Act, an industrial instrument, or a Fair Work Commission order;
      2. the employer does an act or omits to perform an act; and
      3. the act or omission results in a failure to pay the payment owed to, on behalf of, or for the benefit of, the employee in full on or before the day when the required amount is due for payment.

Under the reforms, the Office of the Fair Work Ombudsman (FWO) will be given new powers to investigate suspected instances of underpayments and will have the ability to escalate matters to the Commonwealth Director of Public Prosecutions (DPP) and the Australian Federal Police (AFP) for consideration and prosecution.

The maximum prison term for individuals who breach the criminal offence will be 10 years, and proceedings may be commenced at any time within 6 years after the commission of the offence (i.e. the date of the underpayment). However, the criminal offence will not apply retrospectively and will only capture underpayments committed from 1 January 2025.

Understanding the criminal offence

The new wage theft reforms are intended to apply to intentional underpayments by employers and will not apply to underpayments that are accidental or result from a genuine mistake. For example, if an employer mistakenly misclassifies an employee under an applicable industrial instrument which results in an incorrect rate of pay, the resulting failure would not be caught by the new regime. However, companies or individuals who become aware of underpayments and fail to remedy the shortfall within a reasonable amount of time or as required by the FWO, or who continue to authorise and process payment of wages where underpayment issues have been identified, risk being in breach of the criminal offence.

This means that employers will need to ensure they are taking steps to appropriately address any underpayment issues in a timely manner, as well as ensuring the go-forward position is compliant. Where employers fail to address the root cause of an underpayment issue, and further underpayments are later identified, the risks of a criminal penalty being imposed is likely to increase (especially where this is related to a remediated underpayment).

Developing a compliant corporate culture

While a company must have intentionally engaged in conduct that results in an underpayment to be guilty of wage theft, a company’s corporate culture can be relevant to determining whether the intention existed, which is new for the FW Act.

A company’s intention in this context can be established by proving, among other things:

• that a corporate culture existed within a company that directed, encouraged, tolerated or led to non-compliance with the FW Act or relevant industrial instrument; or
• the company failed to create and maintain a corporate culture that required compliance with the FW Act or relevant industrial instrument.

While employers are unlikely to have a policy or rule that encourages wage theft, it is possible that an attitude or practice exists that accepts this form of behaviour and may contribute to the intentional conduct requirement for wage theft.

In addition to corporate culture being able to satisfy this requirement, this may also be done by proving that:

• the employer's board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the contravention of the FW Act or relevant industrial instrument; or
• a high managerial agent of the employer intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the contravention of the FW Act or relevant industrial instrument.

While holding a company responsible for the actions of its board of directors or high managerial agents is a familiar concept, the introduction of an offence by reference to corporate culture is a new concept. Accordingly, it is important that boards and management create and maintain a compliant corporate culture that takes proactive and systemic steps to ensure compliance with workplace laws.

Practical steps an employer may take to help establish and maintain a compliance culture can include:

• having a zero-tolerance approach for contraventions of workplace laws and expressing this through leadership statements and workplace training;
• implementing workplace policies and procedures that clearly outline compliance expectations and requirements and measuring the effectiveness of those policies and procedures;
• hosting regular training sessions so managers are well informed on their workplace obligations and the importance of compliance; and
• creating an inclusive work environment that encourages open communication between employees and managers and implementing effective reporting channels.

Concerning levels of non-compliance detected by the Fair Work Ombudsman

The introduction of the criminal penalty follows the release of the Fair Work Ombudsman’s Annual Report for 2023-24.  Notably, in the report, the FWO highlighted concerning levels of non-compliance of workplace laws within Australia’s large corporate sector, with the most frequent area of contravention being the underpayment of hourly and penalty rates for employees.

To address this, the FWO has committed to deploy its various enforcement resources to continuously monitor and enforce workplace laws, and large corporations in particular will attract increased scrutiny. While the FWO is unable to commence wage theft proceedings, it is able to investigate suspected underpayment offences and will refer matters to the DPP or AFP to consider whether criminal prosecution is appropriate.

Penalties for wage theft

The penalties for wage theft are significant with the following penalties applying:

• for a company, a maximum penalty of $7.825 million or 3 times the amount of the underpayment, whichever is greater; and
• for an individual, a maximum of 10 years in prison, and a maximum penalty of $1.565 million or 3 times the amount of the underpayment (whichever is greater).