Understanding the Consequences of Wage Theft
In a landmark ruling by the Federal Court, businesses have been served a stern warning about the severe repercussions of underpaying employees. This comes in the wake of a significant case where the Commonwealth Bank of Australia (CBA) and its subsidiary CommSec were fined a hefty $10.34 million. This penalty was imposed following the discovery that approximately 7,400 employees were underpaid, amounting to around $16 million in wages owed.
The court identified serious breaches of the Fair Work Act, categorising them into four main areas:
- Failure to Ensure Employee Benefits: The court found that the companies did not ensure employees were adequately compensated under individual agreements compared to enterprise agreements, and likewise for enterprise agreements compared to the applicable industrial awards.
- Breach of the Better Off Overall Test (BOOT): It was established that senior staff were aware of these underpayments, indicating a systematic pattern of conduct over nearly a decade.
- Inadequate Payment Under Enterprise Agreements: Certain employees did not receive their full entitlements under the applicable enterprise agreement.
- Misrepresentation of Employee Benefits: Employees were misled to believe they would be better off under an individual agreement than under the applicable enterprise agreement, which was not the case.
The court criticised CBA and CommSec for not conducting sufficient checks, audits, or having systems in place to ensure compliance with enterprise agreements and individual agreements. Despite the companies voluntarily reporting these breaches, the court highlighted the gravity and duration of these violations by large financial institutions, which could have prevented such occurrences.
Justice Bromwich underscored the importance of deterrence to ensure compliance, stressing that substantial penalties are essential, especially for large employers in the financial sector. He advocated for cooperation and the implementation of remedial and preventative measures for the future.
Upcoming Legal Changes Targeting Wage Theft
With the backdrop of the CBA and CommSec case, it’s crucial for employers to be aware of impending legislative changes aimed at criminalising intentional wage theft. The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduces wage theft as a criminal offence, effective from 25 January 2025. This offence applies to employers who intentionally fail to pay wages or other entitlements due to their employees.
Exceptions exist for certain payments, such as superannuation contributions and payments for long service leave, among others. To be convicted of wage theft, the prosecution must prove the employer’s intention to underpay. Accidental or unintentional failures to pay, or genuine mistakes, will not constitute wage theft under this new legislation.
The penalties for wage theft are severe, with a maximum of 10 years’ imprisonment and/or fines up to three times the amount of the underpayment or, for individuals, 5,000 penalty units ($1.565 million) and for corporations, 25,000 penalty units ($7.825 million).
The Fair Work Ombudsman will oversee investigations into wage theft, referring cases to the Commonwealth Director of Public Prosecutions or the Australian Federal Police as appropriate. Small businesses that may have inadvertently underpaid employees can avoid criminal prosecution by adhering to the new Voluntary Small Business Wage Compliance Code, currently under development.
Implications for Employers
This case and the upcoming legislative changes serve as a critical reminder for employers to ensure their payroll systems and audits are robust and compliant with modern awards and industrial instruments. Employers should regularly review position descriptions and the actual work performed to avoid common pitfalls such as misclassification.
The consequences of non-compliance can be severe, highlighting the importance of proactive measures and the need for expert legal advice to navigate these complex legal waters.
Seeking Expert HR Advice?
Concerned about compliance with evolving employment laws? We are here to guide your business through the complexities of HR management and legal compliance. Ensure your company remains ahead of the curve and avoids unnecessary penalties. Reach out to us for comprehensive support and expert advice.