Federal Court of Australia imposes $4m penalties for ‘calculated’ wage theft

The Federal Court of Australia has imposed over $4 million in penalties on a restaurant chain and two of its former officials for systemic wage theft and falsification of records. The fines are the second highest ever secured by the regulator, the Fair Work Ombudsman (FWO). With new tougher legislation planned for early next year we’ll speak to a Sydney-based layer about the message these cases send to employers and how HR should respond. 

The cases are at the extreme end, involving deliberately underpaying 17 employees - a mix of casual and full-time workers, mostly migrants from Indonesia and China - a total of $157,000. The penalties imposed included $1.99 million against the restaurant, $1.89 million against the third-party company who employed the workers at the store, $92,232 against the former general manager and $105,084 against the former HR coordinator.

The Australian HR Institute has reported on this and quotes employment lawyer and special counsel Emma Lutwyche who says cases like this serve as a warning to HR to double down on compliance to avoid the risk of prosecution. She says new laws are on their way and by taking these steps now, employers can stay ahead of the legal curve and avoid the costly penalties associated with wage theft. The new wage theft laws were announced by the Australian government last year as part of the Closing Loopholes Bill.

So, let’s hear more on this case and its implications. Earlier Emma joined me by video-link from Sydney. First question, how big a deal is this ruling?: 

Emma Lutwyche: “It has been a really big deal here and it has been in the news a lot. It was a relatively well-known franchise and it was a relatively well-known issue when it became originally prosecuted and the massive fines that have been implemented has definitely caused a stir.”

Joe Glavina: “So when is the new law coming into effect, Emma, and what difference will it make?”

Emma Lutwyche: “The wage theft laws are due to come in not before 1st January 2025 and the difference that they will make is that the fines could be even bigger than they were in this case for intentional wage theft, and the individuals involved could be sent to jail.”

Joe Glavina: “Jail-time should grab the attention of employers but how likely is it to happen? Is there a precedent for that?”

Emma Lutwyche: “I think this case certainly shows a precedent for implementing the most significant fines that can be implemented. Whether there is going to be actual jail time for people involved in these contraventions, intentionally, we will have to wait and see but the regulator is taking these matters extremely seriously and the implementation of the right to criminalise this behaviour, and send people to jail for this behaviour, will certainly be used as a stick.”

Joe Glavina: “You say in your article that hiding behind a corporation isn't going to be good enough anymore and how regulator will be looking at who the controlling mind that is behind the wage theft. So is HR in the firing line, potentially?”

Emma Lutwyche: “Certainly they can be in the firing line, internal and external advisors in terms of these types of intentional wage theft issues. So if an HR advisor knows that there are award entitlements, or enterprise agreement entitlements, or wage entitlements generally that an employee is supposed to be entitled to and take steps to avoid the application of those wage entitlements then that that HR director could certainly be involved. The important thing to remember with these new laws, though, is that it's intentionality at a criminal standard that's going to be applied and so the regulators will need evidence of intention to show that someone like an HR director did this purposefully, stole wages intentionally.”

Joe Glavina: “What about accidental underpayments which are going to be far more common than acts of deliberate wage theft I would have thought?”

Emma Lutwyche: “So, certainly, those accidental wage theft issues happen so often in Australia. We have a very complex wage award and entitlement system that is very hard to apply and so there are many, many instances of accidental wage theft. They are still subject to penalties, but where an employer is transparent about them, talks to the regulator about them, reports them to the regulator and then engages with the regulator about how to address them and remedy them, there won't be these types of penalties and criminalisation. It will only be where someone has intentionally avoided paying entitlements that things criminalisation laws will apply.”

Joe Glavina: “In your article you talk about checking HR and payroll systems and recording the fact that they're accurate. What does that mean in practice?”

Emma Lutwyche: “So, in practice that means regularly auditing and applying an analysis to whether you're applying the right award entitlements, the right classifications, going through a process of checking your role descriptions and the classifications that are in your payroll systems against the awards as they're updated regularly, and it means recording that process. That will show that as an employer you've tried your best to avoid the accidental underpayments and you've certainly not intentionally underpaid.”

Joe Glavina: “Finally, Emma, what do you want HR to do? What’s the advice?”

Emma Lutwyche: “We need to have HR turn their minds to the application of minimum wages and ensuring that there's a process going on within the business where the business is making sure that it isn't underpaying. It’s an important part of regulatory and administrative practice in terms of employing people and it's not a ‘one and done’, it's not a case of we've employed this person and they are entitled to this entitlement and you can keep them at that entitlement for as long as they're employed. It needs to be regularly reviewed and that should be sitting with HR and Payroll.”

If you would like to read more about that case it has been reported in more detail by the Australian HR Institute. We’ve included a link to it in the transcript of this programme for you. 

LINKS
- Link to HRM article