The Federal Court has imposed over $4 million in penalties against an employer for “deceitful and unscrupulous” wage theft. With the criminalisation of wage theft looming, now is the time to put legal safeguards in place to reduce underpayment risks.

In a ruling announced last week, 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 offences, brought forward by the Fair Work Ombudsman (FWO), involved deliberately underpaying 17 employees, most of whom were migrant workers predominantly from Indonesia and China, a total of $157,025.

The underpayments, which occurred between November 2017 and June 2018, involved casual and full-time employees across multiple locations in Sydney and Melbourne.

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. 

These fines represent the second-highest penalties ever secured by the FWO. 

In addition to paying the fine, the organisation was also ordered to back-pay the underpaid employees in full, plus interest and superannuation.

The Federal Court’s ruling is particularly significant in light of the potential introduction of new wage theft laws in Australia, announced by the government last year as part of the Closing Loopholes Bill. 

Read more about the legislative changes coming from the Closing Loopholes Bill here.

Pending the passing of the new legislation, which could come into effect as soon as 1 January 2025, instances of deliberate underpayments such as this one could soon result in jail time for perpetrators.

“This is the exact sort of matter that the provisions to criminalise intentional wage theft under Closing Loopholes are aimed at addressing,” says Emma Lutwyche, Special Counsel at Pinsent Masons.

“It certainly demonstrates that these issues are being taken extremely seriously, and will be taken extremely seriously going forward.”

What constitutes intentional wage theft?

The high penalties imposed on the employer in this case were related not only to the extent of the underpayments, which varied by worker from $2,165 to $50,588, but by the “calculated” way the former general manager and former HR coordinator oversaw them.

The Court labelled the behaviour of the involved parties as “deceitful and unscrupulous,” highlighting that they not only deprived employees of their rightful wages, but also attempted to hide their misconduct by providing false records to inspectors, which understated hours worked and included false rates of pay for casual employees.

“The laws are very clear on applying the criminal standard of intentionality,” says Lutwyche.

“Even things like willful blindness, neglect or failure to conduct due diligence probably won’t be enough [to be classified as deliberate wage theft]. It has to be at an intentional level, like what we’ve seen in this case.”

“Hiding behind a corporation isn’t going to be enough anymore. The regulators are regularly looking at who is the controlling mind behind [wage theft].” – Emma Lutwyche, Special Counsel, Pinsent Masons

The penalties imposed were also influenced by the vulnerable nature of the workers involved.

Since many of the underpaid workers were migrant workers on a casual basis and/or under 26 years old, the employer was penalised under Australia’s Protecting Vulnerable Workers laws. Under these laws, the maximum penalties for serious contraventions are 10 times the penalties which would ordinarily apply.

The heavy individual fines imposed on the perpetrators of these offences are an important reminder to employers of personal culpability in cases like these, says Lutwyche.

“Hiding behind a corporation isn’t going to be enough anymore. The regulators are regularly looking at who is the controlling mind behind wage theft, and how to ensure that person doesn’t go and do a similar thing with another corporation somewhere else.”

Preparing for new wage theft laws to take effect

With the potential criminalisation of wage theft on the horizon, cases like this serve as a warning to HR to double down on compliance to avoid the risk of prosecution.

To prevent cases of unintentional wage theft slipping through the cracks, HR should be attuned to both their legal requirements and the effectiveness of their systems, says Lutwyche.

“You need to be applying your consideration to which awards apply on a regular basis, whether your classifications are correct, and whether your payroll system is correctly applying the pay rules that come from the relevant awards,” she says. 

“Making sure that, as a business, you’re recording that you are turning your mind to these issues is really important.”

If instances of accidental underpayment are identified, failure to address it promptly could result in it being classified as a deliberate act of wage theft. As a result, underpayments should be remedied in a timely and transparent manner, she says.

“You should be notifying the regulator that it’s happened and that you addressed it. Because the other thing that’s part of the criminalisation of wage theft, and the current wage theft regime, is that cooperation with the regulator will avoid things getting worse.”

By taking these steps now, employers can stay ahead of the legal curve and avoid the costly penalties associated with wage theft.

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