On 1 July 2021, new laws came into effect making it a criminal offence in Victoria for employers to dishonestly withhold employee entitlements or underpay employees.
The new laws expose employers to fines of up to $1,090,444 for companies, and up to $218,088 or up to 10 years’ jail for individuals.
Victoria is now the second state to introduce wage theft reforms, with Queensland recently introducing a similar regime, and NSW tabling a proposed scheme.
Under the Wage Theft Act 2020 (Vic) (Wage Theft Act), it is now a crime in Victoria to:
- dishonestly underpay employees;
- dishonestly withhold wages, superannuation or other employee entitlements;
- falsify employee entitlement records to gain a financial advantage; and
- fail to keep employee entitlement records to gain a financial advantage.
An employee entitlement is an amount or benefit payable or attributable to an employee (including wages or salary, allowances and gratuities, and the attribution of annual leave, long service leave, meal breaks and superannuation) in accordance with relevant laws, employment contracts, and enterprise agreements.
An employee entitlement record is a record of an employee entitlement. This will include the types of records an employer is required to keep under the Fair Work Act 2009 (Cth) (Fair Work Act).
The Victorian Wage Inspectorate has broad powers to compel the production of documents and apply for search warrants. It will also be able to accept enforceable undertakings from employers, and seek restitution orders from the courts if a guilty finding is made.
Employers with operations in Victoria face the prospect of being subject to proceedings for civil penalties by the Fair Work Ombudsman, as well as criminal prosecution by the Victorian Wage Inspectorate.
Cases brought under the new regime will be ‘fast-tracked’ in the Victorian Magistrates’ Court, which has received significant funding to support the new regime.
The changes are likely to deter self-reporting of underpayments by employers, given the risk of potential criminal proceedings against individuals within a business.
Who does the Wage Theft Act apply to?
The Wage Theft Act applies where an employee:
- performs services wholly in Victoria; or
- where there is a sufficient connection between Victoria and the employee or the employer.
There will be a sufficient connection between Victoria and the employee or employer if the employee performs services in other Australian states and territories or partly overseas and:
- the employee is based in Victoria; or
- the employee is based overseas, but has a Victorian-based employer; or
- both the employee and employer are based overseas, but the services were performed mainly in Victoria; or
- the employee entitlements are paid or attributed in Victoria and the employee and employer are based outside of Australia.
What does this mean for employers?
It is now more important than ever for employers to ensure they are meeting their minimum obligations to employees at law. The new laws exposing employers to fines of up to $1,090,444 for companies, and up to $218,088 or up to 10 years’ jail for individuals were enacted by the Victorian Parliament in response to a series of high profile cases of underpayments in recent years.
Liability under the Wage Theft Act can extend to individuals who are officers of the employer. An officer can be separately prosecuted. The definition of officer is broad and varies depending on the type of entity of the employer, however, officers are generally regarded as those persons that have significant decision-making responsibilities within a business. This can include directors, office holders (such as CEOs, CFOs, and COOs), partners, and other persons who have the capacity to significantly affect the entity’s financial standing.
The Wage Theft Act targets employers who dishonestly engage in unlawful practices. The test for dishonesty is in accordance with the standards of a reasonable person. This means the test is assessed objectively by reference to what a reasonable person would consider to be dishonest as opposed to the actual state of mind of the employer. The Explanatory Memorandum makes it clear that recklessness, and not just intentional dishonesty, may be captured. An employer may not have a defence simply because it held a genuine belief that it was paying the correct entitlements if it has not undertaken due diligence.
Honest mistakes by employers who exercise due diligence in paying wages and entitlements will not be considered wage theft providing the employer took reasonable steps that are reflective of the size and nature of the employer. However, employers should make it a practice to regularly review their systems, salaries, Awards and entitlements to ensure strict compliance and immediately address any errors as soon as they are discovered.
The Wage Theft Act does not impose any new record-keeping obligations on employers. Instead, it places criminal liability on those who dishonestly falsify employee records or fail to keep them to gain a financial advantage or prevent the exposure of a financial advantage. In accordance with the Fair Work Act, employers should review their current processes and practices to ensure that they are recording all employee entitlements, including allowances, annual leave and long service leave.
Wage Inspectorate of Victoria
The Wage Theft Act also establishes the Wage Inspectorate of Victoria, a new independent statutory body, which has the function of:
- informing, educating and assisting businesses and employees about their rights and obligations;
- promoting, monitoring and enforcing compliance;
- investigating the commission, or possible commission, of wage theft offences and prosecuting offenders; and
- responding to reports and tip offs about wage theft.
The Wage Inspectorate has broad powers, including the power to enter premises, obtain information and documents, seize evidence, require a person to give evidence or answer questions under oath or affirmation, and apply for and execute search warrants.
The Wage Inspectorate does not have the power to investigate claims of wage theft prior to 1 July 2021. However, employee entitlements that accrued before 1 July 2021 will be relevant to ongoing dishonest conduct relating to wage theft.
If an employer is investigated for an alleged wage theft, an Inspector appointed by the Wage Inspectorate will contact the business directly. The Inspector will provide information about the employer’s rights and obligations when exercising its powers. Once an investigation is completed, the Inspector will inform the employer of the outcome of its investigation and whether criminal proceedings will be commenced.
The Wage Theft Act makes it an offence to intentionally hinder or obstruct the Wage Inspectorate from performing its functions. Employers must cooperate with requests made by an Inspector unless there is a reasonable excuse for not doing so.
It is possible that employers who fail to adhere to their payment and record keeping obligations may face concurrent investigations by the Wage Inspectorate and the Fair Work Ombudsman.
How can we help you?
It is important for employers to audit their operations to ensure that they are paying correct wages and employee entitlements to employees and are keeping appropriate records of such payments. These systems and processes should be regularly reviewed for compliance.
Our Workplace Relations Team can assist you:
- to identify the correct industrial instruments which apply to an employee’s employment and appropriate classification of employees;
- to ensure you are strictly complying with minimum rates of pay and employee entitlement obligations (including under the Fair Work Act, employment contracts, applicable Awards or enterprise agreements);
- to conduct compliance checks to ensure your employees’ payments and entitlements are being correctly recorded; and
- if you identify an underpayment issue, and/or are contacted by the Wage Inspectorate.
Please contact a member of our Team should you need any assistance in understanding your obligations under the Wage Theft Act.
This article was written by Mark Howard, Partner, and Emily Goodfellow, Law Graduate.