Should employers go to jail for underpayment of wages?
Underpayment of wages is an increasingly frequent topic in both media reports and public discussion. Quite recently, underpayment scandals have struck major employers such as Woolworths, franchises such as 7-Eleven and high-profile businesses, such as the restaurants run by celebrity chef George Colombaris.
The steady flow of non-trivial instances has led to calls for stiffer penalties, extending to suggestions that employers should be liable to imprisonment.
Underpayment of wages may be systemic rather than theft
While the underpayment of workers is being referred to as wage theft in the media, “systemic underpayment” might be a more accurate term.
“Theft” requires the intention to deprive someone of something. Yet, these many instances of systemic underpayment seem to have arisen from the reckless indifference of employers to ensuring correct pay levels.
Underpayment of employees common in certain industries
A 2017 report released by the Migrant Worker Justice Initiative outlines how the underpayment of wages in Australia is widespread, particularly within the food services and fruit and vegetable picking industries. (See Wage Theft in Australia: Findings of the National Temporary Migrant Work Survey. See also our December 2021 article New ruling on fruit picking wages shakes up farming industry.)
Drawing on responses from 4,322 temporary migrants, it was found that a third of the international students and backpackers surveyed were paid less than $12 an hour, with many having their passports withheld by their employer to prevent them from leaving their job.
Wage theft is particularly prominent amongst franchises, restaurants, cafes, cleaning companies, farms and packing businesses. Businesses employing large numbers of unskilled casual or seasonal employees often draw on groups of backpackers or temporary migrants, who may be seen as people without the resources or tenacity to pursue claims.
Complexity of workplace laws and award wages no excuse for underpaying workers
In recent hospitality industry cases, employers have attempted to argue that the combination of award provisions and complex work patterns has made compliance difficult and that underpayments have been inadvertent.
This approach carries risks. While the Fair Work Ombudsman does not investigate all claims of non-compliance with workplace laws, it has focused on industries of this kind, so that underpaid workers do not always need to pursue claims by themselves.
Pay provisions in awards may be detailed, but are not unduly complex, and underpayments more often than not stem from poor record-keeping.
Consequences for employers of wage theft – repayment, fines and negative publicity
The number of employers being taken to court for the underpayment of wages is on the rise, with some found to owe hundreds of thousands of dollars to their workers.
These legal actions usually result in a fine for the employer, along with an order for them to repay any unpaid portion of workers’ wages. In some cases though, the consequences can escalate even further in terms of widespread negative publicity, especially when a celebrity-owned business or well-known franchise is involved.
Will harsher penalties deter wage theft?
Supporters of tougher laws believe that criminal penalties for the underpayment of wages would act as a better deterrent. However, there is not sufficient evidence of the correlation between harsh penalties and reduced offending. The saying ”as well hung for a sheep as for a lamb” indeed reflects the fact that experience can be quite to the contrary.
In this particular context, the Australian Chamber of Commerce argues that nobody will benefit if the fine is too high or employers are sent to jail and thus are forced to close their businesses.
In the same way that compliance with drink-driving laws is driven more by the fear of getting caught than by escalating penalties, it may well be that putting additional resources into compliance auditing would have a greater effect.
If you’re an employer and unsure about your obligations in paying your workers, it would be wise to obtain expert legal advice about your particular situation, before it ends up in court.