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Roberts, Tom --- "To catch a thief: The latest solution to an old problem" [2021] PrecedentAULA 32; (2021) 164 Precedent 34

TO CATCH A THIEF

THE LATEST SOLUTION TO AN OLD PROBLEM

By Tom Roberts

The problem of ‘wage theft’^[1] has attracted a lot of public attention recently. There are now very few sectors of the economy where at least one case of underpayment has not been exposed. From large public companies and financial institutions to franchise operators, and from minor celebrities to both large- and small-scale businesses across industries including retail, construction, hospitality and horticulture, the media headlines just keep coming.

Of course, underpayments are nothing new. Trade unions have been actively enforcing industrial awards and agreements and recovering money for underpaid workers for decades. But major changes in how workplaces are structured and regulated have contributed to the problem of wage theft.

The most recent response from the Federal Government to the wage theft phenomenon was the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (Omnibus Bill), which went before Parliament in the March sittings of 2021. Included in the Omnibus Bill was a new criminal offence for employers who dishonestly and systematically underpay their employees.

At face value, criminalisation seems like an orthodox response to the problem. Introducing the stigma of criminality and adding the deterrence value of criminal penalties to a practice that society has lost all tolerance for should send a clear signal. However, because of how the new offence was designed, it is unlikely that it would have had any serious or lasting impact on the wage theft problem.

WHAT DRIVES ‘WAGE THEFT’?

Wage theft exists in different forms. In some cases, workers are underpaid because of an administrative oversight or inadvertence. But there are also many other cases involving serious exploitation, where employers adopt underpayment as a business model and take a calculated risk that they will not be caught. Some even believe that the cost of rectification does not outweigh the potential for increased profit or competitive advantage.

Wage theft can affect an individual employee or an entire workforce. Although wage theft can sometimes involve the underpayment of one or two entitlements such as overtime or holiday pay, often a single breach is a reliable sign of less obvious but more extensive and systemic underpayment problems.

Apart from the underpayment of discrete entitlements, there are also broader strategies that are used to avoid paying employee entitlements altogether. These include sham contracting (the misclassification of employees as independent contractors) or the use of ‘phoenix’ companies (where accrued employee entitlements are lost in the liquidation of a company that re-emerges under a different corporate guise). Both of these schemes not only deprive employees of their entitlements but have a seriously corrosive effect on tax revenue and the delivery of essential public services.

Complexity

Some employer groups have argued that the real cause of wage theft is the complexity of the system. These groups say that it is impossible for employers to navigate our system of industrial laws without falling into unintentional error.^[2] This argument ignores a few basic realities.

Firstly, many wage theft cases reveal not a failed genuine attempt to comply but a conscious effort to avoid.

Secondly, our award system has never been simpler. Federal awards have undergone a virtually uninterrupted process of review, simplification and modernisation since the early 1990s. In place of the thousands of awards in multiple jurisdictions, we now have 121 stripped-back and largely industry-aligned Modern Awards in an overwhelmingly national industrial system.^[3]

We also have a bargaining system that allows for agreements to be struck in simple terms that the parties can write for themselves. These agreements can oust the operation of awards completely.

Thirdly, if complexity were the explanation, it is very unlikely that we would have a problem with unpaid superannuation contributions. These are calculated as a straightforward percentage of ordinary time earnings. By some estimates, these unpaid contributions now amount to billions of dollars across the Australian workforce.^[4]

Finally, employers now have extensive resources available to them, many of which are free,^[5] to assist in meeting their obligations. These include pay calculators, government telephone advice services, comprehensive website information, ‘find my award’ tools, and payroll software. Armed with these resources, there are hundreds of thousands of large and small businesses that have no difficulty complying with the law.

The award complexity argument is vastly overstated. It is also used as a convenient excuse to revisit and try to unwind the basic employment conditions that so many workers depend on.

The 21st century Australian workplace

In order to understand the issue more completely, there is a need to consider the state of today’s workplace.

The industry profile of our economy has changed. Many of the industries that supplied steady, full-time jobs in the post-WWII period are in decline. Now almost one in four Australian employees is employed as a casual^[6] with little to no bargaining power. The notion of ‘permanency’, even in the public sector, is disappearing.

Then there is the growth of the labour hire sector. From health care to coal mining, labour hire is big business. In these triangular relationships, workers are left in a perpetual state of insecurity. If they fail to satisfy their ‘host’ employer and the labour hire agency, they risk losing work. Meanwhile, the lines of employer responsibility are blurred.

Many workers, even those who are semi-skilled and unskilled, are told that they will only have a job if they set up their own ‘business’. The latest example is the gig economy. Delivery riders on bicycles are presented as ‘entrepreneurs’ while the companies behind the IT platforms that they rely on for their work are just intermediaries facilitating a transaction between a delivery business and a customer.

In short, with employers constantly devising new and innovative ways to restructure and cut costs, workers are not in a good position to argue about what or how they are being paid. Detection is difficult because of employment insecurity and complicated business structures. It is not only jobs that are being outsourced or devolved down the contractual chain, but also risk and accountability.

In this environment, wage theft flourishes. And our legal system has been slow to respond.

THE WAGE THEFT OFFENCE

Section 324B of the Omnibus Bill would have made it an offence for an employer to dishonestly engage in a systematic pattern of underpaying one or more of its employees. The proposed offence attracted a four-year term of imprisonment, or 5,000 penalty units ($1.11 million) for individuals and 25,000 penalty units ($5.55 million) for corporations.

In any discussion about the creation of a new criminal offence for conduct that has historically been dealt with as a non-criminal matter, it is worth recalling that criminal sanctions are not necessarily reserved for the worst cases of misconduct, ‘high-level’ or repeated offences. There are many ‘low-level’ offences in our criminal law system, such as record keeping or offensive language offences, which are punishable by non-custodial criminal penalties such as fines.

‘Systematic pattern’

It would have been possible to design a ‘low-level’ criminal offence to cover wage theft, but this was not the approach taken in the Bill. Instead, the new offence was deliberately framed to sit at the apex of the enforcement pyramid and was designed to be used in only the most serious cases. This was clear from the requirement that the offence only applied where there is a ‘systematic pattern’ of underpaying employees. To determine whether an employer’s conduct would meet this description, the court’s attention was to be directed to the scale of the underpayments, the period over which they occurred, and the number of employees affected.^[7] Serious cases should obviously attract serious consequences but confining the criminal offence regime to these cases in a wage theft context was an unnecessarily narrow approach to the use of criminal sanctions.

The new offence in the Omnibus Bill would have applied to ‘national system employers’.^[8] These employers are, overwhelmingly, constitutional corporations. It is well known that there are some real challenges in attaching criminal responsibility to corporate conduct. This is because of the added complexity of attributing fault to a company through the actions (and states of mind) of individuals. The small number of corporate criminal prosecutions illustrates how this problem plays out in practice.

In its 2020 report,^[9] the Australian Law Reform Commission (ALRC) pointed out that although there are around 2.75 million registered companies in Australia, in the ten-year period from 2009 to 2019, there were just 580 cases commenced against corporations across the whole gamut of offences on the Commonwealth statute books.^[10]

The ALRC report referred to several options that can be used to counteract the inherent difficulties in framing offences in a way that deters and captures corporate criminal behaviour. One was the use of ‘failure to prevent’ offences.^[11] This involves the creation of a standalone ‘secondary’ offence that involves a corporation failing to take measures to prevent the commission of the underlying substantive offence. These offences are directed to the conduct of a corporation in aggregate, rather than having to rely on difficult concepts of attributing individual behaviour to a corporate entity.

These types of offences encourage the corporate entity, which is usually in a position to both benefit from and prevent certain types of conduct, to take proactive steps.^[12] The data in the report illustrates that where these types of offences exist and are directed to corporate entities themselves, they are far more likely to be prosecuted than ‘ordinary’ offences.^[13]

The Federal Government has very recently recognised the benefit of introducing these types of offences to address corporate behaviour. In introducing the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (Cth) (CLACCC Bill) on preventing foreign bribery, the Attorney-General noted the need to create a level playing field and to put the onus on companies to ‘get their own houses in order’ by putting effective controls in place.^[14]

These observations apply equally to the case of employers who deprive employees of their entitlements. A similar ‘failure to prevent' type offence, subject to an ‘adequate procedures’ defence, could have been appropriate in the context of the non-payment of wages. It would have encouraged companies to take proactive steps to ensure that non-payment did not occur. It could apply in addition to, not as a substitute for, a primary non-payment offence.

Instead of opting for this approach of promoting proactive corporate behaviour, the Government simply dropped a new ‘high-level’ offence into the enforcement structure, apparently content to rely on the severity of the penalties – on paper at least – to drive change.

‘Dishonestly’

As if the obstacles to a successful wage theft prosecution under the Omnibus Bill were not challenging enough, the fault element that had to be proved – that is, that the employer must have ‘dishonestly’ engaged in systematic underpayment – virtually guaranteed that criminal prosecutions would be few and far between.

In the Bill, ‘dishonest’ meant not simply dishonest according to the standards of ordinary people, but also known by the defendant to be dishonest by those standards. Being required to prove this additional element of knowledge on the part of the defendant would make the offence extraordinarily difficult to prove.

Again, the offence need not have been framed this way. In fact, given what has happened elsewhere,^[15] it is very unusual that it was.

The accepted common law approach to dishonesty offences is that they involve the single objective element of dishonesty by ordinary community standards.^[16] That is now also the case for these types of offences under the Corporations Act 2001 (Cth) after recent amendments.^[17]

In the CLACCC Bill that is currently before the Senate, the Government is proposing to do away with the two-limbed test for the dishonesty offences in the Criminal Code Act 1995 (Cth) and replace it with the single objective test of dishonest by the standards of ordinary people.

The Victorian Wage Theft Act 2020, which is scheduled to commence in July 2021, includes an offence of ‘dishonestly withholding’ employee entitlements.^[18] ‘Dishonest’ in that Act simply means dishonest according to the standards of a reasonable person.^[19] However, the Omnibus Bill would have expressly overridden the operation of the Victorian laws^[20] and so would have guaranteed that prosecutions would be much less likely given the difficulties in proving the fault element of the federal offence.

OBSERVATIONS

Much has changed in our industrial system in the last 25 years. The shift to a national system has been accompanied by significant costs for workers.

While most other areas of the law are turning to alternative dispute resolution, the industrial system has trended in the opposite direction. The Industrial Relations Commission processes that resolved issues about pay and working conditions quickly and informally have virtually evaporated. The lack of a general power to arbitrate in relation to existing conditions and prospective rights, and the deficiencies with statutory safeguards for employees who do come forward, means that for the most part, the parties are more likely to confront underpayment in the courts and after the employment relationship has ended.

Although there were some minor improvements suggested for dealing with wage theft in the Omnibus Bill (such as lifting civil penalties, raising the threshold for small claims to $50,000 and allowing the Fair Work Commission to attempt to resolve underpayments at an early stage), overall the measures were very disappointing. The criminal offence provisions in particular looked obsolete before they were even considered by Parliament.

While the Government is likely to point to the criminal offence in the Omnibus Bill as an indication that it is taking the issue of wage theft seriously, this offence was unlikely to deter and even less likely to punish those who underpay their employees.

Ultimately on 18 March 2021, as the Omnibus Bill was before the Senate, the Government put forward an amendment withdrawing the enforcement and compliance schedule containing the wage theft provisions from the Bill.^[21] In putting forward a seriously flawed criminalisation proposal and then withdrawing it altogether, the Government has missed an opportunity for real reform which would have made a significant difference to the lives of many Australian employees.

Please note that this article was finalised on 6 May 2021.

Tom Roberts is the Director of Legal, Research and Policy at the ACTU. He has practised in industrial law, representing workers and trade unions, for over three decades.

^[1] For the purpose of the discussion which follows, the term ‘wage theft’ is used to describe any non-payment or underpayment of employee entitlements.

^[2] A Patty, ‘‘Beyond hopeless’: Complaints about award system “‘excuse” for underpayments’, The Sydney Morning Herald, 31 October 2019, <https://www.smh.com.au/business/workplace/beyond-hopless-complaints-about-award-system-excuse-for-underpayments-20191031-p53630.html>.

^[3] Fair Work Ombudsman (FW Ombudsman), List of awards, <https://www.fairwork.gov.au/awards-and-agreements/awards/list-of-awards>.

^[4] See for example, Industry Super Australia, 'Inquiry into the unlawful underpayment of employees' remuneration’ (Submission, 13 February 2020) <https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Underpaymentofwages/Submissions>.

^[5] See for example, FW Ombudsman website, <www.fwo.gov.au>.

^[6] Twenty-four per cent of employees were casuals in February 2020, prior to the effects of COVID-19 – see ABS, Characteristics of Employment, Australia (August 2020) <https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/characteristics-employment-australia/latest-release>.

^[7] Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (Omnibus Bill), s324B(5).

^[8] Fair Work Act 2009 (Cth), s322.

^[9] ALRC, Corporate Criminal Responsibility (Report No. 136, April 2020).

^[10] Ibid, 33.

^[11] Ibid, 296.

^[12] Ibid.

^[13] Ibid.

^[14] Attorney-General’s Department, ‘New laws to help stamp out foreign bribery offences’ (Media release, 28 November 2019); quoted in ALRC, above note 9, 303–4.

^[15] See for example, the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (Cth).

^[16] Peters v The Queen [1998] HCA 7; (1998) 192 CLR 493.

^[17] Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) and Corporations Act 2001 (Cth), s9.

^[18] Wage Theft Act 2020 (Vic), s6.

^[19] Ibid.

^[20] Omnibus Bill, above note 7, sch 5, pt 7, item 43.

^[21] Other schedules arising out of the tripartite roundtable process in 2020 were also withdrawn. Ultimately, only schedule 1 (dealing with casual employment and casual conversion) remained in the Bill and was passed by the Senate.