The Fair Work Ombudsman’s ‘contrition payment’ approach to wage theft is just not cutting it

Last week, submissions closed on Industrial Relations Minister Christian Porter’s consultation on Improving protections of employees’ wages and entitlements: strengthening penalties for non-compliance.

The Government’s discussion paper outlines various options for combating systemic wage theft, including wider forms of accessorial liability (e.g. across supply chains) and the introduction of criminal sanctions.

These would be important steps in enhancing the existing compliance framework. However another problem has become clear in recent months: enforcement of the existing regime by the Fair Work Ombudsman is deficient due to the regulator’s apparent reluctance to adopt a tough approach in several high-profile cases.

Put simply, the FWO is not making the most of the regulatory tools currently available to it – a point as good as admitted by the agency before a Senate Estimates hearing last week.

In the cases of the underpayments detected in the Made Establishment group of companies[1] and those involving Thales[2] and Sunglass Hut,[3] the FWO has entered into enforceable undertakings with the offending companies rather than bringing enforcement proceedings. Each case has involved large-scale underpayments affecting many workers: Made Establishment, around $7.8 million; Thales, $7.44 million; Sunglass Hut, almost $2.3 million.

Under these enforceable undertakings, the businesses are generally required to improve their compliance processes and submit to regular FWO auditing. They must also repay the underpaid workers and make ‘contrition payments’ of varying levels ($200,000 for Made Establishment and Thales; $50,000 for Sunglass Hut).

These ‘penalties’ are miniscule in comparison to the scale of the offending in each case. In deciding to adopt this approach, the FWO appears to have attached much significance to the fact that these companies ‘self-reported’ their breaches and cooperated with the agency.

But the question must be asked: why would they not cooperate, with the incentive of avoiding litigation that could result in the imposition of penalties by a court? Thales is a French multinational in the defence contracting/manufacturing industry, but has escaped with a mild ‘slap on the wrist’ despite contravening its enterprise agreement through annualised salary arrangements.

These cases represented a major opportunity for the FWO to make a clear public statement that workplace law breaches will be met with the full force of the law. This is especially so in relation to Made Establishment’s underpayments, given the involvement of high-profile celebrity chef George Calombaris. The FWO’s enforceable undertaking requires Calombaris to give a series of restaurant industry presentations to communicate the need for compliance with workplace laws and the consequences of not doing so.

This is meant to promote general deterrence within the hospitality industry, which is now notorious for its wage theft business model. However, deterrence would be promoted far more effectively if the FWO had made an example of Calombaris and Made Establishment through enforcement proceedings in a court.

Cue last week’s Senate Committee appearance by the Ombudsman, Sandra Parker, in which she conceded that the $200,000 contrition payment did not adequately take into account the extent of Made Establishment’s underpayments. ‘We would have liked [the contrition payment] to have been higher’, she stated, and the FWO was ‘learning and evolving’.[4]

There are two big tests now looming of whether the FWO can act on its ‘learnings’ and implement a more robust approach – first, in determining how to deal with the recently-reported case of $15 million in underpayments affecting 6000 workers in Australia’s largest retail business, Wesfarmers.[5] And secondly, in its response to the allegations of tampering with time records as part of an underpayment claim by Hospo Voice on behalf of workers at Rockpool Dining Group.[6]

The Ombudsman could make a very useful start by ditching the very concept of ‘contrition payments’ – an extremely unhelpful invention on the agency’s part which has set back the cause of tackling the epidemic of wage theft in Australia.

[1] Anthony Forsyth, ‘Stronger stick needed to enforce workplace laws, The Sydney Morning Herald, 2 August 2019.

[2] Michael Fowler, ‘Defence contractor Thales ordered to repay workers $7.4 million’, The Sydney Morning Herald, 30 August 2019.

[3] Kaitlyn Offer, ‘Sunglass Hut staff underpaid $2.3 million’, The Sydney Morning Herald, 24 September 2019.

[4] Quoted in Anna Patty, ‘Ombudsman admits Calombaris “contrition payment” may not have been enough’, The Sydney Morning Herald, 24 October 2019.

[5] Dominic Powell, ‘Fair Work ombudsman lashes Wesfarmers’ $15 million underpayment’, The Sydney Morning Herald, 1 October 2019.

[6] AAP, ‘Rockpool accused of tampering with time-sheet records to cheat workers of $10m’, The Guardian, 24 October 2019.