What Now for Wage Theft? Enforcement of Employment Rights and Entitlements in a Time of Crisis (by Dr Tess Hardy)

I’m very pleased to publish this second guest contribution on the Labour Law Down Under Blog, by Dr Tess Hardy – Senior Lecturer at the Melbourne Law School. Other guest contributions are invited from the academic community, especially on issues relating to the impact of COVID-19 on work, workers and the regulatory framework for employment relations. Email me at: anthony.forsyth@rmit.edu.au

At the start of 2020, not a day would go by where a story of ‘wage theft’ did not appear in the major news outlets. There were multiple government inquiries on foot at both state and federal levels. The Commonwealth Attorney-General had publicly committed to criminalising deliberate underpayment and was in the midst of a comprehensive consultation on the compliance and enforcement framework. The Fair Work Ombudsman (FWO) was talking tough on enforcement.

And then, COVID-19 landed in Australia.

While Victoria still forged ahead by introducing the Wage Theft Bill 2020 (Vic), the federal Attorney-General’s consultation has been ‘paused’ due to the pandemic. In many ways, this is understandable. However, the challenge of ensuring employer compliance with employment standards regulation has not gone away. Instead, the COVID-19 crisis has magnified many of the pre-existing problems. In addition, a new set of emerging issues may threaten to further compromise employment rights and entitlements; now and into the future. If we have learnt anything from the constant wage and superannuation theft scandals of the past five years – from 7-Eleven to Coles – it is that a safety net is only as good as the enforcement that underpins it.

A Safety Net in Transition

Already we have witnessed far-reaching changes to the safety net, including a wave of award variations, amendments to the Fair Work Act 2009 (Cth) and introduction of the JobKeeper Payment scheme. While these ‘temporary’ changes may be designed to allow employers to stay afloat and reduce job losses, they are deeply troubling from a compliance perspective.

Even before the pandemic hit, big business was complaining that ‘inadvertent’ payroll mistakes were due to an overly complex industrial relations system. Some, including head of the FWO Sandra Parker, were sceptical of this excuse. But, given that the regulatory framework has now changed at breakneck speed, the workplace relations system is in a state of flux. While the FWO has sought to ramp up its education and advice services, and the Fair Work Commission now has jurisdiction to resolve disputes arising under Part 6-4C of the FW Act,[1] there is likely to be continuing uncertainty on the part of employees, employers and their representatives about how these changes apply to their particular circumstances. More worrying, however, is the way in which apparent ‘confusion’ regarding the new system may be used as a cover for deliberate abuse of freshly minted rights and entitlements.

Potential Rorting of the JobKeeper Payment Scheme

On paper, the JobKeeper Payment scheme enables employers to retain and financially support eligible employees in the short term. It has provided an essential cash injection into a failing economy. But, already there are indications that the system is being rorted. Relying on cash-strapped employers to do the right thing by their employees places the payments, and the ongoing employment connection, at potential risk. It is instructive that the paid parental leave scheme – which is similarly funded by government, but funnelled through employers – has been gamed by employers in the past. Tim Kennedy, the National Secretary of the United Workers Union, has said that while many employers were doing the right thing by their workers, ‘the wage thieves that dominated this industry before the pandemic revert to form.’

Earlier this week, Senator Michaelia Cash commented:

[I]f you do not, as an employer, pass on the full $1500, you will actually have an action taken against you. So, I need to be very clear on that. Yet again, employers are expected to pass on the full $1500 to their employees, and to any employee who does not receive the full benefit … they should make a complaint to the ATO.

Treasury has also confirmed, via a Fact Sheet, that the JobKeeper Payment scheme has ‘robust integrity features and draws on existing regulatory and enforcement infrastructure of the Australian Tax Office.’ The Fact Sheet further states that ‘swift and effective action’, including administrative and civil penalties, as well as criminal sanctions, will be pursued against those who seek to abuse the scheme. However, if JobKeeper Payments go astray, it may not be so straightforward to identify and penalise errant employers or recover missing payments. The ATO’s previous track record on overseeing and enforcing employment-related entitlements, such as the superannuation guarantee, does not bode well in this regard.

Difficulties of Detection

The challenge of detecting wage and superannuation theft, which now arguably includes abuse of the JobKeeper Payment scheme, is only set to grow in the wake of COVID-19. As a result of widespread unemployment, many workers who were once securely employed, may now fall within the ‘vulnerable’ category – which was typically associated with young and migrant workers. The employees who were already in a precarious position in the labour market in the pre-pandemic period, such as labour hire workers, may be feeling a heightened sense of vulnerability. Migrant and casual workers who may be ineligible to receive JobKeeper payments may be forced to undertake sub-standard work, even when unwell, just to survive. Even if these employees believe they have been ripped off by their employer, they may be reluctant to raise their concerns for fear of losing their jobs or due to the dim prospects of recovery. Barriers to individual complaints are only set to rise in a depressed labour market.

Proactive inspections are also likely to take a hit given that the FWO has decided to suspend site visits due to health and safety concerns.[2] While desk-based audits can still be conducted, this detection mechanism has been shown to fail where records are missing or have been fabricated. Even the ‘Single Touch Payroll’ system that the ATO uses to monitor employment entitlements is not immune from evasive tactics, such as cash-back schemes.

Even where records have been diligently kept, identifying who has been paid what, when and by whom, and confirming that this is all above board, is going to be extremely complicated. The terms of enterprise agreements may have been amended, work rosters may have changed, pay may have been reduced, leave entitlements may have been taken and termination entitlements may have been triggered – through redundancy or otherwise. The fortnightly JobKeeper payments may not be aligned with the pre-existing payroll system. Combined, these changes will mean that calculating and quantifying entitlements will be a very messy exercise, even for experts.

Problems of Recovery

Many employers will be genuinely struggling. This will have critical implications for enforcement practices and the prospects of recovering entitlements which are due. The FWO has already signalled that it intends to provide employers with ‘extra time’ to pay back workers. Some employers, such as Michael Hill Jewellers, have already flagged that their employee remediation program will be paused to help preserve cash flow. It is also possible that negotiations over entitlements will result in an employee being paid below the legal minimum, which can have the effect of further destabilising the safety net. 

Where a business does go under, then seeking to recover entitlements and impose sanctions against the employer corporation becomes challenging, if not impossible. Bringing proceedings against third parties, via the accessorial liability provisions or otherwise, is not for the faint-hearted. These types of proceedings are also resource intensive and there may be very little to show at the end of it all. With tightening budgets, it seems very unlikely that the ATO and/or the FWO will be in a position to bring action in every instance.  

As the numbers of insolvent businesses begin to balloon, and more employees are left out of pocket, the Fair Entitlements Guarantee will be the final backstop. But, again, there are major gaps – not least of which is the fact that temporary migrant workers are excluded and employees cannot recover unpaid superannuation.

Reform is More Urgent Than Ever

The COVID-19 crisis means that employers are less likely or able to comply with their workplace obligations. Employees are more vulnerable than ever. Rather than deferring reforms to the compliance and enforcement framework, they need to be urgently put back on the government agenda.

[1] This includes disputes relating to: 1) ‘JobKeeper enabling directions’ (which includes an employer direction to an employee about: reducing an employee’s ordinary hours of work; the duties to be performed by an employee; or the location of an employee’s work); 2) flexibility agreements (e.g. in relation to taking annual leave).

[2] In contrast, the Australian Building and Construction Commission is continuing site visits at this time: https://www.abcc.gov.au/covid-19-assistance