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Workplace law special edition: Wages: Wage theft: State and federal tension

Workplace law special edition: Wages: Wage theft: State and federal tension

By Nadia Stojanova

Remuneration/Wages Workplace 

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There are questions about the constitutional validity of the Wage Theft Act and concerns employers could be subject to investigations from Wage Inspectorate Victoria and the Fair Work Ombudsman for the same circumstances.

Snapshot
  • The Wage Theft Act was the first law in Australia to criminalise deliberate underpayment of workers.
  • There are concerns about the constitutional validity of the Wage Theft Act and the impact that it will have on employers who may experience investigations from Wage Inspectorate Victoria and the Fair Work Ombudsman for the same alleged underpayment(s). 
  • The continued existence of the Wage Theft Act depends on its ability to weather these constitutional and regulatory concerns.

The Wage Theft Act 2020 (Vic) (Wage Theft Act) was the first law in Australia to criminalise deliberate underpayment of workers. It was not the last and there may be others to follow in the future. There are, however, concerns about a potential constitutional challenge between provisions in the Wage Theft Act and the Fair Work Act 2009 (Cth) (FW Act). There will be tension for employers who may be investigated and pursued by Wage Inspectorate Victoria and the Fair Work Ombudsman for the same alleged underpayment or set of circumstances. Among other things, such tension may result in a chilling effect on cooperation between employers and the Fair Work Ombudsman. 

Wage theft law in Australia

There have been several developments on wage theft law in Australia. In Victoria, the Wage Theft Act was passed on 16 June 2020 and will come into operation on 1 July 2021 at the latest. Soon after Victoria, Queensland passed the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020 (Qld) which amended the Queensland Criminal Code to change the s391 definition of “stealing”. Among other things, the definition of stealing now incorporates a failure to pay an employee an amount payable to them in relation to the performance of work. The Western Australian Industrial Relations Legislation Amendment Bill 2020 was introduced in response to the 2019 Inquiry into Wage Theft in Western Australia. 

In the Australian Capital Territory, the Magistrates Court Act 1930 (ACT) was amended to confer jurisdiction on the Magistrates Court (as an eligible state and territory court) in relation to the contravention of a civil remedy provision and related matters under s539 of the FW Act and reg 4.01A of the Fair Work Regulations 2009 (Cth). This may capture relevant wage theft or underpayment claims. The Legislative Council of South Australia formed a Select Committee on Wage Theft which released an interim report on 21 July 2020. This interim report noted the high volume of submissions that were calling for the criminalisation of wage theft.

At a federal level, in December 2020 the federal government introduced the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 into the House of Representatives. This Bill had provisions that criminalised underpayments. However, those provisions were unexpectedly removed prior to the passage of the Bill through both Houses in March 2021. 

The Wage Theft Act 

There are three main offences under the Wage Theft Act in ss6-8:

  • an employer or an officer of the employer dishonestly withheld whole or part of an entitlement owed to an employee
  • an employer or an officer of the employer falsified or authorised or permitted another to falsify an employee entitlement record with a view to dishonestly obtaining a financial advantage
  • an employer or officer of an employer failed to keep, or authorised or permitted another person to fail to keep, an employee entitlement record with a view to dishonestly obtaining a financial advantage. 

Potential penalties under the statute include individual fines of up to $198,264 and/or imprisonment of up to 10 years and/or company fines of up to $991,320.

The Wage Theft Act establishes the statutory authority of Wage Inspectorate Victoria. Among other things, Wage Inspectorate Victoria will have the authority to conduct investigations and bring criminal proceedings. 

Current constitutional concerns

The introduction of the Wage Theft Act has raised concerns about the constitutional validity of the statute. Section 109 of the Australian Constitution provides that “[w]hen a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid”. 

For brevity’s sake, a comprehensive statement of the potential constitutional issues with the Wage Theft Act is not possible here. However, at a high level it appears as if the FW Act demonstrates an intention to “cover the field” on the topic of “wage theft”. If so, this may be the most likely basis for potential inconsistency between the Wage Theft Act and the FW Act for the purposes of s109 of the Australian Constitution. 

This may be an example of “indirect inconsistency” between a state and federal law. The High Court’s statement of principle in relation to this kind of indirect inconsistency between state and federal law for the purposes of s109 of the Australian Constitution was affirmed in Dickson v The Queen:

“. . . [I]f it appears from the terms, the nature or the subject matter of a Federal enactment that it was intended as a complete statement of the law governing a particular matter or set of rights and duties, then for a State law to regulate or apply to the same matter or relation is regarded as a detraction from the full operation of the Commonwealth law and so as inconsistent”.

To the extent that there are any indirect inconsistencies between the Wage Theft Act and the FW Act on a particular matter or set of rights or duties in relation to which the FW Act was intended as a complete statement of the law, then the provisions of the FW Act would prevail over the provisions of the Wage Theft Act

There are numerous relevant considerations in the determination of the “field” that the FW Act may be attempting to cover including:

  • the FW Act predominately applies to “national system employers” and “national system employees”2
  • a national system employer can include a “referring State”
  • Victoria is a referring state4 and subject to the FW Act5
  • Section 26 of the FW Act is titled “Act excludes State or Territory industrial law” and states that the FW Act “is intended to apply to the exclusion of all State or Territory industrial laws so far as they would otherwise apply in relation to a national system employee or a national system employer”
  • a “State or Territory industrial law” includes an act of a state that applies to employment generally and that has as one or more of its main purposes “providing for the establishment or enforcement of terms and conditions of employment” and “providing for rights and remedies connected with conduct that adversely affects an employee in his or her employment”6 
  • there are numerous provisions in the FW Act that may be seen as supporting the legislative intention in s26. For example: chapter 2 of the FW Act is titled “Terms and conditions of employment”; the National Employment Standards provide for minimum terms and conditions of employment in relation to the matters therein; there is the requirement in s323 of the FW Act that an employer pay an employee in full in relation to the performance of work (except as otherwise provided); there are the employer obligations in relation to employee records and pay slips in ss535-536; and chapter 4 of the FW Act establishes the compliance and enforcement regime for breaches of the civil remedy provisions of the FW Act. 

The next step is to consider whether the Wage Theft Act has sought to enter part of the field in relation to which the FW Act was intended as a complete statement of law. There are concerns that the Wage Theft Act has done this by, among other things, creating offences for failures in relation to paying employees correctly and record keeping for employee entitlements and providing for the investigation and enforcement of these offences. These powers are arguably already contained in the FW Act as established in the immediately preceding paragraph. 

There is also an interesting question about the timing of any constitutional challenge that may emerge. For example, a constitutional challenge may be raised as a jurisdictional defence to prosecution under the Wage Theft Act. However, it is conceivable that a constitutional challenge could arrive earlier and therefore affect the investigative powers of Wage Inspectorate Victoria. For example, a constitutional challenge may be used to attempt to prevent Wage Inspectorate Victoria from exercising powers of entry, search or seizure. 

Some constitutional concerns have eased

There had been concerns that the Wage Theft Act would be forced to contend with the introduction of federal law on the same matter or set of rights or duties. In February 2020 the federal government indicated that Australia could expect to see a Commonwealth Bill on “wage theft” tabled in the Australian Parliament. 

The introduction of the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 increased anticipation about a constitutional challenge between the Wage Theft Act and any amending legislation on wage theft from the federal Bill. However, these concerns subsided following the dramatic removal of the wage theft provisions in the Bill prior to the passage of the Bill through both Houses on 22 March 2021. 

The federal government has not ruled out attempting to re-introduce wage theft laws at a federal level. If any such law took effect in the future, then the Wage Theft Act would need to be assessed against the federal “wage theft” law to determine whether there are any inconsistencies between the two. If so, then s109 of the Australian Constitution may operate to make some or all of the Wage Theft Act invalid. 

It is difficult to imagine the Wage Theft Act surviving unscathed if federal law is introduced that applies to withholding of employee entitlements and underpayments. This will, of course, depend on the exact provisions in any such federal law. However, at this time the Wage Theft Act does not appear to be threatened by federal laws expressly regulating wage theft. 

Practical implications for employers

Employers may be investigated and pursued by Wage Inspectorate Victoria and the Fair Work Ombudsman for the same potential contraventions. Previously, employer admissions and self-reporting to the Fair Work Ombudsman would not contribute to potential imprisonment. However, this is now a possibility under the Wage Theft Act. Such admissions may be admissible in future criminal proceedings against employers by Wage Inspectorate Victoria. 

This may have a chilling effect on cooperation between employers and the Fair Work Ombudsman. In turn, this may make it more difficult for the Fair Work Ombudsman to pursue underpayment claims in Victoria. The Fair Work Ombudsman “carrot” of potential reduction in penalties for cooperation is unlikely to have the same attraction for employers when that cooperation may contribute to criminal proceedings against them. For these same reasons, employers may also be more resistant to other types of Fair Work Ombudsman enforcement methods, such as future monitoring/audit programs that involve Fair Work Ombudsman oversight. 

Having said that, employers will need to be more careful than ever that they are complying with the requirements of the Fair Work Ombudsman. Failure to do so may limit an employer’s defences under the Wage Theft Act. For example, s6 of the statute establishes the offence of dishonest withholding of employee entitlements. Section 6(5) states that it is a defence to the offence if the employer proves that, before the alleged offence, the employer had exercised due diligence to pay or attribute the employee entitlements to the employee. However, s6(6) states that for the purpose of s6(5), evidence that the employer failed to comply with a requirement of a regulator is evidence that the employer had not taken all reasonable steps to pay or attribute the employee entitlements to the employee.

There may be questions about the effect that the introduction of criminal sanctions will have on the behaviour of employers. For example, there may be questions about whether employer fears of imprisonment may make them less likely to rectify underpayments in order to avoid discovery. This is not a recommended strategy, but it may be a human response to this new criminal landscape. 

Conclusion

The introduction of the Wage Theft Act is a significant development in employment law in Australia. Its existence depends on its ability to survive any constitutional challenge which may come its way and may also depend, to some extent, on its ability to co-exist with the enforcement regime of the Fair Work Ombudsman and its ability to weather the political pressure from employers who may be set to experience a double investigation in the near future. ■


Nadia Stojanova is a barrister at the Victorian Bar practising in employment, industrial, regulatory and administrative law. She is a member of the Industrial Bar Association. Before joining the Bar, she specialised in workplace relations across a range of industries and sectors.

  1. (2010) 241 CLR 491, 502, affirming Telstra Corporation Ltd v Worthing [1999] 197 CLR 61, 76.
  2. Fair Work Act 2009 (Cth), ss13-14. 
  3. Note 2 above, ss14 and 30D.
  4. Fair Work (Commonwealth Powers) Act 2009 (Vic).
  5. Except in relation to those matters excluded by the Fair Work (Commonwealth Powers) Act 2009 (Vic), ss5-5A. 
  6. Note 2 above, ss26(2)(b)(ii), 26(2)(b)(vi).

 


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