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Friday Workplace Briefing

Closing the Loopholes and Locking the Door – Big New Penalties for Wage Theft Under Proposed Legislation

In this week’s Friday Workplace Briefing, Kim McLagan and Nina Hoang explain the Federal Government’s Closing the Loopholes Bill so you can understand the new wage theft structure, penalties and actions your business must take to avoid prosecution, jail and penalties.

To view the full episode and catch up with the week’s latest news and developments please visit this link

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About the Hosts

Principal Lawyer - Head of Workplace Relations

Senior Associate - Workplace Relations

Episode Transcript

Nina Hoang: Alright, onto the main topic.

Kim McLagan: We’re doing all right for time. We’re, I think, we’re a minute ahead.

Nina Hoang: Yeah.

Kim McLagan: Doing well.

Nina Hoang: Yeah, we’re doing better than Andrew.

Kim McLagan: Although we’re both powering through. Okay. So you and Andrew talked about the Closing the Loopholes Bill and just touched on each topic. We’re going to focus on a few of them more.

Nina Hoang: Yeah. In depth.

Kim McLagan: …in depth for the next, for the next few weeks.

Nina Hoang: Yeah. I will do a little clarify that the federal government gave everyone a breather because this is not being discussed until the start of next year.

Kim McLagan: Yep.

Nina Hoang: But look, it gives you the time to actually unpack it in detail and see how it’s going to affect you which is why we think it’s important to give these practical examples now.

Kim McLagan: Yeah. And in reality, it could be a full 15 months or so.

Nina Hoang: Yeah.

Kim McLagan: Before some of these come into effect. But as Nina said, it’s good to get ahead of the game and to know what to expect. Hopefully none of you will ever come across this one because the bill will introduce a new criminal offence for wage theft, which up until now it’s always been a civil penalty.

Nina Hoang: Except for in Victoria.

Kim McLagan: Okay.

Nina Hoang: Yeah, and Queensland.

Kim McLagan: Thank you. Oh, there you go. Thank you. But it will only apply where the employer intentionally fails to pay wages or entitlements owed to employees under an industrial instrument. And the Commonwealth DPP or the Australian Federal Police will need to prove beyond a reasonable doubt that the conduct of the employee was intentional. So underpayments that are accidental, inadvertent or by genuine mistake will still only be subject to the civil penalties.

Nina Hoang: Yep.

Kim McLagan: And they won’t be caught under the criminal prosecution one.

Nina Hoang: Yeah.

Kim McLagan: So for example, if you genuinely misclassify someone under an award,

Nina Hoang: Yeah.

Kim McLagan: …that’s a classic example. But huge penalties.

Nina Hoang: Oh gosh, yeah.

Kim McLagan: And imprisonment. So the maximum is 10 years’ imprisonment.

Nina Hoang: Yeah.

Kim McLagan: ForKim McLagan: For the individual.

Nina Hoang: Yeah.

Kim McLagan: Yeah. For a company, the maximum penalty will be either the greater of three times the underpayment, or around 7.8 billion.

Nina Hoang: Yeah, which is huge. ’cause you think, three times, like some of the significant penalties are, sorry, underpayments by unis, are millions of dollars.

Kim McLagan: Yeah.

Nina Hoang: Three times That is huge.

Kim McLagan: Huge.

Nina Hoang: Yeah.

Kim McLagan: And for an individual, too, 1.5 mil is the maximum.

Nina Hoang: Yeah, just-

Kim McLagan: So it’s massive, yeah.

Nina Hoang: And that’s at this time, based on the current penalty units.

Kim McLagan: Yeah.

Nina Hoang: Like that’s only going to increase. So it’s just crazy.

Kim McLagan: Yeah.

Kim McLagan: But I think, Kim, what’s interesting is the federal government have taken like a really different approach to the current other wage theft legislation in that there are three kind of mechanisms to work with the federal government’s men if you have inadvertently engaged in wage thefts. So firstly, you can self-report and it’s going to be probably a system like how you can self-report to the ATO if you’ve underpaid means you can work with the Fair Work Ombudsman to fix it, and it means that you likely won’t be prosecuted. I think it’s really good that they’ve put that in place, but it does mean for employers that you’re not completely off the hook. Because you’ve established the knowledge then, that you’re aware of what you did wrong, and if you do it again, you are definitely going to get convicted and probably jailed for it because it’s got that established knowledge. Just like in safety law.

The other two interesting things is they’re introducing a voluntary small business compliance code, which I think is going to be like the small business dismissal code. And if the business can prove that it complies that code then it will not be prosecuted for wage theft. And also the option to enter into cooperative agreements with the Fair Work Ombudsman. So something like an enforceable undertaking, which once again is a really good option for businesses but establishes that knowledge, which means the next time it comes around, youKim McLagan: the threshold’s going to be higher and you’re definitely going to get in trouble.

Kim McLagan: Yeah.

Nina Hoang: But that’s just the criminal side. They haven’t just left the civil side alone.

Kim McLagan: Oh, no, no, no. It’s more to come. So we’ve still got the civil penalties in place obviously, and we’re going to see a significant increase in those as well.

Nina Hoang: Yeah.

Kim McLagan: So for a company where there’s been accidental conduct, the penalty will go up from around 94,000 up to 470,000. Hmm. At the moment there’s a threshold where it has to be a serious contravention. So a systematic pattern.

Nina Hoang: Yep.

Kim McLagan: They’re lowering the hurdle. So it’s actually going to be easier to penalise for under the serious contravention.

Nina Hoang: For a serious contravention. Wow.

Kim McLagan: To be knowing or reckless conduct.

Nina Hoang: Oh wow.

Nina Hoang: Yeah.

Kim McLagan: Yeah. So there you go.

Nina Hoang: Gosh.

Kim McLagan: Penalties increasing fromKim McLagan: for an individual, a hundred and ninety up to nearly a million.

Nina Hoang: Wow.

Kim McLagan: And for a company, about five foldKim McLagan: nine 40 up to 4.7 million.

Nina Hoang: Yeah.

Kim McLagan: A potential maximum penalty under the civil provisions.

Nina Hoang: Yeah. So that means that even if you’re not criminally prosecuted that doesn’t mean you get off the hook.

Kim McLagan: Oh no, no, no.

Nina Hoang: You could be up for significant penalties. And I think that’s what the government’s making clear that, look, we cannot have wage theft anymore.

Kim McLagan: No.

Nina Hoang: Not in this day and age.

Kim McLagan: No.

Nina Hoang: And if you do it even inadvertently, you will get punished.

Kim McLagan: Mm.

Nina Hoang: Yeah. And look, that’s what’s coming into effect. But we’ve seen like with the existing provisions that the Fair Work Ombudsman has not been shy of prosecuting under the civilKim McLagan: the current Fair Work Act, either.

Kim McLagan: Mm.

Nina Hoang: Like we’ve seen with the Fair Work Ombudsman and I think it was Make Dough, they went after the franchise itself. So I think it was Baker’s Delight. They were franchisees who had been underpaying and they went bankrupt. And the Fair Work Ombudsman said, “I don’t care. I’m going after the franchisor.” Because they had knowledge that this was a high risk. This franchisee had underpaid several times before and that was enough. It doesn’t matter that they didn’t have direct control, they weren’t the ones controlling it.

Kim McLagan: Yeah.

Nina Hoang: You still had a liability.

Kim McLagan: Yep.

Nina Hoang: So already seeing them prosecuting under the franchise liability, under the Fair Work Act. But we’ve also seen with that other case I think we spoke about, a couple of weeks ago against Chatime where direct knowledge doesn’t matter. Like the Fair Work Ombudsman went after that managing director even though he didn’t have direct knowledge of the underpayment. But his decision directly led to it, because when he was choosing between the two models of costings, there was enough there that should have flagged for him that, hey, this is problematic. One model says it’s got everything. The other model doesn’t mention any of our allowances, casual loadings or anything like that. But he chose that one.

Making that decision, he should have known that it was going to lead to an underpayment and that was enough.

So it’s a very, very low thresholds. And like, they’re also cracking down on deductions like we saw with the Fair Work Ombudsman and NQ Powertrains. That was like a farming case where they were paying under the Pacific Labour Scheme. And there were several unlawful deductions which they had thought they had been done, doing correctly. And the Fair Work Ombudsman said, “No, that’s wage theft as well.”

And look, surprisingly actually, under the new closing loop stuff that’s not going to be caught under the civil penaltyKim McLagan: sorry, the criminal penalties. But you will definitely be exposed to those significant civil penalties, particularly if it’s underpayments involving vulnerable workers.

So we can see that with these new changes the Fair Work Ombudsman is just going to go harder.

Kim McLagan: Yeah, it will.

Nina Hoang: And they will definitely not hesitate to use these new powers.

Kim McLagan: No.

Nina Hoang: Yeah.

Kim McLagan: No.

Nina Hoang: So I think let’s talk about some of the case studies, ’cause we’ve got some practical examples of what the new changes will look like in action.

Kim McLagan: Amy was an HR manager at Dollar Co which was an investment fund. Her boss, Melinda, was set on growth, but funds were tight. Melinda asked Amy to recruit some accounts clerks that would need to work across different time zones. She asked Amy to work out the cheapest models. Amy came up with two.

On your point about the two different models needed, take note.

One Award wage that had no adjustment for working outside Australian hours. Her note said that this breaches the Award but there are plenty of people who are willing to do it. The second had bumped up base rate with set off clause that covered out of hours but was $24 more per week per employee. Amy did the calculations, showed it was lawful and said that this was the preferred method. Melinda came back to Amy and said, “Go with model one.” So Amy recruited under model one.

So I question, who is liable and what is the risk of penalty?

Nina Hoang: Yeah. So Andrew definitely drafted this based off the Chatime one.

Kim McLagan: Yeah, no doubt.

Nina Hoang: Yeah, and so it would definitely be Dollar Co who would be liable for the underpayments, and definitely Amy and-

Kim McLagan: Melinda.

Nina Hoang: Melinda.

Kim McLagan: Yeah, as well.

Nina Hoang: So Melinda made the decision and there was enough there that she could say that there was a problem. So herKim McLagan: both her and Amy choosing to ignore it means that they would probably be caught under the new, like the knowing and recklessness, actually.

Kim McLagan: Yeah, mm.

Nina Hoang: So definitely potentially could be under the serious contraventions depending how far reaching it was.

Kim McLagan: Mm.

Nina Hoang: So-

Kim McLagan: And potentially risk jail, though.

Nina Hoang: Yeah definitely.

Kim McLagan: Because it was definitely knowing.

Nina Hoang: Yeah.

Kim McLagan: And deliberate.

Nina Hoang: And it was intentional.

Kim McLagan: Yeah.

Nina Hoang: I think that’s a good point as well. You could also getKim McLagan: We should be clear though. It’s not one or the other. You could be pursued for both.

Kim McLagan: No that’s right, yeah.

Nina Hoang: Yeah. So what seemed like such a small decision could have really wide ramifications. Yeah. Yeah. Not worth it people.

Kim McLagan: Yeah. Alright, so we’ve got another case study for the main topic.

So Basil was the managing director of Mine More Pty Ltd. MM acquired Gold Co and its employees. During the due diligence phase, Basil and his HR manager, Gwen, noticed its wages bill was beneath theirs, but observed in a board meeting the employees were lucky as their employees received substantially above the award under an EA. MM decided to hold Gold Co in a fresh entity to avoid losing the wage rate benefit.

Six months after purchase, the CFMEU Mining division exercising their new powers under closing the loop, Yes. So that’s a new power as well.

They’re going to be able to go in and investigate any suspected underpayment which a lot of people have been like, oh my gosh the union’s going to have so many powers.

They kind of already had the power already, which we spoke about last week but it’s a specific power now. So they can go in to investigate these contraventions. So entered the site to investigate underpayments.

They worked with MM’s accountant and realised that they were underpayments. MM immediately back paid the employees from acquisition.

So who is liable and what is the penalty?

Kim McLagan: Okay, so the new entity that engaged or acquired Gold Co.

Nina Hoang: Yep.

Kim McLagan: Gold Co will be liable.

Nina Hoang: Yeah, definitely.

Kim McLagan: And Ben, notKim McLagan: Basil.

Nina Hoang: Basil. Yep.

Kim McLagan: Basil and Gwen will certainly be civilly prosecuted.

Nina Hoang: Yeah.

Kim McLagan: Yeah.

Nina Hoang: ’cause they just didn’t have the systems in place.

Kim McLagan: No.

Nina Hoang: Like during the due diligence process they had enough there to know that, “Hey, that’s weird. Why are they getting paid the same?” But yet theyKim McLagan: we have to pay less. That doesn’t make sense logically.

Kim McLagan: No.

Nina Hoang: And so they should have checked and did some kind of auditing process to make sure, and then put proper systems in place to make sure it was there. So if you don’t do that, then you inherit these problems and you become liable for them.

Kim McLagan: Yeah.

Nina Hoang: Well thank you for joining us. I think we made it in good time.

Kim McLagan: We did.

Nina Hoang: Yeah. So give us a reaction so we can make sure Kim comes back. All right, give us a thumbs up. Thank you, bye.

Check this next

In this week’s Friday Workplace Briefing, Kim McLagan and Nina Hoang discuss the recent labour hire changes under the Closing the Loopholes Bill and what this could mean for your business. To view the full episode and catch up with the week’s latest news and developments please visit this link.