CEOs in the same category as paedophiles for intentional wage theft

Following amendments made in December to the Fair Work Act, a CEO or other corporate senior executive involved in the intentional underpayment of wages to staff could be sent to prison for up to 10 years – the same maximum prison sentence under Victorian criminal laws for grooming of children, possession of child pornography and rape, writes Paul O’Halloran.

The Albanese government struck a deal with Senate crossbenchers David Pocock and Jacqui Lambie, resulting in key aspects of the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 passing both houses of Parliament on 7 December 2023. The new criminal laws relating to wage theft will commence on 1 January 2025.

Putting management in the same boat as hardened criminals may seem harsh, but employees stealing from employers has been treated as a crime for decades. Deliberate wage theft must be deterred, and sending a CEO to prison for up to 10 years will certainly achieve the desired deterrent outcome Labor wants.

In 2020, the Australian Council of Trade Unions argued in submissions to the Inquiry into the Unlawful Underpayment of Employees’ Remuneration that a Victorian employee who steals money or goods from their employer can face imprisonment of up to 10 years, but a Victorian employer can steal millions of dollars of wages from their employees without facing the prospect of any prison sentence.

Guilt will now be established where a person, for example, a CEO or manager, intended to bring about the underpayment, or was aware that underpayment would occur in the ordinary course of events. Standard criminal sentencing principles apply when determining the level of culpability of the individual. Criminal proceedings need to be referred by the Fair Work Ombudsman to the Commonwealth Director of Public Prosecutions or the Australian Federal Police.

Senior executives worried about jail time can be reassured that underpayments that are accidental, inadvertent, or based on a genuine mistake are not intended to be caught by the new criminal offence. The explanatory memorandum accompanying the amending legislation states that “a failure to make a payment, for example, due to a banking error, would not be captured”.

Increased fines for wage theft also form part of the new laws. If a court imposes a fine against a company for a wage theft conviction, the new maximum fine will be 25,000 penalty units (currently $7.8 million).

What is unclear is whether wage theft investigation or prosecution might occur where an employer has advice about underpayments but has significantly delayed rectifying the underpayments due to cash flow issues or where there is ambiguity or uncertainty about how certain terms of a modern award or enterprise agreement, for example, relating to overtime or penalty rates in certain scenarios, might be interpreted.

A range of offences under the Commonwealth Criminal Code Act 1995 will be used to extend criminal liability to corporate individuals such as CEOs, finance managers, payroll offices and HR managers. These “related offences” under the wage theft laws can include executives being charged as accessories before and after the fact, aiding or abetting wage theft, or inciting the commission of wage theft.

Individuals charged with wage theft will have the benefit of the criminal law safeguard of privilege against self-incrimination. This means an individual charged could refuse to answer questions and remain silent, as is the case with other crimes. However, the amending legislation permits the prosecution to rely on payslips and employee records as evidence of underpayment in criminal proceedings.

There will be some “safe harbour” protections for employers to avoid wage theft prosecution. Small businesses can comply with a yet to be released “voluntary small-business wage compliance code” and large employers can self-report suspected wage theft to the Fair Work Ombudsman and enter into a “cooperation agreement”. These safe harbours don’t prevent the Fair Work Ombudsman from taking civil recovery and penalty action.

Unlike some other areas of disputation under the Fair Work Act, where the Fair Work Commission oddly disfavours the appearance of lawyers, this is one area of workplace law where employers and senior executives won’t want to scrimp on legal fees. If you were charged with rape or murder, you would not seek advice from a union or non-legally qualified consultant.

Paul O’Halloran is a partner and head of office at global law firm Dentons Australia.