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Legal consequences of underpayment of wages by employers in Australia

From time to time, there are employers who are sued by the Fair Work Ombudsman Australia (FWO) for paying their employees less than the legal minimum wage. In this article, we will discuss the legal consequences of the failure to back-pay employees.

01

Example 1 – Joys Child Care

On 19 August 2020, the FWO published on its website that the Federal Circuit Court imposed penalties of $30,240 against a Sydney childcare centre, Joys Child Care for failing to pay two of their ‘volunteer workers’ for a year. Despite a volunteer arrangement being made, it was found illegitimate as the workers performed productive work under little or no supervision. Hence, they were employees of the child care centre and were entitled to be paid wages.

Note

The total penalties included $25,200 imposed against the child care company itself, while the remaining $5,040 was imposed against the individual operator of the company.

https://fairwork.gov.au/about-us/news-and-media-releases/2020-media-releases/august-2020/20200819-joys-child-care-penalty

02

Example 2 – Underpayment of quarantine security workers
On 1 October 2021, the FWO published that it has recovered a total of $303,299 for underpaid 1,010 security guards or supervisors working at quarantine hotels in Melbourne and Sydney. After investigations were carried out against 37 security businesses, the FWO found that 15 were in breach of workplace laws, which included 11 businesses who had underpaid their workers.https://www.fairwork.gov.au/about-us/news-and-media-releases/2021-media-releases/october-2021/20211001-covid-19-hotel-quarantine-security-media-release
The Legal Basis of Payment of Wages
In Australia, the wages that an employee is entitled to be paid may be subject to any of the following documents:

  1. Employment Agreement – an agreement between an employer and employee that sets out the terms and conditions of employment.
  2. Modern Award – a document that sets out the minimum terms and conditions of employment of every industry.
  3. Enterprise Agreement – an agreement between an employer and a group of employees that sets out the terms and conditions of employment. It prevails over the Modern Award, given that the terms conditions in the agreement are more favourable to the employees.
  4. National Minimum Wage Order – Annual minimum wage order set by the Fair Work Commission for employees not covered by enterprise agreements or modern awards.
Employees’ Rights

If you suspect that you are underpaid by your employer,

You should take action immediately to recover your wages. Under the Fair Work Act 2009 (Ch) (‘The FW Act’), employees must commence court proceedings to recover underpaid wages within six years of the date of the underpayment event.

Example

If an employer underpays its employees’ wages for up to 10 years, employees who commence proceedings will only be able to trace their underpayments in the last six years.

Alternatively, you may try to resolve the dispute by directly communicating with your current or former employer. Under the protections of the FW Act, an employer cannot take any adverse action against an employee for challenging his or her underpayment, which is a legal right of an employee. If the claim is less than $20,000, you may make a small claim against your employer by an application to the Fair Work Small Claims Division of the Federal Circuit Court or state or territory magistrates and local courts. The process is designed to resolve employment disputes more quickly than other court procedures and typically does not require or allow the parties to be represented by a lawyer. No penalties apply to the employer through the small claims process. If the court finds that the employer has breached the provisions of the Fair Work Act, the court can make an order awarding any damages to the employee. Interest may also be imposed by the court, and the amount of interest will be determined at the discretion of the court in making the final order.
Employers’ Duty – the penalties for employers’ breaches of the Modern Awards or employment contracts
Under section 539 of the FW Act, employers may face civil penalties in contravention of the provisions of the FW Act including:

  • A fine of up to $12,600 for each offence committed by an individual (equivalent to 60 penalty units, one penalty unit equivalent to $210 under section 4AA of the Crimes Act 1914 (Cth)); or
  • For a company, the maximum penalty for an offence under the FW Act is $63,000 (equivalent to 300 penalty units).

Note

The court may impose fines on both individuals and companies for the same offence. The court can also order the employer to pay the fine to the employee. Where it is determined that the employer has seriously breached the Fair Work Act, the court may order further penalties.

What is serious contravention?
  • A person knowingly contravened the provision; and
  • the person’s conduct constituting the contravention was part of a systematic pattern of conduct relating to one or more other persons.

If the court considers that there has been a serious contravention, the following penalties may apply:

  • A maximum fine of $126,000 for each contravention against an individual; or
  • The maximum penalty for each company is $630,000.

Wage theft laws in Victoria
The Victorian Parliament has passed Australia’s first laws on wage theft on 16 June 2020. Under the Wage Theft Act 2020 (Vic), commencing on 1 July 2021, it is a criminal offence for employers in Victoria to deliberately and dishonestly underpay employees or withhold employee entitlements. Any of the following acts will constitute a criminal offence:

  1. Deliberately and dishonestly underpay employees
  2. Deliberately and dishonestly withhold wages, superannuation or other employee entitlements
  3. Falsify employee entitlement records to gain a financial advantage
  4. Avoid keeping employee entitlement records to gain a financial advantage

These offences are subject to a maximum fine of $218,088 or up to 10 years’ imprisonment for an individual; and a maximum fine of $1,090,440 for a company.

Note

It is also an offence if the company’s senior manager or board of directors explicitly or implicitly authorises or permits the conduct, or if there is a corporate culture that directs, encourages, or tolerates the conduct. Directors and officers of a company may be prosecuted and sentenced under the Wage Theft Act, regardless of whether the corporate body is also prosecuted.

The Victorian government has established the Wages Inspectorate of Victoria which is empowered to investigate the commission of offences under the Wage Theft Act and bring proceedings. Given the scope of the Wage Theft Act, employers facing underpayment issues may be subject to investigations by two government bodies simultaneously, the Fair Work Ombudsman and Victoria’s Wages Inspectorate.

Conclusion

If you believe you are underpaid or would like to seek advice on an employment law matter, please feel free to contact us.

 

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