National IR reform: What corporate employers and their directors need to know about imminent wage theft laws and criminal law penalties

By Damon King / 06 November 2020

This article was written by HopgoodGanim Lawyers’ Special Counsel, Damon King and Robertson O’Gorman Solicitors’ Senior Associate, Dominic Brunello.

‘Wage theft’ is a generic term which is often, but somewhat misleadingly, used to describe all forms of wage underpayment and non-payment of employment entitlements, regardless of whether the contravention was deliberate or unintentional in nature.

In September 2019, the Commonwealth Attorney-General’s department released a discussion paper flagging important Industrial Relations (IR) reforms in this area called “Improving protections of employees’ wages and entitlements: strengthening penalties for non-compliance” (Discussion Paper). 

In recent months, the topic of wage theft laws and the associated introduction of criminal law penalties have again featured in the Morrison Government’s IR reform working group discussion process.

Notwithstanding constitutional invalidity concerns, ALP state governments in some states have already somewhat controversially moved to pre-emptively enact their own laws. 

The intention of this article is to appraise national system employers, company boards and their individual directors of what they need to know, so that they can start importantly preparing for these imminent changes to the law which are likely to be introduced to Parliament before the end of 2020 and enacted early in 2021.

In this article we provide

  • an overview of this discrete aspect of the Morrison Government’s broader IR reform agenda which will highly likely feature introduction of criminal law sanctions for the most serious cases of ‘wage theft’;
  • an analysis of the major competing reform proposals including the potential relaxing of the law in terms of proving accessorial liability for those individuals and third-party entities found to be involved in a primary wage underpayment contravention; and 
  • a considered opinion about what the IR omnibus reform bill will ultimately look like in terms of compliance and enforcement matters.

HopgoodGanim Lawyers and Robertson O'Gorman Solicitors specialise in their respective fields of workplace and employment law and criminal defence law. This article is the product of their combined expertise. 

Discussion Paper

IR reform working group 

State laws

Penalty regimes

Accessorial liability

Discussion Paper

In the Discussion Paper, the Attorney-General and Minister for Industrial Relations, Christian Porter emphatically states that he considers there to be a strong case for improvement of the penalty, compliance and enforcement framework currently embodied in the Fair Work Act 2009 (Cth) (Fair Work Act).

Since the release of the Discussion Paper numerous stakeholders including trade unions, the Australian Council of Trade Unions (ACTU), superannuation funds, employer associations, labour law academia, law firms and the Law Council of Australia (to name but a few) have all lodged written submissions on the merits or otherwise of these potential reforms and how they might be practically implemented, if at all.

For present purposes, we have confined our analysis to a selection of submissions which we consider to be meritorious and consistent with the overall intent expressed in the Discussion Paper.

You can access an earlier alert specifically about the Discussion Paper here.

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IR reform working group 

Since June 2020, Mr Porter has led the IR reform working group process bringing together employers, industry groups, employee representatives and government to chart a practical reform agenda.

Five working groups were established to confidentially discuss potential solutions to key issues within Australia's IR system. 

The compliance and enforcement working group explored ways to further enhance the effectiveness of the workplace relations compliance framework, including addressing wage underpayments.

While the formal working group meetings concluded on 18 September 2020, the Government says that it is continuing discussions to settle a package of reforms. 

Media reports suggest that criminal law penalties remain very much on the table in terms of the IR omnibus reform bill which is being drafted.

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State laws

Following the holding of parliamentary commissions of inquiry into wage theft, the states of Victoria and Queensland have both enacted laws earlier this year, which effectively make deliberate forms of wage theft involving the dishonest or fraudulent withholding of wages and employment entitlements a criminal offence.

Victoria’s laws will not take affect until 1 June 2021. The penalties are heavy. Employers who are found guilty face fines of up to $991,320 for companies and up to ten years’ imprisonment.

Queensland’s laws have already commenced operation and likewise include sanctions up to ten years’ imprisonment. You can access an earlier alert specifically about the changes made to the Criminal Code (Queensland) here.

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Penalty regimes

Current state of the law 

Since the time of federation, enforcement of federal and state industrial law obligations has traditionally been by way of imposition of civil penalties only, i.e. monetary fines.

The current maximum penalties that may be generally imposed per contravention under the Fair Work Act 2009 (Cth) are 60 penalty units, which is currently $13,320 for an individual, and $66,000 for a corporation.

A higher scale of penalties applies for “serious contraventions” of certain civil penalty provisions. If the court is satisfied that the contravention was deliberate and formed part of a systematic pattern of conduct, it may impose penalties of up to 600 penalty units, which is $133,200 in the case of an individual, and $666,000 in the case of a corporation.

In the Discussion Paper, the Government’s announced intention is to introduce criminal sanctions for the most serious cases of worker exploitation apparently to work alongside the civil penalty regime either in its current form or with enhanced maximum penalties. Nevertheless, assurances have been given by the Morrison Government in the Discussion Paper that any reforms will be measured so that they do not capture employers who make inadvertent errors and mistakes, but rather target those persons who deliberately engage in exploitative wage practices of a systemic nature and thereby gain an unfair business advantage.

The Government’s reform agenda in these respects has attracted widespread community support, including within the business community. Undoubtedly this is because of the numerous large-scale wage underpayment scandals which have come to light recently. 

Reform proposal – criminal liability and sanctions 

In terms of fault, the Discussion Paper suggests that the key consideration will be determining the precise level at which criminal rather than civil penalties are appropriate. 

One of the basic principles of the criminal law is that a person should not be found guilty of a criminal offence unless the person has a guilty mind. The prosecution must prove mens rea, which is an intention to commit the act or omission which is the basis for the offence. Committing the act negligently or inadvertently is generally insufficient because the law recognises that a person should not be made a criminal for actions for which they are not morally blameworthy.1

Whilst the Australian Chamber of Commerce and Industry and many other employer groups and associations strongly oppose the introduction of criminal penalties for wage underpayments2a novel federal criminal offence would seem to be inevitable based on both community sentiment and bipartisan support for the reforms.

There are multiple ways such an offence may be composed. The physical element is uncontroversial. The live issue is the fault element. This will determine the practical reach of the offence. On that note, the Discussion Paper poses whether relevant criteria might include the nature of the conduct, the deliberateness of the conduct, the period of time over which it occurred, and whether there has been any dishonesty involved, or alternatively, might recklessness or even negligence suffice.
The ACTU argues for a strict liability test, subject to limited defences of mistake of fact and exercise of 'due diligence'. The latter would cast a reverse onus on an accused to establish that all reasonable steps were taken to prevent the contravention. The ACTU proposed maximum penalty is $1 million for a corporation and $200,000 for an individual. The ACTU also suggests a second fault-based offence be enacted to prosecute more serious, intentional, dishonest and/or reckless conduct. According to the ACTU, the fault-based offence should carry a maximum penalty of $10 million for a corporation ($2 million for an individual) and/or five years’ imprisonment.

The state of the law in the United Kingdom is also a possible model which might be adopted in whole or part. Submissions by Dr. Hardy of the Melbourne Law School Centre for Employment and Labour Relations refer to the National Minimum Wage Act 1998 (UK). Section 31(1) of the National Minimum Wage Act provides that an employer who "refuses or willfully neglects to remunerate a worker" commits an offence. However, where the employer can prove, on the balance of probabilities, that it exercised, "all due diligence and took all reasonable precautions" to ensure compliance, the statutory defence will relieve them from liability. Whilst the words employed in the UK offence provision draw on concepts less familiar in Australia, they do suggest a broader and stricter attribution of criminal liability on the basis of a mere deliberate failure to pay, subject only to a defence based on a reverse onus of proof with a relatively high threshold.

More likely, perhaps, is the model suggested by the Business Council of Australia (BCA). This would involve the importation of the elements of dishonesty and specific intent from the common law offence of larceny (or stealing). This is the approach essentially adopted by both Queensland and Victoria in their new state laws.

Currently, apart from the Criminal Code jurisdictions of Queensland and Western Australia, the applicable legal test for dishonesty is as set out in the UK Court of Appeal authority of Gosh. To establish dishonesty in a stealing or fraud prosecution, the Crown must prove two matters to the criminal standard, i.e. beyond reasonable doubt. First, the accused's conduct must be dishonest according to the ordinary standards of reasonable and honest people. Second, the accused must have personally realised that what they were doing was dishonest by those same standards. A two-staged, mixed objective and subjective test is therefore imposed. The second limb comprises the requisite mens rea of the offence. The need for a specific intent to permanently deprive requires proof of a fraudulent state of mind.

A related issue raised by the Discussion Paper is how to attribute criminal liability to a corporate employer. In that regard, reference is made to the potential applicability of part 2.5 of the Criminal Code (Cth) which allows the conduct of the company’s employees and officers to be aggregated, for the purposes of proof of the fault element, in prosecution for an offence brought against a corporate offender.

One of the main discussion questions is what maximum penalties might be applicable. In that regard, reference is made to other legislation, such as, for example, the model workplace health and safety laws which attract criminal penalties of up to five years’ imprisonment for the most serious offences. The maximum penalty for stealing under the Criminal Code (Cth) is also currently five years’ imprisonment. State laws enacted by Victoria and Queensland have conversely adopted the benchmark of ten years’ imprisonment.

Finally, it is noteworthy that the Attorney-General has flagged the creation of new ancillary orders against those companies and individuals convicted of serious wage underpayment contraventions. These include disqualifying individuals as directors and/or requiring the public naming and shaming of the entities involved.

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Accessorial liability

Current state of the law 

Under the current law, third-party or accessorial liability extends to contraventions of workplace laws in circumstances where another entity or individual is relevantly involved in the offence but is not the employer strictly liable for the wage underpayment contravention. 

Accessorial liability is principally used to ensure that the individual decision-makers acting on behalf of the employer are held responsible for the employer’s unlawful conduct. Third parties, however, such as professional advisers, contractors in a supply chain and franchisors may also be found to be accessories to a wage underpayment contravention.

Presently, a person is involved in and therefore liable as an accessory under section 550(2) of the Fair Work Act, if their conduct can be properly described as either:

  1. aiding, abetting, counselling or procuring the contravention;
  2. inducing the contravention, whether by threats or promises or otherwise;
  3. being in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or 
  4. conspiring with others to effect the contravention.

Section 550(2) of the Fair Work Act, like other civil statutory ‘involved in’ provisions, has its genesis in the criminal law of complicity and requires proof of fault.3

Bearing this in mind, the High Court has held that accessorial liability requires both knowledge and intent in the following respects:

  1. the person has knowledge of the essential matters of the contravention; and 
  2. a positive act or omission that establishes a practical link with the person to whom primary liability attaches.4

In terms of the former knowledge element above, the existence of actual knowledge of the essential matters of the contravention is necessary, or alternatively, proof that the person was willfully blind to such matters. Notably, the level or extent of knowledge required to prove accessorial liability is the focus of the reform proposals which are discussed below.

In addition, since the introduction of the Protecting Vulnerable Workers legislation in 2017, franchisors and holding companies can also be held liable for contraventions by their franchisees or subsidiaries where they were reasonably expected to know that the breach would occur, and did not take reasonable steps to prevent it.

Reform proposal 

Notwithstanding the historical, serious fault-based nature of accessory laws, the Attorney-General in the Discussion Paper poses the following questions: 

  1. have existing laws been interpreted by the courts in a manner which sets too high a bar in terms of proof of knowledge and therefore accessorial liability; and
  2. whether changes should be made to lower the bar to overcome enforcement difficulties practically experienced by the Fair Work Ombudsman, specifically in the context of third-party involvement in unlawful labour supply chains. 

More recently, practically illustrating the above concerns, were unsuccessful attempts by the regulator at proving actual knowledge of the casual employment status of underpaid workers in civil penalty litigation against alleged accessories, where an interposed entity was involved in the labour hire chain which was supplying the workers to a mushroom farming operation.5

In a carefully reasoned submission, the BCA points out that genuine culpability should require knowledge and intent, in addition to control; that is, complicity in the breach. Under normal commercial outsourcing arrangements, businesses may contract functions to specialist providers with no pre-existing commercial control over their employment practices. In such circumstances, something more than a mere ability to control or influence the sub-contractor is required. Proposals to extend accessorial liability to the so-called 'economic decision-maker' will risk unfairly capturing principal contractors, who have little to no oversight over the employing entity.

It remains to be seen whether the Morrison Government concludes that extending the accessorial liability provisions is necessary or desirable. The complexity of some employment outsourcing arrangements and the reach of the current provisions support arguments each way. However, if the recommendations of the Migrant Workers Taskforce and the 2017 reforms concerning franchisors and holding companies are a reliable barometer, a further broadening of accessorial liability seems likely. 

Our prediction on IR reform – compliance and enforcement 

In our view, the introduction of a new criminal offence for wage underpayment will be the centerpiece of the new reforms and will likely largely follow the model already adopted at state level. Criminal prosecutions will, however, be reserved for the most serious examples of wage underpayment; that is, deliberate, dishonest and/or fraudulent, and repetitious misconduct. A due diligence defence is likely to apply as a further safeguard for employer decision makers including corporate directors and officers.

In terms of accessorial liability, the BCA submits that the provisions within the Fair Work Act are fit for purpose in this context; that is, "suitably adapted to reflect the context of workplace laws". In our view, the BCA’s submission holds significant weight particularly in terms of potential criminal liability given the historical genesis of fault based accessorial liability provisions. There is unlikely to be, and there should not be, any relaxation of the liability test for the purpose of criminal law sanctions.

By contrast, a relaxation of the test for accessorial liability in civil penalty proceedings is capable of having profound implications for businesses involved in subcontracting, outsourcing and labour hire arrangements, which are particularly problematic for regulatory enforcement. In our view, some reform is more likely than not in those limited respects, which would be consistent with the findings of the Migrant Workers Taskforce and views of the Law Council of Australia and others in respect of ‘recklessness’ being a relevant consideration.

If such a reform is adopted for the purposes of civil liability only, it might be reasonably expected that, in determining accessorial liability, regard must be had to the legislative approach already adopted in terms of the civil of liability of franchisors and holding companies under section 558B(4) of the Fair Work Act. Under this extended model of accessorial liability, the relevant enquiry is whether the alleged accessory took reasonable steps to prevent a contravention having regard to all relevant matters, including things like:

  1. the size and resources of the alleged accessory;
  2. the extent to which the alleged accessory had the ability to influence or control the contravening employer's conduct;
  3. any action the alleged accessory took directed towards ensuring that the contravening employer was compliant with its industrial obligations; and
  4. the extent to which the alleged accessory’s arrangements (legal or otherwise) with the contravening employer encourage or require it to comply with workplace laws.

As noted by the Law Council of Australia in its submission, a holistic approach to compliance and enforcement IR reform is necessary and desirable. While criminal sanctions can play an important deterrent effect, they alone will not assist to alter the vast majority of cases of underpayment of wages or address the financial concerns of underpaid workers.

We intend to jointly publish a series of articles on the IR reform omnibus bill once publicly released and then when enacted (if substantial amendments are made by the Senate) with public seminars and/or webinars to follow.

For further information or discussion, please contact Damon King from our Workplace and Employment team. 

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1 J Colvin & Anor, Criminal director liability: a bridge now too far (2020) 35 Aust Jnl of Corp Law at page 199

2 The Australian Industry Group; National Retail Association, Housing Industry Association, Business SA, Pharmacy Guild of Australia, Restaurant & Catering Australia, NSW Business Chamber, and The Association of Professional Staffing Companies in Australia

3 T Hardy, Who should be held liable for workplace contraventions and on what basis? (2016) 29 AJLL 78 at 87

4 Yorke v Lucas (1985) 158 CLR 661

5 Fair Work Ombudsman v Hu (No 2) [2018] FCA 1034; Fair Work Ombudsman v Hu [2019] FCAFC 133

Key Contacts
Damon King
Special Counsel
Damon King is a Special Counsel in our Workplace and Employment practice with extensive knowledge of industrial and employment law matters.

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