18 June 2020
The Victorian Wage Theft Bill 2020 (the Bill) was passed by both houses of the Victorian Parliament on 16 June 2020. The Bill imposes significant penalties, including jail time, against employers who underpay their staff. The Bill has been in the making for a number of years, and was a key election promise for Daniel Andrews’ Labor government as it went into the 2018 state election.
Once the Bill has received Royal Assent from the Governor, it will become the Wage Theft Act 2020 (Vic). However, it is possible that it may be some time before it comes into in effect. The Act will not commence until 1 July 2021, unless commenced earlier by proclamation.
What does the Bill propose to do?
The Bill creates criminal offences relating to:
employers underpaying employee entitlements; and
employer record keeping regarding employee entitlements.
It also establishes the Wage Inspectorate Victoria.
Wage theft offences
What are the offences?
Employers must not dishonestly:
withhold the whole or a part of an ‘employee entitlement’ owed by the employer to the employee; or
authorise or permit, expressly or impliedly, another person to withhold the whole or part of an employee entitlement owed by the employer to an employee.
… and the penalties?
In the case of a body corporate, 6000 penalty units (approximately $991,000).
An individual officer of an employer who is convicted of an offence can be sentenced to up to 10 years imprisonment.
What are ‘employee entitlements’?
For the purposes of the Bill, employee entitlements mean any amount (or any other benefit) payable or attributable by an employer to, or in respect of an employee in accordance with relevant laws, contracts, or agreements. Employee entitlements includes, wages, salary, allowances and gratuities. It also includes the attribution of annual leave, long service leave, meal breaks, and superannuation.
What constitutes an employer “authorising or permitting” another person to withhold the whole or part of an employee’s entitlement?
The Bill gives three examples of how authorisation or permission could be established. They include (but are not limited to):
proving that the employer or an officer of the employer gave that authorisation or permission (whether expressly or impliedly);
in the case of an employer that is a body corporate, proving that the employer’s board of directors gave that authorisation or permission, whether expressly or impliedly; and
in the case of an employer that is not a natural person, proving that a “corporate culture” existed within the employer that directed, encouraged tolerated or led to the relevant conduct being carried out?
What sort of ‘corporate culture’ authorises or permits underpayments?
For the purposes of the Bill, ‘corporate culture’ in relation to an employer’s business means an attitude, policy, rule, course of conduct or practice existing within the employer generally or in the part of the employer in which the relevant conduct is carried out or the relevant intention is formed.
Examples of this could be internal policy (written or otherwise), or accepted conduct within a business of:
not paying retail employees if they work beyond rostered hours when closing up the shop;
a restaurant ‘charging’ an employee for dropping food or product through a deduction from their wages;
unapproved ‘training wages’ which result in an employee being paid below award, agreement, or contractually agreed rates;
unpaid internships at a corporate head office (that is not a vocational placement).
What about ‘rogue’ employees or management underpaying employees?
There is a defence for employers, if they can prove that they exercised due diligence to prevent the authorisation or permission being given to withhold wages.
If, however, an employer has failed to comply with the requirements of a regulator (for example, the Fair Work Ombudsman) it will be taken as evidence that the employer had not taken all reasonable steps to pay or attribute the employee entitlements to the employee.
How is this different from employer obligations under existing legislation, awards, agreements and contracts?
A key difference between the Bill and underpayment provisions in the Fair Work Act 2009 (Cth) (FW Act), is that the Bill requires dishonest intent.
Federal underpayment provisions are strict liability provisions, which means that it doesn’t matter whether the employer intended to underpay an employee, or whether it was an accident, a Court is still entitled to order the employer pay back any amount underpaid (and impose penalties for breach).
Times have been tough – what if the employee agrees to the reduction?
In determining if any withholding of employee entitlements is dishonest, consent by or on behalf of the employee to the withholding is irrelevant if the withholding reduces the employee entitlement to less than the minimum amount or benefit required under relevant laws.
Record keeping offences
What are the offences?
Employers, or their officers, must not:
falsify, or expressly or impliedly authorise or permit another person to falsify, an employee entitlement record in respect of an employee, or
fail to keep, or expressly or impliedly authorise or permit another person to fail to keep an employee entitlement record in respect of an employee,
with a view to dishonestly:
obtain a financial advance for the employer or another person; or
prevent the exposure of a financial advantage obtained by the employer or another person.
… and the penalties?
In the case of a body corporate, 6000 penalty units (approximately $991,000) or, individuals are subject to a maximum of 10 years imprisonment.
How will this work with our national workforce?
This diagram outlines how the Bill will apply to employee entitlements payable to employees across your workforce.
How does this interact with our current obligations under other acts, awards, and agreements?
The Bill, once enacted, will run alongside all other obligations an employer has under federal laws and industrial instruments that it is subject to.
There is a risk that the Bill could be subject to constitutional challenge, and overridden by its various federal counterparts, namely the FW Act. The FW Act specifically excludes 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.
The FW Act definition of a State or Territory industrial law includes one which applies to all employees in the State or Territory, and has one or more of the following as its main purpose:
the establishment or enforcement of terms and conditions of employment;
the making and enforcement of agreements (including individual agreements and collective agreements), and other industrial instruments or orders, determining terms and conditions of employment; or
the provision of rights and remedies connected with conduct that adversely affects an employee in his or her employment.
The Bill could arguably fall into any of the above categories.
Should the Federal Government introduce its own laws criminalising underpayments (as it has indicated it will be doing over the past 10 months) it will be even more difficult for the Bill to function as intended, if it is inconsistent with the Federal Government’s underpayment laws, as the federal law will override any discrepancy between the two. If an employer were to be prosecuted simultaneously at both a federal and state level, constitutional issues may arise.
Wage Inspectorate Victoria and Commissioner
What is the Wage Inspectorate Victoria?
The Bill will establish the Wage Inspectorate Victoria (WIV). The WIV will educate, promote compliance, investigate possible offences, and bring criminal proceedings in relation to alleged employee entitlement offences, among other things.
What can it do?
The WIV will have the power to do all things necessary to perform its duties and functions (being, education, investigation, and bringing criminal proceedings). Their powers include the ability to compel an employer to produce documents, or attend the WIV.
The WIV can also appoint people to act as inspectors.
What can inspectors do?
Among other things, inspectors can exercise entry, search, and seizure powers. They can also require a person to answer questions or produce documents at the following premises:
the registered office of a body corporate; or
premises at which work is carried out or records or kept, which the inspector reasonably believes may be relevant to the commission or possible commission of an employee entitlement offence.
Inspectors are entitled to enter premises to search and seize with consent, subject to fulfilling certain requirements (including informing the owner/occupier of the purpose of the search and the owner/occupier’s rights in the situation, and having the owner/occupier sign an acknowledgement to this effect).
Inspectors are also entitled to enter a premises without consent and without a search warrant to search and seize if they enter at a reasonable time and reasonably believe that:
there are documents regarding the commission or possible commission of an employee entitlement offence; and,
that the owner/occupier would not consent, and either
the inspector has provided a notice in advance; or
the inspector believes on reasonable grounds that a delay in the entry is likely to result in the commission of an employee entitlement offence, or concealment, loss or destruction of evidence.
Inspectors can also enter a premises to search and seize with a search warrant, in accordance with their obligations under said warrant.
What should my business do?
Now is as good a time as ever to manage any underpayment risks.
Employers should ensure that:
employees are being paid appropriately, with reference to the applicable award, agreement, and/or contract of employment;
employee records are being kept and maintained in accordance with FW Act obligations;
roles and positions are regularly reviewed by reference to an employee’s duties, to make sure employees are appropriately classified (and as such, that any salary review is correct);
all employees are included in a salary review (even salaried employees, and middle or upper management);
the corporate culture of the company is not one which would authorise or permit underpayments;
HR, management, payroll, and any other employee with oversight to employee pay, are provide with appropriate training in compliance with applicable workplace laws.
For further information, please contact:
Anthony Wood, Partner, Herbert Smith Freehills