New criminal offence of wage theft (a wake-up call for employers, boards and senior management)

'It has always been a crime if a worker steals from the till, it should also be a crime if an employer steals from a worker'.

So said the Minister for Workplace Relations in introducing the Fair Work Amendment (Closing Loopholes) Act 2023 (Cth), which amends the Fair Work Act 2009 (Cth) (FW Act) to introduce a new criminal offence of wage theft. Maximum penalties are in the millions of dollars and for individuals, include potential jail time. The new offence will apply from 1 January 2025. It will not be retrospective but will capture a course of conduct which commenced prior to 1 January 2025.

Boards and senior management should take prudent steps to ensure they and their organisations do not commit the wage theft offence. Their knowledge and intention, as well as corporate culture, will be closely examined by a Court in a prosecution. Statutory liability, management liability and D&O insurers should consider how policies may respond to claims in respect of the offence, having regard to existing exclusions and any obligation to advance defence costs.

The elements of the offence – what will a Court examine?

The wage theft offence applies to the intentional underpayment of entitlements under the FW Act or a fair work instrument, such as a modern award or enterprise agreement. For certain employees, the offence extends to non-payment of superannuation and long service leave entitlements. It will not apply to entitlements arising solely under a contract of employment.

The offence has the following elements:

1. an employer is required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and
2. the employer intentionally engages in conduct that results in its failure to pay those amounts to or for the employee, on or before the day the amounts are due to be paid.

An employer will have 'intention' to engage in conduct if it means to engage in that conduct. If the employer is a body corporate, the intention will be attributed to a body corporate if it expressly, tacitly or impliedly authorised or permitted the commission of the offence.

The intention of a body corporate is established by:

• proving that the body corporate's board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
• proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
• proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non – compliance with wage and entitlements legislation laws; or
• proving that the body corporate failed to create and maintain a corporate culture that required compliance with wage and entitlements laws (unless it can prove it exercised due diligence to prevent the conduct, or the authorisation or permission).

A Court will look at whether authority to commit an offence of the same or a similar character had been given by a high managerial agent of the body corporate. It will also examine whether the employee, agent or officer of the body corporate who committed the offence believed on reasonable grounds, or entertained a reasonable expectation, that a high managerial agent of the body corporate would have authorised or permitted the commission of the offence.

In this context, 'corporate culture' means an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place. A 'high managerial agent' means an employee, agent or officer of the body corporate with duties of such responsibility that his or her conduct may fairly be assumed to represent the body corporate's policy.

A person who aids, abets, counsels or procures the commission of the wage theft offence by another person (e.g. their employer) is taken to have committed that offence and is punishable accordingly. This means individuals could be personally prosecuted for the offence as an accessory. For a person to be guilty as an accessory:

1. the person's conduct must have in fact aided, abetted, counselled or procured the commission of the offence by the other person; and
2. the offence must have been committed by the other person; and
3. the person must have intended that:
   (a) his or her conduct would aid, abet, counsel or procure the commission of the offence; or
   (b) his or her conduct would aid, abet, counsel or procure the commission of the offence and was reckless about the commission of the offence.

Penalties for wage theft

For a body corporate, the following maximum penalties will apply:

• if the Court can determine the underpayment, the greater of 3 times the amount of the underpayment and $7.825 million, or
• if the Court cannot determine the underpayment, $7.825 million.

An individual found guilty of the offence faces the following maximum penalties:

• 10 years in prison
• if the Court can determine the underpayment, the greater of 3 times the amount of the underpayment and $1.565 million, or
• if the Court cannot determine the underpayment, $1.565 million.

Prosecution for wage theft does not preclude civil action by the FWO or an employee (or their union) to recover unpaid employment entitlements.

Self-reporting

If an employer is concerned it has engaged in conduct which may amount to the commission of a wage theft offence, it can self-report to the FWO. The pathways for self-reporting will include:

• a Voluntary Small Business Wage Compliance Code (the Code) will be developed by government in partnership with employer and employee groups. Evidence of compliance with the Code will ensure that the FWO will not refer conduct for criminal prosecution, and
• the FWO can enter into a cooperation agreement with a person or employer, which (if the agreement is reached) would preclude the FWO from referring the person for prosecution.

An employer should seek legal advice before self-reporting.

Practical tips for boards and senior management

There are practical steps boards and senior management can take to mitigate the risk of wage theft. These steps include:

• ensuring their organisation pays all statutory employment entitlements
• if necessary, auditing their organisation for wage compliance (which we recommend doing under legal professional privilege)
• seeking legal advice if unsure about their obligations, award coverage or classifications
• training boards and senior management about the importance of paying employee wages and other statutory entitlements
• creating and maintaining a corporate culture that requires compliance with wage and entitlements laws, and
• exercising due diligence to prevent the conduct, or the authorisation or permission of non-compliance with wage and entitlements laws.

Implications for insurers

It is possible statutory liability, management liability and D&O insurance policies may cover defence costs arising from a prosecution of an organisation or individual for wage theft. Such insurers should consider how policies may respond to claims in respect of the offence.

If the policy wording covers such claims, insurers should consider whether existing exclusions would enable the insurer to decline cover (and recover defence costs advanced) in the event of adverse findings by a Court or admissions of guilt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.