Unnecessary and unconstitutional? The Practical and Legal Problems With the Criminalisation of Wage Theft

The deliberate underpayment of employee entitlements, such as wages, is not currently a criminal offence in Australia (despite the misleading use of the term by some). However, that is about to change with the Victorian Labor Government pledging to criminalise “wage theft” and the NSW Labor Opposition Party also committing to do the same should they win government in the election this year. The Queensland government has recently conducted an inquiry into wage theft, which included a recommendation it be criminalized, whilst in January the WA Labor Government announced its own inquiry.

It is argued that the prospect of imprisonment and criminal penalties will act as a deterrent leading to more employees receiving what they are owed. However, it is not that simple as there are a number of practical and legal problems with the proposed criminalization of “wage theft” at the state level. In my view, these problems are significant, with the criminalization of wage theft unlikely to achieve what its proponents say it will achieve.

Existing laws already deal with deliberate underpayments

Deliberate underpayment of wages is already unlawful at the federal level under the Fair Work Act 2009 (Cth) (the FW Act) with employers, and any individuals, involved in any underpayments potentially being liable for civil penalties. These penalties are by no means trivial, with a recent amendment to the FW Act seeing penalties significantly increase to $126,000 for individuals and $630,000 for corporations for any ‘serious contraventions’.

Criminalising wage theft at the state level, and therefore making deliberate underpayments ‘doubly illegal’, may actually lead to counterproductive compliance behaviour. For starters, the overlapping jurisdiction of state and federal bodies monitoring, investigating and litigating the same conduct will likely lead to a duplication of services and use of resources and potentially result in less effective regulation.  Any state-based inspectorate prosecuting employers for deliberate underpayments will also potentially impact the Fair Work Ombudsman’s (FWO) civil enforcement role at the federal level. Employers are less likely to come forward and cooperate with the FWO if faced with the prospect of criminal sanctions which would undermine the methods currently used by the FWO to recoup underpayments and educate employers.

The criminal trial process

The nature of the criminal trial process itself presents a number of issues with the criminalization of “wage theft” at the state level. The standard of proof in a criminal trial requires the state to prove ‘beyond any reasonable doubt’ that the defendant is guilty of the alleged crime. This is much higher than the current standard of proof in civil proceedings dealing with underpayments which only requires proof on the ‘balance of probabilities’. Strangely, and in contrast to the rhetoric surrounding “wage theft”, this could lead to less employers being held responsible for deliberate underpayments as it is much easier to prove wrongdoing at the current 50/50 standard rather than the incredibly high standard of proof involved in criminal trials.

Criminal prosecutions are also very resource intensive, mostly in part due to the high standard of proof and evidentiary burden. As such, it is possible that very few prosecutions will be successful which means any purported benefits of deterrence will therefore be minimal. As noted by Hardy, Kennedy and Howe in their Submission to the Queensland Education, Employment and Small Business Committee regarding the Inquiry into Wage Theft in Queensland:

A model of criminalisation focusing on deterrence may not be adequate to bring about the necessary changes in business behaviour to prevent wage theft from occurring, particularly if this is not accompanied by an increase in inspectorate and prosecution resources.

Constitutional law challenges

In addition to the practical problems associated with its implementation, state-based “wage theft” legislation also faces the difficulty that it may be ruled invalid as it is likely in breach of the Constitution. Where state and federal laws are inconsistent, the federal law will prevail by virtue of section 109 of the Australian Constitution. Section 26(1) of the Fair Work Act 2009 (Cth) prevents industrial laws being introduced at the state level for the “establishment or enforcement of terms and conditions of employment” whilst section 30 of the Fair Work Act 2009 (Cth) also further excludes state law in other cases where it is inconsistent with federal law. A constitutional challenge could well be successful as these existing federal legislative provisions already “cover the field”, meaning that any subsequent overlapping state industrial relations legislation would be deemed invalid.

Closing thoughts

In my view, the current issues with non-compliance with industrial instruments regarding employee entitlements could, at least in part, be addressed by a better resourced FWO. In addition to having a better capacity to investigate and prosecute the most serious and egregious cases of deliberate and systemic underpayments, a better resourced FWO will also have an increased ability to educate employers regarding their obligations.

There is no doubt that more can be done to ensure that Australian workers are receiving a fair days’ pay for a fair days’ work. However, the criminalisation of wage theft at the state level has a number of problems, many of which will significantly impact on the purported benefits of such a law, as well as upon the ability of the FWO to do its job at the federal level.

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