A restaurant in Victoria is facing criminal prosecution over allegations that it withheld thousands of dollars worth of wages from its employees. This case marks the first criminal charges for wage theft brought against an employer in Australia.

In a landmark case, a Melbourne restaurant has become the first Australian employer to face prosecution for criminal wage theft, following allegations that it withheld more than $7000 in wages, penalty rates and superannuation from its employees.

A total of 94 charges have been brought against the business by the Wage Inspectorate Victoria, an independent watchdog established in 2021 with powers to investigate and prosecute cases of wage theft. Prosecution could result in a fine to the business of over $1 million as well as potential jail time for its owner. 

“The key lesson from [this case] is employers should be on notice that the Wage Inspectorate Victoria is up and running, and it will prosecute,” says David Catanese, Partner at employment law firm Hall & Wilcox. 

In July 2021, it became a criminal offence in Victoria to deliberately underpay employees or withhold entitlements such as superannuation. This case marks the first instance that the Wage Inspectorate Victoria has exercised its power to prosecute for wage theft. 

However, it’s not only Victorian employers who should be keeping an eye on these developments, says Catanese.

“It seems likely that there will be wage theft laws around the country at some point in the future. Labor took the introduction of wage theft laws into the previous federal election. We haven’t yet seen any legislation giving effects to those laws, but we anticipate that it will arise.

“There’s now been an amendment to the criminal code in Queensland, [enacting] what are effectively wage theft laws. Other states have also conducted reviews and spoken favourably about the introduction of wage theft laws. It’s safe to say that the number of jurisdictions with wage theft protections is going to increase, not decrease.”

What constitutes wage theft?

The Wage Inspectorate Victoria gives a number of criteria that employers must meet in order to be liable to criminal prosecution over wage theft. Employers will not be subject to these charges if, for example, they have accidentally paid an employee the wrong sum due to a genuine misunderstanding of the regulations.

“It requires that employers must have engaged in deliberate and dishonest underpayments or withholding entitlements, and the bars for ‘deliberate’ and ‘dishonest’ are high,” says Catanese.

“The Inspectorate must establish recklessness or intentional dishonesty at the standard of a reasonable person. So errors that result in underpayments will typically not make those high bars of wage theft. However, if an employer is reckless about their compliance with their obligations, that may meet the bar for criminal conduct.

“It’s not good enough for an employer to close their eyes and [pretend to] be blind to their obligations – that may put them in wage theft territory.”

“It’s safe to say that the number of jurisdictions with wage theft protections is going to increase, not decrease.” – David Catanese, Partner at Hall & Wilcox

Deliberate wage theft can take a number of forms, he says, from simply neglecting to pay employees what they are owed to threats of dismissal or ‘payback’ schemes, where an employee is required to pay a portion of their salary back to the employer under the table so there is no record of underpayment.

Even in states where wage theft is not a criminal offence, says Catanese, practices such as these are likely to fall under other definitions of criminal conduct such as fraud or obtaining financial advantage by deception.

Which sectors are most at risk?

Catanese notes that while there is risk of wage theft present in all industries, there are some sectors and groups that are particularly vulnerable. 

“Where we see wage theft occurring is often in businesses with small margins, high staff turnover and often vulnerable workforces, [such as] migrant workers,” he says.

“It’s more common in hospitality and retail where there are quite complex enterprise agreements and award systems for generating entitlements, which employers can, unfortunately, get wrong.”

There are several factors that make migrant workers more likely to be victims of wage theft, he adds, including the possibility that they are reliant on their employer for sponsorship for a visa. Language barriers or cultural differences might also deter them from seeking help when they suspect their employer of wage theft. 

Cases of underpayment are on the rise

Recent research conducted by HR management software provider ADP has revealed a concerning upward trend in the number of cases of underpayment in Australia. 

Its survey of 1400 Australian workers found that almost two in three (64 per cent) were experiencing underpayment issues, compared to one in two in 2021. One in nine workers (11 per cent) reported that they were always underpaid by their employer.

With concerns about wage theft currently in the spotlight, the important distinction between wage theft and underpayment should not be forgotten, says Catanese. Simply paying an employee the wrong amount of money does not necessarily make businesses liable to prosecution for wage theft.

“In my experience as an employment law practitioner, wage theft in the sense of deliberately withholding or denying people’s rightful entitlements is very rare,” he says. 

“What we see far more often is very serious underpayments. And the vast majority of underpayments happen through error. Once the error is identified, in our experience, there are almost always genuine attempts to rectify it.”

How can employers ensure they are paying workers correctly?

Catanese points to a number of potential factors that can lead to accidental underpayment. For instance, the complexity of some modern award coverage means that employers sometimes end up applying the wrong award or classification to their employees.

“For example, there may be an afternoon shift penalty that’s payable under one award, but not under another,” he says. “And while that might be a very small quantum of underpayment, multiplied by tens, hundreds or thousands of employees over weeks, months or years, it can become a large quantum of underpayment and rectification becomes quite complex.

“Sometimes, we’ve seen issues arise where employers, often with the blessing of employees, deviate from one model award or employee agreement to create, for example, more flexible rostering arrangements. However, if there hasn’t been a formal variation of the industrial instrument or other legal measures, it may mean that legal liability is accruing because of what they’re required to do under the award.”

It’s clear that even employers with the best of intentions are at risk of non-compliance if they are not keeping a close enough eye on the legal frameworks behind their salary arrangements.

“It’s the simple things, like checking the instrument that you’re applying to your classifications,” says Catanese. “And if you’re going to deviate from the agreement, make sure you get that checked off by your lawyers. 

“We also think it’s best practice for employers to be checking their industrial arrangements annually – just an audit, a health check. Clients that we see doing that, we don’t see coming to us about underpayments. And if they do, then the style and the quantum of underpayment is much less serious.”

Concerned about your legal and Fair Work compliance? AHRI’s short course will give you an understanding of the key elements of legislation, regulation and practices HR needs to be across.