There’s a major change in the new federal wage theft laws. The new laws will make it an offence to intentionally underpay someone. But how do you attribute intention to a company?
Until now, the Fair Work Act 2009 (Cth) has provided that the state of mind of an officer, employee or agent of a company (or a delegate) will be attributed to the company if they are acting within the scope of their actual or apparent authority.
If one of these people intended to underpay someone, the company will also be taken to have intended to underpay them.
The new federal wage theft laws will replace this with the provisions in the Criminal Code Act 1995 (Cth) for attributing criminal responsibility to a company.
They provide that intention can be attributed to a company that expressly, tacitly or impliedly authorised or permitted an offence.
This can be established by proving that a company’s board of directors, or a high managerial agent of the company, intentionally carried out an underpayment or expressly, tacitly or impliedly authorised or permitted an underpayment.
Then there are two wider ways that this can be established:
- by proving that a corporate culture existed within the company that directed, encouraged, tolerated or led to non-compliance; or
- by proving that the company failed to create and maintain a corporate culture that required compliance.
A “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 take place.
This means that a company could be held criminally liable if it fails to create and maintain an attitude, policy, rule, course of conduct or practice that requires wage compliance.
This goes much further than just whether a particular underpayment was intentional. It’s a much broader requirement that appears to require proactive and systematic measures be taken to ensure people are paid correctly. Failure to do this could lead to criminal liability.
The breadth of these corporate liability provisions is said to extend far beyond that of any other jurisdiction. Because of this, they are excluded from many federal criminal statutes. Until now that has been the case with the Fair Work Act 2009 (Cth), but they have now been included for the new wage theft provisions.
Role of the in-house legal team
While the wage theft provisions won’t commence until at least 1 January 2025, there is a lot that a company needs to do to create and maintain a corporate culture of wage compliance and not fall foul of the coming legislation. Companies should start preparing now, and in-house legal teams have a key role to play in this.
To get started, in-house legal teams should be across these four basic legal questions as part of meeting this positive obligation:
- Does an award or enterprise agreement apply?
Many underpayment situations happen because an employer wasn’t aware that an award or enterprise agreement applies or has been applying the wrong award or enterprise agreement. For each role in your organisation, a determination should be made as to whether an award or enterprise agreement applies and, if so, which one. This is a legal question that often involves the interpretation of coverage provisions.
- Has the role been classified correctly?
If an award or enterprise agreement applies, the role will need to be assigned a classification in the award or enterprise agreement. Classifications determine pay levels and other conditions, so getting this wrong can also lead to underpayments. Classifications are often vague and hard to apply, so this is also an area that needs legal input.
- Are your pay rules correct?
If your organisation is paying employees per an award or enterprise agreement, your payroll software will need to be set up with pay rules that accurately reflect employees’ entitlements under the award or enterprise agreement. Legal teams should be across those pay rules to ensure they are compliant.
- Are annualised salary requirements being met?
If your organisation is paying annualised salaries that are intended to be all-inclusive, you need to ensure there are provisions in their employment contracts that effectively offset the entitlements in any applicable award or enterprise agreement. Or, if you are engaging with annualised wage provisions in an award, you need to ensure the various documentation and reconciliation requirements are being met. You also need to be satisfied that the annual salaries that are being paid are sufficient to cover all entitlements.
With the new corporate culture requirements on the horizon, legal teams need to be working with HR and payroll teams to ensure they collectively create and maintain a corporate culture of compliance. There are many areas where legal input is required to ensure wage compliance, and these are a few to be across as a starting point.