Sending bad bosses to jail won’t stop wage theft. Seize their homes

In August, the Federal Court ordered a sushi chain to pay $13.7 million in penalties for underpaying 163 employees, the biggest fine to date in Australia for underpayment of wages. The chief executive was also personally ordered to pay $1.6 million for her involvement in the contraventions, which included failing to pay employees minimum rates, not paying annual leave, requiring employees to repay part of their wages and producing misleading payslips.

From Wednesday, January 1, chief executives like this one could go to prison. When introducing the amendments to the Fair Work Act, Tony Burke, the then minister for employment and workplace relations, said wage theft costs workers an estimated $1.35 billion every year, across all industries and disproportionately affects vulnerable workers such as women, young people and migrants. He said “for some employers, wage theft has become part of their business model. It’s well past time we end this epidemic.”

The new legal framework will enable prison sentences of up to 10 years for CEOs, finance managers or company directors caught deliberately underpaying wages. The maximum prison sentence for deliberate wage theft will be similar to sentences in Victoria imposed for crimes such as grooming of children, possession of child pornography and rape.

The idea of sending bosses who underpay workers might appeal, but will it fix the problem?Credit: Digital Vision

Employees who turn a blind eye to wage theft won’t be let off the hook. Offences under the Commonwealth Criminal Code Act 1995 such as being an accessory may mean guilty HR managers, finance managers and payroll officers are liable for lesser prison sentences.

The Australian Council of Trade Unions has advocated for years for corporate prison sentences for wage theft, arguing an employee who steals money from their employer can be imprisoned for up to 10 years for theft, so why shouldn’t employers stealing millions of dollars of wages from employees face a similar penalty?

The government may well promote the idea that the prospect of prison time will stop deliberate underpayment of wages. But as much as it might be satisfying to imagine sending your boss to prison, the “lock ’em up” theatre of these new provisions won’t solve the systemic and contemptible underpayment of wages.

For a start, the criminal justice system is plagued with delay. Victims of crime can wait years for justice. And, because of the higher burden of proof in criminal matters, it’s likely many CEOs would be acquitted of wage theft rather than imprisoned.

Credit: Joe Benke

The international experience shows that attempting to put employers behind bars has been counterproductive. California introduced prison sentences of up to three years for wage theft in 2022. However, there have been few criminal prosecutions – only one Californian has been convicted under their new laws, receiving a $500 fine and a sentence of one day in custody.

The main purpose of the Albanese government’s laws, many will assume, is deterrence. However, as punishment and sentencing specialist Professor Mirko Bagaric has long argued, it’s not the size of the penalty that deters white collar corporate criminals but rather the frequency and success of detection and prosecution. An occasional prosecution that results in a day or two in local police cells, as we’ve seen California, will not discourage dishonest CEOs.

There are more than 2.3 million businesses in Australia operating payroll systems, but the Fair Work Ombudsman, as the key enforcement agency, employs less than a thousand people nationally (about half of whom are inspectors) to detect breaches of workplace laws.

There will never be adequate detection of wage theft without massive increases in auditing. The federal government has committed $27.5 million to the Fair Work Ombudsman over four years, saying some of this will help recover underpayments by large corporations who have self-reported. But what we really need are tens of thousands of new Fair Work inspectors to audit businesses who are potentially ripping off workers.

Part of the problem with limiting wage theft by making it a crime is the practical impediment. You can’t just walk into a police station and file a police report for stolen wages. It is a statutory offence, so claims must be scrutinised and triaged by regulators such as the Fair Work Ombudsman and the AFP. This somewhat depersonalises the crime for victims, who must deal with the bureaucracy and red tape of government officials, and it can be enough to put off many victims, some of whom may be illegal migrants.

If prison won’t deter wage theft, what is the solution? The Fair Work Act already has significant fines. New fines of up to $7.8 million will apply to companies from January 1, 2025. We need to see these applied in appropriate cases. Perhaps we might ban company executives involved in deliberate wage theft from holding office as a company director, similar to when a personal bankruptcy occurs, or judges could enforce other professional disqualifications. Also, since white-collar offenders are in a better position to pay their victims back, why not garnish the wages or confiscate the property of individuals found guilty to return money to victims?

Public shaming can also play a role. Employers who underpay could be forced to display signs on shops, restaurants and websites indicating details of wage non-compliance, giving consumers the option to obtain goods and services from more ethical competitors.

Ultimately, sending the occasional boss to prison for wage theft won’t eliminate this corporate crime. Stamping it out will depend on our regulators and politicians spending the money required to detect wage theft in the first place.

Paul O’Halloran is a partner and head of office at law firm Dentons Australia.

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