[P.P. 246
Parliament of South Australia ______
INTERIM REPORT
OF THE
SELECT COMMITTEE
ON WAGE THEFT IN SOUTH AUSTRALIA
______
Laid on the Table of the Legislative Council and ordered to be printed on 21 July 2020 ______
Second Session, Fifty-Fourth Parliament, 2020
CONTENTS
1. The Select Committee
1.1 Appointment 4 1.2 Membership 4 1.3 Meetings 5
2. Overview of evidence 5
3. Background 6
4. The Inquiry 4.1 Term of reference (c) 7 4.2 Term of reference (f) 12 4.3 Term of reference (a) 18 4.4 Term of reference (e) 23 4.5 Term of reference (b) 28 4.6 Term of reference (d) 31 4.7 Term of reference (g) 34 4.8 Term of reference (h) 37 4.9 Term of reference (i) 43
5. Acknowledgements 44
Appendix 1: List of witnesses 45
Appendix 2: List of submissions 47
Appendix 3: Rate of Wage Theft by Fair Work Ombudsman 48 National Campaigns, McKell Institute
1. Select Committee on Wage Theft in South Australia
1.1 Appointment
The Legislative Council established a Select Committee in October 2018 to inquire into and report on wage theft in South Australia, with particular reference to –
(a) The prevalence and incidence of wage theft in South Australia, with acknowledgement to evidence of wage theft from other parts of Australia; (b) The impact of wage theft on workers, families, law-abiding businesses, the economy and community; (c) The various forms that wage theft can take, including through unpaid superannuation and any other statutory entitlements, the misuse of ABNs and sham contracting arrangements; (d) The reasons why wage theft is occurring, including whether the current regulatory framework and practises are effective for deterrence; (e) The sectors in which wage theft is prevalent, including industries, occupations, parts of the state, or among cohorts of workers; (f) The effectiveness of the current regulatory framework at State and Federal level in dealing with wage theft and supporting affected workers, including whether conditions preventing prosecution of white collar fraud are fundamental towards supporting the legality of wage theft; (g) Measures to ensure support services are in place to guarantee accessible and cost- effective justice to expedite claims; (h) Options for ensuring wage theft is eradicated, including consideration of regulatory and other measures either implemented or proposed in other jurisdictions interstate, nationally or internationally and the role of industrial organisations, including unions and employer registered bodies in addressing and preventing wage theft; and (i) Any other related matter.
1.2 Membership
Hon Irene Pnevmatikos MLC (Chairperson) Hon Connie Bonaros MLC Hon Emily Bourke MLC (until 18 June 2019) Hon Tammy Franks MLC Hon Jing Lee MLC (from 18 February 2020) Hon Terry Stephens MLC (until 18 February 2020) Hon Russell Wortley MLC (from 18 June 2019)
Secretary Ms L Guy
Research officer Dr M Robinson
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1.3 Meetings
The Select Committee advertised for interested persons to provide written submissions or to register an interest in appearing before it. The Committee met on 16 occasions to hear evidence. A list of people who appeared before the Committee is in Appendix 1. The Committee received 24 written submissions, which are listed in Appendix 2.
The Select Committee intended to travel to various regional areas to hear evidence and as such visited the South East. However, while the Committee was preparing to travel to the Riverland unfortunately the COVID-19 pandemic prevented further exploration of the issue in additional regional areas of South Australia.
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2. Overview of Evidence
Australia has long been lauded, with an element of pride, as the “land of the fair go”. Evidence before the Committee, however, challenged that egalitarian notion of fairness, justice and equal opportunity. The Committee heard details of widespread exploitation of workers who had been deprived of wages, superannuation and other entitlements, those who were subject to intimidation, loss of employment and, for some, their visa status, leading to deportation. Despite this information, those representing the commercial sector disputed the very concept that workers were being so misused. During the course of the Inquiry, however, it came to public notice that multiple large organisations had been significantly underpaying their staff.
From the outset, the very term “wage theft” generated protest. Some business organisations and peak bodies criticised “theft” as being highly emotive, inaccurate, inappropriate, one with an assumption of injustice that improperly branded employers as criminals when they mistakenly underpaid their employees. Some businesses argued that “non-compliance” was more pertinent, as instances of underpayment do not generally stem from intent to deprive workers. Rather, non-compliance is due to employers incorrectly interpreting their obligations, given the large number of laws that govern employment, and clauses in modern awards and enterprise agreements that are often complex or vague, requiring interpretation by employers who mostly lack legal training. Some denied that current research confirmed the existence of broad scale wage non-compliance. As such, business representatives commended the effectiveness of the current regulatory system under the Fair Work Act and the role of the Fair Work Ombudsman, deeming the existing support services to be accessible and cost-effective for both employers and employees. They opposed the introduction of any new legislation in South Australia, as well as any change to the current industrial framework, while decrying the suggestion that wage theft, or wage non-compliance, should be criminalised.
Evidence of the prevalence of wage theft, however, came from exploited workers, trade unions, researchers, community legal services and support centres, multicultural organisations and youth groups. They provided data, numerous case studies and examples detailing underpayment of wages, unpaid superannuation, allowances, penalties, and leave entitlements, along with manipulation of hours, time sheets and contractual arrangements. In their view, wage theft is virtually the norm, forming the basis of a business model. Despite presenting as an epidemic, wage theft is being fought on a singular basis with vulnerable people, with it falling to individual employees to identify anomalies when the onus should be on employers. Apart from challenging the very notion of awards being too difficult to interpret, many countered that ignorance of the law is not an acceptable defence. In such an environment, workers refrain from complaining for fear of losing their jobs and repercussions on future employment. Temporary migrant workers and international students, often paid only half the award rate, work excessive hours in breach of the terms of their visa, with the prospect of deportation. The common call was for employers engaged in deliberate and systematic wage theft to face criminal penalties.
While most acknowledged the role of the Fair Work Ombudsman (FWO), it was generally allowed that the FWO was under resourced and lacked front line staff to police existing legislation; as such, there was little chance that the majority of businesses would ever be audited. In addition to accounts of the societal impact of wage theft and reasons for its occurrence, the Committee received a wide range of recommendations for its eradication.
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3. Background
In September 2018, the Hon. Irene Pnevmatikos moved a private member’s motion in response to the escalating prevalence of wage theft in Australia, citing a range of fraudulent behaviours by some employers that impact on workers, their families, law-abiding businesses, the community and the economy. Approximately 2.4 million or one third of eligible Australian workers are underpaid, with some $3.6 billion being stolen each year; the process to recover entitlements is both costly and difficult, acting as a deterrent to those who seek redress. She called for the Government to ensure that the regulatory frameworks currently in place effectively support the State’s workers who deserve justice.
In October 2018, the Hon. Connie Bonaros supported the motion, stating that wage theft is rife in Australia. She offered statistics from Kronos, a global workforce management provider, showing: 10 per cent of Australian workers, about one million people, have rarely or never received the minimum wage; 11 per cent are not paid for all the hours they work; and 43 per cent have, at some point, been paid less than the minimum wage.
Moreover, it is the vulnerable members of the workforce who experience the worst form of wage theft – those with disabilities, young people and migrant workers – in the worst affected industries, hospitality, retail and agriculture, where most jobs are casual.
The Hon. Kyam Maher offered further support, arguing that wage theft in large organisations is not accidental, nor is it an administrative error; it is a business model employed to increase profits at the expense of hardworking people. Wage theft occurs across the economy, industries and society, as well as geographically across the State. If the current laws are found to be inadequate, change must occur.
The Hon. Tammy Franks showed that while the Fair Work Ombudsman completed 26,917 requests for assistance and recovered more than $30.6 million in the 2016-17 financial year, only 55, or 0.2 per cent, of those requests went to court. While the Fair Work Ombudsman can enforce compliance and penalties, compelling employers to pay is far from easy, revealing how little power the Ombudsman actually holds. In her view, it is time to enforce the rules; in fact it is time to change the rules.
The motion to establish a Select Committee to inquire into wage theft in South Australia was carried on 24 October 2018.
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4. The Inquiry
4.1 Term of reference (c)
The various forms that wage theft can take, including through unpaid superannuation and any other statutory entitlements, the misuse of ABNs and sham contracting arrangements;
In considering the many ways workers can be denied their legal entitlements, the Committee found that the very term “wage theft” was contentious. Industry associations, employer groups and peak bodies deemed the expression to be “misleading”, “a catch-all”, “a rhetorical device” with the “potential to create a degree of ambiguity”. Another submitted, “Wage theft is a term of art, the adoption of which seeks to inappropriately criminalise the underpayment of wages” (Sub 1, p 2; Sub 19, p 5; Sub 20, p 3) Arguing that “wage theft” does not capture the “full scope of activities” under consideration, others reasoned that “non-compliance” is a more appropriate designation since there is a “clear difference between intentional and unintentional underpayment of wages”. (Sub 5, p 2; Sub 23, p 4)
Unions, deprived individuals, community service organisations and workers’ legal representatives, however, contended that “wage theft” is an accurate representation of the “systemic, incessant” actions of employers and the consequent losses incurred by workers. Some considered wage theft to be the “most pervasive form of crime” in the State, one being “used as a business model” in a range of industries. (SA Unions, p 3; Sub 13, p 3; Sub 12) Conversely, others in that cohort conceded the term was impractical, even inaccurate, differentiating between the relevance of “wage theft” in cases “where an employer has deliberately not paid an entitlement to an employee” and “accidental or inadvertent errors, which can, and do, occur”. (Sub 4, p 2; Sub 14, p 4)
The McKell Institute defined wage theft as generally involving “employers deliberately not paying employees their full entitlements, including superannuation, award and penalty rates, leave and other employee entitlements”. Acknowledging that not every incident of underpayment is an act of employer malice, their submission still argued that intent is immaterial in relation to the abrogation of responsibilities mandated by law. (Sub 7, p 9) The Institute went on to distinguish between wage theft – illegal or unlawful attempts by employers to reduce wage costs by not paying employees what they are owed under an award or enterprise agreement – and wage suppression – legal or lawful methods employers use to reduce wage costs; examples included terminating an Enterprise Bargaining Agreement (EBA), or bullying a small cohort of employees to vote to approve an agreement which is then applied to a broader workforce. Known as ‘sham bargaining’, these tactics contravene the spirit of the Fair Work Act 2009 (Cth) but are too often allowed under the current industrial relations framework. (McKell Report, p 14, Sub 7, p 10)
Wage theft’s numerous forms are delineated in the above context, with specific examples of its prevalence in sectors and industries detailed under 5.4 Term of Reference (e).
Unpaid wages, by virtue of the very term, are “the most brazen form of wage theft”, where the underpayment can stem from employers: failing to adhere to modern awards and non-compliance with rates of pay in industrial awards, including applying the wrong award and employees being misclassified under the award; not paying penalty rates;
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not paying overtime rates when claimed or pressuring workers not to record overtime; o It was contended that it has become commonplace for employers to pay employees a flat 40 hours at ordinary time rates, ignoring the 38 hour week mandated in the National Employment Standards (NES), while not applying a rostered day off (RDO) system; in sectors covered by the Shop, Distributive and Allied Employees Association, SA Branch (SDA), the failure to pay allowances, such as first aid, cold work, supervisor and, in the case of tradesmen in the Communications, Electrical, Electronic, Information, Postal, Plumbing & Allied Services Union (CEPU), tool allowances, travel, multi-story, start on-site allowance; o in some major supermarkets, the onus is on the employee to “keep track” of allowances, with employees only becoming aware of non-payment when contacting the SDA. (Sub 7, p 9; Sub 11, p 12; Sub 13, p 8; Sub 14, 7; Evidence, p 244, 245)
Superannuation – in general, if an employee is paid $450 or more before tax in a calendar month, superannuation is paid on top of wages. The minimum, or Superannuation Guarantee (SG), is currently 9.5% of an employee’s ordinary time earnings that must be paid into a complying superannuation fund at least four times a year by the quarterly due dates. If employers do not pay the SG on time, the may have to pay the SG charge. The Committee heard, however, that some employers do not see superannuation as forming a part of an employee’s wage. As such, superannuation may be underpaid or not paid at all. Where employees’ wages are underpaid, the amount of superannuation, if paid, is also lower than it would be if based on the correct award rate. These workers are also denied the compounding interest on superannuation contributions that would accumulate over time.
CEPU contended that such non-payment is insidious as, despite an indication each pay period that the amount has been lodged in the nominated fund, it may take “at least 6 months” before the non-payment becomes apparent. Similarly, SA Unions documented that because some 80 per cent of underpaid workers do receive a partial superannuation payment, it makes detection of non-compliant employers by the Australian Taxation Office (ATO) more difficult. The Multicultural Communities Council of South Australia (MCCSA) identified several ploys to avoid superannuation payments, including employers paying workers totally in cash; a combination of cash and reducing workers’ hours “on the books” so that it appears the employer is meeting superannuation requirements; another paying employees just under the superannuation threshold despite them working more hours. The McKell Institute argued that non-payment of superannuation is the most common form of wage theft, given that detailed data exists estimating the extent of non-payment. (SA Unions, Super Scandal, p 3; Sub 7, p 25; Sub 9, p 2; Sub 13, p 8)
Other entitlements that may not be paid or may be denied include: annual leave, personal leave, parental leave, long service leave, public holidays; paid professional development leave; shift, weekend and public holiday penalties; casual loading and annual leave loading; paid breaks and minimum periods of engagement for shifts; workers’ compensation; and redundancy or severance pay. (Sub 16, p 4, 5; SA Unions, p 9)
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Other opportunistic forms of wage theft include: cash in hand payments; employees having to “pay an upfront deposit” for a job; working for “free” while training; employees attending a training session and being “paid” with gift vouchers; employees offered a “flat amount” gift voucher in lieu of a bonus payment based on production in the wine industry, as prescribed in the enterprise agreement; unpaid internships and work experience arrangements; employees being restructured into lower paid roles but performing the same work; employees being asked to “volunteer” by extending shifts without pay; employees attending handovers after shifts or arriving before shifts to set up but not being paid; employees paying money back in cash to employers after receiving wages; employers making unauthorised deductions from employees’ pay; business owners logging their own names on the books, when it is the employee who is working; non-provision of meal breaks; not paying staff to attend mandatory staff meetings; supplying food and beverages in lieu of wages; and apprentices paying TAFE fees and for books that should be paid by the employer. (SA Unions, p 9; Sub 6, p 1; Sub 11, p 13; Sub 13, p 8; Sub 15, p 3; Sub 23, p 5; McKell Institute, p14; Evidence, p 291)
Administrative duplicity, such as employers under-reporting or failing to report income, neglecting to distribute pay slips, and a lack of records or poor or false records also contribute to the pervasive underpayment and non-payment of wages and entitlements. (Sub 15, p 3)
Zombie or skeleton agreements, through a loophole in the Fair Work Act, allow employers to pay below the minimum rates. Enterprise agreements ratified well before the modern award system remain enforceable in the absence of an application to terminate, which must be initiated by the worker; the only requirement is that the base rate of pay is equal to the modern award base rate. As a result, in the retail industry supervisors employed under the old agreement could be supervising junior, less experienced workers who are paid more by the modern award. Despite supervisors being older and in a higher position, these “zombie” agreements result in their entitlements falling below minimum standards, for example, by their not receiving penalty rates. (Sub, 11, p 14, 15; Evidence, p 42)
The outcome is the underpayment of salaried managers compared to what they would have earned under the relevant award. Fabian Moore, Industrial Officer, SDA conceded it was common for salaried managers to be required to work on public holidays and for additional hours, in some cases even more hours than those stipulated in their contractual arrangements. He advised that it was becoming an increasing trend for businesses to roster their salaried managers on weekend and public holidays, with them being paid less overtime or weekend penalties than their entitlements would be under the award; this practice also avoids having to pay casual staff. Mr Moore also agreed that the SDA sights contracts that provide for a minimum number of hours, as well as the expectation of additional overtime hours, above and beyond those for which they are paid.
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Further to that, the Hon Connie Bonaros asked Hayley Baxendale, General Manager, Workplace and Employee Relations, Woolworths, whether her organisation expects employees to work a number of hours over what is stated in their contract, i.e. being paid for 37.5 hours while being expected to work 45 hours. Ms Baxendale advised that the company is “fairly clear with our team members that in retail there is a degree of reasonable overtime that's often worked and expected. We do factor that into our salaries”. Accordingly, people are remunerated correctly for reasonable additional overtime in a seasonal, customer-driven business. With regard to salaried staff working on days where higher penalty rates would apply rather than paying casual staff, Ms Baxendale replied that, given the number of staff required in a supermarket, if they were to rely only on salaried team members, “there would not be enough people to run the store”. She was not aware of any intent on the company’s part to utilise salaried staff when overtime is to be paid, as opposed to casual staff, in an effort to cut wages. (Evidence, p 261)
Sham contracting in the “gig economy” is increasing at a rapid rate. Disguising an employment relationship as an independent contracting arrangement, usually to avoid responsibility for employee entitlements, was identified as an “ongoing, widespread and acute problem” in the construction industry. It deliberately deprives workers of their basic rights and entitlements under the Fair Work Act 2009, relevant modern awards and under workers’ compensation laws. (Sub 4, p 3; Sub 15, p 2)
The United Workers Union (UWU) advised that sham contracting is also prevalent in the contract cleaning industry, with the use of Australian Business Numbers (ABNs) and, effectively, sham franchising arrangements. They cited a worker paid a flat rate for all work performed being required to pay back 25 per cent of everything earned to the “ostensible franchisor”. Despite all aspects of the relationship having the hallmarks of employment – in that the “ostensible franchisor” could discipline the “supposed franchisee” – the worker was instructed he must pay his own workers compensation insurance, income tax and superannuation. (Evidence, p 290)
Sham contracting allows employers to avoid costs such as annual leave, sick leave and redundancy payments. Statutory obligations – payroll tax, workers compensation insurance and superannuation payments – are ignored under these arrangements. The enforcement of statutory rights, such as unfair dismissal, is also made more difficult. Effectively, sham contracting shifts responsibility and cost to employees. (CFMEU’s 2011 Race to the Bottom report, p 1, cited in Sub 15, p 3)
Misappropriation of the ABN system is a fundamental component of sham contracting, including the “fraudulent and abusive use of multiple ABN holders and completely ‘inactive’ ABNs”. In the construction industry, there is a “widespread belief” that simply having an ABN “automatically confers the status of ‘independent contractor’ regardless of the working arrangement”. As such, many ostensibly independent contractors are “in fact, and at law" employees being deprived of their lawful entitlements”. (Sub 15, p 3)
The Australian Industry Group (Ai Group), however, submitted that the law relating to “independent contracting and employment arrangements can be complex”, with the distinction often difficult to define. They cited the Productivity Commission’s 2015 Inquiry Report, Workplace Relations Framework, that the lack of clarity with the common law approach makes it hard to identify the “genuine status of employment arrangements … and leads to inadvertent errors”. They argued that it is misleading to suggest workers are “pushed into” the category of
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independent contractor when, in the construction sector, workers will often request a potential employer to “pay to their ABN” to maximise remuneration. This creates a risk for businesses if workers do not clearly meet the common law tests for an independent contractor. (Sub 20, p 5, 6)
Similarly, the Housing Industry Association (HIA) submitted that a common mistake is to “conflate the misuse of an ABN” with employees being misclassified as contractors. Deeming this to be wage theft suggests intent and a deliberate act to misclassify when that misclassification may stem from the “dense and confusing law” governing the distinction between an employee and an independent contractor. Different legislation at the state and federal level has given rise to uncertainties about contractors’ status, imposed costs on industry and steadily eroded subcontractors’ independent standing. (Sub 19, p 10, 11)
Even so, as an industrial advocate, Ralph Clarke contended, “mostly the common law as handed down by the Federal Court, the High Court of Australia, has been keeping abreast of who is or who is not an independent contractor”. Various tests are available – the “problem is enforcement”. (Evidence, p 285)
As if to illustrate that complexity, the Committee heard intricate, contested evidence on unpaid statutory entitlements and superannuation from six men claiming a current or former employee/employer relationship with Greyhound Racing South Australia (GRSA) and, in rebuttal, from Greyhound Racing SA Limited itself. The organisation’s management claimed the men “held themselves out at all times as contractors and were engaged by, and charged, GRSA on that basis with tax invoices, ABNs and GST where applicable”. Although these arrangements were not in writing, the independent contractor fees for services were fixed at a level in excess of that of an employee. The men, however, estimated their collective unpaid entitlements and superannuation amounted to almost $1.2 million, arising from an endemic culture of non-compliance in the racing industry. (Sub 18, p 3, 4 & Letter to the Premier, p 1; Evidence, p 195; GRSA Ltd Opening Statement, p 1)
In that context, in November 2018, GRSA voluntarily approached the ATO to seek their view as to whether superannuation might be payable to certain contractors. Despite constant prompting, they did not receive a response until six months later. Contrary to previous testimony from the men, the ATO did not determine that the contractors were employees at common law, but rather that specific provisions identified under section 12 of the Superannuation Guarantee Charge Act 1992 (SGC) applied to these contractors because of their involvement in the production of audio and visual outcomes. The ATO quite specifically did not draw a conclusion about the contractors' employment status at law. Whilst GRSA did not necessarily accept the ATO's view, they paid the deemed liability in full with respect to the contractors prior to June 2019. The SGC liability attributable to GRSA was deemed to apply to the greater of either five years or the period back to when faithful records had been maintained.
Grantley Stevens, Chairman, GRSA, went on to explain that certain contractors are deemed employees under the SGC Act. GRSA became more alert to the issue due to the amnesty and sought further clarification from lawyers expert in the field. With their guidance, they presented a submission to the ATO for clarification in relation to a particular subsection of a particular section in the act, which captures audio-visual people. For deemed employees, if they are providing personal services, the superannuation and the super guarantee charge act may apply. With that information from the ATO, GRSA accepted the advice and reviewed their records
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— not just for five years but back to 2003—and paid. The deemed employee situation is in respect to other entitlements that a general employee would receive, such as annual leave, long service leave and redundancy.
Labour Hire is designed so that workers engaged by the labour hire agency can be paid less than workers employed directly on site by the business. (Evidence, p 129) The labour hire arrangement has facilitated widespread exploitation of migrant workers, particularly for short stay temporary migrant workers on subclass 417 visas (Working Holiday visa) and subclass 500 visas (Student visa), including the underpayment of wages and the failure to observe award conditions. Such practices afford these labour hire companies cost advantages over employers who observe legislative standards. (Sub 8, p 9) Trish Stringer, Australian Workers Union (AWU), maintained, “if you are a labour hire worker, you’ve got no chance of ever having a secure job. … There is no job security”. In relation to proposed changes that would limit the number of industries covered by the State’s labour hire licensing legislation, Karen Grogan, UWU, contended that the legislation should be maintained for all industries; narrowing the scope of labour hire licensing would expose vulnerable workers, as they “exist across the board”. (Evidence, p 69, p 288, 293)
Phoenixing, the pre-meditated tactic of corporate insolvencies, also deprives employees of their unpaid entitlements. It is described as the deliberate and systematic liquidation of a corporate trading entity, usually with the intention of the business avoiding liabilities and continuing the operation of profit-taking through other established entities. Under such illegal phoenixing activity a company is deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.
From his experience as an industrial advocate, Ralph Clarke argued that corporate laws need revision to prevent phoenixing. “Employers simply cannot operate a $2 company, own no assets, lease all the goods and services and not pay their employees the correct wage or their super”; then collapse that $2 shelf company, “leaving employees and creditors hanging out” and the federal government to “pick up” employee entitlements under the Fair Entitlement Guarantee (FEG), which does not include superannuation He acknowledged that while pecuniary penalties can apply to corporations and individuals, if the company is in liquidation, it is “very hard to get the money from them”. In his view, individual penalties that can be awarded under section 550 of the Fair Work Act should be equal to that of a corporation, not limited to one fifth of the corporate amount. (Sub 11, p 12; Sub 15, p 3; Evidence, p 285)
4.2 Term of reference (f) The effectiveness of the current regulatory framework at State and Federal level in dealing with wage theft and supporting affected workers, including whether conditions preventing prosecution of white collar fraud are fundamental towards supporting the legality of wage theft;
In South Australia, employees fall under either the national workplace relations system or the South Australian workplace relations system, which covers police, State and local government.
Most employees in South Australia are covered by the Fair Work Act 2009 (Cth) and the Fair Work Regulations 2009, managed by the Fair Work Commission (FWC) and the Fair Work Ombudsman (FWO). The legislation governs the employee/employer relationship, provides a
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safety net of minimum entitlements, enables flexible working arrangements and fairness at work, and prevents discrimination.
The Act contains the National Employment Standards (NES), a set of ten minimum standards that cannot be overridden by the terms of enterprise agreements or awards: maximum of 38 weekly hours of work, plus reasonable additional hours; requests for flexible working arrangements; parental leave and related entitlements; annual leave; personal/carer’s leave (includes sick leave), compassionate leave and unpaid family and domestic violence leave; community service leave; long service leave; public holidays; notice of termination and redundancy pay; the Fair Work Information Statement that must be given by employers to all new employees.
Recent amendments to the Fair Work Act include the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017, that introduced greater penalties for those found guilty and a reverse onus of proof for employers who fail to meet record keeping and pay slip obligations. Unlawful cash back schemes and liability for franchisors and holding companies aware of, or could have reasonably known about, contraventions but did not take reasonable steps to prevent them, were also included. (Sub 11, p 7; Sub 23, p 8)
The Independent Contractors Act 2006 protects the rights of genuine independent contractors to enter into a contract for services and prevents interference by any other party. (Fair Work Ombudsman, Legislation: https://www.fairwork.gov.au/about-us/legislation. Fair Work Commission, National Employment Standards: https://www.fwc.gov.au/awards-and- agreements/minimum-wages-conditions/national-employment-standards)
The Superannuation Guarantee (SG) was introduced in 1992 as a means of boosting retirement savings. Even so, in 2016 Industry Super Australia (ISA) and the industry super fund Cbus found that some 2.4 million, almost one third of eligible Australian workers, were missing out on compulsory superannuation payments, totalling $3.6 billion in 2013-2014 and equating to $1,489 for the average worker. (SA Unions, Super Scandal, p 4)
In South Australia, the public sector, including almost all Government Business Enterprises and local councils, fall under the State industrial relations system and the Fair Work Act 1994 (SA).
The South Australian Employment Tribunal (SAET) was established in 2014 and has jurisdiction to deal with monetary claims arising from employment. It is deemed to be an “eligible state court” and can exercise jurisdiction under the Fair Work Act 2009 to resolve breaches of wage and condition entitlements. It is also able to issue civil penalties as a deterrent to non-compliant employers. Under section 544 of the Act, workers have six years from the time when an underpayment first occurred to bring about an action in SAET. For workers employed by a corporation, however, that body must still be trading. Accordingly, where employers have engaged in phoenixing activity, there is little that can be done to pursue
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outstanding entitlements. With no filing fee for lodging a monetary claim, the matter proceeds to a compulsory conciliation conference in order to “identify, clarify and narrow the issues in dispute and encourage the parties to reach a negotiated resolution”. If conciliation is unsuccessful, the matter is then referred for a formal hearing and determination, one that benefits from legal representation. (Sub 11, p 6; Sub 15, p 13)
The Construction, Forestry, Maritime, Mining & Energy Union (CFMEU) deemed that South Australian workers are greatly advantaged with SAET, compared with those in other jurisdictions where they must pursue claims through the Federal Circuit Court or local Magistrates Court, which can be “prohibitively expensive, time-consuming and ineffective”. The Australasian Meat Industry Employees Union (AMIEU) also noted that the availability of SAET as a “one stop shop” for wage theft, alongside a range of issues, is “highly desirable” and should be maintained. Even so, the CFMEU and the SDA, respectively, judged SAET to be “groaning under the weight” of unresolved cases and “desperately understaffed at the judicial level”. Its powers need to be strengthened and the State Government should “immediately commit” to extra appointments as the current regulatory framework is not an effective deterrent.1 (Sub 8, p 11; Sub 14, p 7; Sub 15, p 13; Evidence p 104)
The SDA detailed the complex and lengthy process for SAET to hear monetary claims of underpayment of wages, given that it takes from four to six weeks to list a matter for conciliation after an application has been filed. If agreement cannot be reached, it is referred to the South Australian Employment Court (SAEC), which has the power to make an order for payment against a party, but no ability to enforce it. After conciliation, it can be another four to six weeks for the matter to be listed for a direction hearing, which is dependent on the availability of presidential members of the SAET and can take from 12 to 18 months. The entire process is problematic. It is also costly. In May 2018, to register an order in the Adelaide Magistrates Court and issue a summons against a company totalled $235.25. If the summons cannot be served because the applicant does not have the necessary information on the debtor company, this would see the wronged employee with a court order for the amount due but no prospect of receiving payment. Should the summons be served, the applicant is not entitled to legal representation in the Magistrates Court if the amount is less than $12,000. (Sub 14, p 8, 9)
Along with the above framework, the CFMEU referred to the Labour Hire Licencing Act 2017 (SA) that began 1 March 2018, creating a mandatory licensing scheme, with harsh penalties for non-compliance. In their view, robust labour hire regulation is the most direct way of dealing with the problems of sham contracting and phoenixing behaviour at a state level. Accordingly, they expressed concern regarding attempts to “scrap legislation” intended to protect South Australia’s most vulnerable workers. Rather, the State Government should work with COAG to introduce a national licensing scheme that would ensure consistency across jurisdictions and hold unscrupulous operators to account. (Sub 15, p 11, 12)
Edward Cavanough, Manager of Policy at the McKell Institute, highlighted that labour hire legislation is one process state governments can establish in their own jurisdiction to counter wage theft, given they are often circumscribed by the federal structure. Accordingly, he saw the possibility of the Government “undoing” the labour hire scheme as “relatively dangerous”; it effectively makes South Australia “look like a soft touch”. Evidence to the Committee indicated that implementing the scheme is vital for legitimate labour hire operators and
1 Subsequent to submissions being received by the Committee, there has been a series of additional appointments to SAET at the conciliation and arbitration level.
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dissuades nefarious organisations from coming into the State. The scheme also imposes a framework to check phoenixing activity. (Evidence, p 19, 20)
The Committee heard from Mr Dini Soulio, Commissioner for Consumer Affairs, regarding the status of the State’s labour hire licensing scheme. Applications under the scheme had been open from March 2018, but ceased in September that year, following the State election and change of government. Mr Soulio advised that he had been made aware of the incoming government’s intention to seek to repeal the legislation. With “uncertainty” around the process and since businesses must undertake a level of training, obtain approvals, and pay for an application for a labour hire licence, he decided “it was prudent” to “hold off [accepting applications] for initially three months and then another three months”, with the assumption that the parliamentary process “may have been a bit quicker” and a decision made. Businesses were advised that applications were no longer being accepted via the Consumer and Business Services (CBS) website and a media release, with some subsequently seeking a refund. (Evidence, p 115, 116)
Mr Soulio further explained about the exemption process following queries from a large number of businesses unsure of their status, which would be captured as labour hire when that was not the intention of the legislation. As the Commissioner, he has the power under the act to grant exemptions for people “inadvertently captured by the definition” who he licenses or regulates through other means. The exemptions were gazetted and published to the industry, with briefings to the Attorney General. The exemptions that were granted were “early on”, during the initial period when CBS was taking applications. In response to the Hon Tammy Franks’ question as to whether any of these many businesses had workers “who had been ripped off”, Mr Soulio replied, “not that I am aware of”. When it was made clear to him via “briefings” with the Legislative Council and a media article that the scheme would not be repealed, and the repeal of labour hire licencing subsequently not passing the upper house, Mr Soulio re- opened applications in 2019, writing to all people who had applied and those who CBS believed were, or would be, captured by the legislation. Applications were open from 14 June to 31 August 2019, with an enforcement date of 1 November 2019. (Evidence, p 116, 117, 118)
Further details came from the AMIEU on labour hire agencies used in the meat industry at Murray Bridge, Bordertown and Port Wakefield. In an insecure job environment with lesser conditions, the Union identified the anomaly of workers performing the same tasks but receiving different pay rates when workers are either engaged under an enterprise agreement covering those employed directly by the company, or others employed by these agencies under the Meat Industry Award 2010; even then wages are often less than the award’s applicable rates. The union told of a labour hire provider that would deduct costs for accommodation that was generally squalid, crowded and expensive, along with an “agent fee”. They are currently investigating whether the labour hire agency is deducting up to $700 from entry-level workers’ wages, ostensibly for a medical appointment and Q-fever vaccination. (Sub 8, p 4, 7, 8)
Despite the existing legislation, the McKell Institute saw little federal oversight of wage compliance in South Australia, given that there are fewer workplace audits today than there were in the 1970s, 80s, and 90s. Since 2010, there have been only 23 FWO audits in the State, inspecting a total of 1,726, or 1.19 per cent of employers, with 37.1 per cent found to be non- compliant to varying degrees. Moreover, penalties are “completely inadequate”, offering no deterrence. (Sub 7, p 5, 6) The Institute linked the low incidence of audits to FWO funding being reduced significantly – almost by half – over the last six or seven years. (Evidence, p 17)
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Citing similar data, SA Unions submitted, it is “abundantly clear that the current regulatory framework is ineffective” since the regulator relies on “intermittent audits and occasional strategic litigation of repeat offenders” in the eastern states to convey to employers the need to comply. Those intent on non-compliance, however, are not deterred, given that the likelihood of prosecution “approaches zero”. SA Unions argued that not only is the regulator’s “approach weak”, the FWO has been “stripped of resources”, adding to its “ineffectiveness”. Essentially, the problem cannot be solved by the FWO; rather governments need to signal “zero tolerance” by criminalising wage theft as a deterrent. (SA Unions, p 13, 14) More specifically, Trish Stringer, AWU, referred the Committee to the goals of the federal and state acts currently in force: social inclusion, goodwill, economic prosperity, fairness, enforceable conditions, security in employment. In her view, both pieces of legislation have failed the most vulnerable in our society and require revision, with “significant penalties and oversight” if we are not to become “known as a slave nation”. (Evidence, p 65, 66)
While those representing employers saw the level of regulation as effective, some did express similar concerns in relation to the FWO’s funding. The HIA submitted that the current regulatory framework is appropriate as, under the Fair Work Act, underpayment of wages is a civil offence and penalties can be imposed. Moreover, recent amendments to the act have significantly increased penalties where the actions are “deliberate and systemic”. They noted the free services offered by the FWO to both employers and employees to assist with compliance, as well as dispute resolution services and the FWO’s power to hear disputes about matters of entitlements. Even so, the HIA saw the decrease in the FWO’s compliance budget as regrettable, since the FWO “can always improve their performance” in the above areas. (Sub 19, p 11, 12)
Offering a similar assessment of the effectiveness of the current regulatory system, the National Retail Association (NRA) argued that the FWO “has all the legislative tools it needs”, as evidenced by the “generally high level of compliance”. Even so, the association saw the key impediment to the FWO being more effective was the level of resources provided to the enforcement agency. In the 2018-19 financial year, the FWO had a staffing level of 745 – of whom only a fraction comprised enforcement staff such as inspectors and lawyers – assigned to regulate the workplace practices of some 2.17 million businesses trading in Australia. With such critical under-resourcing, the change should be to “fiscal policy, rather than legislation” to allow the FWO’s existing power to be utilised as expected. (Sub 1, p 12, 13)
Support for the existing statutory regime also came from the Ai Group. They submitted that the system’s joint development at both federal and state level delivered the benefits of “reducing red tape and removing excessive complexity caused by multiple jurisdictions”. They outlined workers’ options for redress via the Industrial Magistrates Courts, Federal Circuit Court, the Federal Court, or the FWC. Statistics from the FWO’s Annual Performance Statement 2017-2018 showed that the average time for resolving requests for assistance fell to 14 days, compared with 15 days in the previous year, and 19 days in 2015-2016. In the same 2017-2018 period, the FWO resolved 27,074 disputes in an average of 7 days, an increase from 25,332 in the previous period. Over 96 per cent of disputes were finalised through education and the dispute resolution services. In Ai Group’s opinion, the existing regime will not be improved by State legislation to address underpayments. It would only “add an extra layer of complexity” to a system the South Australian government supported to decrease confusion and increase efficiency for employers and employees. (Sub 20, p 6 - 9)
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With a similar claim of complexity, Business SA submitted that employers are faced with a “significant number” of laws that govern employment, as well as multiple complicated modern awards that are difficult to interpret. Apart from those cited above, they added: 122 modern awards; Long Service Leave Act 1987 (SA); Superannuation Guarantee (Administration) Act 1992; Modern Slavery Act 2018. In their view, clauses in modern awards are often complex or vague, requiring interpretation by employers, most of whom lack legal training. Business SA’s advice line receives over 13,000 calls annually from businesses seeking clarity. Moreover, the existing regulatory system provides a framework for the enforcement of workplace laws, with “considerable disincentives” for employers to underpay employees under the Fair Work Act. Any State legislation designed to circumvent the federal structure would add further complication to an already over-complex system. Rather, the State Government should lobby the Commonwealth government for additional Fair Work inspectors to be located in South Australia to prompt more proactive and strategic responses to the “breadth of this serious problem” in specific industries, locations, sectors or in particular cohorts of workers. (Sub 23, p 6, 8)
The Senate’s Economics Reference Committee reported on some of the difficulties associated with investigating and prosecuting white-collar crime and misconduct. Challenges included the high evidentiary standards that normally apply in white-collar cases (including non-criminal proceedings) and the relationship between penalties and the likelihood of detection and prosecution in deterring white-collar crime and misconduct. The report also noted that one of the things that differentiates white-collar crime from street crime was that defenders often have significant resources at their disposal, allowing them to extend litigation and drain the resources of the regulator. Essentially, civil cases were often as complex, resource intensive and difficult to prove as criminal cases, particularly when they involved white-collar offences. Evidence suggested that the Australian Securities and Investments Commission (ASIC) should favour pursuing criminal rather than non-criminal penalties in relation to white-collar crime or to have the ability to pursue both criminal and non-criminal penalties in relation to a matter.2 These constraints are just some of the issues to be overcome with the widespread nature of wage theft.
The experience of the Young Workers Legal Service (YWLS) offered correlation. As noted previously, the probability of wage theft being detected and employers prosecuted “approaches zero”. Moreover, young underpaid workers often do not have access to a pro bono lawyer and are unable to afford a legal practitioner. Besides, funding for pro bono legal services is inadequate to fund litigation beyond unsuccessful conciliation conferences where employers arbitrarily refuse to pay. This results in a significant power imbalance, particularly when they are claiming against “well-resourced corporations” represented by private law firms, industry bodies or internal human resources specialists. (Sub 11, p 8, 9)
Even when workers lodge a formal claim in SAET, employers can “refuse to pay the full amount, or anything at all, without any justifiable basis”, with young workers often accepting “whatever may be offered” through conciliation, generally far less than what they are owed. Moreover, payment of the negotiated sum commonly includes confidentiality agreements, which workers either agree to, or they proceed to a hearing and determination and attempt to navigate the act and evidentiary requirements. Even where orders have been made, employers unreasonably refuse to pay workers’ entitlements. In some cases, employers have continually evaded service of court documents, causing further financial loss to workers who must engage
2 2 Senate Economics References Committee, ‘Lifting the fear and suppressing the greed’: Penalties for white-collar crime and corporate and financial misconduct in Australia, March 2017, p 29, 30, 33: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/WhiteCollarCrime45th/Report/c03
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private process servers, still without success. As a result, the worker discontinues the matter. This is a “system that can be gamed by employers”, especially by those who have legal representation. “Exploitation and wage theft then becomes an easy and viable business model.” (Sub 11, p 8, 14)
Predictably, the Committee received widely divergent opinions as to whether conditions preventing the prosecution of white-collar fraud supported the legality of wage theft. Many submissions from those supporting affected workers called for deliberate wage theft to be criminalised. SA Unions believed that the threat of a criminal conviction and the potential of being prohibited from running a business would offer a significant deterrence. (SA Unions, p 14) Those representing employers, however, decried the introduction of criminal penalties. In Business SA’s view, “creating criminal penalties is simply not going to work”. Given that there are already significant penalties, any potential criminal penalty would not offer any greater disincentive. Ai Group deemed criminalisation as incongruous with the history of industrial relations law in Australia. (Sub 20, p Sub 23, p 8)
Criminalising wage theft is considered further under Term of Reference 5.8 (h) below.
4.3 Term of reference (a) The prevalence and incidence of wage theft in South Australia, with acknowledgement to evidence of wage theft from other parts of Australia; Despite the existing legislative framework, the McKell Institute submitted that wage theft occurs across Australia and, effectively, in every industry, based on data from every nationally focused audit by the Fair Work Ombudsman (FWO) since 2009. All FWO campaigns uncovered evidence of wage theft across the Australian economy; it was not confined to any one sector with the general trend worsening over time. The data showed: Between 45 and 76 per cent of workers are underpaid or not paid penalty rates; Between 21 and 56 per cent of workers have had to work an unpaid trial; 51 per cent of workers are not paid or underpaid overtime; 60 per cent of workers did not have tax withheld by their employer; 49 per cent have experienced off-the-clock violations; 39 per cent of workers have had entitlements withheld; and 17 per cent of workers have experienced unreasonable deductions from their pay. (McKell Report, p 16, 17, Sub 7, p 22)
With regard to South Australia, the Institute advised that the FWO has completed 23 audit campaigns since 2009, encompassing 1,726 employers across a diverse set of industries. Overall, 37.15 per cent of those South Australian employers were found to be non-compliant with wage laws in Australia, although the actual number could be higher than those identified since the FWO tends to notify employers prior to audits. Moreover, although there are more than 144,000 employers registered in South Australia, the total number audited by the FWO is only 1.19 per cent of all those operating in the State. In the Institute’s opinion, with very little oversight of South Australian workplaces by federal authorities, the vast majority of employers engaged in wage theft are unlikely to ever be detected or punished. (Sub 7, p 20, 22)
Among its findings, the Institute submitted that approximately 165,000-170,000 South Australian workers are impacted by wage theft in various forms, 20.24 per cent of the State’s
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workforce. A similar number of workers, 29.1 per cent, are likely subject to the non-payment or underpayment of superannuation, overlapping with those experiencing other forms of wage theft. (Sub 7, p 5; SA Unions, p 4)
The FWO, itself, advised that in the 2017-18 financial year they completed 28,275 requests for assistance with workplace disputes, recovering over $29.6 million for more than 13,000 employees across Australia; 1,336 involved workers in South Australia. More than a third of these disputes related to underpayment or non-payment of wages: 16 per cent of employees alleged underpayment of their hourly rate and 19 per cent alleged non-payment of time worked. Termination of employment accounted for a further 15 per cent. Resolution of these disputes saw the recovery of more than $720,000 in unpaid wages and entitlements for South Australian workers. (FWO letter, 23 Aug 2019, p 1, 3)
While acknowledging that Australia has some of the best minimum standards in the world, the YWLS submitted that the incidence of wage theft is rising, becoming a “widespread and normalised business practice”. In the last five years, YWLS responded to more than 1,500 enquiries from young people relating to workplace issues, with 32 per cent of overall enquiries involving wage theft. Of approximately 300 workers who became clients, 70 per cent had either wholly or partially a wage theft issue; YWLS went on to represent their claims. Compared to the previous five-year period, 2009 to 2014, the figures denoted a three per cent increase in wage theft enquiries and, significantly, a 17 per cent increase in the need for wage theft representation. In the last three years, over $250,000 has been recovered for wage theft, representing 82 per cent of all the settlements achieved; indications that wage theft is “prevalent, widespread and significant”. (Sub 11, p 9, Evidence, p 36)
YWLS further advised that as a result of the large number of requests for assistance in the Adelaide Central Business District (CBD) and surrounding suburbs, in 2018 the FWO initiated a campaign in which 125 businesses were audited. The outcome was a 45 per cent non- compliance rate with obligations under workplace laws; 29 per cent were failing to pay staff correctly and 23 per cent were disregarding the requirement to maintain records and distribute pay slips, with some businesses violating both provisions. Given that these businesses represented less than one per cent of total registered businesses in Adelaide, some 15,425 in 2017, it can be inferred that wage theft is far more prevalent than reported. From the data it might be extrapolated that more 5,000 in the CBD alone are non-compliant. (Sub 11, p 9)
The Working Women’s Centre SA Inc (WWC SA) supported the YWLS data as vulnerable workers seek assistance at the centre on a daily basis, describing egregious acts of wage theft that is systemic and incessant, (Sub 12) while the AMIEU stated that it uncovers and challenges wages theft with comparable frequency. (Sub 8, p 3) Similarly, in 2019 the UWU’s Members’ Rights Centre received almost 500 calls from members with concerns about their pay and, in the previous two months this year, had recovered almost $32,000 in unpaid wages. Of the union’s open files, 43 per cent relate to wage theft matters, with 33 per cent of that number being from the hospitality sector and 22 per cent from the cleaning industry. (Evidence, p 289)
Further insight came from the SDA. They submitted that wage theft is often unreported or underreported in an environment where there is a “real or perceived disincentive” to do so. Using data from the FWO, they referred to the largest compliance audit of Australian employers conducted in November 2018, where employers found previously to be in breach of their workplace obligations were revisited. Of the 479 employers audited, 38 per cent remained
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non-compliant, highlighting the lack of sufficient deterrent for employers to comply, even those already culpable. (Sub 14, p 4, 5)
In relation to the Fair Work Commission decision regarding the Enterprise Bargaining Agreement between Coles and the SDA, on behalf of its members, it was found that an underpayment of 77 000 workers had effectively stripped them of their penalty and overtime rates. During subsequent questioning by the Committee, Tom Carrick-Smith, Director of Policy and Strategy, SDA, stated that they “fundamentally reject that there is an issue of wage theft underpayment in relation to this matter”. Later, in evidence, the SDA further stated: Fundamentally, whilst I respect the questioning, the position is abundantly clear in relation to our evidence to this committee. This committee is a committee addressing the issue of systematic wage theft, and systematic wage theft is something that is occurring on an absolutely unconstitutional scale. What we disagree with is the interpretation that this matter is along the same lines as the purview of that question.
As the union representing workers in the electrical, plumbing, fire protection and gas trades across a wide range of industries, CEPU reported a large increase in members seeking union assistance. In 2018, the CEPU lodged $171,000 in wage theft claims compared with $54,156 in 2014. Not only has there been an increase in the number of claims, which have doubled in four years, the average amount of each claim is higher. There has also been a shift in the type of wage theft. In 2014, 33 per cent of claims stemmed from disagreements over classification, whereas in 2018 that figure had decreased to 13 per cent. The Union advised that rather than disputes over interpretation of agreement/award entitlements or genuine mistakes with employees’ pay, there has been “a vast shift” to where an employer is “deliberately and systematically stealing wages” from employees. (Sub 13, p 4, 5)
With a substantial proportion of its members employed in the public sector, the Health Services’ Union SA Branch (HSU) advised that it should not be assumed that wage theft primarily occurs in private industry; there are significant concerns in the public sphere. The HSU has assisted members in public organisations, including Health Networks, with issues such as the failure to classify workers appropriately with respect to incremental progression, where workers are not paid appropriately, and where they are engaged for lesser hours or in more insecure casual work than entitled. Even when such matters are resolved, public sector employers tend to impose confidentiality clauses, thereby reducing awareness of wage theft among other workers and, in some instances, allowing wage theft to continue. While in Mount Gambier, the Committee heard evidence of ongoing, significant failings within Country Health SA Southern Region, including non-payment for work performed, incorrect classifications, errors, omissions, and delays in rectifying shortfalls. Scott Cowen, Australian Services Union (ASU), informed the Committee of disputes over the non-payment of accrued long service leave owed to parliamentary staff arising from changes after the 2018 election. (Sub 2; Sub 10; Evidence, p 77-81; p 83-91; p 236)
The UWU offered further evidence of underpayment in the public sector, citing a case that was not subject to confidentiality clauses, of eight security workers being paid below the minimum wage. With a legal precedent in the same work area regarding performance of the work, appropriate classification and rate of pay, the union pursued the case for over two years. It was concluded in the week before the trial, despite all preparations having been made, with complete concession by the public sector department. All members were back paid and,
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although constrained by the six years of the statute of limitations, the total was over $60,000 in wages and superannuation. (Evidence, p 290)
SA Unions offered an overview, submitting that a “sizeable and increasing minority” of employers are failing workers, withholding wages and entitlements either due to ignorance, indifference to the law, or sheer exploitation, secure in the knowledge they will not be detected. While also acknowledging that wage theft occurs throughout Australia, the UWU clarified that many of the companies found to have engaged in wage theft interstate are national enterprises with operations in South Australia. (SA Unions, p 4; Sub 16, p 7)
In that context, the Committee heard from the Woolworths Group, Australia’s largest private sector employer, with 190,000 employees across the country and approximately 11,000 in South Australia. The company reported on 30 October 2019 that it had identified the underpayment of some salaried staff with an annualised salary – store managers, assistant store managers, department managers, and assistant department managers – in relation to their award entitlements; the estimated shortfall being up to $300 million. With the matter subject to an ongoing FWO investigation and separate legal proceedings, Hayley Baxendale, General Manager, Workplace and Employee Relations, informed the Committee that the company is repaying salary, with 5.5 per cent interest, and superannuation, with 10 per cent interest, to approximately 7,000 team members, up from the 5,700 notified in October. Prior to Christmas 2019, $69 million was repaid and by February 2020 the company had made further payments of $6 or $7 million. She stressed that these were interim payments as, at the time of the original announcement, the company had analysed only two years of data for two of their brands, not for all five brands comprising the group’s supermarkets, Metro, Big W, Dan Murphy’s and BWS. Accordingly, Ms Baxendale could not confirm the total underpayment and the number of staff affected, nor the actual payment per person.
The company has yet to determine the “root causes” of the underpayment, which emerged when the new Woolworths Supermarkets Agreement 2018 was implemented at the beginning of 2019. Three night-fill managers in Victoria separately raised similar concerns. In addressing those concerns, the potentially bigger issue of widespread underpayments arose. This resulted in a review of all salaried team members, both current and former, back to the modern award of 2010, to which the issue relates. Ms Baxendale advised that while Woolworths have improved their compliance practices, they are still determining the scope of future compliance measures, including a major workforce management project. As a result of the company’s mismanagement and liability, the CEO has forfeited his short-term bonus of $2.6 million and the Chairman’s fee of reportedly $750,000 has been reduced by 20 per cent. (Evidence, p 255, 256, 258, 259, 260, 263, 264)
After Hayley Baxendale advised the Committee of the status of the company’s review of underpayments and the scale of the failing, that same day Woolworths issued further data at a shareholders meeting. It revealed that the shortfall was more serious than first announced, with employees having been underpaid a total of $315 million, up from the earlier estimate of $300 million. Investigations into the underpayments were continuing, with the total underpayment possibly being higher.3
3 https://www.news.com.au/finance/business/retail/woolworths-owes-workers-at-least-315-million-amid-profit-drop/news- story/bf133ec8ac9d116064be62ddc38a220b
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That’s $15 million more than the initial estimate of $200 million to $300 million, and it has contributed to a fall in total net profit for the first half of the financial year.
Investigations into the underpayments are continuing, but the total figure could climb higher still.
With regard to non-payment of superannuation, the McKell Institute reported that between 42 and 75 per cent of workers are not paid or are underpaid superannuation at some time. They cited ISA data that superannuation theft costs $5.9 billion and affects 2.98 million Australians, more than one in three workers, with an average amount of $1,994 in 2015-16. This was an increase from 2013-14 when ISA and Cbus estimated that super theft cost 2.76 million workers a total of $5.6 billion. In comparison, the Institute also reported that, by using a different methodology, the ATO determined a lower estimate of the extent of super theft (or the ‘super gap’) at $2.79 billion for 2015-16, compared to $2.76 billion in 2013-14. These estimates, however, do not reveal the number of employees affected or typify particular industries in the Australian economy as more or less susceptible to super theft. (McKell Report, p 18)
The ATO advised that in 2017-2018 it actioned 31,954 cases across Australia regarding the non-payment of the compulsory minimum Superannuation Guarantee. From the 1,872 cases or 5.85 per cent that related to South Australian based employers, 1,033 or 55 per cent were identified as having an SG shortfall. (ATO Response, p 5) Further data from YWLS showed that in 2017 ISA conducted research in each state, territory and individual electorates that revealed 29 per cent of South Australian’s superannuation was likely to be underpaid, equating to 173,550 workers being deprived annually. (Sub 11, p 9; SA Unions, p 4)
From an opposing perspective on the overall prevalence of wage theft, the NRA submitted that, despite “alarming facts” arising from some studies, current research “cannot be said to be conclusive nor indicative of wage non-compliance on a broad scale”. Referring to the FWO’s National Follow Up Campaign in 2010, they cited South Australia’s equal-best compliance rate nationwide of 68 per cent, and the lowest rate of wages non-compliance, at 4.2 per cent. In a subsequent campaign in 2015, however, when the national rate for wages non-compliance was 17 per cent, South Australia’s rate for general non-compliance was the second highest at 38 per cent, although only 18 per cent of issues were attributed to the failure to pay the correct monetary entitlements. Comparing the extensive regional and interstate data provided, the NRA argued that South Australia performs slightly above average. Although they conceded that wage non-compliance in the State “appears to have exacerbated” since the 2010 campaign, this was attributed to some of the regional and localised audits being triggered by complaints and/or requests for assistance received by the Ombudsman, effectively skewing results in areas already identified as non-compliant. The NRA also considered the State’s downward trend in compliance was indicative of an “overly complicated and ambiguous industrial relations system” as opposed to the earlier Workplace Relations Act 1996 (Cth). (Sub 1, p 3-6)
In another challenge to the prevalence of wage theft and what effectively amounted to a denial of its very existence, Business SA contended that most employers “endeavour to do the right thing” and that a number of reports on underpayment of wages categorised unintentional underpayment as wage theft, resulting in inconsistent data. In their view, it is only a “very small minority of business owners that underpay” employees and the “majority” of those who do is stems from “administrational errors and misunderstanding of the complex Australian employment system”. They urged caution in assuming that the worst cases of wilful and deliberate wrongdoing reflect employers generally. (Sub 23, p 5) Similarly, GRSA stated it
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“entirely refutes the suggestion that it has done anything that could be considered wage theft or in any way exploitative”. When the Hon Irene Pnevmatikos put to Matthew Corby, Greyhound Racing’s CEO, that former employees allege that workers are not paid appropriately and that it is “systemically rife within the organisation”, he again refuted the suggestion. (Evidence, p 197, 207)
HIA, too, stated unequivocally that it is “unaware of wage theft occurring in the residential building industry” as, from its experience, employers aim to do the right thing by their employees. Any underpayments are generally a mistake or error. Where such conduct does occur, it is an industrial matter with appropriate mechanisms in place to ensure employees are paid what they are owed. The HIA considered that the very “concept of ‘wages theft’ has been greatly exaggerated”. When faced with data from the Hon Connie Bonaros that their industry “is one of the highest offenders” in relation to underpayment of staff, Stephen Knight, Executive Director, replied that she had “only made us aware of those statistics now”. Huan Do, Workplace Adviser, added that the HIA does not “accept the characterisation that it’s wage theft”. Deliberate underpayment “may or may not occur within the residential industry. We are not aware of it”. (Sub 19, p 4, 6, 14; Evidence, p 170, 173) Conversely, the McKell Institute provided data from a 2013 FWO investigation into the residential building industry in South Australia that revealed a non-compliance rate of 63 per cent; only 37 per cent were compliant. (Sub 7, p 19)
4.4 Term of reference (e)
The sectors in which wage theft is prevalent, including industries, occupations, parts of the state, or among cohorts of workers;
Several submissions highlighted the paucity of information on wage theft. The McKell Institute deemed such data collection to be “in its infancy”. SA Unions submitted that there is no “comprehensive database” in South Australia as wage theft is: hidden by employers who deliberately exploit workers; difficult to identify in all its forms; underreported by workers; not disclosed due to confidentiality agreements; and neither transparent nor available due to limitations on agency data. (SA Unions, p 12; Sub 7, p 11)
Sectors, Industries, Occupations As noted previously, however, the McKell Institute contended that wage theft, in all its forms, can be found in “effectively every known industry in Australia”. Although most existing surveys have focused on particular segments of the labour market, primarily migrant workers and young workers, the Institute argued that the effects extend beyond those impacted directly. (Sub 7, p 11)
Providing more analysis, SA Unions cited a major survey on temporary migrant workers4 that showed the risks of exploitation are higher in labour market segments with a “concentration of low skilled work, thin profit margins, limited union presence and fragmented employment
4 Laurie Berg and Bassina Farbenblum, Wage Theft in Australia: Findings of the National Temporary Migrant Work Survey, University of Technology Sydney, University of NSW Law, and the Migrant Worker Justice Initiative, November 2017: https://apo.org.au/sites/default/files/resource-files/2017/11/apo-nid120406-1162971.pdf
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arrangements which may include franchise networks, labour hire arrangements, supply chains and subcontracting”. Given that these characteristics are typified in a number of industries with “systemic” problems of wage theft, it follows that “vulnerable cohorts” of workers are prominent in these same industries. (SA Unions, p 12; Sub 16, p 6)
Essentially, wage theft is pervasive in small and large industries across the country, with the Committee hearing it to be more prevalent in: hospitality; retail; agriculture and horticulture – fruit and vegetable picking, food processing; social and community sector, including NDIS providers; the finance industry; call centres; hairdressing; local government, particularly in libraries; university, education and training; cleaning; car washing; butchering and the meat industry; fast food; warehousing; labour hire; and construction. (SA Unions, p 13; Sub 6, p 1, 4, 5; Sub 7, p 12, 13, 14; Sub 8, p 2; Sub 14, p 8; Sub 15, p3; Evidence, p 63, 105)
Indeed, the Committee was advised repeatedly that the hospitality and retail sectors, with their young, casual, non-unionised, often female, workforce, were frequently over represented in statistics for non-compliance. During the previous five years, YWLS data showed that of all its clients with a wage theft issue, more than 18 per cent were workers in the retail sector, and more than 23 per cent were from hospitality. YWLS went on to report that in 2017-18, a FWO audit of 243 hospitality businesses revealed an “alarming” non-compliance rate of 72 per cent. Despite accounting for only some seven per cent of the workforce, 17 per cent of overall FWO disputes involved the hospitality sector in 2016-17, increasing to 18 per cent in 2017-18. In the latter year, over $4.8 million was recovered from the sector, almost 20 per cent of all recoveries. In FWO Annual Reports for these two periods, the hospitality and retail sectors were among the top four industries generating enquiries. (Sub 11, p 16, 17)
Having been involved in hospitality for more than 25 years as a student, an employee, as a head chef and past owner of restaurants, Henry Honner has been campaigning to end underpayment in the industry, stemming from his early experience in South Australia. After four years of study at Regency Park TAFE, he worked at a North Adelaide hotel that “severely underpaid” a huge percentage of its young employees; working 20 to 30 hours of unpaid overtime was common practice. When challenged, the company assured staff that they would “look after” them, however the “looking after” was a $75 voucher to eat in the hotel’s restaurant. The entire time he worked in South Australia, “never did [he] receive one public holiday pay”. He and other industry colleagues reported that the prevalence of underpaying has been increasing over the past few decades, with the worst forms of exploitation being the most common. (Sub 22, p 1, Evidence, 272, 276, 277) Angas Story, Secretary, SA Unions, stated succinctly that the
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hospitality industry is a “shocker”; it is “more likely to find restaurants engaged in wage theft in Gouger Street than … an honest broker”. (Evidence, p 191)
As the only national industry association representing the interests of over 2,500 café, restaurant and catering businesses in South Australia alone, Restaurant & Catering Australia (R&CA) has been actively involved in discussions concerning non-compliance across the sector. Although R&CA members have a “much higher rate of compliance”, the association is dismayed and frustrated by business owners deliberately avoiding compliance with workplace obligations towards staff, as such practices “undermine the integrity” of the hospitality industry. (Sub 5, p 1, 2, 3)
Introducing another area of concern, the CFMEU advised that features of the construction industry made members particularly vulnerable to wage theft. With many small employers competing within complex contracting and subcontracting systems, very few workers are employed directly by head contractors. Intense competition has seen wages and entitlements cut by employers seeking advantages to win a contract. Moreover, as the work is often project- based and inherently short term, workers are usually casual, daily hire or labour hire. They undertake unpaid or underpaid activities, or forego entitlements such as the Superannuation Guarantee to gain or retain employment. (Sub 15, p 4; Evidence, p 19)
Cohorts of workers Although wage theft is pervasive across Australia, a range of demographic groups were identified as being particularly vulnerable and at risk: migrant workers on temporary visas; young workers; women; low income employees; young people from refugee backgrounds; international students with limited English proficiency, often exploited by employers from their own cultural and linguistic background; labour hire workers; backpackers; “gig workers” who are not considered to be employees, but rather contractors; new migrants who are illiterate, with few connections and support; new migrants, sponsored by a family member, working unpaid for years to reimburse the costs; refugees on temporary visas with poor English skills; casual workers and seasonal workers; and disabled workers. (McKell Report, p 20; Sub 3, p 1, 2, 4; Sub 7, p 12, Sub 8, p 8; Sub 16, p 7; Evidence, p 63)
SA Unions cited further data from the National Temporary Migrant Work Survey that showed wage theft is endemic among international students, backpackers and other temporary migrants; approximately 30 per cent of those surveyed reported they earned about half the minimum wage, with 46 per cent indicating they earned $15 per hour or less (excluding 457 visa holders). (SA Unions, p 12)
From the MCCSA’s experience, the key area of wage theft is underpayment, all forms of which were in the hospitality industry, among people on temporary visas and international students
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working for people from the same cultural and linguistic background. Anecdotal evidence is that these workers had their passport and visa copied when starting, with the threat of losing their visa should they complain about pay and conditions. MCCSA submitted that the going rate in many hospitality outlets is $10 per hour and that accountants and advisors to the business owners have assisted in establishing “inappropriate systems”. The $10 rate is well known among international students of at least one cultural group and within a specific geographic area close to where many students reside. Apart from being underpaid, these employees are not receiving their superannuation entitlements.
Associate Professor Marinella Marmo, Flinders University, identified a perceivable culture that has been established, mostly in migrant communities and with international students, to “accept a certain kind a community award rate. … There is a norm that has been established, a hidden norm”. Mr Umes Acharya, Young Christian Workers, explained there is “this fear of community isolation”. Since most of the employers are from that community, if workers speak against the “accepted norm”, it becomes difficult for them to be part of the community, and that is the only community international students have in Australia, on which they depend. That reliance is compounded by the cultural respect for employers, for elders, who have “done a very godly thing by employing someone at $8 an hour”. (Sub 9, p 1-2; Evidence, p 225, 227)
From his 25 years in the hospitality industry, Henry Honner also submitted that foreign workers are the most exploited, too often by employers from their own cultural community, being commonly paid less than half the award rate. He also raised another key concern, unpaid overtime, with 20 plus unpaid hours being “par for the course” in high-end restaurants, much of it going back years, although most cafés and restaurants would be “guilty to some degree”. (Sub 22, p 1)
Indeed, the Committee heard evidence of wage theft among several cultural groups. Some employers take advantage of the notion of “work experience”, offering new arrivals “three months as a volunteer position, nine to five”, when “maybe we will hire you”. Unable to look for other work, spending their own money for transport and food, the “volunteers” are finally advised “you are not up to our standards” and no job eventuates. This cycle occurs repetitively. Frequently, in “most of the communities”, established community members abuse their own people, paying the same $10 per hour for 10-12 hour shifts, with limited breaks, particularly in hospitality, car washing and transportation. (Evidence, p 48) Evidence and case studies before the Committee revealed wage theft in multiple communities: Indian, Asian, Arabic speaking, and Afghani. (Evidence, p 155, 156, 158, 159)
The case of Mr Rajesh Salaria revealed a degree of exploitation that encapsulated most aspects of wage theft detailed above. His circumstances have been the subject of two recent decisions by SAET. After finishing his studies in hospitality in Australia, Mr Salaria was sponsored by Mr Narinder Sharma, working part-time for some nine months without pay, despite his employer advising the Department of Immigration that his salary would be $60,000. He was promised full-time work and pay when he obtained his 457 visa but was then offered only $12 per hour for 40 hours, $480 a week. From this amount Mr Sharma deducted funds for superannuation and income tax. Returning from a trip to India, Mr Salaria found the business had been sold; it had been trading insolvent from 2014, before Mr Salaria was employed. Not able to work elsewhere, he drove a taxi, resulting in his visa being cancelled. When Mr Salaria took his case to the FWO, Mr Sharma presented fake payslips, suggesting $60,000 had been paid. Although Mr Salaria advised the FWO that was incorrect, they essentially ignored him, concluding the underpayment was only $5,000. When Mr Salaria advised even that amount
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had not been paid, the FWO essentially stated, “Well, the underpayment isn’t big enough for us to do anything about it. Go sort it out yourself”. (Email to Select Committee, from Angas Oehme, 28 May 2019; Evidence, p 123-126)
SAET found that Mr Salaria was extorted to the maximum extent, being deliberately underpaid some $87,000 in wages and entitlements over nine months while working for a group of Indian restaurants on a subcategory 457 temporary working visa. His employer lied to the Department of Immigration about Mr Salaria’s annual salary for him obtain a visa, after which they demanded that he pay back most of his wages in cash each week. They also demanded Mr Salaria pay approximately $14,000 to cover their visa sponsorship fees, with the threat that if he raised any concerns, they would cancel his visa and have him deported. Despite the Court’s decision, Mr Salaria’s employer was wound up in liquidation, owing $500,000 in unpaid taxes and another $200,000 in unpaid superannuation contributions. The director of the company, Mr Sharma, had maximum penalties imposed of around $86,000. Even so, the money award to Mr Salaria by the Court “will most likely never be paid to him”. As he is not a permanent Australian resident, Mr Salaria is not eligible to obtain unpaid wages through the Fair Entitlement Guarantee. Despite being awarded some $172,000, he has not received any repayment and is facing deportation for driving a taxi at night and exceeding the maximum working hours under his visa. (Email to Select Committee, from Angas Oehme, 28 May 2019; Evidence, p 123-125)
In response to the Chairperson’s question as to whether he pursued his many instances of underpayment in hospitality, Henry Honner advised that “people don’t” as they fear it will jeopardise their job. To do so, “you kind of have to put yourself out there”. But “you shouldn’t have to risk your job to get fair pay”. In his view, there is a “cultural norm” to wage theft due to competitive pressures that push businesses in the wrong direction. (Evidence, p 274)
Associate Professor Marinella Marmo, Flinders University, emphasised that some cases defined as underpayment and wage theft are, in fact, akin to slavery. Many workers on temporary visas do not just fear speaking up due to potential repercussions, but suffer a sense of entrapment: they are deceived, under threat, fear authorities and are not free to “simply walk away” from their employment. Essentially, it can be difficult to “detect and distinguish between a situation of substandard or exploitative working conditions and forced labour”. (Evidence, p 221, 222)
With regard to regional areas, prior to the COVID-19 pandemic, the Committee visited Mount Gambier and heard that workers are vulnerable due to insecure work, being casual employees, limited job opportunities and, should a worker complain, the loss of any further job opportunities due to “word of mouth” in the district. There could also be ramifications for other family members and their businesses. The SDA’s view was that wage theft is more likely in regional areas and smaller businesses than in metropolitan Adelaide. The AMIEU, too, submitted details of wage theft in the meat industry in regional towns – Murray Bridge, Lobethal and Bordertown – but there it is occurring in large-scale businesses. (Sub 8, p 4, 5, 7; Evidence, p 67, 68, 71, 102)
The NRA provided statistics from the FWO’s regional campaigns that showed a wage non- compliance rate of: 24 per cent in the Limestone Coast region in 2014-15; 30 per cent across the Barossa, two Wells and Gawler regions in 2018; 25 per cent on Kangaroo Island in 2013-14;
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compared with 29 per cent in the Adelaide CBD and inner metropolitan area in 2018. (Sub 1, p 4)
4.5 Term of reference (b)
The impact of wage theft on workers, families, law-abiding businesses, the economy and community;
The Committee heard evidence from several older family members who presented the case on behalf of younger victims impacted by wage theft, as well as witnesses with a long involvement in an industry. Their information revealed that wage theft has existed historically and is still prevalent today. Essentially, employment conditions have not improved significantly over time. (Evidence, p 268, 269, 274, 276, 277)
The most immediate impact of wage theft on employees is the loss of personal income that accounts for two-thirds of Australian primary household income, some $875 billion in 2018. Given the number of vulnerable, low-income workers in insecure jobs detailed above, even a small shortfall in wages results in pressure on housing, rent, utilities, vehicle registration, groceries and other everyday essentials. Wage theft can also result in deferred spending, lower levels of saving, high-interest loans, borrowing from families, sale of possessions, even homelessness. Caught in a “spiralling debt trap”, this can lead to repossessions, convictions or evictions. SA Unions submitted that victims of wage theft often suffer a sense of isolation, of being “used”, despair, desperation and anxiety, similar to those who are robbed “or otherwise fleeced of their savings or property”. Evidence indicates that lower incomes contribute to higher rates of illness, disability and death – chronic lung conditions, diabetes, heart disease or stroke – resulting in shorter life expectancy. Such a tenuous environment produces a “common fear of retribution” if workers were to raise the matter and apprehension about gaining alternative employment. Ordinary wage theft – not the misappropriation of superannuation – is likely to be costing South Australian workers between $280 and $470 million per year. (SA Unions, p 7, 8; McKell Institute Report, p 20, 22, 23; Sub 7, p 5; Sub 11, p 11; Sub 14, p 5)
YWLS submitted that while there are “profound consequences” for the broader community and the economy, wage theft has a huge impact on its immediate victims. The direct financial repercussions can be “devastating”, extending well beyond the period when the contraventions occurred. Deprived workers must rely on welfare, family and friends to live; students need to work increased hours in multiple jobs to the detriment of their education. Underpaid international students are faced with working more hours in breach of their visa conditions or being unable to pay for housing, utilities and food, as they have limited or no support networks. Should these students complain about rates of pay and conditions, employers often threaten to report visa contraventions to the Department of Immigration and Border Protection. Working longer hours – as much as 60 hours a week, shifts in excess of 12 hours consecutively, sometimes up to six day a week – not only poses risks to their individual health and safety, but also to that of colleagues and the broader community. Some international students are so worn down by their experience in Australian workplaces, they do not want to remain; a “real tragedy” for the individual and shameful for the country’s reputation. (Sub 11, p 10, 11; Evidence, p 37)
Henry Honner acknowledged while the debate is rightly focused on employees, what is overlooked is that there are “no beneficiaries from wage theft”. The hospitality industry is not benefitting, with apprenticeship completion rates at only 41.2 per cent and falling. He cited a
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national food chain, Grill’d Healthy Burgers, has staff serving alcohol without an accredited Responsible Service of Alcohol (RSA) Certificate, in order to “drag out their traineeship … on lower wages”. With the worst record of underpayment, people are abandoning the industry; people are not joining the industry. A colleague, formerly a head chef, has retrained as a carpenter, after years of “not getting paid, doing huge hours for a base salary”. Another colleague now works in real estate. Essentially, you “throw your hands in the air and walk away.” It is affecting sustainability as “we just keep filling from the bottom”. Mr Honner’s goal is to have employers compliant, achieve a “level playing field and then an industry that is not a race to the bottom” (Evidence, p 271, 276, 277, 278)
Beyond the strictures arising from the loss of wages, the impact of lost superannuation is cumulative, one that can destroy workers’ retirement savings. Given that superannuation is contingent upon, and related to, wage levels, the impact of underpaid or unpaid wages is twofold and compounds over time. The McKell Institute submitted that about 29 per cent of South Australian workers are likely subject to the non-payment or underpayment of superannuation, likely costing around $270 million per year in lost retirement savings. Aggregated from ISA data, in 2018 almost 170,000 of the State’s workers were underpaid superannuation, averaging almost $1,700 per year. Across Australia, ISA research in 2018 revealed that up to one in three workers are not paid their full superannuation entitlements, with an estimated loss of $5.9 billion. From those underpaid, 75 per cent had at least one of the three identified risk factors: under 30 years of age, earning less than $30,000, and working in a blue collar occupation. Given the compounding effect of superannuation over time, when unpaid it affects not only individual victims but also society and the economy in every state in the country. (SA Unions, p 8, 9; Sub 7, p 5, 25, 27; Sub 11, p 12)
ISA has calculated that those aged between 60-64 on salaries of $60,000 to $70,000 who were not paid the correct superannuation had, on average, some $35,089 less at retirement; a 47 per cent discrepancy compared to those who had received their entitlements. Across all age groups, the average discrepancy was $19,709, again 47 per cent less than workers paid correctly. Accordingly, wage theft not only causes reduced living standards in the present but a lower quality of life in retirement. (McKell Institute, p 22; Sub 11, p 10)
Statistics would indicate that phoenixing activity cost employees between $31-298 million in unpaid entitlements during the 2015-2016 financial year. More specifically, the CFMEU advised that phoenixing is a major problem for workers in the construction industry. They provided data from a PricewaterhouseCoopers (PwC) report from 2012 for the FWO that estimated the total cost to employees, business and government revenue to be between $1.8 and $3.2 billion per annum. This estimate did not include an amount for superannuation contributions lost to employees of “phoenix” companies. Apart from the loss to employees and commercial creditors, the ATO is denied tax remittances, such as PAYG contributions, over many months before insolvency. (Sub 11, p 12; Sub 15, p 11)
Overall, SDA submitted that when money is taken out of workers’ pockets, the entire South Australian economy is affected. YWLS contended that wage theft is contributing to the economic issue of stagnant wage growth, with young workers worse off than previous generations in terms of declining wages and secure work. The social impact is adding to growing mental health issues estimated to cost $7.2 billion a year. As a result, young people need to rely on parents, increasing the pressure on those nearing retirement. For deprived workers and their families struggling to meet financial obligations and those with limited
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support networks the impact is more severe, adding to the burden on the welfare system. (Sub 11, p 11; Sub 14, p 5)
The McKell Institute, too, contended that the “downward pressure placed on wages across the economy” by extensive wage theft impacts all wage earners. In their view, wage theft is exacerbating the country’s sustained period of stagnant wage growth, notably high underemployment and youth underemployment levels and impacting negatively on job creation. SA Unions, too, submitted when “billions of dollars” are taken from workers, the impact of reduced consumer spending directly affects all businesses. When competitors use “dishonest employment practices” that undercut the business models of law-abiding employers, the latter may be affected profoundly, particularly when they are tendering for contracts. Accordingly, the impact of wage theft on businesses is anti-competitive and provides non-compliant employers with an unfair advantage in the market; by exploiting their workforce, they can reduce their expenses and increase profit margins. Law abiding businesses are less able to compete. (SA Unions, p 8; Sub 7, p 11; Sub 14, p 5)
From personal experience, Henry Honner laid out the competitive environment faced by wage compliant owners in the hospitality industry who “suffer … just as much as their employees”. Circumstances such as: Oversupply, low margins, low levels of labour productivity, increased investment risk, falling asset values, devaluation of skills, increased cost of education and Australia’s highest rate of business failure are all caused or exacerbated by the unchecked culture of underpaying in hospitality.
He argued that, like most other industries, owners want “ a level playing field”. If the FWO were to “stamp out” only the bottom 1 per cent of exploiting businesses that would not survive without a business model of underpaying staff, those remaining in the industry would benefit from $450 million in extra trade per year. Among more than 100,000 hospitality businesses active in Australia in a calendar year, some 15,000 enter and another 13,500 fail, close up or otherwise leave the industry. With that rate of attrition, businesses are powerless, having “zero market power to change the status quo”. In his opinion, the wider industry has adapted to competing with a large number of underpaying businesses “by joining them”. The McKell Report, too, recognised that an “uneven playing field” can become an incentive for other businesses to break the law to reinstate their own competitiveness; unrestrained this can create a ‘race to the bottom’. (Sub 22, p 2; McKell Report, p 24)
While recognising the impact of wage non-compliance on competition in the marketplace, the NRA also added that in listed companies such illegitimate competitive advantage might affect the share price and dividends paid to shareholders. In all companies, illegitimate profits could generate increased investment and greater business growth, with the potential to propagate further non-compliance as part of the business model. (Sub 1, p 7)
The McKell Institute reported that wage theft primarily affects governments by reducing the revenue received from taxes, which then necessitates increased government spending. The Commonwealth government is deprived of pay-as-you-go (PAYG) withholding, personal income tax and Medicare levy revenue, while the states suffer the loss of payroll taxes. Although difficult to quantify, the McKell Institute estimated that South Australia loses between $31 million and $60 million per year in GST as a direct result of wage theft. The reduction in income increases the amount spent federally on the Newstart Allowance, Family Tax Benefit, or the Energy Supplement and, with superannuation theft, is likely to increase
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future reliance on the Age Pension. The increased demand for housing support, provided by state and territory governments, is amplified by wage theft. Thus, shortfalls in taxation revenue reduce the number or quality of essential services in this State. (McKell Report, p 24, 25; Sub 7, p 5; SA Unions, p 8)
4.6 Term of reference (d)
The reasons why wage theft is occurring, including whether the current regulatory framework and practices are effective for deterrence;
Peak employer bodies provided a range of reasons for the occurrence of wage theft. The NRA advised that a “substantial driver of unintentional wage non-compliance” is the intrinsic complexity of modern awards, with flow-on effects into enterprise agreements. The award modernisation process in 2008-2010, “did not necessarily regard clarity as its highest priority”. Indeed, in its current review, the FWC is integrating plain language in most modern awards, seeking to standardise penalties and loadings in the relevant titled clause. Despite these claims, the association did acknowledge that deliberate non-compliance stems from the desire to increase profitability, given that, for a retail operator, labour costs are the most significant cost. Even so, they stated that the “threat of significant penalties and a compliance system geared towards employee self-representation” would usually act as a suitable deterrent. (Sub 1, p 9)
R&CA, HIA and Ai Group expressed similar reasons for underpayment: complexity, genuine misunderstandings, competing interpretations and payroll errors that were remedied once the employer was made aware. Effectively, the legislation and awards are difficult for business owners to comprehend without assistance from industrial relations professionals. HIA also argued against the statement that the absence of evidence of “widespread overpayments” would cast doubt on claims of “inadvertent underpayments”.5 In their view, such “incorrect conclusions should be rejected”, querying why an employee would report an overpayment? (Sub 5, p 4; Sub 19, p 6, 7; Sub 20, p 9)
Sally Neville, Deputy Chief Executive Officer, R&CA, offered further insight, reporting that many business owners are inexperienced and come into the industry “from an operational perspective”. Having been an employee, they have never managed a business but have an idea of “what they think people should be paid”. They do not investigate the rules, the award and how to access the correct information to be compliant. Despite the R&CA and other avenues offering advice to owners, many “don’t care or care to find out” about the compliance regime. Indeed, only one third of restaurant and catering businesses are members of the association, with the industry having a disproportionately high percentage of non-compliance. In light of that, she proposed the Committee recommend that Consumer and Business Services and the Small Business Commissioner refer those applying for a licence to industry associations, as membership can lead to compliance. (Evidence, 26, 27, 28)
During evidence, all Committee Members raised concerns that Ms Neville rejected both the notion that many practices in her sector equated to wage theft, as they were far more than non- compliance, and that employers in her industry should understand their legal obligations to staff. She suggested that calling the underpayment of wages “theft” would be to overstate the issue; this despite her industry having the highest level of underpayment. When asked if she
5 Briefing Paper – Department brief by the Office of Industrial Relations, June 2018, p 25.
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accepted that employers within her industry flout the laws because of the dearth of auditing and the penalties imposed, Ms Neville acknowledged that “every day there is some sort of report nationally of a restaurant chain or restaurant group that has been caught for non- compliance”. (Evidence, p 31.) Effectively, Ms Neville downplayed the role of her organisation in informing its members of their legal obligations and responsibilities, although she did concede that there had been penalties imposed in South Australia on offending business owners at the higher end of the scale.
Submissions from individuals and organisations representing deprived workers offered an opposing view.
SA Unions challenged the above claims of complexity, mistake or error. While acknowledging there may be cases of “honest mistakes”, they argued for the probability that honest mistakes would benefit the worker as often as the employer. In their experience, however, “honest mistakes are rarely to the advantage of the employee”. Besides, “ignorance of the law is not an acceptable defence”, even more so with industrial law becoming less complicated with fewer modern awards and the “end of transitional arrangements from the old industrial relations system”. (SA Unions, p 10) While acknowledging some awards present complexities, the SDA maintained that the General Retail Industry Award is “one of the simplest awards in the industrial relations system”; it is explicit, with no grey areas. Conversely, claims of complexity do not reveal any systematic overpayment of wages, nor do they address complexity in relation to corporate tax law. (Evidence, p 248) Rather, in some sectors, wage theft is becoming the norm in a business model compelled by commercial gain. (SA Unions, p 11)
Ralph Clarke, industrial advocate, also rejected “the rubbish” touted by business associations of awards being too complicated. “Woolworths and the like understand awards. They have armies of lawyers and HR people”. Awards are “so straightforward” that small business operators must appreciate that they are engaged in wage theft when the award rate or even the federal minimum award is “around $18 an hour”, forgetting any penalty rates, and they are paying only $10 cash in hand per hour. It’s “the price of doing business because they don’t think they will be caught”. (Evidence, p 285)
CEPU, too, attributed the prevalence of wage theft to it being an effective business model. If an employer steals workers’ wages, then offers “to pay them back when … caught, there are no consequences”. Effectively: if you underpay your whole workforce, in most circumstances less than half … will complain, by which time you’ve already at least halved your costs. Of those who complain, many are willing to accept a lesser amount than what they’re owed, your costs are reduced again. (Sub 13, p 9)
Angas Story, SA Unions, put it succinctly: the penalty for almost every case of wage theft is “no more than having to pay what you should have paid in the first place”. There is “almost zero penalty” for anyone engaging in wage theft in South Australia, when it is important to “virtue signal” that “somebody is on the beat”. To tackle the “scourge” of wage theft, there must be an increase in deterrence, such as a criminal conviction, to achieve a “dramatic” change in behaviour. (Evidence, p 190)
Accordingly, YWLS argued the importance of deterrence and consequences. It is not enough to just pursue large and public underpayments. Rather the need is for “a broken windows policy”, being ready to litigate on smaller underpayments as well. If employers believe that by
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“just skimming money off the top”, they will not then attract the attention of the Ombudsman that creates a “very dangerous situation for workers”. To that end, community legal centres should receive more funding as they provide this support regularly, without cost to the workers, and are overwhelmed by the volume. (Evidence, p 127) Anthony Penney, Business SA, offered a similar view that the FWO, with finite resources, actively pursues large-scale investigations but does not offer enough assistance to individual employees. He advocated support for the FWO and increased support for both employers and employees, amidst a “groundswell of change” in the culture of the workplace in Australia, including calling out poor behaviour. (Evidence, p 176, 182)
The McKell Institute submitted that the federal government is “abrogating its responsibility to enforce wage compliance”, with the FWO being radically under-resourced to oversee a national labour market of 12.5 million workers. In recent years, it has effectively reduced its own capacity to enforce the payment of wages and superannuation nationally as there is “no cop on the beat”. (Sub 7, p 16)
From experience, YWLS submitted that given the prevalence of wage theft, it is apparent that the current regulatory framework is ineffective in promoting compliance. Existing civil penalties are not preventing businesses from contravening the act, either because the act is not adequately publicised or not pursued frequently enough, or both. Other contributing factors include declining union membership and the complex legal processes for reimbursement. As noted above, even when orders have been made, some employers are “simply refusing to pay” or are evading the service of court documents, with the worker eventually discontinuing the matter. With insufficient funding for pro bono legal services to support litigation beyond unsuccessful conciliation conferences, the efficacy of penalties and deterrence are diminished. (Sub 11, p 14)
Other reasons for the occurrence of wage theft included: deliberate exploitation of vulnerable cohorts of workers, including temporary visa holders dependent upon a host employer; casualisation; insecure work; third party labour hire arrangements; precarious working conditions, such as contractors who receive lower rates of pay when compared to casual workers covered by a modern award; rapid turn-over of migrant workers that hampers investigation of compliance; decline in union membership; legal loopholes in “zombie” agreements – enterprise agreements ratified before the modern award system – that result in entitlements falling below minimum standards; o supervisors employed under “old agreements” could be paid less than more recent juniors on award minimums; o the onus is on the worker to terminate these agreements, as opposed to the employer being obligated to pay staff the minimum according to safety net provisions; workers who do not know their wages are being stolen; power imbalance even when workers are aware of their entitlements; fear of intimidation and retribution if workers complain; workers’ reputational damage in the industry and its impact on future employment; complex legal processes for victims seeking reimbursement;
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lack of knowledge on how to pursue claims of underpayment; lack of proper documentation, including payslips and attendance records; and cost and the length of time to recover wages. (SA Unions, p 11; Sub 8, p 8, 9; Sub 11, p 14, 15; Sub 13, p 9; Evidence, p 42)
Multicultural Youth SA (MYSA) submitted that the exploitation of refugee and migrant workers (including international students) stems, in part, from the failure to educate them on their employment rights and options for recourse. Existing information and support services have been developed in the context of the general Australian population and are “largely inaccessible to refugee and migrant populations” that require specifically tailored support. (Sub 3, p 5)
From his experience, Henry Honner highlighted the anomaly between the large problem of wage non-compliance in the hospitality industry compared with the few issues around adherence to mandatory food safety compliance, fire regulations or liquor licensing requirements. He contended that the prime reason for the latter positive outcomes is that businesses are “inspected every year (not once every 171 years!) and the businesses fund the cost of their own compliance inspection”. Even so, this is a “sign on” situation, when restaurants “sign on and then you get checked, at your expense, every six months”. Some businesses, however, do not sign on. “So we don’t comply because no-one makes us”. The difficulty of applying similar standards to wage compliance is that the necessary information is not always available on the premises, or so organised that inspectors can examine it easily. Another barrier would be the additional expense added to the more than $6,000 restaurants and cafés currently outlay on compliance fees and charges, plus the associated labour costs. (Sub 22, p 2, Evidence, p 272)
AMIEU argued that the practice of phoenixing protects wage theft and provides businesses with a competitive advantage compared with companies paying the legal minimum which, in turn, acts as a downward pressure on wages and offers an incentive for companies to break the rules. Non-compliant businesses and owners may hold or be entitled to assets but the phoenixing company acts as a litigation shield, with the assets protected by complicated arrangements, including family trusts. Accordingly, after pursuing entitlements through the courts, including SAET, and achieving favourable judgements and pecuniary penalties, workers can find the employing entity has no assets or is about to enter administration, liquidation or seek de-registration. Despite incurring significant legal costs and having court orders that confirm the worker is legally owed the money, no funds are available. (Sub 8, p 10)
4.7 Term of reference (g)
Measures to ensure support services are in place to guarantee accessible and cost-effective justice to expedite claims;
From the NRA’s perspective, the existing measures are sufficient to ensure support services are “accessible and cost-effective” for both employers and employees. They highlighted the efficacy of the FWO, workplace relations experts and the small claims procedure. With its educative and enforcement activities driving long-term behavioural change, the FWO is the central point of contact for free advice and information on Australians’ workplace rights and obligations. There is also a plethora of companies offering advisory services in workplace relations and human resources. Chambers of commerce, industry associations, industrial
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advocates and law firms are available to business owners. Under the small claims procedure, employees can initiate legal action themselves to recover an amount not exceeding $20,000, where courts may act in an informal manner, not bound by rules of evidence and procedure. Effectively, employees can pursue their entitlements via a “quicker, cheaper and less intimidating process than regular court proceedings”. (Sub 1, p 14, 15)
While expressing similar views that the current provisions of the Fair Work Act and the role of the FWO are appropriate to respond to instances of underpayment, the HIA also recognised that both employer organisations and trade unions have a role in assisting members to comply with the law and seek recourse where those laws may have been breached. The Association, however, opposed any suggestion that trade unions be assigned any further powers to respond to breaches of workplace laws, given that the current “expansive rights of entry” for unions are not only “adequate”, but go well “beyond what is considered appropriate”. HIA stated its opposition to any suggestion that it is “appropriate” for a trade union to “fulfil the role of a regulator”, which should rest with a statutory authority that can be held accountable and be transparent in relation to conduct. (Sub 19, p 5, 13)
In comparison, many submissions put forward measures to achieve cost-effective access to justice.
Given that many exploited workers have limited knowledge of their entitlements, SA Unions proposed that the education function of the FWO would be more effective if those funds were distributed to both employer and employee organisations experienced in industrial relations, that are able to conduct education programs on the rights and responsibilities of employers and workers. The FWO’s focus should be on wage enforcement campaigns, repeat audits of non- compliant employers and a higher level of prosecutions. (SA Unions, p 14, 15)
Recognising that many who are denied entitlements have limited English proficiency, the MCCSA proposed that the FWO should employ staff from diverse cultural and linguistic backgrounds. As the peak body for the multicultural community in the State, the Council also called for an education program within MCCSA for international students and people on temporary visas. To that end, a multicultural community awareness radio program should also be developed, with recorded segments played on a repeat basis over several years. In an attempt to widen the range, the year 8 secondary syllabus should include information on employment rights and avenues of redress. This would not only reduce the possible exploitation of a future workforce, it may educate parents suffering exploitation or employers failing in their obligations. (Sub 9, p 2)
CEPU, too, called for a public education campaign highlighting the statistics of wage theft, the importance of workers knowing their entitlements and where they can go to recover lost wages, including a union’s role in providing assistance. In addition, the South Australian Government should establish a fund under the Industrial Relations Advisory Committee to support visits to schools, TAFE, VET providers, and universities that would focus on workers’ entitlements, their right to join a union, and employers’ responsibilities, especially in the case of international students. (Sub 13, p 10)
In a similar vein, the SDA proposed that governments provide funding for unions and community service providers to assist with wage theft claims for non-members within their industry, or for members with pre-existing wage theft concerns from previous employment, allowing claims to be prosecuted on a more consistent basis. Workers have advised the SDA
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that when they sought advice from the Legal Services Commission (LSC) or the FWO, they were directed to the union. In relation to sham contracting, WKLawyers advised that a growing number of workers labelled “contractors” are facing “multiple legal arguments about their rights in multiple jurisdictions”. They cannot get advice because they are not members of a union covered by its rules, “ironically” as they are deemed to be contractors. (Sub 4, p 4; Sub 14, p 11)
Although SAET is a no cost jurisdiction, when employers are determined not to reimburse outstanding wages, the worker faces additional expense and time in pursuing the matter in the Magistrates Court, which has the power and staff to enforce a judgement. Such unnecessary “double handling” defeats the purpose of the “no cost” SAET. Accordingly, SA Unions contended that the tribunal should have the capacity to make an order for unpaid entitlements and determine a date by which that payment must be made. Failure to pay should result in the State undertaking enforcement, with no further cost or delay to the worker. By establishing a fund, supplemented by fines from those who engage in wage theft, workers who have lost entitlements could receive support and compensation; a concept similar to the Victims of Crime Fund. (SA Unions, p 15)
As a specialist employment law firm in Adelaide and regional South Australia, WKLawyers submitted several recommendations based on their experience: underpayment claims should fall into levels of seriousness, like other theft offences in South Australian criminal law; the government to legislate against convicting workers who receive “cash payments”, if they later advise the ATO that they have not declared all of their income; where a business claims bankruptcy, a suitable minimum legal funding to be provided by the State to recover a minimum entitlement to wages; when a worker is successful in SAET, all they are entitled to under the FWA is their statutory minimum entitlement plus interest on the unpaid amount. They are unable to recover their legal representatives’ costs. While not encouraging legislation that enforces “costs in the cause”, WKLawyers did suggest that measures be put in place to always award costs for workers who have been legitimately underpaid; o the manner in which costs are paid under Victims of Crimes claims might be a starting point for allowing appropriate access to justice for workers, certainly at the conciliation stage, and paid by the State. (Sub 4, p 1, 2, 3)
In light of their concerns, noted above, that phoenixing protects employers engaged in wage theft, AMIEU deemed it “critically important” that the legal systems available to workers be furnished with necessary means to “pierce litigation shielding” and expose the real assets of persons responsible for wage theft. To that end, they proposed that industrial courts should have similar powers to the Family Court “to look behind the veil of various structures” to determine who “owns, controls, or benefits from assets, and for what purpose”. This would include recovering monies from the superannuation of a person involved in wage theft. (Sub 8, p 11, 13)
In terms of gaining access to protected assets, the Family Court deals with complex matters, including interests in trust or corporate structures, where there may be minority interests, and superannuation. If, after separation, parties cannot agree on the division of assets, they can apply to the Court for a financial order, which can order a person to pay money to another person by a certain time, transfer or sell property, or sign documents. When a financial order is made, each person bound by the order must abide by it. If a person refuses to obey, anyone
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owed money under a Family Court order can apply for an enforcement hearing, when both parties must attend. If the payer does not attend, the Court may issue a warrant for their arrest. At the hearing, the Court may: • identify the total amount owing; • order the total amount be paid in full or by instalments; • order enforcement of the obligation; • prevent the disposal of property or wasting of assets by the payer; • stay the enforcement of an obligation (including an enforcement order); and/or • make orders for costs.
While emphasising their strong support for the maintenance of SAET and calling for industrial courts to be given such additional powers, the AMIEU also argued for the tribunal to be empowered to order a person responsible for phoenixing activity to pay personally the amount owed to the worker. Accordingly, they recommended that the Committee urge the Federal Government to amend the legislation to grant SAET and eligible courts the same broad powers as the Federal and Federal Circuit Courts. (Sub 8, p 10, 11, 12, 13)
Edward Cavanough form the McKell Institute, portrayed succinctly the difficulties in accessing cost-effective justice: The system benefits those who are strong advocates for their own rights as individuals. That is actually, in itself, a bit of an inequality in the system. You’re only likely to ever get what you were entitled to, if you are, frankly, a savvy advocate and can navigate a complicated system. Yes, it’s very difficult for individuals to go through the Fair Work Ombudsman. (Evidence, p 23)
4.8 Term of reference (h)
Options for ensuring wage theft is eradicated, including consideration of regulatory and other measures either implemented or proposed in other jurisdictions interstate, nationally or internationally and the role of industrial organisations, including unions and employer registered bodies in addressing and preventing wage theft;
The HIA contended that the concept of wage theft has been greatly exaggerated and the complexity of the current workplace relations framework, especially the modern awards, are a major contributor to underpayment. As such, the existing regulatory remedies are appropriate and adequate. (Sub 19, p 14)
In the Ai Group’s view, since the federal legislation “comprehensively addresses” the same issues being considered by this Inquiry, the current regulatory system would not be improved by amendments to South Australian legislation. (Sub 20, p 11)
Similarly, Business SA submitted that the FWO has systems in place and is well known to employees and employers as the main government resource for industrial relations. Additional departments or laws at a State level would only create confusion on where to seek advice. (Sub 23, p 7)
Despite these submissions advocating the status quo, the Committee received a broad range of recommendations for eradicating wage theft, with the matter of criminalisation being contentious and others falling within the Federal Government’s ambit.
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COMMONWEALTH Fair Work Ombudsman increase dramatically the FWO’s resources and funding to ensure that it can operate as a strong, independent umpire to resolve all workplace disputes; (McKell Report, p 37; SA Unions, p 17) o funding should be sufficient to provide an additional 50 workplace inspectors across Australia; (Sub 23, p 7) establish an independent review of the performance, resourcing and culture of the FWO to ensure it responds to wage theft and supports exploited workers effectively; (SA Unions, p 17) FWO should develop a culture of compliance in Australian workplaces; (Sub 23, p 7) require the FWO to undertake a number of routine and targeted unannounced inspections per year, including: o industries and employers where wage theft is known to be common; (McKell Report, p 38; Sub 3, p 5) o follow up audits on non-compliant employers; (SA Unions, p 17) increase the litigation of, and greater penalties for, employers guilty of underpayment; (Sub 9, p 2) employ staff from diverse cultural and linguistic backgrounds within the FWO, ensuring that the main nationalities identified as underpaying staff are represented in that cohort; (Sub 9, p 2) separate the educative function of the FWO from the compliance function, with some of its resources allocated to unions, employer organisations and specialist legal services to conduct education programs, advice and training on the rights and responsibilities of both employers and workers. (SA Unions, p 17, 39)
Fair Work Act Amend the Fair Work Act 2009 to: increase penalties for committing wage theft; (McKell Report, p 28) charge interest mandatorily on stolen wages recovered; (McKell Report, p 28) ensure that all employees have access to a right of audit, even without notice, with Registered Organisations acting on their behalf; (McKell Report, p 35) facilitate greater collaboration between the FWO and Registered Organisations; (McKell Report, p 38) increase the threshold for small claims to $100,000, indexed annually; (McKell Report, p 37) minimise the vulnerability of temporary migrant workers – the Migration Act 1958 should be amended similarly; (McKell Report, p 48) broaden s 296 to include all loadings, penalties and allowances to prevent enterprise agreements falling below the conditions of modern awards; (Sub 8, p 15) accommodate emerging forms of non-traditional employment to afford those workers similar rights as available to employees, including: o expanding the current definition of a worker; o broadening access to the benefits of collective bargaining, minimum standards for pay and conditions; and o access to the FWC; (Sub 11, p 22) give SAET and eligible courts the same broad powers as the Federal and Federal Circuit Court;
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o SAET would thereby be empowered to order a person responsible for phoenixing activity to personally pay the amount owed to a worker; give industrial courts access to powers similar to that of the Family Court as many of these employers “maintain effective litigation shields” that deny a claimant access to their personal assets; o in order to pierce that “shield”, the powers of the Family Court should be available in state system matters. (Sub 8, p 12, 13)
Further measures give appropriate courts the power to order that monies owed to workers can be recovered from the superannuation of an employer engaged in wage theft; (Sub 8, p 13) victims of wage theft should not be further disadvantaged by unfair tax treatment when their stolen wages are repaid; (Evidence, p 288) invite the Australian Law Reform Commission to investigate establishing wage theft as an anti-competitive practice, as well as options for private enforcement of breaches of competition law; (McKell Report, p 29) establish a national whistle-blowing incentive scheme encourage reporting of wage theft; (McKell Report, p 44) Department of Home Affairs to provide immunity for refugees on temporary visas and international students if they report unscrupulous employers and businesses, when otherwise they would face sanctions; o exploited migrant workers who are particularly vulnerable to wage theft should be granted a right of stay; (Evidence, p 289) ASIC should act on businesses trading insolvent, be it via an employee report of not being paid; o where the employer is not be contactable, assets should be frozen to recoup entitlements; (Sub 13, p 13) where a court order details employers using wage theft as a business model, they should be disqualified indefinitely from holding the position of company director; o where such a director holds a professional licence, it should be suspended until the debt is paid. (Sub 13, p 13)
Superannuation superannuation should be included as an industrial entitlement in the National Employment Standards; (SA Unions p 17) superannuation legislation to be amended to require employers to pay superannuation fortnightly to coincide with wage payments, or monthly, in line with section 323 of the Fair Work Act 2009; (McKell Report, p 30; SA Unions, p 16 Sub 11, p 22, 23) where possible, give superannuation funds the power to investigate and recoup unpaid entitlements on behalf of their members; (Sub 11, p 22) the Australian Taxation Office should increase proactive enforcement of underpaid superannuation; (SA Unions, p 16) an automatic penalty should be applied to employers who do not pay superannuation by the legislated date, with the penalty funding the enforcement of the arrangement; (Sub 13, p 12, 13) penalties for company directors who refuse to pay a Superannuation Guarantee liability should be strictly enforced; (SA Unions, p 16) unpaid superannuation should be included as a recoverable entitlement under the Fair Entitlements Guarantee scheme; (SA Unions, p 16)
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the Fair Entitlements Guarantee scheme should be extended to temporary overseas visa workers who are currently denied access. (SA Unions, p 16)
Sham Contracting “reckless defence” should be removed from the offence of sham contracting under the act and a new “reasonable person” test introduced to determine whether an employer has engaged in sham contracting. (SA Unions, p 17)
“Zombie Agreements” an automatic termination date should be legislated for the remaining WorkChoices “zombie” agreements, with necessary transitional protections to ensure no workers are disadvantaged. (SA Unions, p 17; Sub 8, p 14; Sub 11, p 22))
SOUTH AUSTRALIA amend the Fair Work Act 1994 (SA) to introduce a pecuniary penalty regime for state system employees, reflecting that which is available under the Commonwealth Fair Work Act 2009; such penalties could be significant deterrents to non-compliance; (Sub 17, p 2) amend the Fair Work Act 1994 (SA) and the South Australian Employment Act 2014 to ensure that courts empowered to deal with wage theft have powers consistent with the powers of the Family Court to prevent those responsible for wage theft from hiding assets beyond the court’s reach; (Sub 8, p 13) amend the Return to Work Act 2014 (SA) to recognise the Superannuation Guarantee as an entitlement in the assessment of an injured worker’s Average Weekly Earnings; (Sub 11, p 22) increase funding for community legal centres that regularly assist workers with wage theft issues without cost to workers; (Evidence, p 127) as a unionised workplace offers the most sustainable solution to non-compliance, unions should be empowered to investigate, prevent and prosecute wage theft; (Evidence, p 288) unions should have right of entry to sites to access time and wage records and educate employees on their entitlements; (Sub 15, p 15) the State Government should assist non-union employees to access representation for wage theft and provide funding for unions to take on the role; (Sub 14, p 13) the State Government to lobby the Federal Government for additional FWO inspectors to be located in South Australia. (Sub 23, p 8)
South Australian Employment Tribunal SAET should review relevant forms and processes to ensure the legal procedure is simple and user-friendly for workers and their representatives; (SA Unions, p 16) the State Government to ensure that: o wage recovery processes are simple and low cost; o costs associated with the recovery of stolen wages are waived for the victims of wage theft; (SA Unions, p 16) increase funding for SAET to allow additional judicial appointments; (Sub 8, p 12, 13; Sub 13, p 11; Sub 14, p 13)
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amend legislation to enable SAET to enforce its own orders by issuing bench warrants and holding contempt proceedings for companies and directors who fail to comply with SAET orders. (Sub 8, p 14, Sub 13, p 12)
Labour Hire the Labour Hire Licensing Act 2017 should not be repealed nor amended to ensure compliant labour hire firms can compete with “rogue” firms conducting illegal activities; the intended Labour Hire Licensing Scheme for all industries should be swiftly established with appropriate funding and resourcing; the State Government should lobby the Federal Government to create a nationally consistent labour-hire licensing framework. (SA Unions, p 16, Sub 7, p 31, 32; Sub 15, p 15; Evidence, p 288)
Public Sector Employment the State Government should ensure that employers comply strictly with “industrial instruments” and, where appropriate, introduce “statutory duties” on apposite executives to assure compliance; (Sub 17, p 2) public sector agencies should be prohibited from imposing confidentiality clauses when resolving monetary claims from wage theft; disclosure should be left to the discretion of individual workers. (Sub 17, p 2)
MULTI-LATERAL ACTION Education conduct a public education campaign to instruct young people about their rights under the Fair Work system, even in traineeships and apprenticeships; this might be via the FWO, industrial organisations and education departments at state and federal level; establish a fund in South Australia, with oversight by the Industrial Relations Consultative Council, to facilitate visits to schools, TAFE and VET providers, and universities; o require all applying for an Electrical, Plumbing or Builders Contractors Licence to undergo a unit of training on employees’ rights; (Sub 13, p 10) o students or skilled migrants should receive an information pack explaining their rights on arrival as the first two or three years are critical; (Evidence p 51) o develop a multilingual community awareness radio program with recorded segments played repeatedly over several years; for new arrivals in Australia, co-operation would include the Department of Immigration, the FWO and industrial organisations; if equal funding were invested in the education of employers, especially those from non-English speaking backgrounds, on their obligations, breaches would diminish. (Sub 1, p 15, 16, 17; Sub 8, p 14; Sub 9, p 2; Sub 11, p 22; Sub 13, p 9, SA Unions, p 15, 17) Funding federal, state and territory governments should jointly establish the Stopping Wage Theft Subsidy Pool, using recovered taxes to address wage theft. (McKell Report, p 41)
Procurement, Grants and Assistance
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federal, state/territory and local governments should promote compliance by excluding businesses culpable of wage theft from their procurement and grant payments; (McKell Report, p 46; Sub 17, p 2; Evidence p 288) o tenders should only be afforded when a contractor complies with all applicable industrial legislation, instruments and superannuation requirements; (Sub 17, p 2; SA Unions, p 16) o breaches of the Fair Work Act should be noted on a public register and result in disqualification from government contracts; (Evidence, p 288) better oversight of supply chains and plain language that details severe punishments for wage theft should be incorporated into government contracts; o employers routinely and deliberately underpaying wages and superannuation should be blacklisted by the State Government; (Sub 7, p 32) federal, state and territory governments should stamp out cross-border franchise operations engaged in wage theft and develop interstate procurement policies to eliminate wage theft in supply chains; (SA Unions, p 17) before providing grants or assistance, the government should thoroughly consider wage theft and worker vulnerability by inviting relevant unions to provide evidence and scrutinising employers on: o number or percentage of directly employed workers; o number or percentage of labour hire; o use of short-stay temporary migrant workers; o use of 457 visa holders; o compliance with the industrial instruments; o “zombie” agreements in place. (Sub 8, p 14)
CRIMINALISATION OF WAGE THEFT Many submissions called for deliberate and systematic wage theft to be criminalised. in the NRA’s view, wage non-compliance will never be eradicated, as there will always be a business operator with “insufficient understanding, or insufficient scruples” for this to occur. Rather, it can be minimised; o Where there is proof of deliberate or reckless intent, however, the NRA agreed that wage non-compliance should be a criminal offence; (Sub 1, p 15, 17) despite a longstanding principle that criminal law has no place in industrial law, state and territory governments should amend their criminal codes to criminalise intentional, reckless or grossly negligent instances of wage theft; (McKell Report, p 28) since the Commonwealth has, in many ways, abrogated its core responsibilities, the State Government has the authority and must criminalise wage theft within the State and, where the conduct is proven to be deliberate or reckless, implement heavier financial penalties, and explore other deterrents; (Sub 7, p 33, 34; Sub 11, p 23; Evidence 17) wage theft cannot be eradicated unless violating businesses are held accountable, particularly those where wage theft is a feature of their business model; (Sub 11, p 21) imposing a criminal offence may also increase workers’ access to justice and create a deterrence factor that the current framework is failing to achieve; (Sub 11, p 21) the Victorian Government plans to tackle both businesses and individuals, with specific reference to third party liability provisions, to capture franchisors who oversee wage theft and avoid liability via complex company structures; o with this proposal, significant fines can be imposed and up to 10 years of jail time;
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o other non-monetary punishment includes a sentence that carries a conviction, with automatic disqualification from managing a corporation for five years under the Corporations Act 2001 (Cth); this would help tackle phoenixing issues.
Opposition to criminalisation of wage theft came from business peak bodies. the Ai Group submitted that criminalising underpayments represented a “major unnecessary and unwarranted change to the industrial relations system”. The potential for a jail term arising from a failure to calculate entitlements correctly would generate a “strong disincentive to employment”; (Sub 20, p 11) similarly, Huan Do, HIA, contended that there are criminal laws under the Criminal Law Consolidation Act to deal with theft. It is not “appropriate” to incorporate criminal penalties into an industrial relations system as “every mistake or every miscalculation” may potentially lead to “someone being labelled as a criminal”; (Evidence, p 173) It is Business SA’s view that creating criminal penalties will not be effective as there are already penalties of up to $630,000 that apply to corporations of all sizes: o any potential criminal penalty or State laws will not offer any greater threat or disincentive than the status quo; o in some cases, difficulties would arise as to who would actually go to jail, the onus of proof, and being able to show intent; o accordingly, there is not justification for any state to replicate what the Commonwealth already governs. A state government’s concern about underpayment of wages is not a justification to ignore the realities of federalism; o The introduction of the Protecting Vulnerable Workers amendment has increased greatly the financial penalties for serious contraventions of the Fair Work Act 2000. (Sub 23, p 8, Evidence p 181)
4.9 Term of reference (i)
Any other related matter.
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5. Acknowledgements
I take this opportunity to acknowledge all stakeholders providing written and oral evidence to the Inquiry. I also thank the Committee Members and Committee staff who have contributed to, and assisted with, this important Inquiry.
Hon Irene Pnevmatikos Chairperson 21 July 2020
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Appendix 1: Index to Witnesses
Public evidence was received from the following persons and organisations:
27 March 2019 1. Edward Cavanough, Manager of Policy, The McKell Institute 2. Sally Neville, Deputy Chief Executive Officer, Restaurant and Catering Industry Association
17 April 2019 1. Abbey Kendall, Director Working Women’s Centre SA Inc. and Rachael Seaforth, Coordinator, Young Workers Legal Service 2. Multicultural Communities Council of SA Helena Kyriazopoulous, Chief Executive Nasir Hussain, Board Member
8 May 2019 - Regional Visit to Mount Gambier 1. The Hon. Clare Scriven 2. Trish Stringer, Organiser, Australian Workers’ Union 3. Robert Aldersey 4. Ron McBride 5. Sylvia Jones and Brenton Jones 6. Fei Su, Solicitor, Limestone Coast Community Justice Centre
29 May 2019 1. Fabian Moore, Industrial Officer, Shop Distributive and Allied Employees Association 2. Lindsay Carroll, Deputy Chief Executive Officer and Legal Director, National Retail Association
26 June 2019 1. Attorney-General’s Department Dini Soulio, Commissioner for Consumer Affairs, Consumer and Business Services Cara Knight, Manager Reform, Consumer and Business Services 2. Angas Oehme, Solicitor, Lieschke and Weatherill Lawyers and Rajesh Salaria
21 August 2019 1. Daren Hincks, Adam Jaworski, Laci Katsaparas, Brendan Lines
28 August 2019 1. Housing Industry Association Stephen Knight, Executive Director (SA) Huan Do, Workplace Adviser
18 September 2019 1. Business SA Anthony Penney, Executive Director, Industry and Government Engagement Estha van der Linden, Senior Policy Adviser 2. Angus Story, Secretary, SA Unions
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2 October 2019 1. Greyhound Racing SA Grantley Stevens, Chairman Matthew Corby, Chief Executive Officer Gavin Bosch, Chief Financial Officer 2. Associate Professor Marinella Marmo, Flinders University and Umes Acharya, Youth Officer, Young Christian Workers 3. Scott Cowen, Assistant Secretary, Australian Services Union
26 February 2020 1. Shop Distributive and Allied Employees Association Tom Carrick-Smith, Director of Policy and Strategy Edward Satchell, Lawyer 2. Woolworths Hayley Baxendale, General Manager, Workplace and Employee Relations Scott Joseph, Group Counsel, People and Culture Rachel Elliot, Senior Manager, Government Relations 3. Michael Taliangis
11 March 2020 1. Henry Honner 2. United Workers Union Karen Grogan, Acting Secretary Mary McCarthy, Industrial Officer 3. Ralph Clarke
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Appendix 2: List of Submissions
The following persons and organisations made written submissions to the Committee which were resolved to be published by the Committee:
01. National Retail Association 02. - redacted - 03. Multicultural Youth SA 04. WK Lawyers 05. Restaurant and Catering Industry Association 06. Australian Services Union 07. The McKell Institute 08. Australian Meat Industry Employees Union 09. Multicultural Communities Council of South Australia 10. Ron McBride 11. Young Workers Legal Service 12. Working Women’s Centre Inc. 13. Communications, Electrical, Electronic, Information, Postal, Plumbing, & Allied Services Union of Australia - South Australian Branch 14. Shop Distributive and Allied Employees Association 15. Construction, Forestry, Maritime, Mining and Energy Union 16. National Union of Workers 17. Health Services Union 18. Greyhound Racing SA Employees 19. Housing Industry Association 20. Ai Group 21. Andrew Moore 22. Henry Honner 23. Business SA 24. M Taliangis 25. Citrus Australia
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Appendix 3: Rate of Wage Theft Identified by Fair Work Ombudsman National Campaigns, McKell Institute, Ending Wage Theft: Eradicating underpayment in the Australian Workplace, p 53-53
Industry Campaign Year Audits Percent Average finding wage recovered theftii Agriculture, Horticulture 2010 277 12.6% $389 forestry and Industry shared fishing compliance programiii
Manufacturing Structural metal 2012 253 12.3% $1,401 productiv Textile, clothing and 2016- 371 22.4% $615 footwear 2018 compliance phasev Construction Insulation 2010 211 11.8% $614 installersvi Building & 2014- 610 24.6% $1,289 constructionvii 2015 Retail trade Retailviii 2010- 1866 16.7% $775 2011 Pharmacyix 2012- 523 21.4% $469 2013 Motor vehiclex 2013 462 6.9% $1,854 Accommodation Food servicesxi 2009 481 16.8-30.8%xii $658 and food services Hospitality 2012- 750 19.6% $584 (Accommodation, 2013 pubs, taverns and bars)xiii Hospitality 2012- 1066 46.3% $442 (Restaurants, cafés 2013 and catering)xiv Hospitality 2014- 565 47.1% $627 (Takeaway foods)'v 2015
Administrative Cleaning services'vi 2010- 315 23.7% $390 and support 2011 services
Clerical worker'vii 2011 1621 8.9% $611 Cleaning follow 2012- 578 27.5% $629
up'viii 2013 Cleaning services 2014- 54 33.3% $289
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compliance'i' 2015 Public Security'' 2009 256 23.4% $695 administration and safety Security follow-up''i 2011 392 17.3% $649
Health care and Children’s 2013- 420 24.3% $751 social assistance services''ii 2014 Healthcare and 2014- 696 15.2% $566 social assistance''iii 2015 Other services Hair and beauty''iv 2009 330 23.6% $623 Vehicle repair and 2012 759 19.0% $873 maintenance''v Hair and beauty''vi 2012- 838 40.0% $538 2013 Various Follow up 2010 311 31.5% $452 campaign''vii National 2015 891 17.3% $429 compliance monitoring''viii Apprenticeship''i' 2014- 822 32.1% $1,051 2016 Records and 2016 1376 3.7% $1,845 resources''' National n/a 479 24.2% $704 compliance monitoring #2'''i
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