The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 amended the Fair Work Act 2009 (Cth) (FW Act) and will result in harsh new penalties for employers that intentionally underpay employees.

Effective from 1 January 2025, the new amendments impose a penalty of up to 10 years’ imprisonment and fines of up to $7.8 million for employers (including individual directors) that deliberately withhold payment of employee wage entitlements under the FW Act.

What is the law currently?

Currently, only Queensland and Victoria have enacted wage theft laws. In Queensland, employers engaging in deliberate wage theft from their employees risk up to 10 years’ imprisonment. In Victoria, employers dishonestly withholding employee entitlements face a potential penalty of up to $1 million and up to 10 years’ imprisonment.

Currently, an employer faces civil liability for failing to pay an employee their entitlements under the FW Act, an enterprise agreement or a modern award. This can result in the court awarding compensation for the amount owing and/or the imposition of a civil penalty (a fine). However, employers outside of Victoria and Queensland faced no risk of criminal sanction for the deliberate underpayment.  

What’s changing?

The new amendments will make wage theft a criminal offence at a Commonwealth level and will apply to employers who intentionally engage in conduct that results in an underpayment to employees.

The intention of an employer must be proven to the criminal standard of proof, which is beyond reasonable doubt. Honest mistakes or miscalculations will not be captured by the new wage theft laws.

The new wage theft laws carry a maximum penalty of 10 years’ imprisonment and/or a maximum fine of the greater of:

• three times the amount of the underpayment, if the court can determine that amount; or
• for an individual, 5,000 penalty units ($1,565,000); or for a body corporate, 25,000 penalty units ($7,825,000).

The offence will apply to payments that are employee entitlements under the FW Act, modern award or enterprise agreement. They will not apply to contractual entitlements, payments for jury duty or payments for long service leave.

Who will enforce the new laws and how?

The Fair Work Ombudsman (FWO) will be responsible for investigating the new criminal offence. The FWO will then refer matters to the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Federal Police (AFP) for consideration, and prosecution where appropriate.

The new amendments encourage employers to self-report with the inclusion of ‘safe haven’ provisions, which enable an employer who has possibly committed wage theft to self-disclose to the FWO and enter into a ‘cooperation agreement’. The effect of a cooperation agreement is that the FWO will not refer the conduct to the CDPP or the AFP for prosecution. However, the FWO will have complete discretion about whether it will enable an employer to enter into a cooperation agreement and the signing of this agreement will not protect against civil proceedings.

Protection for small businesses?

Small businesses (a business that employs 15 people or less) that may have engaged in wage theft will not be referred for criminal prosecution if it can show compliance with the new Voluntary Small Business Wage Compliance Code. The Code is in the process of being developed by the government in partnership with employer and employee groups.