Australia’s labour landscape is set to change significantly with the introduction of new laws criminalizing deliberate wage underpayments, which will come into effect on 1 January 2025.
These reforms, part of the Federal Government’s “Closing Loopholes” legislative package, aim to tackle wage theft more decisively, imposing severe criminal penalties on businesses that intentionally underpay their workers. Non-small businesses—particularly those with chequered histories in wage compliance—will need to be especially vigilant.
“It is vital that all businesses in our industry, be they small or medium or large, take steps now to ensure that they are confident their wage payment practices are correct before the new laws come into play on 1 January 2025”, said ACAPMA CEO Mark McKenzie.
Defining Small vs. Non-Small Businesses
To understand the reach of these laws, it is essential to define what constitutes a small business under the Fair Work Act (2009). A small business is generally classified as one with fewer than 15 employees. For these businesses, the new laws are still relevant, but the enforcement framework is more lenient, recognizing the administrative and resource limitations of smaller operators.
On the other hand, non-small businesses, with 15 or more employees, are subject to stricter compliance requirements and will face the brunt of the criminal sanctions for deliberate wage underpayment. Larger businesses, which have greater capacity to manage compliance, will be held to higher standards and face increased scrutiny when the new laws come into effect.
Criminal Penalties for Deliberate Wage Underpayment
At the core of the new legislation is the criminalization of deliberate wage underpayment. From 1 January 2025, non-small businesses that intentionally or recklessly underpay their workers will face criminal penalties. Under these laws, deliberate wage underpayment is defined as knowingly or recklessly failing to meet wage obligations, where there is a clear understanding that employees are being underpaid.
For companies found guilty of deliberate wage theft, the consequences are severe. They include:
- Up to 10 years imprisonment for individuals responsible for the underpayment.
- Fines of $7.8 million for corporations ($1.56 million for individuals), or three times the underpayment, whichever is higher
These penalties represent a significant escalation from previous civil sanctions and highlight the government’s commitment to stamping out wage theft. By framing deliberate wage underpayment as a criminal act, the law signals a clear message to businesses: wage theft will not be tolerated.
Civil Penalties for Non-Deliberate Underpayment
While criminal penalties are reserved for deliberate wage theft, non-deliberate underpayment will continue to be addressed through civil mechanisms. These cases typically arise when businesses fail to meet their wage obligations due to administrative errors, misinterpretations of award conditions, or other inadvertent oversights.
Civil penalties can still involve substantial fines and orders for back payment, but they lack the criminal implications of imprisonment or punitive corporate fines. This distinction ensures that businesses acting in good faith but still making mistakes can rectify their errors without facing the same legal consequences as those engaging in intentional wage theft.
Vicarious Liability for larger fuel businesses and Fuel Majors
A significant aspect of the new legislation involves the concept of vicarious liability, especially relevant to the fuel retail sector, which frequently operates through franchise or dealership networks. Under the Fair Work Act (2009), large companies and franchisors can be held responsible for wage underpayments that occur within their networks, even if they are not directly involved in setting wages.
In particular, fuel majors—who often delegate the operation of service stations to Commission Agents or dealers—must now ensure that their affiliates comply with wage laws. If wage underpayments are found within these networks, fuel majors could face vicarious liability unless they can demonstrate that they have taken reasonable steps to ensure compliance with the law.
This principle of vicarious liability was highlighted in the first Franchisor Liability case pursued by the Fair Work Ombudsman (FWO). In this landmark case, a franchisor was held responsible for wage underpayments committed by a franchisee. The ruling established that franchisors must take active steps to prevent wage theft across their networks, including monitoring compliance and ensuring franchisees understand their wage obligations.
For large corporations like fuel majors, this ruling underscores the importance of robust wage compliance frameworks. Failing to do so could result in significant legal and financial consequences.
The Fuel Retail Industry will likely face increased scrutiny
The fuel retail industry has had a chequered history when it comes to wage underpayment, and this history will likely place it under greater scrutiny when the new laws commence.
“As an industry, we have a bit of an image problem is respect of this issue, and our industry therefore needs to be ‘squeaky clean’ from 1 January 2025 as we are likely to be one of the industries that will understandably subject to scrutiny when the new laws come into force”, added Mark
Over the past decade, the sector has been embroiled in numerous wage theft scandals, involving both large corporations and smaller independent operators. Many of these cases involved vulnerable migrant workers, adding further gravity to the violations.
One of the industry’s most significant challenges has been its franchise and dealership model, where wage obligations are often decentralized. This structure, while providing flexibility in operations, has also resulted in systemic wage underpayments, as some operators have failed to comply with Australia’s complex award system. In some cases, wage underpayment was a result of deliberate actions, while in others, it stemmed from a lack of understanding or administrative oversights.
Given this chequered history, the fuel retail industry is likely to face intensified scrutiny when the new criminal wage underpayment laws take effect. The Fair Work Ombudsman and other regulatory bodies will focus on fuel retailers—particularly large companies that operate through affiliated networks—due to their past record of wage compliance issues.
The Importance of Compliance in Fuel Retail
For businesses in the fuel retail industry, the implications of these new laws are significant. With a history of wage theft and increased scrutiny looming, fuel majors and operators must act now to ensure they are fully compliant with wage laws. This includes:
- Implementing rigorous compliance systems to track wage payments across all levels of the business.
- Conducting regular audits of wage practices, particularly within franchise or dealer networks.
- Providing clear training and support to franchisees, dealers, and commission agents to ensure they understand and comply with their wage obligations.
- Establishing direct reporting channels between employees and corporate offices to detect wage underpayment issues early and address them promptly.
For fuel majors and larger businesses with affiliated smaller businesses, the principle of vicarious liability means that they must go beyond mere compliance guidelines. They need to demonstrate proactive efforts to prevent wage theft within their networks. Failure to do so could expose them to not only civil penalties but also criminal charges, even if the underpayment occurs within an affiliated dealership or agent’s operation.
Quantum of Penalties and Industry Reputational Risk
The penalties for businesses found guilty of deliberate wage underpayment are steep. Along with the up to $7.8 million in fines for corporations, individual executives could face up to 10 years of imprisonment. Beyond these legal and financial consequences, companies caught underpaying workers will also face reputational damage. Public exposure of wage theft scandals can harm brand trust, erode consumer confidence, and result in long-term damage to a company’s market position.
For non-deliberate wage underpayments, the civil penalties remain significant, including fines, back payment orders, and potential compensation to affected employees. The Fair Work Ombudsman has made it clear that non-compliance, even when unintentional, will not be tolerated, though such cases will not attract the same criminal consequences as deliberate wage theft.
Reasonable Steps to Avoid Vicarious Liability
For companies operating through franchise or dealership models, avoiding vicarious liability requires taking reasonable steps to ensure compliance within their networks. This could involve:
- Regular and rigorous audits of wage practices.
- Providing clear and consistent training to franchisees and dealers.
- Offering support and resources to ensure affiliates understand their obligations under the Fair Work Act.
- Proactively monitoring compliance and addressing potential issues before they escalate.
Fuel majors, in particular, must be mindful of their industry’s past and take proactive measures to ensure they are not caught in future wage underpayment controversies. With the new laws on the horizon, the time to act is now.
A New Era of Wage Enforcement
The new wage underpayment laws represent a seismic shift in how Australia deals with wage theft.
For non-small businesses, the introduction of criminal penalties for deliberate wage underpayment marks the beginning of a new era in labour law enforcement. With fines of up to $7.8 million and prison sentences of up to 10 years, the consequences for intentional wage theft are more severe than ever.
The fuel retail industry, given its chequered history with wage underpayment, will be one of the sectors most closely watched when these laws come into effect. Larger fuel businesses and their affiliates must take urgent steps to ensure compliance, avoid vicarious liability, and protect their reputations.
With the new laws set to commence on 1 January 2025, businesses have a limited window to review and strengthen their wage compliance frameworks. Failing to do so could result in both legal consequences and lasting damage to their reputation in the eyes of regulators, employees, and the public.
For more information on what you can do to ensure that you are paying the correct wages and demonstrating reasonable efforts to ensure same, contact ACAPMA’s Employment and Compliance Team by sending an email to employment@acapma.com.au or by calling 1300 160 270.
