Wage Underpayment Targeted

Should the Federal Government Criminalise Wage Theft?

There is pressure on the Federal Government to outlaw wage theft as an anti-competitive practice following a Senate inquiry on unlawful unemployment. A majority report by the Economics References Committee released last week by Labor, Greens and Independent Senators made 19 recommendations to stop the unlawful underpayment of employees (the Report). Critically, the Report prioritised amendments to the Fair Work Act which would criminalise wage theft. Such a move was abandoned last year by the Morrison Government due to opposition in the Senate.

The report follows a series of high-profile underpayment cases which point to the inadequacy of the current legislative and regulatory framework. This inadequacy is further highlighted by PwC’s estimation that 13 per cent of Australia’s total workforce were affected by underpayment in 2020, with certain industries such as hospitality being harder hit. “Non-compliance with Australia’s minimum employment laws has become pervasive, as well as ‘endemic’ in certain sectors, and [this] highlights the need for government action,” the report said.

One of the key reasons for recommending to outlaw wage theft is to repair fair competition among companies. Research fellow at the Melbourne’s Centre for Employment and Labour Relations Law, Iain Campbell, pointed out the anti-competitive nature of wage theft as it gives business models centred on underpayment an unfair financial advantage. This is to the detriment of other competing businesses who are reluctant to underpay their employees. Otherwise, more and more companies may turn to underpayment to stay competitive, as highlighted by the National Foundation for Australian Women who stated that when “wage theft gets hold as an industry model, competition means that it forces down wages across the board, so that wage undercutting becomes widespread and normalised“.

This call for the criminalisation of wage theft comes in the wake of several high value cases in the area such as the recent $98 million class action lawsuit awarded against 7-Eleven.

7-Eleven’s $98 Settlement for Misleading Franchisees

What Happened?

Following accusations of misleading franchisees over wage costs, convenience store franchise 7-Eleven has settled a class action for $98 million approved by the Federal Court. The class action was launched by franchisees of the chain in 2018 who alleged that 7-Eleven misled prospective franchisees about labour costs. This resulted in many franchisees only being able to turn a profit if they underpaid staff, contributing in part to a widespread underpayment of staff across the organisation.

7-Eleven has claimed that this settlement was reached without admission of fault and was inclusive of legal costs. The Court is yet to determine the distribution of the settlement amount, including the portion that will be allocated to legal fees and the litigation funder’s commission.

Background

7-Eleven were first hit with wage theft allegations in 2015 when a media investigation found that workers were in many cases only making half the award rate and as little as $10 per hour. Multiple underpayment schemes were uncovered, most of which targeted foreign and vulnerable workers. For example, overseas students only legally permitted to work 20 hours per week were forced to work 40 hours per week while only being paid for 20. In 2018, one franchise was even found to be forcing some employees to repay part of their wages in cash back to the franchisee.

Such underpayment schemes can be attributed to 7-Eleven providing inaccurate information about businesses costs when selling franchises. Franchisees of the company have claimed that this deception is what has forced them to underpay staff to make ends meet. Stewart Levitt, the solicitor who ran the class action stated that the case ‘essentially encapsulated claims by franchisees that they’d been sold a lemon.’

What now?

It’s unclear how much of the settlement money will go directly to the claimants, however, it’s predicted it will be about $55-60 million. Furthermore, 7-Eleven will continue to improve structural and technological systems as they have done over the past few years since the wage theft allegations to ensure their employees are being paid fairly. If you have any further questions about the increasing scrutiny on wage theft in Australia, please do not hesitate to contact Nick Stevens, Daphne Klianis or Josh Hoggett.

This matter emphasises the importance of businesses observing all their employment law obligations, which is why our firm is now offering a Modern Award Audit Package. This package has been developed to provide employers with ‘peace of mind’ by reviewing your Company’s compliance with relevant Modern Awards and underlying employment law legislation and regulations. For more information on the Modern Award package please see our website https://www.salaw.com.au/modern-award-audit/.