Give ombudsman more tools to tackle no-name wage fraud

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This was published 7 years ago

Give ombudsman more tools to tackle no-name wage fraud

By Mathew Dunckley

It's the big names that stick in the mind. 7-Eleven, Appco, Caltex, major companies caught out allowing underpayment of workers under their banners and in their names.

These failures are a disgrace. But at least when things go wrong, there's a target to swing at, a brand to be saved and a wallet to be prised open.

At the other end of the spectrum are the no-name businesses that do the same thing with a very different outcome. Down here, the system can be deeply, fundamentally flawed. In fact, so flawed that something needs to be done.

Think here about the family-owned shop or mechanic or restaurant or a little labour hire outfit supplying fruit pickers.

7-Eleven is high-profile offender subject to a massive crackdown by the Fair Work Ombudsman.

7-Eleven is high-profile offender subject to a massive crackdown by the Fair Work Ombudsman.Credit: Paul Jeffers

There's no shortage of evidence of problems at this end of town. The Fair Work Ombudsman puts out media releases every other day about the little businesses it has pinged.

A windscreen business went down in the Federal Court just before Christmas for failing to pay its staff even the most basic entitlements. It was fined more than $80,000 and ordered to pay back about the same amount to staff.

Not all these situations are down to ill-intent.

The ombudsman Natalie James made a rare intervention in the industrial jungle more than two years ago to warn that awards were in some cases contradictory and in others outright incomprehensible to trained lawyers let alone people trying to run a business on their own.

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Fair Work Ombudsman Natalie James.

Fair Work Ombudsman Natalie James. Credit: Penny Stephens

A huge proportion of the calls to the ombudsman's help line are employers simply trying to figure out what to pay their staff.

The family-owned windscreen company was pretty small – about 20 employees – and would have had the court believe it was too small to keep up with industrial changes, especially at a time of great flux in the system that resulted in both the end of WorkChoices and the overhaul of the award system. The court didn't buy it and found instead it was recklessly indifferent to finding out the correct rates of pay.

Certainly, some are not confused. Some, motivated by greed or simply survival, knowingly don't pay staff what they are owed.

All too often, their workers don't know what their wages should be or are too scared of losing their hard-won job to kick up a fuss.

When they are caught, the ombudsman can prosecute businesses, seeking fines and restitution for the workers involved.

But that process can take a long time.

Let's return to our windshield company. The workers there were underpaid in 2010 and 2011 and only now, six years on, are being told they'll get their money.

And one would hope they do. Unfortunately hope doesn't pay the bills. And the windscreen company itself told the court it might not be able to sustain a hefty penalty without going under.

You see, the ombudsman faces a dual problem under the current regime. Penalties in the context of major companies are pathetically small and too easily avoided with the deployment of the corporate veil through franchising.

At the other end of town, a common problem is that the company throws its hands in the air, shutters the business and tells employees to join the queue of creditors. Often there isn't any money.

The business owner can then set up a new company and start again, often through the notorious route of a phoenix company.

In some cases, where there is strong proof, the ombudsman can go after the directors personally for the money. But this is not easy. It is a different process, say, to that available to the Australian Taxation Office.

The ombudsman has to prove the person consciously set out to underpay their workers; the Tax Office just has to show that money owed was not paid.

So here's an idea. How about if a business goes into administration or receivership while subject to an outstanding penalty – either a fine or a restitution order – the ombudsman can ask the court to ban its officers from being a director of a company again until the debt is settled.

The Australian Securities and Investments Commission (ASIC) can theoretically take criminal action over the underpayment of wages under section 596 of the Corporations Act, which could then probably lead to the watchdog exercising its powers to disqualify directors.

Unfortunately, it has never been used, partly because, again, the intent has to be proven to a criminal burden of proof. Plus ASIC has plenty on its plate without taking on more work for the ombudsman.

But I would argue that we, as a society, scrub directors out for other corporate or ethical misdeeds, so why not add failing to pay your employees the basic entitlements to which they are owed. Let's put that in the ombudsman's tool kit.

This would not apply automatically for all directors whose businesses fail with workers owed wages or other entitlements; that happens and there is a government-backed system to assist here, too.

Rather this system would be used only when the ombudsman has successfully battled through the court and convinced a judge that the business in question knowingly ripped off its staff.

Why in that situation should a director get to waltz up to the business registry and start again? It is fundamentally unfair.

If someone running a business knew their future capacity to do so depended on ensuring they paid the correct wages, that might just give pause for thought. Let's stuff the phoenix back in its box.

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