Wage compliance requires action and diligence

With new wage theft laws and higher penalties coming into play from 1 January 2025, businesses need to adopt a safety approach to wage compliance.

The obligation of due diligence under safety laws is well known to business and its leaders. At its core, the duty of due diligence requires officers to understand the applicable legal obligations, assess compliance with those obligations, ensure resources exist for compliance and routinely audit for compliance.

As a recent decision of the Federal Circuit and Family Court of Australia illustrates that the absence of such a system will result in significant penalties for underpayment.

Business needs to assess its existing wage compliance record and its capabilities and resources for compliance. Businesses should develop an audit programme that involves targeted routine audits to ensure ongoing compliance.

Continued underpayment comes with a sting

In the case of Kiernan v Naismith Truck Movers Pty Ltd [2024] FedCFamC2G 618, Naismith Truck Movers, now known as Global Trucking, was ordered to pay $153,090 in penalties for underpaying its casual driver, Mr Kiernan, about $50,000 over a three year period.

Naismith had a “flawed system” of paying its drivers a flat trip rate without any regard to the actual time they were required to work. This resulted in underpayment under the National Minimum Wage Order and, from 1 July 2018, under the Road Transport and Distribution Award 2010.  

This was not the first time Naismith was sued for underpayment of wages. In Cooper v Naismith Truck Movers Pty Ltd [2021] FedCFamC2G 221, the Court ordered Naismith to pay $20,000 in penalties for underpaying Mr Cooper.

The decision 

Questioning “while common sense would suggest that the fact of an earlier proceeding would give an employer pause before embarking on further transgressions”, the Court observed that “actions invariably speak louder than words”.

Unfortunately, Naismith did not provide any evidence it took steps to rectify underpayments to other employees. Mr Kiernan had to commence proceedings to recover his correct pay. 

The Court was critical of the failure to rectify. “[P]rospective contraveners should be alive to the necessity to take prompt remedial action, a feature that is absent in this case, notwithstanding the earlier proceeding, which should have operated as a “wake-up call””, the Court said.

The failure to do so meant that specific deterrence had to feature heavily in the setting of the amount of the penalties to be imposed. “I am not persuaded that salutary lessons have been learned from the earlier proceeding”, the judge said in imposing $153,090 in penalties.

Rectify, don’t aggravate the situation

The case had further aggravating features, including an absence of contrition and no evidence of any steps taken to ensure future compliance.

Further, prior to court ordered mediation, Mr Naismith apparently called Mr Kiernan telling him that a tape recorder of incriminating material had been left in Mr Kiernan’s letterbox, and that “I want to settle for $20,000 at the mediation tomorrow. You and I both stand to lose a lot of money”. Mr Kiernan refused to settle on those terms instead pursuing his full claim.

The Court was critical of this conduct saying:

Instead of acknowledging any form of wrong-doing, Mr Naismith chose underhand means to threaten and incentivise Mr Kiernan to approach the resolution of his case, other than on its merits. This demonstrates a lack of contrition as well as a disdain for the rights that underpin the proceeding. The evidence reinforces my view that a penalty with sufficient sting is necessary to deter Mr Naismith from engaging in like conduct in the future, whether through the vehicle of the first respondent, or otherwise.

Mr Naismith was also personally ordered to pay a penalty.

Lessons

Wage compliance needs to be high on the agenda for employers. Courts and Parliament are sending strong messages that deliberate non-compliance is not acceptable.

Employers need to act with diligence to ensure correct payments are made to employees. This will require:

1. Assessing existing compliance: An employer establishing a base line of its existing compliance and practices. That is, assessing its existing wage compliance record and identify any gaps in systems.

2. Ensuring adequate systems: Business then needs to assess its capabilities and resources for ongoing compliance.

This could include looking at the qualifications of payroll staff and systems, through to checks and balances in establishing and changing payroll rules. It would also involve an appropriate regime for the reporting of errors and proactive rectification.

3. Ongoing audits: Employers should then develop an audit programme that involves targeted routine audits to ensure ongoing compliance.

Having assessed the base line, employers can take a more targeted and structured approach to continuously monitoring compliance with discrete reviews every 6 months, with a fuller audit every 3-5 years.

We regularly assist clients with establishing a base line and targeted reviews. Reach out for assistance.

Author: James Mattson