Opinion

Josh Bornstein
Underpaid workers and wage theft

The recent mea culpa by Woolworths of a decade-long underpayment of thousands of its employees came as an embarrassment to the workplace regulator, the Fair Work Ombudsman (FWO). The record-breaking underpayment of $300 million to some 5700 employees appears to have unfolded right in front of the regulator’s eyes. Then this week a class action was launched alleging the figure could be as high as $620 million.

As the ombudsman is all too aware, Woolworths has form.

Just days before the 2016 federal election, the FWO released a scathing report about the company’s mistreatment of its shopping-trolley collectors. The trolley collectors, who were not directly employed by Woolworths but sourced through a range of intermediaries, were being paid as little as $10 an hour – less than half the legal minimum casual rate.

In the decade prior, the FWO had prosecuted a range of small businesses engaged by Woolworths to provide the collectors to its stores. Although the prosecutions succeeded in court, the underpaid workers often received nothing because the tin-pot companies declared insolvency and disappeared. While this process played out, Woolworths refused to take responsibility for the plight of the low-paid workers – until the regulator finally sought to shame it into action.

The 2016 FWO report described a web of “complex labour supply chains with networks of corporate structures and intermediaries to facilitate cash payments, recruitment of vulnerable workers and production of false records”. At the bottom of the supply chain were the underpaid, largely migrant workforce. Almost 80 per cent of Woolworths stores were found to be violating workplace laws, with the regulator highlighting doctored or non-existent pay records, coercion of vulnerable workers and the involvement of “shady” contractors in the supply of trolley collectors. And Woolworths’ penalty? Zilch. Under our moribund workplace laws, it’s almost impossible to successfully sue a company that is not the direct employer of an underpaid worker.

While the FWO toiled for a decade pursuing the rights of trolley collectors, it now appears its investigation failed to detect the massive underpayment of Woolworths’ direct employees.

Like all the other blue-chip companies caught out underpaying their employees in recent years, Woolworths boasts impeccable corporate values. The supermarket behemoth, with a market capitalisation of some $48 billion, aspires to “be one of the world’s most responsible retailers”. And according to the company, “being responsible” means “doing the right thing”.

After Woolworths’ confession, its chief executive, Brad Banducci, issued an “unreserved apology” before declaring the company was “going to make it right”. “The highest priority for Woolworths Group right now is to address this issue, and to ensure that it doesn’t happen again,” he said.

It just so happened the company’s public admission came only shortly after learning that a major class action for the employees was likely to be unleashed.

There is a lot of money to be made in cutting wages and suppressing wage growth – and arguably even more in underpaying workers. According to a report released by PwC in November, Australian workers are underpaid by some $1.35 billion each year.

As many large businesses have bolstered shareholder returns by reconfiguring the labour market and ruthlessly cutting labour costs, it’s not only shareholders who have reaped the rewards. Consumers have seized on low-cost pizzas, cheap Uber fares and consumer durables, with scant regard for those bearing the cost of their bargains: the employees working to deliver the goods or services.

In many cases, big businesses have “fissured” parts of their workforce – a phenomenon whereby a large business sheds direct employees and creates intermediaries between workers and the corporation profiting from the work performed. The structures include franchising, outsourcing, labour hire, Uberisation, labour supply chains and contracting. Such complex and precarious structures are devised by lawyers and accountants to enable the major corporation to avoid workplace laws, in much the same way as elaborate schemes are used by these companies to avoid tax. Splintering the workers into smaller constellations working for precarious entities not only cuts labour costs but also weakens the workers’ capacity to bargain.

Despite a narrow defeat in the senate last week, the Coalition has already reintroduced the Ensuring Integrity Bill and is hell-bent on having it enacted. If passed, the new laws will enable trade unions to be abolished – ironically, for non-compliance.

They will bring Australia’s anti-union laws into line with those of Iran, Saudi Arabia and China.

 

Underpayment of employees takes different forms and isn’t confined to fissured workplaces. The phenomenon is also evident in companies that directly employ their workers.

Among the other companies caught up in underpayment scandals in recent years are 7-Eleven, Bunnings, Rockpool, Qantas, Myer, Spotless, Commonwealth Bank, Australia Post, Coles and Pizza Hut. Inevitably underpayment of wages involves varying degrees and combinations of carelessness and deliberation.

At one end of the spectrum is wage theft, which refers to the calculated decision by a business to cheat its workers. Such is the scale of the epidemic in the hospitality industry that the business you are patronising while you read this over your piccolo latte is likely to be underpaying its staff. In the hospitality industry, many businesses rely on wage theft to survive and thrive. Compliance is the exception. If the Good Food Guide banned reviews of restaurants that underpay their workers, it would cease to exist.

At the other end is underpayment that occurs because of a genuine mistake by the employer. The terms of awards and collective agreements vary and, like any legal document, can be both ambiguous and complex. An erroneous interpretation of an award or agreement may explain some underpayment cases but not the overwhelming majority.

Woolworths’ most recent infraction falls somewhere in the middle. The spectacular underpayment of departmental managers at Woolworths occurred because the company failed to properly record their hours and entitlements. Woolworths placed its managerial employees on “an annualised salary”, a common arrangement under which the employee is paid a salary that is supposed to exceed the legal minimum and satisfy all entitlements. But employees under these arrangements are often shortchanged. The annualised salary may assume a 48-hour week but falls short when the employee routinely works 58 hours. As Woolworths explained, the number of hours worked, and when they were worked, “were not adequately factored into the individual salary settings for some salaried store team members”.

In July 2018, a similar issue confronted cosmetics retailer Lush when it revealed it had underpaid more than 5000 staff over an eight-year period. Its managing director, Peta Granger, was refreshingly honest, stating: “… our internal payment systems have not kept pace with our growth. This resulted from a very serious failure on our part to upgrade our internal systems … We would never knowingly underpay … It goes against everything we value and believe in, and we are so sorry to have let our staff down in this way.”

In their permanent campaign about our industrial relations system, the mantra of “inflexible”, “complex” and “uncompetitive” has been successfully invoked by the big business sector and conservative politicians to drive decades of labour market “reform”. The reform has invariably produced repressive changes in workplace laws that have allowed employers to eliminate collective bargaining. They have muzzled and straitjacketed trade unions, resulting in a catastrophic collapse in union density in Australia – among the worst in the OECD.

These changes help to explain the spate of underpayment scandals and why the bounty of almost 30 years of consecutive economic growth has increasingly skewed to business. In the past two years, employees in Australia have obtained the lowest share of total economic output since the 1950s. Wage growth has stalled and hasn’t responded to reductions in the unemployment rate as it once did, leaving economists to mull over the “wages puzzle”. Low wages are suppressing economic growth in most industrialised countries, but according to Jim Stanford, director of the Centre for Future Work, Australia’s nominal wage growth since 2013 has been less than half the OECD average.

Exposed by the Woolworths underpayment debacle and a procession of other wage-theft stories, the Fair Work Ombudsman has announced it will commence yet another urgent investigation. The truth is no regulator can cope with the scale of the underpayment problem and the many other abuses in the labour market. The situation is unlikely to improve until trade unions are welcomed back into workplaces – in other words, the situation is unlikely to change.

This article was first published in the print edition of The Saturday Paper on Dec 7, 2019 as "Under-waged gigs".

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Josh Bornstein
is an employment lawyer and writer.

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