Why Victoria’s Wage Inspectorate is taking Woolies to court

Earlier this month, it was revealed that supermarket giant Woolworths faces criminal prosecution for allegedly failing to pay long service leave to hundreds of its staff members across Victoria. This is far from the first example of underpayment by a retailer, or even from Woolworths, but this case is quite different from previous examples. Unlike in previous cases, Woolworths is being taken to court by a newly regulated state body, in this case the Victorian Wage Inspectorate, rather than being targeted by the Fair Work Ombudsman.This change, HR Legal partner Nikola Prestia told Inside FMCG, makes a huge difference. The Wage Inspectorate was established in July 2021 under Victoria’s Wage Theft Act 2020 – the first law in Australia to make underpayments or breaches of long service leave legislation a criminal offence.“Prior to this date, underpayments were generally prosecuted at a federal level by the Fair Work Ombudsman under civil laws, and typically the FWO’s focus has been on non-compliance with minimum wage obligations under the Fair Work Act 2009,” Prestia said. Criminal charges can carry heavy fines for corporations, and up to 10 years’ imprisonment for individuals. It’s complicatedMore often than not, wage underpayment is not a malicious event, and is instead due to the overly complex employment law systems in Australia. Many underpayment cases in recent years have had to do with retailers failing to properly pay staff across a number of pay variations under the General Retail Industry Award. It has allegedly been the case of genuine mistakes, errors, or misunderstandings of what is expected.According to the Australian Retailers Association CEO Paul Zahra, there are 994 individual rates of pay spread across 96 pages of the General Retail Industry Award, which is a recipe for “not only complication and error, but also requires significant legal and technical competence to execute.”“The ARA has long maintained the importance of simplifying the GRIA for the benefit of employees and employers as well as the relevant authorities,” Zahra told Inside FMCG.“Underpayment in the retail sector is more often than not inadvertent, and the flow-on effect of an unreasonably complex award system. If the GRIA were simplified, there would be significantly less chance of business owners underpaying staff inadvertently.”In many cases, Zahra explained, the matter is resolved relatively quickly once the business in question is made aware of the discrepancy, or once the Fair Work Ombudsman becomes aware. The difference in this case is that the Victorian Wage Inspectorate may seek to stringently penalise Woolworths alleged underpayment in order to send a message to other employers. “It is likely that the parties will be encouraged to discuss possible resolutions at an early stage to settle the matter, however we would expect that the Wage Inspectorate will be seeking substantial penalties to make an example of Woolworths as a large national employer,” Prestia said.“This [is to show] that they must take their obligations seriously,” Prestia said.Bad reputationWith criminal charges also comes a relatively high chance of reputational damage – which could be a difficult pill to swallow for Woolworths, which was received positively by customers during the Covid-19 pandemic. Now, it is seen by many as the face of inflation due to rising food prices. In this case, Woolworths has attempted to make amends already: having made payments to affected team members, including interest and superannuation. The brand has said that it has strengthened its payroll systems to address the issue moving forward. Nevertheless, should Woolworths be found guilty of criminal offences, it could mean significant reputational damage to the business.  “Criminal prosecution for wage underpayments can be very damaging to an employer’s public image and reputation. Should Woolworths be found guilty of criminal offences, this could have more reputational repercussions, particularly given this is likely to receive significant media attention,”  Prestia said. With the case to be heard in early September, Woolworths doesn’t have to wait long to find out what the verdict will be. However,  Prestia noted that there is a warning here for other retailers.“This case reinforces the importance of conducting reviews and audits, not just with wages, but also with other employment laws including those that are state-based like long service leave,” Prestia said.“Not purely relying upon payroll software to get things right.”