Corporate underpayments: is it by accident, or deliberate?

With the news this week that Coles and Target have joined the growing list of Australian brands who have either admitted to, or been found, underpaying staff, it is clear that underpayment is a widespread and entrenched problem.

Macquarie and UBS have snared the biggest block trade of the year so far. Credit:

Modelling released in late 2019 by consulting firm PwC estimated that as much as 13 per cent of the Australian workforce could be affected by underpayments each year, totalling $1.35 billion in underpaid wages. Just this week PwC admitted its part in contributing to this stunning figure, announcing a review of its award-covered employees in administrative positions.

With so many large corporates now featuring as culprits in the wage theft scandal engulfing the Australian industrial relations system, the big question is whether these wage underpayments by corporate Australia are deliberate or inadvertent.

Corporate employers have been at pains to characterise it as the latter, blaming the complexity of Australia’s industrial relations system. They point to the system of modern awards and their myriad, detailed and prescriptive features as the primary cause of wage underpayments.

In contrast, unions and academics have argued the modern award system has been substantially simplified in recent years, with the number reduced from a cast of thousands to a streamlined 122 awards. They point out that industrial relations laws are no less complex than other laws that businesses are required to follow in areas such as tax or food safety. Indeed, while small and medium size businesses with fewer resources might legitimately struggle to understand and comply with Australia's modern award system, it is unlikely that this is the case for corporate Australia with its teams of industrial relations and human resources personnel.

Corporate Australia’s cry that the complexity of the industrial relations system is the cause of all their misdemeanours unravels under closer scrutiny.

Let’s take the supermarket retailers as a case study.

This week Coles admitted to underpaying salaried staff by $20 million with its chief executive, Steven Cain, apologising to those who had been "unintentionally affected". Coles joins other businesses in the Wesfarmers stable who have been implicated in substantial wage underpayments, including Bunnings and Target. Yet the Wesfarmers CEO has characterised these as "inadvertent administrative errors", blaming the "incredible complexity of the systems that we’re dealing with".

Similarly, Woolworths last year admitted to wage underpayments of $300 million. Woolworths chief executive Brad Banducci has also contributed to this corporate narrative that the award system is at fault for wage underpayments, raising the "very complex issue" of the industrial relations system stating that “at the right time, we'd like to come back and talk about the lack of flexibility in [awards] when interpreted literally".

It would be easier to sympathise with the large retailers if their recent history was not so chequered. Yet time and time again they have been complicit in driving down labour costs to maximise profits.

Both Woolworths and Coles have been complicit in using their status as the lead firm in a supply chain to put enormous price pressure on businesses that supply them. In horticulture, the so-called supermarket "price wars" have led to fresh fruit and vegetables being sold at below the cost of production.

As Emma Germano from the Victorian Farmers Federation told a Parliamentary inquiry into modern slavery, the supermarket duopoly means farmers do not set the price for what they grow and as a result "many growers do not have a choice as to how much they can afford to pay their staff".

In pushing down fruit and vegetable prices to an extreme level to maximise profits, supermarkets have also turned a blind eye to the presence of undocumented migrant workers in their supply chains. As one grower reported to a national inquiry into labour challenges on farms, "Now the supermarkets have used the illegals – they’re nicely at a distance, and they’ve used it to keep prices down."

Another example is in the woeful underpayments of trolley collectors. Coles was forced into an enforceable undertaking by the Fair Work Ombudsman for its relationship with a dodgy contractor who supplied a trolley collection service at a value of more than $30 million. Coles was at the apex of a subcontracting chain that saw its trolley collectors being paid less than $8 an hour. Coles ultimately brought its trolley collection service in-house and was forced by the Ombudsman to publicly acknowledge that "that the traditional contracting model it formerly utilised to obtain trolley collection services from trolley contractors was highly vulnerable to exploitation and the perpetuation of poor employment practices by its trolley contractors".

Yet another example is the role of the supermarkets and other large corporates in substantial wage theft in the commercial cleaning industry, with a senate report finding last year that "through being 'price takers', the effects are essentially shunted down the line until they come to rest with the most vulnerable individuals in the whole operation: the cleaner".

There are many more examples but the point is clear: it is hard to take corporate Australia seriously (and in particular the two main supermarkets) that their recent mea culpa of wage underpayments is a result of a complex award system when they have been shown to be repeatedly complicit in efforts in their supply chain to drive down wage costs below the legal minimum. Crying wolf only works the first time so why are we letting corporate Australia get away with it?

There is an urgent need for reform and although the government discussion paper released this week is a step in the right direction, it does not go far enough. Naming and shaming companies and boards and criminalising wage theft grabs headlines but will do little to address the underlying, systemic issues.

First, the Fair Work Ombudsman as the regulator needs more powers and resources. With the growing awareness that wage theft is endemic in corporate Australia, the Ombudsman needs the powers and resources that befit a corporate watchdog.

Second, the visa system is broken and is being used by employers, large and small, to put downward pressure on wages through a temporary migrant workforce who are highly vulnerable to wage theft in the labour market.

Third, there needs to be supply chain reform that makes it abundantly clear that large corporates who are the "price-makers" are responsible for ensuring there is enough money in a contract to pay legal wages and conditions. In horticulture, there is an urgent need for competition policy reform through a Productivity Commission inquiry (the last one was in 1993) and a systematic review of industry dynamics to encourage growers and supplier firms to compete more on quality, innovation and productivity rather than cost-minimisation.

Finally, there needs to be a greater role for unions in monitoring wages across Australian workplaces. Unions are in decline and have been for many years but there now needs to be greater regulatory support for them to enter workplaces and to ensure compliance with our laws. The Fair Work Ombudsman, with its 185 workplace inspectors, cannot do this mammoth task on its own. Collective organisation of workers through unions is the only way to ensure that there is large-scale and effective monitoring of wages and conditions across a range of Australian workplaces.

Dr Joanna Howe is an associate professor at the University of Adelaide Law School and an expert in Australian labour law and temporary labour migration.

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