Wage underpayment class actions: the current risks

A growing wave of claims

Wage underpayment class actions continue to increase in Australia. They target both large corporations and systemic failures in a range of industries, including hospitality, retail, food services, healthcare and the gig economy, and they carry consequences that go well beyond the recovery of underpayments. Employers face substantial penalties, reputational damage and, in some cases, criminal liability, even where breaches are unintentional.

Why underpayments happen – and why they escalate

Wage underpayment occurs when an employer fails to pay the full amount owed under the Fair Work Act 2009 (Cth) (FW Act), awards or enterprise agreements, including minimum wages, penalty rates, overtime or other entitlements. Although the causes of wage underpayment vary, key contributing factors include:

• Complexity of Australia's Industrial Relations framework: can lead to payroll errors, even for well-resourced employers.

• Lack of awareness or deliberate non-compliance.

• Vulnerability of certain worker groups: migrant workers, young workers, and casual workers are often less likely to report concerns regarding underpayments due to a lack of understanding about their rights which means the issue may not be identified until it presents a class action risk.

Regulatory scrutiny: the FWO and new criminal wage theft laws

The Fair Work Ombudsman (FWO) has a broad remit to promote harmonious, productive and cooperative workplace relations, and to inquire into compliance with the FW Act. It operates a tiered enforcement model to encourage compliance through education and awareness, guided compliance, and litigation, and it is firmly focused on underpayments. The FWO investigates potential breaches including by intentional underpayments, misclassification of employees under awards or contractors under the new statutory employee definition, and sham contracting. Enforcement action by the FWO can range from enforceable undertakings to litigation seeking recovery and penalties, and can pursue not only employers but also directors, managers and external consultants personally.

Since 1 January 2025, the stakes have risen sharply. The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced criminal offences for intentional wage underpayment, carrying potential jail time and significant fines. High-profile prosecutions and media coverage have amplified public awareness and attracted strong interest from plaintiff law firms and litigation funders, who view these claims as commercially attractive.

Major recent underpayments class actions

The Federal Court has recognised class actions as a powerful and effective tool for addressing wage underpayment claims; in Elliott-Carde v McDonald's Australia Limited (Stay Application) (2023) 301 FCR 84, Justice Lee said that class actions are effective for resolving disputes involving large groups of affected individuals, particularly where the affected group includes vulnerable individuals. This class action provided a single forum for up to 350,000 current and former McDonald’s workers, avoiding the inefficiencies and duplication of resources that come with multiple individual or smaller group proceedings. It highlights the

Over the past 18 months, employment class action filings have increased dramatically, and several high-profile class actions have reached significant settlements:

• Victorian Junior Doctors – $175 million whole-of-sector settlement resolving 30 class actions against 36 public health services alleging unpaid unrostered overtime.

• NSW Junior Doctors – $229.8 million settlement relating to unpaid unrostered overtime in the NSW public health system.

• NT Stolen Wages – up to $202 million settlement against the Commonwealth on behalf of Aboriginal and Torres Strait Islander workers who received little or no wages between 1933 and 1971.

Often, underpayment class actions follow FWO enforcement action, which can complicate defence strategy and increase costs if not managed carefully.

What employers should do now

With litigation funders and plaintiff firms actively searching for the next opportunity, employers in industries with systemic underpayment issues or vulnerable workforces face heightened exposure over the next 12 to 18 months.

Prevention remains the best strategy. Employers should consider the following steps:

• Conduct regular payroll audits against awards, enterprise agreements and the FW Act.

• Invest in modern payroll systems capable of handling complex award structures.

• Train payroll and HR teams on award interpretation and educate employees to foster transparency and trust.

• Monitor legislative developments in wage theft laws and other employment legislation.

Where historical underpayment is suspected, employers should take immediate steps to identify and, if necessary, remediate non-compliance. Key strategies include:

• Conducting a privileged internal review of payroll records, employment agreements and employee complaints for potential breaches.

• Benchmarking employment practices against industry standards.

• Reviewing marketing, public statements and recruitment materials to ensure they accurately reflect entitlements.

• Establishing robust document retention policies and training teams on best practices and privilege.

• Building a clear chronology of key events to strengthen any future defence position.

Act before the next wave hits

The rise of underpayment and employment class actions presents significant challenges for employers. However, by adopting proactive compliance measures, investing in training and technology, and fostering a culture of transparency, employers can mitigate these risks. Additionally, employers who suspect or are aware of historical underpayment can take steps to minimise the impact of non-compliance and any resulting class action.

_Disclaimer

_{Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.}