Australian Law Firms & Employee Underpayment: A Wake-Up Call for Payroll Compliance

In recent years, several prominent Australian law firms have found themselves embroiled in scandals related to employee underpayment. These issues have not only attracted negative publicity but also raised serious concerns about the level of attention firms give to their payroll processes. While law firms are often associated with precision and compliance in their legal work, some have faltered when it comes to treating their own employees fairly, particularly in relation to wages and entitlements. Here’s a look at the firms involved and how their non-compliance was uncovered.

Firms Involved and How Non-Compliance Was Discovered

1. 1. Gilbert + Tobin
      One of Australia’s largest law firms, Gilbert + Tobin, made headlines when it was revealed that it had underpaid employees over a period of several years. In 2020, the firm discovered that it had incorrectly classified certain employees, which resulted in underpayment. This issue came to light after the firm conducted an internal audit. The discovery was made when the firm reviewed the pay records of salaried employees and identified discrepancies between the actual wages paid and the entitlements owed under the applicable modern awards and enterprise agreements.

1. 1. King & Wood Mallesons (KWM)
      King & Wood Mallesons, another major player in the Australian legal landscape, was similarly caught up in an underpayment scandal in 2020. The firm admitted that it had underpaid employees, particularly junior lawyers, by failing to account for the correct overtime and penalty rates. KWM voluntarily disclosed the issue to the Fair Work Ombudsman after conducting an internal audit of its payroll practices. The firm’s compliance breach was traced back to errors in the application of the relevant industrial instruments, leading to a failure to pay employees what they were legally entitled to.

1. 1. Ashurst Australia
      Ashurst Australia also found itself in hot water after underpaying a significant number of staff. In 2021, the firm revealed that it had underpaid more than 200 employees, many of them graduates and junior lawyers. The underpayment was uncovered after an internal review prompted by concerns raised by employees. The review found that the firm had incorrectly applied provisions in its enterprise agreement, resulting in underpayments in the range of several thousand dollars per employee.

Penalties and Consequences

The consequences for these law firms have been severe, ranging from financial penalties to significant reputational damage.

1. 1. Gilbert + Tobin
      Gilbert + Tobin was required to make restitution to affected employees and undergo significant reforms to its payroll systems. Although the firm did not face fines from the Fair Work Ombudsman, the public revelation of the underpayment caused significant disruption, with multiple employees raising concerns about working conditions and ethical practices. The firm was also required to implement new systems to ensure better compliance with pay standards.

1. 1. King & Wood Mallesons
      King & Wood Mallesons took a proactive approach, working with the Fair Work Ombudsman to correct the underpayment issues and to compensate the affected employees. The firm faced a fine of $5 million, which reflected the scale of the underpayment and the firm’s failure to ensure compliance with workplace laws. The penalty was a stark reminder of the importance of maintaining robust payroll systems. KWM also undertook a broad public relations campaign to repair its reputation, but the damage to employee morale and trust was significant.

1. 1. Ashurst Australia
      Ashurst Australia’s underpayment scandal had widespread consequences. The firm was required to pay back millions of dollars in underpaid wages to affected staff. In addition to compensating employees, Ashurst was also slapped with a fine of $1.3 million for breaching workplace laws. Like other firms involved in similar controversies, Ashurst had to work hard to restore its reputation in the legal market. The disruption caused by the scandal was not only financial but also affected the firm’s internal culture, leading to a broader discussion about the treatment of junior lawyers in Australia.

These cases highlight the importance of diligent and accurate payroll management. Firms faced significant reputational damage, and in some cases, the financial penalties were steep. The public nature of these scandals also underscored how much companies in the legal industry rely on their public image, and how quickly that can be tarnished when non-compliance with basic legal obligations comes to light.

A Lesson for Other Firms

The scandals involving underpayment in these prestigious law firms should serve as a cautionary tale for the entire legal profession. In an industry that thrives on legal expertise and attention to detail, these payroll lapses are a stark reminder that even the most reputable firms can slip up when it comes to compliance.

For other law firms, the lesson is clear: getting on top of payroll compliance is no longer optional. The risks of failing to comply with minimum wage laws and enterprise agreements are substantial. In addition to legal penalties, the reputational damage can be long-lasting. Employee trust is a critical asset, and failure to protect that trust can erode morale, lead to internal friction, and damage client relationships.

Law firms must invest in robust payroll systems, conduct regular audits, and stay up to date with the latest legal requirements to avoid costly mistakes. For firms that already have compliant systems in place, continuous education and vigilance are necessary to ensure ongoing adherence to laws. If these recent underpayment scandals have shown anything, it’s that no firm, no matter how prestigious, is immune to payroll mistakes. The stakes are high, and the need for compliance has never been more urgent.