Wage theft - what is it and what should employers/employees be aware of?

From 1 January 2022, two new penal provisions, sections 395 and 396 of the Penal Code, were introduced. §§ Sections 395 and 396, which make wage theft a criminal offence. The concept of wage theft encompasses a number of acts in which the employer unjustly enriches himself from the salary or other remuneration to which the employee is entitled under an agreement, law or regulation. Examples of wage theft are wage deductions in violation of section 14-15 of the Working Environment Act, failure to pay overtime or wages below generalised minimum wage rates. If an employer commits wage theft, they risk being fined or imprisoned for up to two years for simple wage theft or up to six years for serious wage theft.

What is wage theft?

Where an employer unjustly enriches itself from an employee's salary or other remuneration, this may constitute wage theft from the employee. Such wage theft can take place in three different ways. The employer may refrain from paying the amount to the employee, pay a smaller amount than the employee is entitled to, or pay the correct amount and then demand repayment of all or part of the amount without legal grounds.

Through the introduction of provisions against wage theft in the Penal Code, the legislator wants to increase employer responsibility and combat labour market crime. Labour crime is profit-motivated crime in the labour market that compromises the working conditions and rights of employees. This type of crime is a major challenge in the Norwegian labour market, and is particularly linked to foreign companies operating in Norway. In addition, an important purpose of the new provisions is to weight the relationship between employer and employee in a more balanced and fair way.  

There are several examples in case law of employees who steal from their employers being convicted of embezzlement or theft. On the other hand, there are very few cases where employers have been convicted of wage theft from their employees. Through the new provisions on wage theft, it is desirable to correct this unequal balance of power between the parties. 

Prior to the introduction of the criminal provisions on wage theft, there were already provisions that made certain wage theft situations punishable through section 19-1 of the Working Environment Act and the Universal Application Act. For several years, these provisions have made it a criminal offence to deduct wages without a specific and concrete agreement with the employee, to fail to pay overtime and to fail to pay in accordance with generally applicable minimum wage rates. Violations of the provisions could result in fines and imprisonment. However, in practice, very few employers have been penalised under these provisions. The new provisions on wage theft in the Penal Code supplement the existing penal provisions. At the same time, amendments were also made to the Working Environment Act, the Act on Mandatory Occupational Pensions and the Public Procurement Act to help strengthen the criminal and administrative follow-up of labour market crime. 

The conditions for wage theft

To constitute wage theft, the act or omission must have been done with the intention of making an unjustified profit for oneself or others, and the act or omission must appear improper. The provisions cover both breach of the obligation to pay wages and breach of the obligation to pay holiday pay and «other remuneration». «Other remuneration» could be payment in the form of benefits in kind or various forms of inconvenience allowance or coverage of expenses.

The legal basis for the payment obligation is not significant, as both statutory and contractual obligations are treated equally.

If the employer has a legitimate reason for not paying, for example if the employee has not performed the work in question, there is no basis for penalisation. In such cases, the employee will not have a legitimate expectation of receiving wages or other remuneration. 

The introduction of the penalty provisions is not intended by the legislator to lead to criminal liability for the employer for every incorrect payment of wages. For example, if the payment of wages is delayed for a few days due to technical problems, the employer will not be considered to have been improper or to have acted with intent to make an unjustified profit for itself or others.

Expected effect of the wage theft provisions

As the provisions of the Penal Code are relatively new, there is currently no case law relating to the provisions. However, it is expected that the introduction of the wage theft provisions will lead to increased awareness among employers and trade unions of the criminal nature of wage theft. The provisions could have a certain symbolic effect on employers that wage theft is considered a labour market crime. In addition, the provisions are intended to give the prosecuting authority and the Norwegian Labour Inspection Authority additional tools to pursue labour market crime.

Advice for employers

Employers who commit wage theft risk fines or imprisonment for up to two/six years, in addition to loss of reputation and possible exclusion from public tenders. 

As an employer, it is therefore particularly important to ensure that you and the person(s) responsible for payroll have good knowledge of the rules, as well as good systems for detecting any errors and deficiencies. Employers are also well advised to enter into clear agreements with their employees regarding salary and other remuneration, so that disagreements with employees and possible salary disputes do not arise. 

Advice for employees

For employees who are unsure whether they have experienced wage theft, it is essential to ensure that all payslips are received and that they monitor whether they receive what they are entitled to in accordance with laws, regulations and agreements. 

If an employee finds that his or her employer is not paying or is underpaying wages and holiday pay, the employee will be able to declare the employer bankrupt and then apply to NAV Lønnsgaranti for reimbursement of wages and expenses. It is important to realise that there are limitations on which claims NAV Lønnsgaranti covers. By following the bankruptcy petition track, the employee will first have to send a payment claim to the employer. The payment claim must state what the claim relates to, the amount claimed and the period for which the employer owes the employee money. It is appropriate to give the employer at least one week, but preferably two weeks, to pay. To be on the safe side, the letter should be sent by registered mail. If the employer has not paid the employee within four weeks of the demand for payment being sent, a bankruptcy notice can be sent. In the bankruptcy notice, the employer is given a payment deadline of two weeks from receipt of the notice. A bankruptcy notice will have to be served by the principal witness or the police, and follow the provisions of the Bankruptcy Act. When the deadline in the bankruptcy notice has expired and the employee has still not been paid, the bankruptcy petition can be sent to the district court. The bankruptcy petition must be received by the district court within two weeks after the payment deadline in the bankruptcy notice has expired. If this deadline is not met, the bankruptcy notice must be served on the employer again.