Federal Circuit Court refuses to hear ‘union slush fund’ dispute

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Federal Circuit Court refuses to hear ‘union slush fund’ dispute

Posted 18/12/2013 by Jaan Murphy

Union reserve funds are not illegal, but that has not stopped them from becoming controversial in the context of recently uncovered instances of serious misuse these funds. Sheehan v Australian Municipal Administrative, Clerical and Services Union & Ors [2013] FCCA 2137 is a Federal Circuit Court decision that sheds light on union members’ standing to bring actions for alleged misconduct by officials. It is cases such as this one which have attracted media attention and seen most union reserve funds pejoratively labelled ‘slush funds’.


Union auxiliary monetary accounts
Most, if not all unions have reserve funds, also known as auxiliary monetary accounts. These funds have been traditionally established to fund and support the particular agendas or causes of the relevant trade union. For example, supporting organisations such as APHEDA (Union Aid Abroad), funding union elections, and campaigning for particular socio-political causes. These reserve funds are not all funded by union member dues.

What are slush funds?
‘Slush fund’ is a colloquial term which connotes questionable legitimacy or malfeasance in relation to the use of union reserve funds, or the means by which the funds were acquired.

Why are they controversial?
Recently union slush funds have attracted political controversy. The Government gave an election commitment to improve the governance of Registered Organisations, citing the ‘Health Services Union scandal [and] the Australian Workers Union slush fund saga’ as examples of corruption and alleged wrong-doing.

The Fair Work (Registered Organisations) Amendment Bill 2013 (FWRO Bill) was introduced to bring the governance and disclosure obligations of Registered Organisations into line with corporations, as discussed in the Bill’s digest. The Sheehan case highlights issues related to slush funds and standing of members to bring action under the Fair Work (Registered Organisations) Act 2009 (the Act), which the FWRO Bill seeks to amend.

What was the case about?
The applicant in the case, Brendan Sheehan, was employed by the Australian Municipal, Administrative, Clerical and Services Union (AMACSU). The Court noted one of the conditions of his employment:
…related to a contribution of one per cent of his gross income to a fund titled the “Happy Wanderers Club.” The applicant claims that this fund was established and maintained by senior officials of the Union as a re-election or ‘slush’ fund.
Around the same time as the applicant was advised his employment was to be terminated, an anonymous letter was forwarded to AMACSU officials, making various allegations including that an unlawful fund called the ‘happy wanderers club’ had been created, and other misconduct by AMASCU officers. The Court noted that:
the complaints are more about the manner in which the fund was managed, rather than the siphoning-off of the resources… I read the complaints to be more a reference to allegations of preferred employment of factional allies rather than friends per se.
The case centred on two key issues. The first was whether the applicant had been unfairly dismissed for writing the letter. The second was whether a mareva injunction, to freeze the funds held in the ‘happy wanderers club’ fund, should be made. The applicant asserted that the fund was operated to re-elect the AMASCU’s secretary and assistant secretary, and hence was contrary to the interests of members and various provisions of the Act. The second issue is of interest, given proposed reforms relating to Registered Organisations.

Who can bring an action for alleged misconduct?
Currently, under section 310 of the Act, only the General Manager of the Fair Work Commission, the Minister or a registered organisation may apply for certain orders (such as a mareva injunction). Members of registered organisations cannot bring an action unless they are authorised by the General Manager of the Fair Work Commission (the regulator of registered organisations). In contrast, members of corporations can, with leave of the court, bring similar actions without the prior approval of ASIC.

What did the Court decide?
The applicant relied on sections 190, 286 and 287 of the Act, which: 
  • prohibit a registered organisation assisting one candidate over another in an election
  •  require officers to exercise their powers in good faith and for a proper purpose and
  •  prohibit officers from improperly using their position to gain an advantage for themselves or someone else or cause detriment to the organisation or another person.
The Court did not consider the substance of the allegations in detail, and did not rule on the legality of the ‘slush’ fund. Instead, it refused to grant the mareva injunction, ruling that as jurisdiction related to the allegations vested with the Federal Court, it could not hear the matter. Importantly however, the Court also stated that the applicant had standing only in relation to the alleged election irregularities (s190) and did not have standing in relation to the other allegations of misconduct (ss286 and 287).

Reform proposals and practical impact of the decision
The FWRO Bill proposes significant reforms to the governance of registered organisations, but does not provide standing to members of registered organisations to bring actions for alleged misconduct by officers similar to that provided to members of corporations.

As a result, it is likely similar cases where former registered organisation employees or officers attempt to raise issues of alleged misconduct in court will also fail, unless they have been granted permission to bring the action by the Commissioner of the proposed Registered Organisations Commission.


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