Bills Digest No. 50 1999-2000
Coal Mining Legislation Amendment (Oakdale Collieries) Bill 1999
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Coal Mining Legislation Amendment (Oakdale Collieries)
Bill 1999
Date Introduced: 26 August
1999
House: House of Representatives
Portfolio: Employment, Workplace
Relations and Small Business
Commencement: On Royal
Assent
The Bill provides for the payment to former employees of Oakdale Collieries
Pty Limited ('Oakdale') of unpaid entitlements in respect of their employment
by Oakdale. The payments are to be made out of the Coal Mining Industry
(Long Service Leave Fund) referred to in this Digest as 'the Fund'.
The Coal Mining Industry (Long Service Leave) Payroll Levy Act 1992
('the Levy Act') and the Coal Mining Industry (Long Service Leave
Funding) Act 1992 ('the Funding Act') will be amended by the
Bill to provide for the payment of these unpaid entitlements.
The Explanatory Memorandum to this Bill recounts some
of the recent events behind the Government's decision to amend the legislation
governing the operation of the Coal Mining Long Service Leave Fund. The
amendments are needed so that 127 former employees of the Oakdale mine
(NSW) can be paid their full severance entitlements. Federal legislation
regulating the operation of this fund has been in place since 1949.
The facts of this insolvency are that employees of Oakdale
Collieries Limited were retrenched on 25 May 1999. A Liquidator was appointed
on 22 June who re-employed about 40 of the employees to close the mine
operation and prepare its equipment for realisation. This group was then
retrenched on 15 June, although paid for the time worked by the Liquidator.
The Company owes $6.6 million to its former employees
comprised of:
- Wages not paid
- Annual leave entitlements
- Sick leave entitlements
- Payment in lieu of notice, and
- Severance pay.
The Explanatory Memorandum also reports that payments
owed to individuals range from $5000 to $280 000, with the majority of
employees owed between $50 000 and $70 000.(1) The Explanatory Memorandum
does not indicate other debts owed to other businesses, suppliers and
contractors. As a means of assistance, the NSW State Government has agreed
to give up its rights as a secured creditor of the mine and set up a trust
to help the miners.(2) The NSW Government is owed about $880 000. The
trust set up for this purpose is the Oakdale Collieries Employee Entitlements
Trust (the Trust).
The Coal Industry Long Service Leave Fund
Some background to the use of federal legislation to
establish the Fund was provided in a report on the Fund to the Minister
for Employment, Workplace Relations and Small Business, the Hon. Peter
Reith in June 1998. It was prepared by World Competitive Practices.(3)
Its recommendations will be discussed later. However it provides some
history of the Fund.
It notes that long service leave benefits were granted
to coal miners under an award of the former Coal Industry Tribunal in
1949. The award allowed miners to count retrospective service up to a
maximum of 13 years for the purposes of accumulating long service leave
(LSL). For each year of service, miners were granted one week leave. After
June 1949, each employee would accumulate leave at a rate equivalent to
13 weeks for each 10 years of service, and in 1966 the qualifying period
was reduced to eight years of continuous service.(4)
The World Competitiveness Practices report does not recount
that the demands for long service leave were one component of a log of
claims over which a protracted industrial dispute resulted. The dispute
certainly destabilised relations between the Chifley Government and the
union movement as the Government relied upon the use of armed forces to
move coal during the strike.(5) The demands for portable long service
leave arose due to the often short-term employment in a mine, and an industry-based
solution to portability has proved effective as compared to company based
alternatives. A similar point was made in 1949, according to the World
Competitiveness Practices report:
The Commonwealth Minister introducing the legislation
in 1949 to fund arrangements stated that it was impracticable for long
service leave costs to be borne solely by individual employers and,
therefore, concluded that these would need to be financed on an industry-wide
basis. Other stated objectives were the support of mobility within the
coal industry and protection for employees against employers going out
of business or becoming insolvent.(6)
The Minister was the Hon J.J. Dedman, and the second
reading speech was given on 20 October 1949, in which it was put:
It will doubtless be evident to honourable members
that it would be impracticable for the cost of the leave to be the made
the full financial responsibility of individual employers. I shall mention
some of the reasons. During their working lives, many employees have
changed from one employer to another, and it would be inequitable to
place the cost of all such employment solely upon present day employers.
Some collieries are not financially capable of meeting the additional
cost involved by the leave. Many employees have been employed in the
past by colliery companies that are no longer in existence. Moreover,
employers would be reluctant to employ men with previous employment
in the industry because of the additional liability for long service
leave that their employment would involve. This would tend to make labour
less mobile than is desirable within the industry.(7)
The legislation passed became the State Grants (Coal
Mining Industry Long Service Leave) Act 1949 (Cth). Queensland, New
South Wales, Western Australia and Tasmania passed complimentary State
legislation. It provides for portability of long service leave in the
coal mining industry.
The World Competitive Practices report notes that the
legislation imposed an excise on coal sold (excluding brown coal and coal
which was the property of a State), which was initially set at 6d per
ton to finance the fund. The structure of funding was significantly altered
in 1992, by which time the rate had increased to 20c per ton.(8)
The 1992 legislation restructured the operation of the
Fund by replacing the excise payable from coal sold, to a scheme based
on a rate applied to the industry pay-roll - similar in principle to pay-roll
tax. The new arrangements favour the higher productivity open cut operations
located in Queensland.(9) The 1992 legislation provided the LSL component
of the excise on coal to be paid from the Commonwealth's Consolidated
Revenue Fund. It removed the excise duty on coal, and monies raised to
finance the Fund would be collected from pay-roll. The pay-roll levy is
currently 5 per cent.
The legislation under which the Fund operates applies
to the black coal industry and comprises:
- The Coal Mining Industry (Long Service Leave Funding) Act 1992
which established the Coal Mining Industry (Long Service Leave Funding)
Corporation. This corporation manages the Coal Mining Industry Long
Service Leave Trust Fund. It reimburses employers for payments to eligible
employees of long service entitlements and advises the minister as to
the rates of levy that should be imposed on employers.
- The Coal Mining Industry (Long Service Leave) Payroll Levy Act
1992 which imposes a levy on wages paid to eligible employees in
the black coal mining industry to fund long service leave payments.
- The Coal Mining Industry (Long Service Leave) Payroll Levy Collection
Act 1992 which provides the machinery to collect the levy.(10)
Review of the Coal Mining Industry (Long Service
Leave Funding) Corporation
The use of the Coal Industry Long Service Leave Fund
to provide for the accrued entitlements of the Oakdale miners raises certain
ironies, as this new purpose follows recommendations of the World Competitive
Practices report provided to Minister Reith to consider terminating the
Fund.
In October 1997 Minister Reith announced an inquiry into
the Coal Mining Industry Long Service Leave Fund, noting that:
... it is timely to examine to key aspects of the scheme:
- the need for continuing Commonwealth Government involvement in the
funding arrangements, and
- the appropriateness of retaining a central industry fund for black
coal mining long service leave arrangements when the primary focus for
managing employee relations has shifted to the enterprise.(11)
At the time of the announcement, the Business Review
Weekly (BRW) reported that the Government had determined that several
industries would be singled out for industrial relations reform, 'with
coal near the top of the list'. In establishing the LSL review, BRW noted
that the Government had provided backing to coal companies pursuing reform,
and the BRW suggested that there would be certain consequences:
Once the inquiry is completed, it is likely that an
award amendment will be made to remove the portability of long service
leave entitlements. This will allow coal producers to move to a more
conventional system of long service leave administered at the enterprise.(12)
In the event, the Workplace Relations Legislation
(More Jobs Better Pay) Amendment Bill 1999 goes somewhat further down
this route. It proposes to remove long service leave as an allowable award
matter (amongst many other changes).(13) This Bill has been referred to
the Senate Employment, Workplace Relations and Small Business and Education
Legislation Committee for inquiry and report by 29 November 1999.(14)
However the relevant union, the Construction, Forestry,
Mining and Energy Union, opposes changes to the industry based structure
of the Fund. As reported in the BRW:
The union acknowledges that the aim of the inquiry
is to move to company funding of long service leave. It says that long
service leave should be treated in a similar manner to superannuation
funds - that is, portable and held independently from the employer.
In response to any changes to the system, the union's senior vice president
Tony Maher, says: 'We are implacably opposed to it. We wont stand for
it, we will make it very costly for them' [the companies].(15)
The World Competitive Practices report presented to Minister
Reith in 1998 offered three scenarios for the future of the Fund. These
were:
- Option 1 - No change
- Option 2 - Opt out approach, in which individual employers might leave
the scheme if they satisfied certain tests
- Option 3 - Voluntary Funding Arrangements. This was the option favoured
by the report. It central point was that termination of the fund would
be needed as would supporting legislation:
... from a specified date, the operation of the central
fund would cease, from which time levy payments to the Fund and claims
on it would no longer be required or available, and
... the Fund's assets be equitably distributed among
producers, based on the total long service leave entitlements of their
employees as at the date at which the levy ceased to be payable ...(16)
However no legislation to terminate the Fund has been
before Parliament. The BRW also reported that the unfunded liability of
the Fund was $265 million in 1996 compared to $292 million in 1993 but
that this was expected to be brought back to manageable proportions by
2003.
Currently, the Fund has $207 million in assets, and according
to the Explanatory Memorandum, withdrawal of the $6.5 million will have
only a marginal effect on cash flow.(17) It also reports that in 1998
the Fund had a movement of $95.5 million in, and an outflow of $116.4
million.(18)
The problem of insolvencies and employee entitlements
The Oakdale closure follows in the wake of a number of
closures in which employee entitlements have either been lost, not fully
paid or else retrieved in part after litigation and representations. Some
of these include:
|
Company/Firm
|
Date of Closure
|
Nos retrenched
|
|
Sizzler (Bell) Restaurants
|
June 1997
|
2 500
|
|
Grafton Meatworks
|
December 1997
|
245
|
|
Cobar (copper mine)
|
February 1998
|
270
|
|
Woodlawn (copper mine)
|
March 1998
|
154
|
|
Austral Pacific (vehicles)
|
December 1998
|
780
|
|
Roadmark (road signs)
|
December 1998
|
30
|
|
Merrywood (coal mine)
|
February 1999
|
5
|
|
Oakdale (coal mine)
|
May 1999
|
127
|
|
Selwyn (gold/copper) mine
|
July 1999
|
160
|
|
Braybrook (textiles)
|
August 1999
|
70
|
Source: Information and Research Services, Parliamentary
Library
These closures clearly show the matter of loss of entitlements
to be broader than the coal industry. An important review of the legal
processes concerning insolvency and the retention of accrued entitlements
can be found in the Australian Law Reform Commission's Report No.45
General Insolvency Inquiry 1988 (The Harmer Report). The Hawke Government
commissioned the inquiry.
The Harmer Report made a number of findings but endorsed
then arrangements whereby employees are accorded priority ahead of unsecured
creditors in payments from the realisation of the liquidated company's
assets. The Harmer report also considered the matter of protecting employee
entitlements, and recommended that consideration be given to the formation
of a wage-earner protection fund:
In the Commission's view the interests of employees
would be best protected by the creation of a wage-earner protection
fund. Such a fund would ensure that employees are paid in every insolvency.
But the Commission accepts that there is strong support for the retention
of the existing priority accorded to employees. However as to the range
of benefits that should be available (such as leave, retrenchment payments,
superannuation) and whether there should be a ceiling on benefits, the
Commission makes no recommendation.(19)
At that time, the Commissioner of Taxation had priority
over employees. The Keating Government later reversed the priority to
place employees ahead of the Tax Office in priority of creditors through
its Insolvency (Tax Priorities) Legislation Amendment Act 1993.
It might be noted that schemes to preserve long service
leave entitlements through portability exist in the building and construction
industry, the maritime industry, the stevedoring industry and a similar
arrangement exists in the federal and State public services to allow mobility
across departments and between the services.(20) Recently, the Australian
Manufacturing Workers Union created a trust fund called Manusafe, designed
to protect the entitlements of its members. The relevant employer group,
the Australian Industry Group has strongly opposed the AMWU proposal and
has advised its members not to participate in the scheme. It is concerned
at the cost impost and other anomalies such as how contributions may be
accessed by an employer given that this fund appears to cover annual leave
and sick leave costs.(21)
At the time of writing, Minister Reith has released a
discussion paper which reviews issues to do with setting up employee entitlements
protection scheme in the event of employer insolvency. The proposal appears
to rely on the Australian Constitution's Corporations power, section 51(xx).
The paper canvasses the need for Commonwealth and State funding for any
scheme as well as joint legislation. It intends to provide a cap on payments
totalling 29 weeks pay thus acting as a safety net.(22)
Amendments to the Funding Act
The original purpose of the Funding Act was to provide
for the funding of long service leave of miners. Item 1 of Schedule
1 amends the long title of the Funding Act to reflect the use of accumulated
funds for the additional purpose of making payment of termination entitlements
of the former employees of Oakdale.
Item 3 inserts proposed clause 48A to authorise
payments by the Corporation to former Oakdale employees of their termination
entitlements. Proposed subclause 48(4) defines termination entitlement
to mean the amount owing by Oakdale to an employee immediately after Oakdale
terminated the employee's employment. This would cover all amounts due
to an employee including long service leave entitlements.
Proposed subclause 48A(1) restricts the payment
to be made to a former Oakdale employee to the balance of an employee's
termination entitlement after taking into account:
- any amount that the employee has received from Oakdale as termination
entitlement, and
- any amount that an employee has received as beneficiary of the Trust.
An employee may become entitled to payments in respect
of termination entitlements from the liquidator of Oakdale or from the
Trust after an employee has been paid the amounts authorised under
proposed subclause 48A(1).
Proposed subsection 48A(2) therefore makes it
a condition of payment by the Corporation to an employee of Oakdale that
such employee has entered into a written agreement with the Corporation
to:
- assign to the Corporation the employee's rights to be paid any amount
by a person other than the Corporation in respect of termination entitlement
(proposed paragraph 48A(2)(a)), and
- pay to the Corporation any amounts received in respect of termination
entitlement from Oakdale or from the Trust after being paid off by the
Corporation [proposed paragraph 48A(2)(b)].
A former Oakdale employee is defined in proposed subsection
48A(4) to mean a person whose employment was terminated by Oakdale
on or after 25 May 1999.
Amendments to the Levy Act
Section 7 of the Levy Act specifies that the purpose
of the levy is the funding of payments to eligible employees in respect
of long service leave. As payments out of the Fund are to be used to meet
the termination entitlements of former Oakdale employees, this section
is being repealed by Item 4 of Schedule 1.
The decision to use the Coal Industry Long Service Leave
Fund to finance outstanding entitlements to the Oakdale miners raises
a number of policy concerns, and has been criticised by both the NSW Minerals
Council and the Queensland Mining Corporation.(23) Concerns over the use
of the Coal Mining Industry Long Service Leave Fund include:
- whether a long service leave trust fund can be used for the purpose
of paying accrued employee entitlements other than long service leave
- how industry-based trust schemes to preserve and make portable accrued
entitlements, will operate with any forthcoming national protection
scheme
- should employers who provide for accrued entitlements be required
to pay twice, i.e. through contributions to any national scheme, and
- will the responsibility of company directors to allocate funds to
meet these entitlements be lessened given that a fall-back system to
pay entitlements may be available?
In any case, the value of a trust fund to preserve accrued
employee entitlements appears to have been vindicated in this case. The
use of the Coal Mining Industry Long Service Leave Fund seems certain
to raise questions of precedence and possibly the adequacy of the current
contributions structure, given its reliance on pay-roll in the situation
of high tonnages produced vis a vis a a declining industry workforce which
is likely to make heavy demands on the fund.
- Coal Mining Legislation Amendment (Oakdale Collieries) Bill 1999 Explanatory
Memorandum, p 2.
- 'Carr cash pledge to miners', The Sunday Telegraph, 22 June
1999.
- World Competitive Practices, Review of Funding Arrangements for
Long Service Leave in the Black Coal Mining Industry: Report to the
Minister for Workplace Relations and Small Business, June 1998 (www.dewrsb.gov.au,
under Legislation and Policy).
- ibid., p 15.
- Edgar Ross, A History of the Miners' Federation of Australia, (The
Australasian Coal and Shale Employees' Federation, 1970) Chapter 17.
- World Competitiveness Practices, op.cit., p 15.
- The Hon. J.J. Dedman MP, Second Reading Speech, States Grants (Coal
Mining Industry Long Service Leave) Bill 1949, Parliamentary Debates
v. 205, p 1794.
- World Competitiveness Practices, op.cit., p 16.
- Productivity Commission, The Australian Black Coal Industry, Inquiry
Report No.1 July 1998. Tables at pp 2-3 show that production from
open cut mines has been responsible for the increase in mine output
over the past 20 years and that while employment fell in the industry
by about 6 000, production increased by about 40 million tonnes (since
1985).
- States Grants (Coal Mining Industry Long Service Leave) Amendment
Bill 1992 Bills Digest Service, 30 April 1992.
- The Hon. Peter Reith MP, Media Release, 'Review of black coal
mining industry long service leave funding arrangements', 24
October 1997.
- Robert Skiffington 'Miners' long service in the spotlight', Business
Review Weekly 24 November 1997, p 38.
- See Item 4 of Schedule 6 of the Bill.
- Senator Andrew Murray, Media Release, 'Democrats move for Workplace
Relations Inquiry 'Stocktake' on Reform', 11 August 1999.
- Cited in endnote 12.
- Cited in endnote 3, p 51.
- Cited in endnote 1, p 4.
- ibid.
- The Australian Law Reform Commission, General Insolvency Inquiry,
Report No.45 v.1 (AGPS 1988) pp 296-297.
- Cited in endnote 3, pp 18-19.
- Australian Industry Group, Media Release, 'Proposed union trust
fund to provide for employee entitlements', 22 March 1999.
- The Hon. Peter Reith MP, Ministerial Discussion Paper, The protection
of employee entitlements in the event of employer insolvency (August
1999).
- The Australian Financial Review, Oakdale fallout: business may
have to fund safety net, 19 August 1999.
Steve O'Neill and Bernard Pulle
30 August 1999
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