Bills Digest No. 50 1999-2000 Coal Mining Legislation Amendment (Oakdale Collieries) Bill 1999


Numerical Index | Alphabetical Index

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

Passage History

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

Purpose

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.

Background

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)

Main Provisions

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.

Concluding Comments

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.

Endnotes

  1. Coal Mining Legislation Amendment (Oakdale Collieries) Bill 1999 Explanatory Memorandum, p 2.

  2. 'Carr cash pledge to miners', The Sunday Telegraph, 22 June 1999.

  3. 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).

  4. ibid., p 15.

  5. Edgar Ross, A History of the Miners' Federation of Australia, (The Australasian Coal and Shale Employees' Federation, 1970) Chapter 17.

  6. World Competitiveness Practices, op.cit., p 15.

  7. 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.

  8. World Competitiveness Practices, op.cit., p 16.

  9. 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).

  10. States Grants (Coal Mining Industry Long Service Leave) Amendment Bill 1992 Bills Digest Service, 30 April 1992.

  11. The Hon. Peter Reith MP, Media Release, 'Review of black coal mining industry long service leave funding arrangements', 24 October 1997.

  12. Robert Skiffington 'Miners' long service in the spotlight', Business Review Weekly 24 November 1997, p 38.

  13. See Item 4 of Schedule 6 of the Bill.

  14. Senator Andrew Murray, Media Release, 'Democrats move for Workplace Relations Inquiry 'Stocktake' on Reform', 11 August 1999.

  15. Cited in endnote 12.

  16. Cited in endnote 3, p 51.

  17. Cited in endnote 1, p 4.

  18. ibid.

  19. The Australian Law Reform Commission, General Insolvency Inquiry, Report No.45 v.1 (AGPS 1988) pp 296-297.

  20. Cited in endnote 3, pp 18-19.

  21. Australian Industry Group, Media Release, 'Proposed union trust fund to provide for employee entitlements', 22 March 1999.

  22. The Hon. Peter Reith MP, Ministerial Discussion Paper, The protection of employee entitlements in the event of employer insolvency (August 1999).

  23. The Australian Financial Review, Oakdale fallout: business may have to fund safety net, 19 August 1999.

Contact Officer and Copyright Details

Steve O'Neill and Bernard Pulle
30 August 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999.

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