CHAPTER 2

CHAPTER 2

Key issues

2.1        The bill has received a mixed response from submitters and witnesses. All submitters were generally supportive of the concept of increased transparency and accountability in registered organisations. The responsibility of officers of registered organisations to comply with the regulatory framework imposed by the Fair Work (Registered Organisations) Act 2009 (Cth) was well understood by all submitters and witnesses.

2.2        The bill would provide greater accountability and transparency with respect to the governance of registered organisations. The enhanced regulation of the sector will ensure that members of registered organisations can enjoy the same confidence as that enjoyed by shareholders of trading corporations.[1] The bill would also ensure that officers of registered organisations comply with a regulatory framework that emphasises disclosure and accountability, ensuring the best outcome for the membership.[2]

2.3        Employee groups strongly objected to the bill, submitting it would impose an inappropriate regulatory burden, be too costly to implement and could result in interference in their processes by Government. Many witnesses expressed concern that the proposed reporting requirements would be invasive and could be difficult for registered organisations to meet. They also questioned the extent to which assistance would be provided by the office of the Registered Organisations Commissioner, once established.

2.4        These key issues were discussed in submissions and in the hearing in Melbourne on Tuesday, 26 November 2013.

Disclosure requirements, regulation and increased accountability

2.5        The committee heard extensive evidence relating to the regulatory and reporting framework proposed by the bill and the implications for registered organisations. The bill proposes to amend the Fair Work (Registered Organisations) Act 2013 to restrict:

...officers from taking part in making decisions in relation to matters in which they have a material personal interest, requires the preparation of officer and related party disclosure statements and requires officers to undertake approved training in relation to their financial duties.[3]

2.6        The proposed disclosure regime includes disclosure of remuneration and benefits paid to officers of registered organisations,[4] its branches and material interests acquired by officers or their relatives.[5]

2.7        Australian Industry Group (AIG) submitted that the proposed changes would operate unfairly with respect to officers of registered organisations, due to the 'onerous'[6] disclosure regime required of officers and their relatives to the extent that the acquired material interest relates to the affairs of the organisation.[7] AIG expressed concern that the bill would impede the ability of officers to carry out administration of their organisation,[8] and suggested that the proposed regulation could seriously affect their mostly volunteer membership, to the extent that it could act as a deterrent for participating in the management of a registered organisation.[9]

2.8        The ACTU disagreed with the intent of the bill, suggesting that regulation of employee organisations to the standards imposed on company directors under Corporations Act 2001 (Cth) is not appropriate, given the different purposes of employee organisations.[10] The ACTU submission was generally supported by its membership.[11]

2.9        The following organisations submitted that they generally support the policy of increasing accountability and transparency within the management of registered organisations for the benefit of members, notwithstanding various technical or other amendments that they have advocated for in their submissions. These organisations include:

2.10      The Australian Chamber of Commerce and Industry (ACCI) suggested that the conduct of certain registered organisations has resulted in the need for higher regulatory burdens and increased penalties as a deterrence for future misconduct.[19] ACCI also submitted that it supports:

...the policy principles which underpin the measures contained in the bill in so far as it attempts to strengthen the existing regulatory, compliance and accountability framework.[20]

2.11      The Fair Work Commission's (FWC) submission detailed the review conducted by KPMG on an investigation it made into a registered organisation, noting that:

The KPMG process review included 38 findings relevant to the effectiveness and efficiency of FWC inquiries and investigations including the absence of relevant investigation standards and procedures, lack of adequate documentation, an inadequate case management system and a dearth of sufficiently qualified and experienced staff. The KPMG review also identified 31 opportunities for improvement to investigation processes (31 recommendations).[21]

2.12      The Department of Employment (the Department) submitted that the regulatory requirements for disclosure of officers' interests were necessary to give effect to the Government's policy with respect to registered organisations and contended that the regulation of registered organisations proposed was an appropriate response, given the assets they manage and their responsibility to properly manage member's funds.[22]

2.13      With respect to the proposed transitional arrangements, the Department submitted that:

An organisation and branch can apply to the Commissioner for alternative arrangements for disclosure in circumstances where compliance with the obligation would be unduly onerous. An organisation or branch must provide particulars on the special circumstances that exist, the proposed alternative arrangement and evidence that it has achieved high standards of financial accountability. A transitional rule has been included in the Bill that will require the Commissioner, when considering applications for alternative disclosure arrangements, to take into account any exemptions allowed by FWC under section 148D of the Fair Work (Registered Organisations) Act, as amended.[23]

Committee View

2.14      Given the extent of Government and community concerns with respect to recent investigations and prosecutions for misuse of member funds and position by officers,[24] the proposed disclosure regime with respect to officer's interests is critical to the accountable and transparent operation of registered organisations and to ensure appropriate management of members' assets. The committee is also encouraged by the FWC's awareness of the improvements in investigation processes recommended by the KPMG process review.

2.15      The committee also accepts the evidence provided by the Department that transitional arrangements will be provided for in the bill to assist registered organisations meet the proposed requirements, as exists currently. The committee accepts that regulation is required; and notes that assistance will be provided by the Commission for registered organisations, where appropriate.

2.16      The committee is persuaded by the evidence provided by submitters that the disclosure regime in relation to material personal interests proposed by the bill may create unnecessary administrative burdens for officers, some of whom are volunteers. The bill should be amended to ensure that the disclosure regime in the bill is consistent with the requirements in the Corporations Act 2001.

Recommendation 1

2.17             The Committee recommends that, consistent with the Corporations Act 2001, material personal interest disclosures should only be required to be made to those officers whose duties relate to the financial management of the organisation. Such disclosures should be recorded in the minutes of the meetings of those officers and should be made available to members on request.

Recommendation 2

2.18             The Committee recommends that a list of exclusions from the obligations to disclose material personal interests based on section 191(2) of the Corporations Act 2001 be inserted into the bill. This would narrow the obligation to disclose material personal interests of an officer’s relatives, so as to be consistent with the Corporations Act 2001.

Recommendation 3

2.19             The Committee recommends that the obligation placed on officers to disclose every payment should be reduced with certain exclusions, including limiting disclosures to payments made above a certain threshold.

Training of officers

2.20      ACCI provided evidence to the committee that it was important to recognise that, with respect to officers of registered organisations that many are volunteers or hold dual roles for the purposes of the Fair Work Registered Organisations Act 2009.[25] ACCI also submitted that some of its members were still waiting on guidance from the FWC as they implement changes to reporting requirements as enacted by the Fair Work (Registered Organisations) Amendment Act 2012.[26] Specifically, ACCI explained that:

There is a related issue, which we expressed in our previous submissions to the Senate committee, in that there should be some sensitivity to trying to assist organisations to get in place the training that is required.[27]

2.21      The Timber Merchants Association (Victoria) expressed the view that they support strong financial accounting disclosure and transparency obligations they were concerned by the delay of the release of compliance guidelines by the FWC.[28] However, the Registered Organisations Commissioner will be required to 'provide education, assistance and advice to organisations and their members to assist with compliance'.[29]

2.22      Some concerns were expressed with respect to the delays experienced in gaining approval of their compliance training program by the FWC and the current deadline for training programs to meet the requirements imposed by the Fair Work (Registered Organisations) Amendment Act 2013.[30]

2.23      The FWC detailed in its submission to the committee the extensive regulation and compliance training it has undertaken with registered organisations. The Commission noted that compliance rate of lodgement of financial reports had increased from 93 per cent to 96 per cent between 2011-12[31] and that the new training modules had further increased compliance with respect to financial reports to 99.5 per cent.[32] The Commission has also provided 'webinar' training to registered organisation officers, including recently on updated reporting guidelines and right of entry permits.[33]

Committee View

2.24      The committee notes that the Department is aware of the time constraints and the proposed new requirements on registered organisations, submitting that:

Subject to passage of the legislation, the commission will begin operation in early 2014 by proclamation, and the new disclosure and reporting obligations, higher civil penalties and the new criminal sanctions will come into effect from 1 July 2014. The timing is designed to align with the new financial year and to allow registered organisations sufficient time to become familiar with the new obligations.[34]

2.25      The committee is persuaded by the evidence presented by the FWC detailing the results of the compliance and regulation training provided to registered organisations in the previous two financial years. The committee notes the effectiveness of these training sessions and the high satisfaction rate of participants.[35] The Committee appreciates the FWC's ongoing work to develop training and education materials to provide to registered organisations, in order to assist their compliance with their legal obligations, and accepts the staggered implementation proposed by the Government as appropriate. The committee also notes that in addition to the ability of the Commissioner to extent deadlines, it is also appropriate to provide the Commissioner with the ability to grant exemptions, where appropriate.

Recommendation 4

2.26             The Committee recommends the bill be amended to allow the Commissioner to grant exemptions from the training requirements if an individual can demonstrate significant knowledge of the financial obligations specified in the bill.

Alignment of the responsibilities of officers of registered organisations to trading corporations under the Corporations Act 2001

2.27      Submitters generally did not support the alignment of the responsibilities of officers of registered organisations to those of trading corporations under the Corporations Act 2001 (Corporations Law), arguing that corporate regulation has a different scope and purpose to that of voluntary industrial organisations.

2.28      Specifically, AIG proffered the view that the officers of registered organisations cannot be readily aligned with directors of listed public companies, and that the penalties imposed on registered organisations will be far more onerous than those in the Corporations Law provisions.[36] Mr Stephen Smith, Director, indicated support for the broad objectives, to make officers accountable, but argued for a balanced approach.[37]

2.29      The ACTU broadly agreed with AIG, submitting that although regulating registered organisations in the same way as corporations has some superficial appeal,[38] this view cannot be sustained when it is considered what these organisations are for and do in comparison to corporations.[39]

2.30      The committee sought clarification of these issues from the Department who indicated that it was appropriate to compare registered organisations with corporations, due to the significant financial resources managed by registered organisations on behalf of their membership.[40] The Department also indicated that there was a high community expectation that management of financial assets by registered organisations would be undertaken in a transparent and accountable manner, similar to the legal obligations of accountability imposed on company directors to their shareholders.[41] The Department also submitted that:

[Unions] and employer organisations also collect money and represent funds of their members. And some of them are very significant amounts of money.[42]

2.31      The Department provided clarification on the issue of the increased penalties, indicating that under the current regime, no member of a registered organisation has been subject increased penalties.[43] Further, Mr Jeremy O'Sullivan, Chief Counsel, submitted that the increased penalties would be subject to judicial review in the Federal Court of Australia.[44]

2.32      The committee heard evidence relating to the definition of a serious contravention that was taken from the Corporations Law.[45] The decision to use the 'serious contravention' clause was a specific policy commitment.[46] Due to its origin in the Corporations Law, there exists a practical benefit of activating the jurisprudence that already applies to the term.[47]

2.33      Mr O'Sullivan further clarified that:

It is a tenet of statutory interpretation that when the parliament adopts similar language when using a different piece of legislation it is a guidance to the court to apply that jurisprudence to the new provision.[48]

Committee View

2.34      The committee believes it is appropriate that parts of the Corporations Law are reflected in the bill. This is due to the public expectation that registered organisations, who are often managing significant resources, do so in an appropriate manner and that officers are accountable. It is appropriate that consistent language and jurisprudence be applied to new legislation, noting that judicial review will ensure a fair and balanced approach to the application of penalties.

Engagement of the Right to Freedom of Association and Protection of the Right to Organise

2.35      The committee received evidence relating to the bill's engagement of the International Labour Organisation's Freedom of Association and Protection of the Right to Organise Convention (1848) (No.87) (the Convention).

2.36      AIG suggested that the bill should be amended to the extent that it engages with the Convention, to 'get the balance right'.[49] AIG also submitted that:

In accordance with the Convention, laws regulating registered organisations must not inhibit the ability of workers and employers to join unions and employer organisations, nor restrict their right to elect representatives and organise the administration of their organisations.[50]

Committee view

2.37      The committee was not persuaded by the evidence provided by AIG that the bill, to the extent that it engages the Convention, is inappropriate. The Committee notes that the engagement of human rights is mentioned in the Statement of Compatibility contained within the explanatory memorandum. The Statement specifically submits with respect to the right to freedom of association:

[that] the limitations on the right are permissible limitations as they pursue a legitimate objective, are prescribed by law and are reasonable, necessary and appropriate.[51]

2.38      The Parliamentary Joint Committee on Human Rights found in its inquiry into the Fair Work (Registered Organisations) Amendment (Towards Transparency) Bill 2012, that:

The ILO Committee on Freedom of Association has considered the question of the permissibility of regulating the operations of unions and external scrutiny of their finances. While expressing concern about the possibility of government interference in the operations of trade unions, it has also recognised the legitimacy of external scrutiny in order to prevent or detect fraud or embezzlement.[52]

2.39      The committee is of the view that the bill, while engaging the right to freedom of association and freedom to organise, pursues a legitimate objective. In this case the objective is the prevention of fraud or embezzlement through external scrutiny and regulation provided by the independent Registered Organisations Commission. The Committee is persuaded by the view that engagement of those rights is appropriate, given the policy goals of the bill, to increase accountability and transparency in the management of registered organisations, for the benefit of members and the general public.

Registered Organisations Commissioner and the Special Account

2.40      The General Manager of the FWC currently undertakes regulatory oversight of registered organisations under the current Acts and the bill proposes to transfer these functions to the proposed office of the Registered Organisation Commission.[53]

2.41      The Timber Trade Industrial Association acknowledged in their submission the need for an independent Registered Organisations Commission, for the purpose of monitoring and regulating registered organisations and ensuring the compliance of those organisations with the registered organisations legislation.[54]

2.42      The bill also provides for the establishment of the Registered Organisations Commission Special Account.[55] The establishment of the Account would give effect to the Government's policy to establish the financial independence of the Registered Organisations Commission from FWC. This was detailed in evidence provided to the Committee that the Registered Organisations Commissioner would be independent, and have powers to regulate registered organisations effectively, efficiently and transparently, for the benefit of members.[56]

Committee view

2.43      The committee supports the proposed establishment of an independent Registered Organisations Commission as this measure would greatly assist registered organisations meet the new reporting and compliance requirements proposed by the bill. An independent regulator is the most effective compliance and deterrent to ensure the appropriate behaviour of officers of registered organisations.

Financial penalties for non-compliance

2.44      Some submitters suggested that the proposed penalties for breaches of disclosure requirements were satisfactory, as they had been tripled by the Fair Work (Registered Organisations) Amendment Act 2012.[57] AIG submitted that the proposed penalties for breaches contained in the bill were inappropriately high:

For example, an $85,000 maximum penalty for failing to respond within 28 days to a member request for a statement of membership (s.169) is much higher than the penalty under the FW Act for breaching an FWC stop order relating to unlawful industrial action.[58]

2.45      The committee notes in evidence provided by Mr Jeremy O'Sullivan from the Department of Employment, that that specific penalty amount was an example of a maximum penalty.[59] He also submitted that:

A court might consider that where the failure to meet that time commitment was motivated by a desire to fraudulently conceal a misappropriation or a heinous act, then that penalty would be reserved for that kind of sentence.[60]

2.46      Mr O'Sullivan advised that penalty amounts would be at the discretion of a Federal Court judge, who may determine that a more serious sanction is required, depending on the particular circumstances.[61]

2.47      The committee notes the inclusion in clause 290A of new criminal offences relating to officers of registered organisations and their affiliate branches.[62] The proposed offences are modelled on those found in section 184 of the Corporations Act.[63]

Committee view

2.48      The committee was not persuaded by the evidence provided by AIG that the proposed penalties were excessive, due to the seriousness of concealing information from the Commissioner. The committee supports the proposed penalties, as they will assist the Commissioner to ensure compliance of registered organisations with the bill for the benefit of its membership. The committee recognises the critical role performed by an independent judiciary and the committee agrees with evidence provided by the department that the usual judicial processes will be followed in relation to the imposition of penalties.

Consultation process

2.49      The Department provided evidence to the committee of extensive consultations, including the publication of the Regulation Impact Statement on the Office of Best Practice Regulation's website on Monday, 11 November 2013,[64] and the confidential consultation sessions with stakeholders facilitated by the Department on Wednesday and Thursday, 30 and 31 October 2013, respectively.[65]

2.50      While the consultation process occurred over a relatively short period, the committee notes that the policy intent behind the bill was a commitment contained in the Government's employment policy, Better Transparency and Accountability of Registered Organisations, and that this document was published in July 2013.[66]

Conclusion

2.51      The committee regards improper activity undertaken by officers of registered organisations to be a serious risk to the interests of members of registered organisations and the general public. The committee accepts the evidence presented that higher penalties and stronger regulation are the key mechanism by which the membership's confidence and trust in the management of registered organisations may be restored. The committee notes that with respect to employee registered organisations, some of these members are among the lowest paid workers in Australia and that the interests of all members will be protected by strong and effective regulation.

2.52      While offering general support for the policy intent of the bill, employee and employer groups have, in some cases, made recommendations to amend the bill. The committee notes that many officers of registered organisations are volunteers, and that an undue regulatory burden could provide a disincentive for individuals considering personal involvement as an officer of a registered organisation. The committee has made a number of recommendations with respect to disclosure obligations and training. These recommendations seek to address those concerns raised by submitters.

2.53      Having carefully considered the evidence provided, in submissions and at the public hearing, the committee is supportive of the bill.

Recommendation 5

2.54             Subject to the foregoing recommendations, the committee recommends that the bill be passed

 

Senator Bridget McKenzie
Chair, Legislation

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