LABOR SENATORS' DISSENTING REPORT
Labor Senators are supportive of a publicly funded scheme to protect
workers who are affected when their employers experience insolvency or
bankruptcy, but assert that capping the entitlement to maximum redundancy pay
at 16 weeks' pay is a government savings measure without justification.
The committee majority has failed to demonstrate justification for the bill
The intention of the bill is to align one part of the Fair Entitlements
Guarantee (FEG), in this case redundancy, with the redundancy standard
established under the National Employment Standards (NES) – the NES acts a
safety net only, outlining the minimum conditions for workers.
Labor Senators were compelled by evidence expressing concerns that
capping the redundancy entitlement at 16 weeks will result in some workers not
being paid their full redundancy entitlement they are owed by their employer in
the event that employer goes into liquidation or bankruptcy.
Labor Senators discount evidence from the Australian Industry Group (Ai
Group) who assert that the scheme is overly generous.
The FEG is not a welfare payment, nor a safety net scheme. Payments under the
FEG are entitlements owed to workers, earned during their employment, and
agreed to either as part of a bargaining process, contracts of employment or
awards negotiated with employers.
Ms Michele O'Neil, National Secretary, Textile Clothing and Footwear
Union of Australia (TCFUA) stated:
To start with a very basic principle of law, workers who
accrue, through long years of service, leave, superannuation and redundancy
entitlements are entitled to be paid 100 per cent of those entitlements when
they are made redundant.
Mr Trevor Clarke, Director Industrial and Research, Australian Council
of Trade Unions (ACTU) provided evidence to the committee:
Redundancy entitlements are set by awards, by enterprise
agreements and by contract of employment. Sometimes unions are involved in
setting the entitlements; sometimes they are not. Sometimes the Fair Work Commission
is involved in setting those entitlements; sometimes it is not. Whoever sets
those entitlements has reasons for doing what they do.
It is not difficult to imagine why the entitlement at some
workplaces is set in excess of the bare minimum provided by the law.
Both Ai Group and ACCI expressed the view that a publicly funded safety
net scheme is necessary to protect workers whose employers went bankrupt.
However, they stressed the importance that it should offer an appropriate level
of protection. Ai Group stated:
When there is an insolvency, everyone is a loser. Often the
managers lose their jobs. If it is a private company, the owners of the
business often lose their houses. There are no winners. It is a matter of
having the appropriate level of protection.
This refutes any inference from the Ai Group, referenced by the majority
committee report, that employers are being ‘coalesced’ by unions or workers
represented by unions into implementing extremely generous redundancy packages
in the lead up to insolvency.
The TCFUA confirmed this, giving evidence in their submission that 'there is
simply no evidence that this is borne out in enterprise bargaining since the
commencement of the enhanced GEERS scheme and the FEG Act.'
During evidence, the TCFUA state:
There is simply no evidence that the existence of provisions
in the FEG Act providing for the payment of redundancy beyond 16 weeks creates
an incentive for unsustainable bargaining.
The AMWU presented similar evidence:
It is not true that since the introduction of the federal
entitlement guarantee the AMWU has pressed a patent four-week claim. This is
simply not the case.
Nobody has shown a rise in the level of redundancy pay
provided in agreement or contracts of employment, and even if they could do
that it would be another thing to attribute a cause to it. It is pure
speculation. Further, it ought to be remembered that redundancy terms are
developed in the context of an expectation that business will continue. No
business and no worker wants to see a redundancy of some members of the
workforce turn into the closure of the workplace on account of an incapacity to
The Ai Group, and in turn the committee majority and the government
refer to this unfounded view as a ‘moral hazard’. Labor Senators note the
strong views expressed during the hearing and by submission that a moral hazard
in this context simply does not exist.
The committee asked the department to expand on the theme of moral
hazard, asking for evidence or examples of where employers have signed
unsustainable redundancy payments in these circumstances.
The department provided the following advice:
... there has been an increase in redundancy payments in excess
of 16 weeks in agreements since the scheme came in, that the proportion
increased from 22.3 percent in 2011 to 28.3 per cent in June 201. That
parallels the introduction of the more generous redundancy entitlement. No, we
do not have evidence of the exact cause and effect, but there is certainly a
When asked directly to provide evidence of this “moral hazard.” neither
the Ai Group or ACCI were able to provide evidence to the committee that
redundancy claims put forward during a bargaining process were presented
because the FEG has an uncapped redundancy scheme. Given that both groups
claim to represent large and significant sections of Australian employers and
are involved in bargaining outcomes, Labor Senators believe the “moral hazard”
claim is unfounded
Additionally, the committee received submissions and took evidence at
the hearing that strongly supported the view that the bill is not justified in
a supposed effort to protect employers against unjust claims. The Ai Group
discussed that it is in fact a small percentage of employers who do the wrong
thing, noting that '99.99 per cent of employers pay their entitlements when
Labor Senators therefore conclude that where the committee has failed to
prove that the increase in redundancy payments in excess of 16 weeks in
agreements has been caused by the introduction of the more generous redundancy
entitlement, they fail to prove a moral hazard exists in this context.
The bill punishes workers without addressing underlying issues or alternate
The department submitted the proportion of total scheme expenditure
attributable to the redundancy pay has increased since the entitlement cap was
increased in 2011, and the dollar value of redundancy pay entitlements has
increased disproportionately to other entitlement types covered by the schemes.
The incidence of agreements providing a total maximum redundancy payment of
more than 16 weeks has also increased since 2011.
Labor Senators do not refute this evidence, and in fact assert that the
evidence given by the department demonstrates the requirement to explore
options aside from the capping of redundancy pay in the FEG as a savings
measure. However, Labor Senators note that the department failed to take into
account the Global Financial Crisis, the average age of workers in the sectors
hardest hit by liquidation and bankruptcy and other relevant factors.
The ACTU suggested during the hearing that other options should be
explored before any reduction in entitlements under the Scheme is contemplated,
including ranking employee entitlements above certain secured creditors. The ACTU's
position is that 'more can and should be done to ensure that the government can
maximise the returns it gets from the scheme and to discourage insolvencies
that are brought about by misconduct.'
Labor Senators assert that this could be more appropriately delivered by
making appropriate changes to the Corporations Act 2001 and improving the
ability of the Australian Securities and Investments Commission to enforce
penalties on companies and directors when they trade while insolvent, as
suggested in the Commission of Audit Report.
We note that the amendments to the FEG happen to mirror recommendation
47 of the Commission of Audit’s report:
Where a firm enters into liquidation and is unable to pay
employee entitlements, the Fair Entitlements Guarantee Scheme makes certain
payments to eligible workers. It is important that employers meet their
obligations to fund worker entitlements. The Commission recommends changes be
made to the Fair Entitlements Guarantee Scheme to introduce a cap of a maximum
redundancy payment equivalent to 16 weeks' pay and limit the wage base for the
scheme to Average Weekly Earnings.
It is of concern that the government has drafted amendments to the FEG
that punish workers who have been made redundant, restricting their rights to
their entitlements, without initiating amendments that work toward keeping
The bill constitutes a broken promise from the government
The Coalition Government opposed the lifting of the 16-week cap within
the FEG legislation in 2012 and then again in 2013.
Unlike the process undertaken when Labor introduced the uncapped
redundancy within the scheme, evidence was given at the hearing that there was
a distinct lack of consultation undertaken between the government and key
stakeholders prior to the introduction of the amendments to the legislation.
Labor Senators in particular point to evidence presented by the ACTU in
their submission, a letter from Employment Minister, Senator Abetz, dated the
17th of July 2014, stating that workers could “be satisfied that there is no
risk to your entitlements”.
These amendments categorically represent a risk to workers' entitlements.
Labor Senators therefore hold the view that aligning the FEG with the National
Employment Standards is based solely on a view within the Coalition that
Australian workers do not deserve any more than the bare minimum. We do not
support this view.
The Labor Senators of the committee recommend the bill be rejected.
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