3.1
A worker entitlement fund is a fund for employee benefits, such as sick leave, long service leave or redundancy payments. Funds operate in a variety of ways, but their overarching purpose is to manage employee entitlements.
3.2
In 2015, the Royal Commission into Trade Union Governance and Corruption (the royal commission) estimated that worker entitlement funds hold close to $2 billion in assets under management, an amount which will be even higher today. However, there is presently little governance of these funds, prompting Commissioner Heydon to conclude that a 'compelling case' for reform exists to ensure proper use of these funds.
3.3
The Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017 (the bill) is a response to evidence brought to light by the royal commission, which found that money held in entitlement funds for workers' redundancy payments, sick leave and other benefits was being funnelled back to unions and employer groups which make up the funds' boards.
3.4
Stakeholders expressed a range of views on the bill. While there were concerns raised by unions around the objectives of, and measures contained within, the bill, there was also considerable support for its objectives, with submitters welcoming the legislation's capacity to 'deliver vital and long overdue reforms to protect workers' benefits'.
3.5
This chapter looks at key aspects of the bill.
Objectives of the bill
3.6
Submitters did not question the value and benefit of worker entitlement funds for employees and employers, nor did they question the importance of funds operating in a manner which does not cause concern about financial management and conduct. Nevertheless, a number of unions expressed the view that the bill represents an "attack" on trade unions by 'creating excessive and unnecessary additional regulation.' A submission from the BERT Fund, an employee redundancy trust, went a step further, stating that the bill 'is driven by a desire to disadvantage the CFMEU'.
3.7
In a similar vein, a submission from the Australian Council of Trade Unions (ACTU) suggested that the proposed obligations for disclosure are "oppressive", while the CFMEU described the 'degree of intrusion into internal union matters represented by this bill' as 'deeply troubling.'
3.8
Other submitters, however, instead pointed to the range of benefits the bill would bring for workers by:
boosting transparency and accountability in worker benefits funds, giving workers, and those who make contributions to funds on their behalf, the ability to see how funds held on their behalf are treated;
implementing a series of important recommendations arising from the Royal Commission;
establishing a clear regulatory regime in an area currently lacking appropriate and necessary regulation;
ensuring that income generated from worker benefits funds is returned to those employees or used for proper and appropriate purposes;
establishing appropriate decision-making processes which prevent inappropriate financial gain by either individuals or organisations; and
filling a legislative gap which has allowed excessive accumulation of workers' money in funds.
3.9
Submitters explained that the provisions of the bill would not apply to unions exclusively, but also to employer associations. As put by Master Builders Australia, the bill 'has a focus on all registered organisations and entities associated with these [worker entitlement] funds.'
3.10
Evidence provided by the Department of Employment (department) contradicted claims that the bill would operate unfairly against unions, confirming that every schedule in the bill would apply equally to all registered organisations and that unions and employer associations would be able to continue to jointly manage worker entitlement funds.
Financial management and disclosure
3.11
The two key aspects of the bill relate to expanding the financial management recordkeeping and disclosure requirements for registered organisations and introducing a framework for the registration and proper governance of employee entitlement funds.
3.12
The proposed measures are consistent with and give effect to recommendations 9, 10 and 39 of the royal commission:
Recommendation 9
Section 141(1)(ca) of the RO Act be repealed. A new civil penalty provision be introduced requiring organisations and branches to adopt, in accordance with their rules, policies binding on all officers and employees concerning financial management and accountability.
The required policies should include policies concerning financial decision-making, receipting of money, levels of authorisation of expenditure, credit cards, procurement, hospitality and gifts, the establishment, operation and governance of related entities and any other matter prescribed by regulations.
Organisations or branches should be required to review their policies every four years and to lodge a copy of their current policies with the registered organisations regulator.
Recommendation 10
A new division dealing with financial disclosures by ‘reporting units’ to their members be introduced to Part 3 of Chapter 8 of the RO Act to replace and strengthen existing provisions concerning financial disclosure. The regime would require ‘reporting units’ to lodge audited financial disclosure statements with the registered organisations regulator on discrete topics, including (a) loans, grants and donations by the reporting unit, (b) remuneration of officers and (c) credit card expenditure.
Civil penalties should apply to reporting units that fail to comply with their obligations under the regime. Further, civil penalties should also apply to officers who knowingly or recklessly make a false statement in a financial disclosure statement…
Recommendation 39
The RO Act be amended to require reporting units to lodge an audited financial disclosure statement (see Recommendation 10) providing details in respect of (a) loans, grants and donations (including in-kind donations) made to reporting units in excess of $1,000 and (b) other payments made to reporting units in excess of $10,000.
3.13
The committee received submissions from a number of unions opposing the additional disclosure and financial management measures.
3.14
The ACTU, for example, suggested that the proposed requirements may not be necessary, pointing to existing financial accounting obligations. The ACTU further argued that the bill goes beyond recommendations made by the royal commission.
3.15
The CFMEU similarly stated that since 2014, federally registered organisations have been required to have rules in place governing financial management and accountability:
The proposed measures are detailed and highly prescriptive. There are no equivalent measures for publicly listed companies that manage shareholder funds which far exceed union resources.
3.16
Other submitters did not share the unions' views.
3.17
Ai Group, for example, which is itself a registered organisation required to comply with the new requirements, described the financial management and disclosure provisions as 'balanced, practicable and appropriate'.
3.18
The department explained that, while the RO Act does contain financial management provisions, significant examples of mismanagement were nonetheless identified by the royal commission:
For example, despite being required to have rules setting out financial policies, at least one branch of an organisation examined by the Royal Commission was thought to have no written policies concerning expenditure.
Committee view
3.19
The evidence brought to light by the royal commission clearly shows that existing rules have failed to prevent mismanagement, and raises questions around why any organisation would reject measures which target such misconduct. In this context the committee agrees that the financial management and disclosure provisions are balanced, practicable and appropriate.
3.20
The committee understands that existing financial management provisions in the RO Act require registered organisations to disclose certain loans, grants and donations they make. The advantage of the bill is that it would extend these requirements to loans, grants and donations similarly made to registered organisations.
How money in funds may be spent
3.21
The bill also seeks to clarify the law with respect to how money held in entitlement funds can be spent, 'making it clear that the rules about spending contributions and income apply to all the money in the fund':
This is intended to address the problem of some funds treating income earned in previous years as capital and then distributing the money to the industry parties that run and promote the funds.
3.22
However, during the inquiry, some issues were raised regarding gifts and donations. As submitted by MATES in Construction, a non-partisan charity established by the building and construction industry to prevent suicide and improve mental health and wellbeing:
The problem with section 329LD is that it does not specifically allow for a gift or donation to be made to charities such as ours—only for services to be bought. This section would require us to format our program as a service offering at fair market value on commercial terms. This is contrary to the nature of MATES in Construction, as we have explained in our submission. I would be more than happy to expand on that further, if required by the committee.
3.23
MATES in Construction also discussed concerns regarding whether the bill would stop worker entitlement funds from making payments to welfare and training services in a written submission to the committee.
3.24
The committee understands that the bill specifically provides that payments for training and welfare services can continue if they relate to the relevant industry, are made on commercial terms and approved appropriately by fund directors. The department explained:
For example, payments can still be made for insurance to provide portable sick leave entitlements, drug and alcohol counselling, suicide prevention and awareness, OH&S programs and apprentice training. Such payments can be made subject to specific criteria being met, and these criteria include that the arrangement is made at arms-length from any director with a material personal interest in the service provider; that the services are provided in a way that does not discriminate unfairly between fund members, such as on the basis of their membership of a registered organisation; and that the services are provided at market value on commercial terms.
3.25
While the bill does not appear to curtail legitimate and proper payments to unions, its measures have the capacity to address the highly inappropriate practice as identified by the royal commission whereby some organisations have siphoned millions of dollars a year from money contributed into worker entitlement funds by employers. Ai Group expanded on this and associated practices uncovered by the royal commission:
The regular distribution of millions of dollars in so-called “surpluses” to unions, from the investment earnings on funds contributed by employers for the benefit of their employees;
Unions siphoning off a portion of the money contributed by employers to welfare and charity funds operated or supported by unions;
Employee entitlement funds discriminating between union members and non-union members when providing certain benefits; and
Employee entitlement funds making payments to workers on strike under the guise of “hardship payments”.
3.26
Such practices, Ai Group explained, allow certain unions to operate law-breaking models because the money they receive from worker entitlement funds—money which is paid by employers for the benefit of workers—far exceeds the fines they may incur by breaking the law:
The CFMEU has reportedly incurred around $10 million in fines for unlawful conduct over the past 10 years in cases pursued by the Australian Building and Construction Commission and its predecessors. This amount is dwarfed by the revenue flows to the CFMEU from employee entitlement funds. Such revenue flows to the CFMEU over the past five years reportedly include:
$44 million from construction industry redundancy funds
$22 million from training funds
$5 million from income protection insurance commissions
$4 million from charity/welfare funds
_________
$75 million
_________
3.27
The committee notes that BERT Fund, which Ai Group lists as one of the CFMEU's primary sources of inappropriate revenue, strongly disagreed with Ai Group's position.
3.28
The CFMEU similarly argued that worker benefit funds 'have been effectively and efficiently managed for many years.'
Committee view
3.29
The committee notes differing views raised by submitters on the concerns about inappropriate revenue flows. Notwithstanding these differences in opinion, it is imperative that employee entitlements are used for appropriate purposes, and that any risk of funds being siphoned off by registered organisations is mitigated to the greatest extent possible. For this reason, the committee sees no compelling evidence against the proposed measures relating to how money in worker entitlement funds may be spent, and supports the measures as necessary to ensuring funds are used appropriately, that is, to benefit workers.
3.30
However, the committee notes concerns raised by MATES in Construction regarding section 329LD of the bill, and supports steps being taken to clarify the issue.
3.31
The committee recommends that the government review the wording of proposed section 329LD in light of the concerns raised that it would not allow for a gift or donation to be made to charities operating in this sector.
Consultation
3.32
Some submitters were unsatisfied with the level of consultation engaged in prior to the bill's introduction into Parliament.
3.33
The department informed the committee that the bill was considered by the Committee on Industrial Legislation (COIL) on 3 October, and that consultation sessions with state and territory officials were held on the same day, as per standard consultation practice.
3.34
Furthermore, the department explained that feedback arising from that consultation process was fed back to the government, resulting in a number of amendments being made.
3.35
The committee is also aware that some submitters believe that inadequate time was provided for them to review the bill and make submissions to this inquiry:
On the morning of 23 October 2017, the CFMEU was formally advised that any submissions to the Committee would be required by close of business Wednesday 25 October 2017 – i.e. in less than three working days.
This unacceptably short period in which to analyse and comment on a lengthy and detailed piece of legislation gives interested parties no real opportunity to properly address the legislation or to assess its full impact.
3.36
It is worth noting, however, that although stakeholders were advised of the 25 October 2017 closing date for submissions on 23 October, the committee's records show that those same stakeholders, including the CFMEU, were advised of the invitation to submit on 19 October 2017.
3.37
Another union, United Voice, voiced similar views regarding consultation:
[T]here has been no consultation with our union, despite the Bill’s imposition of substantial new regulation on our union and its members. The extremely truncated timeframe in which affected parties have been given to make submissions has meant that we are unable to make a full submission covering the detail of the bill.
3.38
The department explained that it had consulted with a range of stakeholders on an exposure draft of the bill, including unions and worker entitlement funds. The committee understands that a number of amendments were made to the proposed legislation as a result of the consultation process. The bill also implements a number of recommendations of the royal commission, which itself heard submissions from affected parties over its two year inquiry.
3.39
The committee is satisfied that stakeholders were given as much time as possible to make submissions given the committee's reporting date and that appropriate consultation was undertaken.
Committee view
3.40
Given the amount of money held in funds, and the purposes for which money is held, it is crucial that management is transparent and the money is spent only on activities that genuinely benefit workers. The royal commission's finding that this billion-dollar industry is virtually unregulated is of significant concern.
3.41
The committee is of the view that the bill takes the necessary steps to achieve much‑needed regulation and ensure that workers' money is responsibly invested and transparently managed.
3.42
The committee strongly supports the bill's objective of ensuring that worker entitlement funds are run for the benefit of workers, not anyone else. This legislation will help stop the financial mismanagement identified by the royal commission. The committee does not see a plausible argument against its passage.
3.43
Subject to Recommendation 1, the committee recommends that the Senate pass the bill.
Senator Linda Reynolds CSC
Chair