Labor Senators oppose this legislation and call on the Senate to protect the future of these funds by rejecting this legislation.
This Bill represents yet another politicised attack on working people and role of unions by the Coalition Government.
Overview from Labor Senators
On 4 July 2019 the Senate referred the provisions of the Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2019 (the Bill) to the Senate Education and Employment Legislation Committee (the Committee) for inquiry and report by 25 October 2019.
Labor Senators oppose this legislation and call on the Senate to protect the future of these funds by rejecting this legislation.
This Bill represents yet another politicised attack on working people and the role of unions by the Coalition Government.
This Bill, in addition to Fair Work Laws Amendment (Ensuring Integrity) Bill 2019, increases the power of the Registered Organisations Commission (ROC) to an unprecedented level, and adds bureaucratic complexity without recognition of existing regulation or the robust system of governance for worker benefit funds already in place.
ROC is not a financial regulatory agency equipped to help secure or regulate workers’ entitlements. Rather the Government has established ROC as a regulator of unions. Behind the creation of ROC lies the Government’s political agenda to limit the political and economic power of unions.
Ms Michele O'Neil, President of the Australian Council of Trade Unions (ACTU) said about the impact of the bill:
It is highly politicised legislation that attempts to disguise restrictions on the representative capacity of unions as a concern about the protection of worker entitlements or the need for improved transparency and good governance. It does this in a number of ways. Firstly, it prohibits unions from operating funds. Under this bill, unions will never be able to establish and operate funds to protect worker entitlements in their own right, yet they were the driving force behind the current funds which have distributed millions of dollars in entitlements that could have been lost to workers. Restricting the right of unions to take steps to protect the vulnerable entitlements of their members is not only unnecessary; it strikes at the most basic function of trade unions.
While ROC maintains that it is an independent, non-partisan agency, its conduct must be viewed in the context of the laws and regulation it upholds and implements which are designed to limit the bargaining power and functions of unions. This Bill is a politically motivated attempt to restrict the representative capacity of unions. In doing so it damages the funds themselves, their capacity to protect workers benefits as well as the industry training, employment, mental health and other services they resource. Many submitters expressed alarm that ROC rather than another financial regulator such as ASIC was the focus of the Bill.
Labor is concerned the Bill could effectively shut down worker-run funds, while incentivising employers to set up and run their own funds, without the community dividends provided by the current joint employer union funds. It is notable that these funds have saved millions of dollars in liabilities to the Government through the Fair Entitlements Guarantee (FEG).
This is because the Bill allows for the establishment of single employer-run funds that do not need to be registered. These would operate free of any oversight or the regulation that the Government maintains is so critical and would provide none of the benefits to the workforce that the current funds provide. They would essentially take workers back to the situation that existed before the establishment of these funds, and undo decades of good work.
Labor is also gravely concerned that the Government’s undermining of these funds will increase the liability to the tax payer under the Fair Entitlements Guarantee. It appears the Government has little regard for holding employers to account for ensuring these entitlements are paid to workers and is prepared to see these liabilities shift to the tax payer.
Accountability and transparency
Labor Senators affirm that Worker Entitlement Funds should be held to high standards of governance and that they should be run for the benefit of workers and contributing employers.
However, the evidence presented to the committee shows that the bill is not balanced or proportionate, nor is the focus of the legislation motivated by the interests of workers or employers.
Reddifund, a Western Australian worker entitlement fund open to employers in the building and construction industry, stated that it supported any initiative that genuinely sought to improve the performance of worker entitlement funds by providing greater certainty and standardised governance practices across the sector. However, it argued that the intent of the bill was not about good governance, but rather about 'restricting the legitimate uses of income and imposing additional costs that far exceed what is expected in other regulatory or corporate environments'.
The impact of the overreach of the legislation is explained in this dissenting report.
History and importance of worker entitlement funds
Worker entitlement funds have been established to secure the benefits and entitlements of employees engaged in industries with a transitory nature, such as building, construction, and manufacturing. Funds provide for the portability of worker entitlements that may not otherwise exist, particularly in project-based industries like construction, where workers may have dozens of employers during the course of their careers.
They are typically established as joint ventures between industry parties (i.e. unions and employer associations) and often involve the creation of a trust with a corporate trustee. The directors of the trustee companies are usually drawn from industry parties with representatives of employers and employees.
When an individual's employment with an employer is terminated, the fund makes a payment to the individual in accordance with the terms of the employment agreement or industrial award. Approved worker entitlement funds meet certain criteria under fringe benefits tax (FBT) legislation and receive concessional FBT treatment.
Mr Glen Wadsworth, director of Wadsworth Contracting, a commercial contractor of many years, told the Committee about the history of the BERT Fund in Queensland:
I am 61 years of age. I've been in the construction industry all my life. I remember when BERT started. I think that we should go back to why it started. The blokes in the construction industry, back in those days, would have been paid cash and all sorts of weird stuff in the late eighties. It wasn't through EBAs, because, I believe, the EBAs came a little later than that. I'll talk particularly about Queensland first, in that the original intent was that the guys would basically have a transportable—for want of a better word—redundancy. They weren't getting any redundancy back in the day, and that was where it began its life. It was agreed on, obviously being a builder's union for master builders, and it took on its life from there.
Ms Michele O'Neil, President of the ACTU, outlined to the committee how Australian unions were the driving force behind the creation of these funds, noting that for too long the capacity to accrue entitlements was not available to workers where they moved jobs, or that these entitlements were lost to workers entirely when a company was bankrupted, or liquidated.
Worker entitlement funds exist today because of the foresight of Australian unions. Those unions created the funds because too often they'd seen their members lose their accrued entitlements. Unions didn't wait for government intervention or ask the Australian taxpayer to foot the bill; instead they created their own solution, and the solution was innovative. It involved both unions and employers. It protected entitlements and provided industry benefits like a more highly skilled workforce. It has created a model for other industries.
According to the Australian Taxation Office:
The funds are established to provide benefits to employees who would normally be entitled to benefits on termination of employment under the terms and conditions of their employment. The use of the funds is recognised in many awards and enterprise agreements. Employers contribute to the funds to assist in satisfying their obligations when employees leave their employment. Typically, employers contribute to the funds at some point in each pay cycle.
Mr Dave Noonan, National Secretary of the CFMMEU Construction Division, explained that worker entitlement funds have operated for 30 years in the building and construction industry. Their formation addressed a key problem in the industry where bankrupt companies would 'phoenix' and re-emerge in the industry relieved of their or their obligations to pay accrued entitlements.
For 30 years, they have paid to every worker who has made a claim from the funds the amounts contributed on their behalf by their employers. This is notable in an industry plagued by phoenixing and insolvency of companies and over a period which has seen severe recessions in the building and construction industry in the early nineties and between 2003 and 2006 during the global financial crisis. Based on figures provided by the funds, the funds have paid out over $2.5 billion directly to workers. That is significantly more than the federal government has paid out under the FEG and GEER schemes.
Mr Michael Wright, Assistant Secretary of the Electrical Trades Union of Australia explained the particular challenges for workers in the construction sector and how worker entitlement funds had provided income protection and redundancy trusts to those in the construction industry:
The Electrical Trades Union has, in its history since the 1980s, been involved in establishing and supporting various worker entitlement funds and schemes, particularly around income protection and around redundancy trusts, primarily operating in the construction industry...
Mr Wright went on to explain what the absence of these funds would mean for workers who were previously left without accrued sick leave entitlements when they moved between different employers as these entitlements are not paid out when an employment contract ends:
Similarly, the construction industry is plagued not just with the horror stories you hear about phoenixing and the like, but also with the legitimate bankruptcies that happen when somewhere in the supply chain someone doesn't get paid and that causes a cascade of liquidations, the results of which are that our members lose their jobs at the end. This level of insolvency is far greater in the construction industries than it is in the broader economy. That is why we have worked with industry to establish these redundancy trusts. And that's why the ETU, along with other construction unions, are so concerned and pay such close attention to this in that construction is peculiar. Functionally you don't get sick leave and functionally you don't get annual leave in construction. Income protection is aimed to remedy the problem of not getting sick leave. Redundancy is aimed to make it functionally work as though you do get annual leave at the end of a project—an equivalent benefit. That's why these are important to us. They allow construction workers to have a normal life—the same as if they worked in an office or for a bank or for the Public Service. They get a normal employment life.
ROC’s regulatory power over funds is fundamentally unsound
While ROC maintains that it is an independent, non-partisan agency, its conduct must be viewed in the context of the laws and regulation it upholds and implements which are designed to limit the bargaining power and functions of unions. This Bill is a politically motivated attempt to restrict the representative capacity of unions. In doing so it damages the funds themselves, their capacity to protect workers benefits as well as the industry training, employment, mental health and other services they resource. Many submitters expressed alarm that ROC rather that another financial regulator such as ASIC was the focus of the Bill.
ROC – No financial or prudential experience
ROC Commissioner, Mr Mark Bielecki acknowledged that ROC had no experience in regulating worker entitlement funds:
We don't have specific experience in regulating worker entitlement funds. It's not within our present scope in terms of the legislation. But there have been a number of areas where we've had no expertise and we've been asked to do things under the present legislation and we have risen to that challenge and done those things.
Ms Susan Carter, Independent Director from Protect, who was also a commissioner with ASIC explained:
I was at ASIC for two years. I was regional commissioner for Victoria. So I think ASIC is better placed. And, of course, when the royal commission made its recommendations ROC didn't exist. I think it's best left with a regulator that is familiar with financial services.
Mr Michael Connolly, Chief Executive Officer for Protect noted:
And I think some of the issues are not necessarily operational. Some of the issues that have been raised are all about financials, and ASIC, I think, would be better placed to deal with finances and investments than ROC. But I have no experience with ROC other than what I've read in newspapers, which is not a particularly good authority.
Ms O'Neil of the ACTU expressed unions’ concerns about the role provided to ROC under the bill:
There are also real concerns about placing the regulation of funds into legislation that applies to unions and employer organisations and conferring the role of regulator on the Registered Organisations Commission. The function of these funds is not to provide industrial representation; they are custodians of workers' entitlements that manage funds in a responsible way in a commercial environment. The idea that they would be lumped into the same regulatory system and the same act as covers unions and registered employer organisations is ill-conceived, and there is a serious question mark over the role the bill gives to the ROC. As its name suggests, the Registered Organisations Commission is not a financial regulator and was not set up to regulate funds. It has neither the resources nor the expertise to oversee funds. It has also been the subject of criticism that it is a politicised body that is hostile to union interests. If this bill were really about good governance, and the key concern of the government were the best interests of workers' entitlements, none of these questions would arise.
More Red Tape from ROC
Other witnesses raised other concerns in relation to the red tape burden imposed by the bill. This includes requirements to disclose directors’ votes and the disclosure of individual transactions (even for small payments).
Mr Noonan of the CFMMEU highlighted the cost impact of such requirements, which would result in less funding reaching vital initiatives such as MATES in Construction:
I think it's likely that there would be costs imposed. I can't give evidence as to the quantum for those costs, but to the extent that costs are imposed it would be a forgone opportunity to, for example, put that into a MATES in Construction, into a high-risk training centre, into suicide support or into drug and alcohol counselling—all of these things. These are really important things in the industry. They haven't come up out of self-interest from unions or employers. These have come about because the parties have identified some really serious needs in the industry. At an earlier hearing today I touched on some of the issues around suicide and drug and alcohol rehabilitation and so on. These are society-wide problems, but, in an industry that's got very long hours, highly insecure work and large blue-collar male workforces, it's the case that, unfortunately, some of these are at the higher risk end, in relation to a range of those issues.
Mr Michael Connolly from Protect:
Second, there is onerous disclosure of individual transactions on training and welfare expenditure, including the disclosure of directors' votes approving those transactions. Transactional approvals by directors are unnecessary and contrary to directors' abilities to delegate on the Corporations Act. These provisions need to be removed or at least have a threshold applied.
Mr Connolly from Protect:
Another issue is the transactional disclosure and directors voting on individual payments on training and welfare. Again, I find that extraordinary and unprecedented. Firstly, some of these payments could be relatively small, depending on what you are doing. We have seven directors, and I think Incolink is much larger. To have individual transactions routinely signed off by each director, and to have it disclosed which director approved them, is extraordinary and it is over and above anything else we might see in corporate Australia. In a general sense, there are the restrictions that apply to trust distributions that just do not apply anywhere.
Powers of the Minister
The Bill gives the Minister the powers to change the rules that the funds operate under at any point. Mr Tom Roberts of the ACTU explained:
It may be, depending on the type of regulation that the minister is making. The problem with the legislation is that it's pretty open-ended in terms of the content of regulations that can be made. The minister could impose a whole lot of conditions on the funds and change the rules under which the funds operate, which might not necessarily contradict the terms of the act but would make it incredibly difficult for the funds to continue to do the work that they do.
Freedom of Association and Work Place Bargaining
The bill unreasonably interferes with the industrial bargaining between unions and employers.
Item 3 of Schedule 2 requires that a modern award cannot include a term relating to the payment to a worker entitlement fund unless each and every individual employee can, under the terms of the award clause, choose the particular registered fund to which payments can be made.
This requirement for individual choice of funds is further extended into the provisions relating to enterprise agreements. The proposed addition to s. 194 of the FW Act makes a term of a proposed agreement unlawful unless each of the employees on whose behalf payments are to be made can choose the registered worker entitlement fund into which those payments are to be made. On this basis, a clause in an agreement designating one (or even many) registered funds would be classified as an unlawful term even where it formed part of an agreement that had been unanimously approved by a ballot of employees in accordance with the bargaining processes of the FW Act.
The bill requires that each award and agreement confer a positive right on individual employees to direct payments to a particular registered fund, even though another registered fund may have been agreed to during enterprise agreement negotiations.
The same issue arises in relation to the choice of insurance products. Agreement terms permitting payments to funds that provide training or welfare are only permitted if the funds are registered or are registered charities or deductible gift recipients.
The impact on collective bargaining was explained by Mr Noonan of the CFMMEU:
The bill seeks to interfere in collective bargaining and adds another level of complexity by proposing yet further restrictions and conditions on what can be included in enterprise agreements in relation to the choice of worker entitlement funds and imposes additional requirements for disclosure that are not only unnecessary but also discriminatory in that there is no equivalent impost on the employers, who are the other party in the bargaining process.
The Government has argued that its focus is on providing choice for workers. This ideological obsession overlooks viability and origin of these funds which have been created through a collective bargaining process. These benefits to workers in terms of protected entitlements, welfare and training services, have been secured through the very process that the Government is now undermining.
Incompatibility with human rights
The Parliamentary Joint Committee on Human Rights has examined these aspects of the Bill. This committee also noted that the International Labour Organisation’s Committee on Freedom of Association has previously raised concerns in relation to Australia's restrictions on bargaining outcomes through prohibiting particular matters in enterprise agreements.
The statement of compatibility with human rights for the Bill states that it is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Labor Senators reject this claim, the Government has failed to properly address concerns raised by the Parliamentary Joint Committee on Human Rights (joint committee) which considered the bill's precursor, the Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017.
The concerns included the compatibility of certain measures in the bill with:
the right to freedom of association;
the right to just and favourable conditions of work;
the right to freedom of assembly and expression; and
the right to collectively bargain.
As noted by Michelle O’Neil, ACTU President, before this committee:
The bill restricts the contents of awards and agreements that are negotiated by unions. Agreements would no longer be able to include clauses that direct employer contributions into specific worker entitlement funds. This adds to a growing list of topics that are off-limits in the bargaining process. The Parliamentary Joint Committee on Human Rights has concluded that this prohibition on the content of industrial agreements is likely to be incompatible with the internationally recognised right to collectively bargain.
The Parliamentary Joint Committee on Human Rights concluded that ‘prohibiting terms of industrial agreements that require or permit payments to worker entitlement funds is likely to be incompatible with the right to collectively bargain.’
Further detail on these concerns can be found in Report 12 of 2017, Report 1 of 2018, and Report 2 of 2018.
ROC’s breaches of other important justice principles
The Senate’s Scrutiny of Bills Committee stated that the Bill raised concerns regarding privacy protection, noting that the Bill left the protection of personal information to the discretion of the RO Commissioner, rather than making it a statutory requirement.
As outlined in the majority committee report which Labor Senators outline below:
Provisions contained in the 2017 bill examined by the Senate Scrutiny of Bills Committee, which are the same as this 2019 bill, provide for a deregistration process for non-compliant registered worker entitlement funds.
Proposed section 329MK stated that this subdivision would be taken to be an exhaustive statement of the requirements of the natural justice hearing rule in relation to the RO Commissioner's decision to deregister a registered worker entitlement fund.
The Scrutiny committee observed:
The natural justice hearing rule enables the courts to consider whether a hearing provided prior to an adverse decision is fair in the circumstances of the case, including in the statutory context of the power being exercised. If the natural justice hearing rule is excluded, the only available procedural fairness requirements would be those set out in the Subdivision itself. Give that what constitutes are fair hearing is necessarily dependant on the context of the inquiry, the consequence could be that a fund may be deregistered in circumstances where it has not been afforded a fair opportunity to puts its case. The explanatory memorandum provides no explanation as to why it is necessary to limit procedural fairness in this way.
The Scrutiny committee reported to the Senate that the Minister failed to properly explain why proposed section 329MK was necessary and appropriate.
…the consequence of proposed section 329MK may mean that a fund may be deregistered in circumstances where it has not been afforded a fair hearing. For example, procedural fairness may require, in the circumstances of a particular case, that a submission received after the specified deadline be considered as part of the inquiry, yet proposed paragraph 329MI(1)(c) would only require the [RO] Commissioner to consider a submission made by a specified deadline.
Provision is made in proposed paragraph 329MG(2) for a notice of proposed deregistration to a fund operator to specify the grounds for deregistration and for the operator to be invited to make submissions on the proposed deregistration. Under proposed paragraphs 329MH(1)(c) and 329MI(1)(c), the Commissioner must consider any submissions before deciding whether a condition of registration has not been, or is not being, complied with.
Exclusion of merits review
Section 329MA in the 2017 bill provided the RO Commissioner with the power to direct the operator of a registered worker entitlement fund to take, or stop taking, one or more actions.
Proposed section 329NI set out a list of decisions made by the RO Commissioner that are reviewable by the Administrative Appeals Tribunal (AAT). Proposed section 329MA was not included in this list, meaning that decisions taken under it would not be subject to any form of merits review.
The explanatory memorandum to the 2017 bill justified this exclusion on the grounds that any decisions taken under proposed section 329MA would be of a 'law enforcement nature'.
The Scrutiny committee stated that it was 'not clear' to it why this was the case. It requested that the Minister provide a more detailed explanation of why decisions taken under proposed section 329MA are considered to be of a law enforcement nature and therefore appropriate for being excluded from a merits review.
Decisions under proposed section 329MA are directed towards ensuring compliance with the conditions for registration of a worker entitlement fund that are set out in the table of conditions in proposed section 329LA and are thus properly characterise[d] as law enforcement in nature.
The Minister further explained that decisions under proposed section 329MA would also be subject to separate review processes not administered by the RO Commissioner, and that a review of a decision under proposed section 329MA would be available in the Federal Court.
The Scrutiny committee deemed this response to be unsatisfactory. It noted that it was not clear why determinations under proposed section 329MA would be of a law enforcement nature, and stated that it 'remains unclear why it would be inappropriate to allow merits review of the Commissioner's decision'. The Committee reported these concerns to the Senate.
Proposed sections 329NI and 329MA remain unchanged in the 2019 bill.
Reversal of burden of proof - combined with criminal penalties
Proposed section 329NF in the 2017 bill provided the RO Commissioner with the power to require a person to produce documents or information relevant to determining whether a registered work entitlement fund has complied or is complying with its ongoing conditions of registration, or with requirements concerning final reports following deregistration.
Proposed subsection 329NF(4) sought to make the failure to comply with a notice from the RO Commissioner an offence subject to a maximum punishment of 30 penalty units.
Proposed subsection 329NF(5) provided an exception (offence-specific defence) to this by stating that the offence does not apply if the person has a reasonable excuse. The 2017 bill noted that the defendant bears an evidential burden in relation to subsection 5, owing to subsection 13.3(3) of the Criminal Code Act 1995.
The Scrutiny committee raised concerns that this proposed subsection reversed the evidential burden of proof:
At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence. This is an important aspect of the right to be presumed innocent until proven guilty. Provisions that reverse the burden of proof and require a defendant to disprove, or raise evidence to disprove, one or more elements of an offence, interfere with this common law right.
While in this instance the defendant bears an evidential burden (requiring the defendant to raise evidence about the matter), rather than a legal burden (requiring the defendant to positively prove the matter), the committee expects any such reversal of the evidential burden of proof to be justified.
In this instance, the explanatory memorandum described proposed section 329NF as providing for a civil penalty and so does not address the question of why it is proposed to reverse the burden of proof. However, proposed section 329NF clearly appears to impose a criminal, not civil, penalty to a person who fails to comply with a notice requiring the person to give or produce certain information or documents.
Highlighting that the explanatory memorandum did not adequately address this issue, the Scrutiny committee requested the Minister's advice as to why an offence-specific defence (which reversed the evidential burden of proof) was proposed in this instance. It drew particular attention to the relevant principles contained in the Guide to Framing Commonwealth Offences. It also requested clarification as to whether it was intended that this provision be subject to a criminal or civil penalty.
The Minister advised that it was intended that proposed subsection 329NF(4) be subject to a criminal penalty. The response further outlined:
The offence-specific defence of reasonable excuse in proposed subsection 329NF(5) puts an onus on a defendant to give a reason or reasons why they did not do as they were required to do and requires a consideration of the excuse put forward. The existence of a reason to not give information or not produce documents would be a matter peculiarly within the knowledge of a defendant. It would also be significantly more difficult and costly for the prosecution to disprove that a defendant has a reasonable excuse than for a defendant to establish a reasonable excuse. These factors satisfy the principles in the Guide [to framing Commonwealth offences] applicable to the inclusion of offence-specific defences.
The Scrutiny committee requested that the key information provided by the Minister (including correcting the incorrect reference to the provisions as being subject to a civil penalty) be included in the explanatory memorandum to the 2017 bill.
Proposed section 329NF in the 2019 bill remains unchanged and is identical to that in the 2017 bill.
In Report 3 of 2019, the joint committee considered the 2019 bill and reiterated the views it expressed with regard to the 2017 bill.
Section 329MA in the 2017 bill provided the RO Commissioner with the power to direct the operator of a registered worker entitlement fund to take, or stop taking, one or more actions.
Impact on welfare and training services supported by funds
The profits generated, in excess of the liabilities in the fund, have over the decades been used for a range of important purposes appropriate to each fund. These have included using profits to offset employer contributions to the fund. However, in the main they have been distributed for welfare and training purposes, primarily for the benefit of employers and employees within the fund.
These training and welfare benefits will be in many cases unviable do to the Bill requiring them to be made on 'market' value' and 'on commercial terms'.
Authorised uses of income – prohibition on gifts or donations to charities
Proposed section 329LD of the bill relates to authorised uses of worker entitlement fund income. The measures contained in the proposed section prohibit worker entitlement funds from using fund income for gifts or donations to charities, given that subsection 329LD(2)(b) requires that training and welfare services be provided at 'market' value' and 'on commercial terms'.
Mates in Construction – dire consequences for critical work
MATES in Construction (MATES) is a non-partisan charity that aims to prevent suicide and improve mental health and wellbeing in the building and construction industry through free services. It explained that this section of the bill would have 'very serious and unintentional consequences' for its funding profile and operations.
The MATES submission detailed these consequences:
A substantial amount of the MATE's funding is received from the Redundancy Funds by way of gift. Because each of the entities in MATES are endorsed as DGRs (deductible gift recipients), the Redundancy Funds are afforded a tax deduction for these donations. If the Redundancy Funds are prohibited from making donations to MATES, the overall funding would be significantly reduced.
MATES calculated that the impact of the funding reduction as a result of the bill as follows:
Queensland – 40 per cent cut in staffing and services (mainly frontline);
Western Australia – 25 per cent cut in staffing and serviced (mainly frontline); and
South Australia – the organisation would become inviable and be forced to close.
Mr Chris Lockwood, Chief Executive Officer for MATES, provided the committee with additional detail on how proposed section 329LD would impact the MATES fee-free, multimodal model of operation:
It's important to our outcomes that we're free—the program is offered free of charge—that we are across the industry and that we are totally independent of both unions and employers. We're there on behalf of the whole industry. If we change any of these parameters, the effectiveness of the program could be genuinely compromised. The comprehensive nature of MATES in Construction multimodal intervention provides training, supportive volunteers and sites doing their bit. It provides supports to individuals, providing information and support at an industry level, which is heavily featured in our published evaluations. If we change the nature of the program to services that could be purchased for a market-value price, it would fundamentally change the program and potentially invalidate it.
Labor Senators reject the Bill and the proposed section 329LD. It is simply not viable for organisations to convert their operations into a 'fee-for-service' model which in order to qualify as services provided at market value on commercial terms to meet the requirements of this Bill.
MATES in Construction highlighted the impact of provisions in the bill that training and welfare services must be provided at fair market value and on commercial terms. Mr Lockwood explained:
This legislation in its current form would prevent other issues and initiatives being developed in a similar way. But specifically of concern to us is that the current version of the bill, particularly section 329LD, would require a redesign of the industry program as a service on commercial terms, which could be detrimental to the actual effectiveness and nature of the program. And, if we were able to actually perform that reconfiguration, one thing that is black and white is that the implication in terms of the tax deduction associated with current donations would see 47 per cent less in funds available to actually serve this particular purpose—that being the rate of tax applied to the funds. MATES in Construction is a DGR registered charity, so a deduction is able to be made for those funds. We do recommend that a section be included in the bill to allow funds to make payments to a registered charity or that donations to MATES are exempted from limitations.
Impact on training
The Government has also given no regard to the importance of the training funds that are supported by worker benefit funds.
The Bills requirement for market value for training procured by funds over looks the fact those employers who pay into worker benefit funds to protect employee entitlements, will also do so to access free or discounted training associated with those funds. This is viable because the funds are directed to a single entity often associated with the worker benefit fund itself. As a result the training schemes have very close link to the industries that help fund them creating benefits for the quality, affordability and relevance of the training provided.
The introduction of choice of WEF, will if choice is taken up; disrupt the viability of training services for an employer. This is because the introduction of employee choice within an EBA will mean not all entitlement savings from an employer will be directed to a single fund, this will in turn undermine the capacity of training schemes associated with that fund to offer training to all employees.
Mr Oliver of NEST pointed in his evidence to the lack of regard coming from the Government for the training needs of small business, because of their political motivation to undermine collective bargaining:
You could probably ask the government why they're going after small business. Maybe they're collateral damage to their objective in trying to undermine workers' collectives. That well may be the case.
The BERT Training Fund (BTF) based in Queensland is one such fund relied on by small business. The fund supports the training of workers in the building and construction industry who are members of the Building Employees Redundancy Trust (BERT).
The fund supports both the trade and non-trade occupations and in the building, civil and engineering construction sectors of the industry. The applicant may either be employed or unemployed.
Mr Mukerji who did his apprenticeship with the BERT Training Fund now owns a formwork company in Queensland gave evidence to the committee, stated 'I'm very passionate about the scheme because of where I am today as a successful company owner'.
Mr Mukerji’s formwork company employs up to 160 people and has seen 11 apprentices from the BERT scheme come through his business. He expressed concern about the future of the fund to the committee:
As an employer, if I had to dip into the company cash and stuff like that to start training people up, I couldn't afford it. A lot of the time for a lot of the training schemes—for example, for a scissor lift ticket we have to do height safety training, or something like that—we can call on these funds. It's a lot of money if you go privately, so we can call on these funds.
The good thing about it is you've got good mentors and you've got good coordinators who come out and speak to you. For example, we've got a lot of apprentices and they have come in from broken homes. You turn on the TV in this day and age and it shows every 15- or 16-year-old is stealing cars, and we hear that. So a lot of these troubled kids get into these apprenticeship schemes and, within a year, turn their whole life around.
Mr Rory Galligan, an employer in NSW, reiterated these concerns:
I was very keen to speak to this committee because I've experienced and worked with the BERT fund in construction for 15 years, first as a member—an apprentice through the scheme, an employee receiving redundancy and training benefits—and now as an employer who has one redundancy fund to pay into for all my employees and, as a bonus, receives money back to help cover the cost of training and upskilling my workforce.
The BERT apprenticeship scheme is very successful. It is the only one catering directly to large building sites and multilevel buildings, and it has a 96 per cent completion rate, which is unrivalled. Not only does it have a great completion rate; the quality of tradesmen that come out at the end is fantastic.
Mr Wright of the ETU explained the concerns about the bill's impact on the viability of the funds and the services such as training that they support:
I think a key strength of the funds and a reason why none of these funds have ever, to my knowledge—and I've done a fair bit of research on this—gone bust is having that broad demographic. It is having young workers, middle-aged workers, old workers, workers who are healthy and workers who are sick. Having such a broad pool provides protection. Being able to winnow down by the choice of fund and shatter that sort of scale jeopardises the viability of the funds themselves or means the funds will have to pull back on the benefits that they're able to offer. It's as simple as that. That's the fear we have in how this plays out.
Examples like that of Mr Mukerji and countless other success stories of individuals receiving the benefit of training and apprenticeships through the resourcing of WBFs such as BERT clearly show that these funds mean more to the community than just security of their entitlements. The ability of industry to attract and maintain a highly skilled workforce would be compromised by this Bill if passed as it would restrict the ability of funds to allocate surplus funds to training and skills delivery services in the same way it would restrict the ability to contribute to welfare organisations such as MATES.
Potential to increase taxpayer liability under the Fair Entitlements Guarantee & single employer funds
Labor is gravely concerned that the Government’s undermining of these funds will increase the liability to the tax payer under the Fair Entitlements Guarantee. It appears the Government has little regard for holding employers to account for ensuring these entitlements to workers and is prepared to see these liabilities shift to the tax payer.
Labor Senators note with concern that unregistered single employer arrangements are exempt from the Bill.
In contrast, registered funds face restrictions on bargaining, onerous administrative requirements and a reduced benefits flowing from the funds.
This in combination with the exemption for single employer arrangements, and financial incentives for employers to retain workers entitlements on the books of the company, will in the view of Labor Senators undermine the viability of registered funds under the scheme.
The Department was unable to provide satisfactory reasons as to why the bill allowed for single employer funds to be unregistered and unregulated. Their exclusion undermines the very existence of worker benefit funds.
Ms O'Neil of the ACTU explained the impact of the bill and the disparity with regard to single employment funds:
Thirdly, and perhaps most tellingly, the bill establishes an onerous system of registration on funds but then completely exempts so-called single-employer funds from the system. Unlike unions, who are unable to operate funds at all, individual employers are able to set up their own funds. There are none of the limits on single-employer funds that apply to registered funds. Employers are free to do whatever they want with any surplus from funds they set up. In fact, they are given a free pass out of the system that is supposed to be so essential for good governance. They can, in reality, pocket for personal use any surplus of any single-employer fund.
This is an irreconcilable contradiction in the bill. It raises the question: why would an employer be in a better position to manage and safeguard the entitlements of their employees when it was the very failure of employers to do so that led to the creation of these funds in the first place? We're never told. No support for single-employer funds can be drawn from the trade union royal commission final report. There was no concept of single-employer funds in the report, let alone a proposal that that entire category of funds be exempt from regulation. How does this system promote good governance or protect worker benefits? It simply does not.
Mr David Oliver, Chairman and Director of NEST Nominees Pty Ltd provided an example of how worker entitlement funds alleviated pressure on the FEG scheme:
This also means that NEST reduces the need to rely on the Fair Entitlements Guarantee scheme, the FEG scheme. We know that the federal government has undertaken numerous reviews and has been looking at different initiatives in recent years, being concerned about the reliance on the FEG scheme. Funds like NEST are able to assist the government, or allay some of its concerns, by ensuring that workers' entitlements are going to be paid by the employer—not shifting the onus onto the taxpayer. I will give you a recent example. Back in 2012, Darrell Lea, a well-known chocolate manufacturer, went into administration, reportedly losing about $200,000 a week. At the time, the employees were understandably very upset by the prospect of losing their jobs and, sadly, many did. But one thing they didn't have to worry about was losing access to their entitlements, because Darrell Lea had joined NEST in 2005 and made contributions on behalf of 229 employees. That meant that those employees got their entitlements in full, with no reliance on FEG—no reliance on the taxpayer to make up any shortfall. With those benefits for workers, for employers, the government and the community, NEST finds it very hard to understand what the government is seeking to achieve with this bit of legislation.
Mr Noonan from the CFMMEU explained the benefits of worker entitlement funds for the tax payer and how the bill threatened these arrangements:
In a situation where redundancy entitlements are captured and kept in trusts, in most funds, when companies fail or fail to meet their obligations to workers, there is not a call on the government schemes, the FEGs. I also understand, and I'm very confident, that this also means that workers are drawing down on these funds in periods of unemployment between jobs, which means they are less likely also to have to call on social security funding and so on. I'm sure there's also a significant saving for government there. I'm not sure that I would be able to quantify that, but I think it would be very significant, because if you've got money in your redundancy fund you can't draw down Newstart, for example.
As far as workers' entitlements themselves are concerned, what it would do, of course, would be to put all the risk and all the cost back onto taxpayers, because, under the current Fair Entitlements Guarantee scheme, in the vast majority of cases it is the taxpayer that bears the brunt of employers not acting to ensure that workers' entitlements are secure. That is where both FEG and these schemes came from.
The other thing to say is that where most of these schemes operate is in the construction industry. The construction industry in Australia represents about eight per cent of our GDP, and about nine per cent of the workforce is in the construction industry, but it accounts for between 22 and 24 per cent of all corporate insolvency events. So you can see the impact on the cost to the general revenue and to the taxpayer of these schemes not being able to continue to operate effectively.
In addition the legal arrangements that establish the funds can impact on whether creditors have a call on funds before workers. For established funds supported by unions the contributions are protected from claims by other creditors in the case of insolvency since they are all separate entities. Separate from both employers and unions.
In the case of single employer funds or arrangements, creditors such as banks, will have call on these funds before workers. This situation is commonplace and is what has given rise to the need for the FEG scheme.
It is also of great concern that the Attorney General’s Department could not provide a guarantee that funds purportedly with a registration under the scheme would in fact be enough to protect workers entitlements. Senator Pratt asked on notice:
In the context of single-employer funds, in terms of ensuring that proper entitlements are paid to workers, when a business goes into administration and an employer's trying to satisfy and secure creditors, such as their banks, you're asserting that the registered funds will be off limits to the banks?
In response the Attorney General's Department answered that the Bill’s requirements:
…are intended to ensure that employee entitlements held by WEFs, whether they are single-employer funds or otherwise, are appropriately protected.
However, the Department went on to qualify this statement and say:
The Bill also does not affect the operation of existing trust, insolvency or bankruptcy laws. In the event of an employer’s insolvency, the application of these laws will depend on the particular facts and circumstances, including the form and structure of any relevant registered worker entitlement fund, within the constraints of the requirements in the Bill and the WEF’s constitution.
The Department has failed to clarify whether the ROC registration of a WEF, would require the assets and funds, and therefore workers entitlements, to be held to be out of reach of bankruptcy and insolvency laws and therefore creditors.
While single employer funds are not currently widely used, this Bill would encourage their proliferation and would ultimately undermine the current system, which was designed to protect both workers and employers in addition to providing the numerous social and economic benefits that have been outlined above.
The other schedules of the Bill represent more extreme overreach by the Government. There are already detailed and extensive accounting, reporting and disclosure laws that apply to trade unions. They are also already required by law to have provisions in their rules that require them to develop and implement policies in relation to their expenditure. These new laws give less power to union members themselves to enforce expenditure policies and undermine the internal democratic functioning of unions.
With regards to Schedule 3, which deals with voluntary payments into union election funds, these provisions go well beyond the recommendations of the Heydon Royal Commission, and in fact contradict the Commission’s findings.
Schedules 4 and 5 also go beyond the recommendations of the Royal Commission. Schedule 5 creates an obligation with regards to union disclosures to employees that has no corresponding obligation on employers. This disclosure obligation overlaps with the ‘corrupting benefits’ obligations legislated in 2017, but goes further in that the provisions deal with arrangements that are proposed but not entered into. This places an absurd and unworkable obligation on unions that are in the midst of a bargaining negotiation process.
Existing laws are sufficient to deal with the issues these additional schedules purport to address. They are nothing but an opportunistic attempt by the Government to further interfere in the democratic functioning of unions, diverting union resources from the important work of negotiating better pay and conditions and safer workplaces.
Labor Senators concluding view
Labor Senators contend that the Government has not had true regard for the protection of accrued entitlements, including in the case of bankruptcy and liquidation in this legislation.
The absence of regard for this, and the giving of unreasonable powers to ROC, demonstrates that the primary motivation for the legislation is not the protection of workers entitlements, Workers Entitlement Funds, or the welfare and training support they provide.
The focus of the Bill is to highly regulate the profits of the funds from being used for union and employer projects run for the benefit of workers.
Labor Senators abhor the governments attack on worker entitlement funds. The Government’s primary motivation is not securing the entitlements of workers, or protecting taxpayer liability through the FEG, rather it is a politically motivated one.
Labor Senator’s support the imperative that Worker Entitlement Funds are held to high standards of governance and are run for the benefit of all workers. However, the evidence presented to the committee shows that the bill is not balanced or proportionate, nor is the focus of the legislation motivated by the interests of workers or employers.
The measures contained in the bill are not focussed on transparency and accountability, or on assuring workers that their entitlements are secure and well-administered.
The measures are primarily focussed on political and financial control of these funds, so that profits don’t flow to training, welfare, workplace health and safety and other beneficial and charitable purposes. As a result the benefits the funds provide to workers and employers will be diminished.
Labor Senators recommend that the Senate oppose the bill.
Senator Louise Pratt
Senator Deborah O'NeillSenator Tony Sheldon
Senator Jess WalshSenator Murray Watt
Participating MemberParticipating Member
Senator Nita GreenSenator Tim Ayres
Participating MemberParticipating Member