The Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2019 (the bill) seeks to amend the Fair Work (Registered Organisations) Act 2009 (RO Act) and the Fair Work Act 2009 (FW Act). The amendments will ensure better financial governance and transparency of registered organisations and associated entities, with a particular focus on worker entitlement funds.
The bill addresses many of the concerns highlighted by the Royal Commission into Trade Union Governance and Corruption, overseen by Commissioner John Heydon AC QC (Heydon Royal Commission). It seeks to implement, in part or in full, recommendations 9, 10, 17, 39, 43, 45, 46, 47, 49 and 50 of the Heydon Royal Commission.
As the Hon Christian Porter MP, Minister for Industrial Relations, noted in his second reading speech in the House of Representatives, the bill:
…is designed to protect the over $2 billion dollars held for redundancy pay, sick leave and other benefits for workers in some industries. The bill is aimed at ensuring this money is managed responsibly, transparently and in the interests of workers.
The bill amends the RO Act to:
apply governance, financial reporting and financial disclosure requirements to worker entitlement funds;
require registered organisations to have written financial expenditure policies that have been approved by the committee of management;
require registered organisations to report certain loans, grants and donations;
require specific disclosure by registered organisations of the financial benefits obtained by them and persons linked to them in regard to employee insurance products, welfare fund arrangements and training fund arrangements;
introduce a range of new penalties to ensure compliance by registered organisations with financial management, disclosure and reporting requirements; and
make a small number of minor technical amendments to correct referencing and other drafting errors, as well as provide clarity with regard to the operation of existing obligations.
The bill also amends the FW Act to:
prohibit terms of a modern award or an enterprise agreement requiring or permitting contributions for the benefit of an employee to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity;
require any term of a modern award or enterprise agreement that names a worker entitlement fund or insurance product to allow an employee to choose another fund or insurance product;
prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund for an industrial association; and
prohibit any action with the intent to coerce an employer to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme.
Additionally, the bill makes consequential amendments to the Fringe Benefits Tax Assessment Act 1986, the Income Tax Assessment Act 1997, and the Taxation Administration Act 1953.
The bill which is the subject of this inquiry is substantially similar to the Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017 (2017 bill).
During the 45th Parliament, the 2017 bill was introduced into the House of Representatives, and the third reading agreed to on 26 October 2017. On 13 November 2017, the 2017 bill was introduced into the Senate; however, it lapsed on 1 July 2019 when the Parliament was prorogued.
On 4 July 2019 during the 46th Parliament, the bill was re-introduced into the House of Representatives with some amendments.
Role and purpose of worker entitlement funds
Worker entitlement funds are 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. Funds can operate in a variety of ways, but their overarching purpose is to manage employee entitlements. 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.
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.
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.
Structure of the bill
The bill is divided into six schedules:
Schedule 1 – Financial management and accountability
Schedule 2 – Registration of worker entitlement funds
Schedule 3 – Election payments
Schedule 4 – Prohibiting coerced payments to employee benefit funds
Schedule 5 – Disclosable arrangements
Schedule 6 – Minor and technical amendments
A brief outline of each schedule is set out below.
Schedule 1– Financial management and accountability
Schedule 1 responds either in full or in part to recommendations 9, 10, 17 and 39 of the Heydon Royal Commission.
It introduces a number of new financial management and record keeping obligations to the RO Act.
One such example is that of proposed amendments to rules for registered organisations. While certain provisions of the RO Act require registered organisations to have rules that require the development and implementation of policies regarding expenditure, there is currently no requirement that the policies be written.
Proposed new section 293N seeks to implement the Heydon Royal Commission recommendations by requiring organisations and branches to have written policies dealing with financial expenditure (approved by the committee of management) that are binding on all officers and employees. A civil penalty of up to 100 penalty units would apply in the event of a failure to have such policies.
Additionally, proposed new section 293Q provides that the Registered Organisations Commissioner (RO Commissioner) may publish model financial expenditure policies on the Registered Organisations Commission (RO Commission) website. These model policies may be adopted by an organisation or branch, either in whole or in part, and with or without modification.
Under current section 237 of the RO Act, organisations must prepare statements that provide details on loans, grants and donations over $1000 made by the organisation. The Heydon Royal Commission recommended that the RO Act be amended to require organisations to provide the details of all relevant loans, grants and donations.
Proposed subsection 237(1) provides that an organisation must, within 90 days of the end of a financial year (unless allowed a longer period by the RO Commissioner), lodge a statement setting out the particulars of:
any reportable loans, grants or donations made by the organisation during the financial year; and
any reportable loans, grants or donations made to the organisation during the financial year.
A civil penalty of up to 100 penalty units would apply to an organisation that contravenes new subsection 237(1). Proposed new subsections 237(1A) and 237(1B) set out the definitions of a 'reportable loan' and a 'reportable grant or donation'.
When compared to the 2017 version of the bill, the Attorney-General's Department (the department) advised that the provisions regarding financial policies have been 'simplified and streamlined'. The department also noted that the requirement for organisations to retain credit card statements has been removed from the 2019 bill, given the absence of any equivalent in the Corporations Act 2001 (Corporations Act).
Schedule 2 –Regulation of worker entitlement funds
Schedule 2 contains provisions dealing with the registration of worker entitlement funds, as well as the governance standards, financial reporting and financial disclosures required by the funds.
It responds to recommendations 45, 46 and 47 of the Heydon Royal Commission.
Proposed section 329LA sets out a number of conditions relating to the registration of worker entitlement funds. Broadly, these conditions relate to financial management, information disclosure, board composition and how fund money may be spent.
For example, registered funds would be required to:
have an independent voting director on their boards (condition 9);
publish and provide the RO Commission with annual reports (condition 14); and
provide employee members and employer contributors with appropriate information about the fund (conditions 16 to 21).
Proposed new section 329LC sets out authorised uses of regulated worker entitlement fund contributions, while new section 329LD provides for authorised uses of fund income.
The latter allows fund income to be used for training or welfare purposes, providing the payments meet specific criteria. These criteria are set out in proposed new subsection 329LD(2):
(2) A payment is a training or welfare payment covered by this subsection if:
(a) the payment is made for the sole purpose of providing training or welfare services to either or both of the following:
(i) participants or former participants in any industry in which fund members participate;
(ii) spouses or dependants of such participants or former participants; and
(b) if the services are not provided by the operator of the fund:
(i) the services are provided at market value and on commercial terms; and
(ii) all arrangements for providing the services are negotiated at arm’s length from any director of the operator who has a material personal interest in the provider of the services; and
(c) the services are provided in a way that does not discriminate unfairly between fund members; and
(d) before it is made, the payment is approved by the voting directors of the operator; and
(e) the voting directors who approve the payment include:
(i) a voting director who is independent in the way described in condition 9; and
(ii) a voting director who is independent in the way described in condition 10.
Proposed new section 329HD provides a definition of a 'single-employer fund' and allows for the operator of a single-employer fund to register the fund with the RO Commissioner as a worker entitlement fund. Proposed new section 329LA specifies that six of the 22 initial and ongoing conditions required for the registration of a worker entitlement fund will apply to single-employer funds.
The department provided the following explanation of the proposed provisions:
Single employer funds that elect to be regulated will be subject to fewer conditions than worker entitlement funds that manage contributions from multiple employers. The less onerous regulation for single-employer funds is appropriate. The funds are set up by an employer to protect the entitlements of that employer's own employees.
The department advised the committee that a number of amendments had been incorporated into Schedule 2 of the 2019 bill. These amendments were provided to:
allow worker entitlement funds a full 12 months to comply with the new regulatory scheme following the bill’s commencement (rather than the original six months proposed in the 2017 version of the bill);
clarify that only officers of worker entitlement funds, not staff, must be of 'good fame and character', thereby providing greater parity with the comparable Corporations Act requirements;
provide that worker entitlement funds have four months after the end of the financial year to provide an annual report to the RO Commission; and
require funds that are deregistered to notify contributors of the deregistration within seven days of it taking effect, and to clarify that funds that are reinstated within the prescribed period do not have to complete a final report.
Schedule 3 – Election payments
Schedule 3 seeks to implement recommendation 43 of the Heydon Royal Commission.
It amends the FW Act to prohibit modern awards, enterprise agreements, or employment contracts from including terms that require or permit payments from an employee's salary for the purposes of funding, supporting or promoting the election of a candidate to office in an industrial association.
The proposed changes will not prohibit officers and employees of registered organisations from making genuine donations outside of their employment agreement.
Schedule 4 – Prohibiting coerced payments to employee benefit funds
Schedule 4 seeks to amend the FW Act to prohibit coerced payments to certain employee benefit funds. It responds to recommendation 50 of the Heydon Royal Commission.
Proposed new section 355A prohibits a person from organising or taking, or threatening to organise or take, any action (other than protected industrial action) against another person with intent to coerce that other person (or a third person) to make payments to certain employee benefits funds.
Schedule 5 – Disclosable arrangements
Schedule 5 would amend the RO Act to require registered organisations to disclose any financial benefits (such as commissions) that they or a related party receive in connection with a disclosable agreement. By giving effect to recommendation 47 of the Heydon Royal Commission, the proposed changes would address concerns about financial benefits being paid to registered organisations involved in insurance and other insurance-like arrangements without adequate disclosure to employers and employees.
A disclosable arrangement is defined in proposed section 329PD of the bill and can include:
arrangements between an organisation and employer to purchase insurance for employees, where that insurance is promoted or arranged by the organisation or a related party of the organisation [as set out in new subsection 329PD(2)];
arrangements for an employer to become a member of, or make payments in relation to, managed investment scheme [as set out in new subsection 329PD(3)];
arrangements between an organisation and employer for an employer to become a member of, or make payments to a training fund or welfare fund [as set out in subsection 329PD(4)].
Proposed new section 329QA creates an obligation for an organisation to disclose to employers any financial benefits the organisation (or a related party to the organisation) might receive in connection with a disclosable arrangement.
Additionally, proposed section 329RA requires employers to notify their employees of an organisation's disclosure, while section 329SA will require an organisation to provide the RO Commission with copies of the disclosures.
The department advised that Schedule 5 of the 2019 bill was amended to remove a requirement (contained in the 2017 version of the bill) that employers also disclose to their employees any financial benefits the employer obtains from a disclosable arrangement. These amendments were made to ensure that the Schedule was more closely aligned with the Heydon Royal Commission recommendation.
Schedule 6 – Minor and technical amendments
Schedule 6 makes two minor technical amendments to correct referencing and drafting errors in the RO Act. It also makes two small amendments to provide organisations with greater clarity on the operation of existing obligations in the RO Act. It is a new schedule that was not present in the 2017 bill.
Consideration of the 2017 bill by the Senate Education and Employment Legislation Committee
In late 2017 during the 45th Parliament, the committee conducted an inquiry into the provisions of the 2017 bill. The committee received 18 submissions and held a public hearing in Melbourne. A report was tabled in the Senate on 10 November 2017 which recommended that the bill be passed, subject to a recommendation that the government review the wording of proposed section 329LD.
The wording of proposed section 329LD in the 2019 bill remains unchanged from the 2017 version.
Consideration of the 2017 bill by the Senate Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny committee) considered the 2017 bill in its Scrutiny Digest 13 of 2017. It raised five key concerns and requested further information from the Minister. After considering the advice from the Minister, it remained concerned with a number of elements of the bill, as detailed in Scrutiny Digest 15 of 2017.
Although the Scrutiny committee did not comment specifically on the 2019 version of the bill, in Scrutiny Digest 3 of 2019 it stated that it reiterated its previous comments on the 2017 bill.
The following sections provide a summary of the concerns raised by the Scrutiny committee in relation to the 2017 bill, and where relevant indicate where changes were made to the bill prior to its reintroduction in 2019.
Privacy - Schedule 1, Item 6, proposed subsection 237 (4A)
Section 237 of the RO Act requires that a registered organisation must lodge a statement with the RO Commissioner that sets out details of specified loans, grants and donations, including the name and address of the person to whom the loan, grant or donation was made. This statement can then be inspected by members of that organisation.
The Scrutiny committee noted that proposed subsection 237(4A) of the 2017 bill would require that, when allowing a member of a registered organisation to inspect such a statement, the RO Commissioner must omit residential addresses, and use discretion to allow the omission of other 'personal information'.
The committee requested the Minister's advice as to why it was necessary and appropriate to leave the protection of personal information to the discretion of the RO Commissioner, rather than making it a statutory requirement.
In response, the Minister advised:
The proposed amendments to section 237 of the RO Act do not add to the level of particularity that needs to be provided to the Commissioner in a statement about any loans, grants or donations made by an organisation that exceed $1000...The principal alteration to section 237 is that organisations will not be required [to] provide the same details about loans, grants and donations made to the organisation…
In providing the discretion to the Commissioner to redact private information, the  Bill ensures that members are provided with as much transparency as possible about the person with whom their organisation arranges loans, grants and donation with, whilst also ensuring personal information is protected. Statements provided to the Commissioner in accordance with section 237 would become futile if, in addition to the omission of residential addresses, the Commissioner were required to remove the only other detail that organisations will be required to provide about loans, grants and donations; the name of the other party involved in the transaction.
The Scrutiny committee noted the advice and requested that the key information provided by the Minister be included in the explanatory memorandum to the 2017 bill. In doing so it highlighted 'the importance of this document [explanatory memorandum] as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation.'
During the committee's inquiry into the 2019 bill, the department confirmed that the Statement of Compatibility with Human Rights in the explanatory memorandum to the 2019 bill was amended to include additional information to address the type of concerns raised by the Scrutiny committee.
Broad delegation of administrative powers – Schedule 2, Item 13, proposed section 329MB
Proposed sections 329ME and 329MF of the 2017 bill sought to place a number of obligations on the operator of a registered worker entitlement fund with respect to the fund's constitution and the provision of information. Proposed section 329MB sought to make these obligations subject to the infringement notice regime under Part 5 of the Regulatory Powers (Standard Provisions) Act 2014. Proposed paragraph 329MB(2)(b) and subsection 329MB(3) of the 2017 bill would have allowed the RO Commissioner to delegate the authority to issue infringement notices to any member of staff working for the RO Commission, which could be any APS level employee.
The Scrutiny committee raised concerns with this approach and sought the Minister's advice in relation to the matter. It noted:
The committee has consistently drawn attention to legislation that allows the delegation of administrative powers to a relatively large class of persons, with little or no specificity as to their qualifications or attributes. Generally, the committee prefers to see a limit set either on the scope of the powers that might be delegated, or on the categories of people to whom those powers might be delegated. The committee's preference is that delegates be confined to the holders of nominated offices or to members of the Senior Executive Service. Where broad delegations are provided for, the committee considers that an explanation of why these are considered necessary should be included in the explanatory memorandum.
In response to this, the Minister advised:
Given that the [RO] Commission is a small agency with a limited number of SES officers, it is appropriate not to limit the Commissioner's power to delegate the ability to issue infringement notices to its SES officers.
The Scrutiny committee did not accept this reasoning and concluded:
The committee does not consider that the small size of the [RO] Commission provides a sound justification for allowing the delegation of the power to issue infringement notices to a broad class of people with little or no specificity as to their qualifications or attributes. The committee also does not consider that the small number of SES officers in an agency provides an adequate justification for a broad delegation of administrative powers as it is possible to limit the scope of the delegation by specifying particular attributes, qualifications or qualities delegates will be required to possess.
Additionally, it reiterated that it would be 'appropriate' to amend the bill to require that persons authorised to issue infringement notices be confined to officers that hold special attributes, qualifications or qualities.
The 2019 bill contains an updated subsection 329MB(3) which specifies that the RO Commissioner may delegate the ability to issue infringement notices to a substantive or acting SES employee.
Procedural fairness – Schedule 2, item 13, proposed section 329MK
Provisions contained in the 2017 bill provided 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. Given that what constitutes a 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 put its case. The explanatory memorandum provides no explanation as to why it is necessary to limit procedural fairness in this way.
The Scrutiny committee requested the Minister's advice as to why it was necessary and appropriate to exclude aspects of the natural justice hearing rule in relation to the deregistration process.
The Minister advised that proposed sections 329MG and 329MK were 'not intended' to exclude the natural justice hearing rule. The Minister explained:
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.
The Scrutiny committee did not accept this reasoning and concluded that the Minister's response did not explain why proposed section 329MK was necessary and appropriate. In the absence of a 'satisfactory response' from the Minister, it drew its scrutiny concerns to the attention of the Senate and noted:
…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.
The proposed section 329MK in the 2019 bill is identical to that contained in the 2017 bill.
Exclusion of merits review – Schedule 2, item 13, proposed section 329NI
Proposed 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.
The Minister advised:
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'. It drew its concerns to the attention of the Senate.
Proposed sections 329NI and 329MA remain unchanged in the 2019 bill.
Reversal of evidential burden of proof – Schedule 2, item 13, proposed section 329NF
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.
During the committee's inquiry into the 2019 bill, the department advised that the Statement of Compatibility with Human Rights in the explanatory memorandum to the 2019 bill was amended to include additional information to address the type of concerns raised by the Scrutiny committee.
The explanatory memorandum to the 2019 bill still contains the incorrect reference to a 'civil penalty'.
In response to a question on notice from the committee, the department advised that the incorrect reference was an 'administrative oversight'. It stated that 'the question of whether a correction will be made' to the explanatory memorandum was 'under consideration'.