Tighten termination entitlement rules: ACTU

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Tighten termination entitlement rules: ACTU

Payments made under GEERS are subject to an annual income cap of $75,200 for 2001-2002 and $81,500 for 2002-2003.

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Concerns continue to be voiced by unions over the uncertainty of employee entitlements and the need for further change to tighten up employer responsibilities.

A number of changes were required to provide certainty, ACTU President Sharan Burrow said at the Victorian Industrial Relations Summit last week.

‘There is no mechanism to measure the actual level of employee entitlements due and unpaid to employees. Importantly, there is no process for assessing the loss to employees when small companies simply cease to trade and in due course wind up a business without declaring unpaid employee entitlements as an unpaid debt.

‘The ability of companies to move assets and employees from one legal entity to another, for legitimate or other purposes, further complicates the process of calculating the full loss to the community flowing from the non-payment of employee entitlements,' Burrow said.

The Australian Securities and Investments Commission reported that in 2002, 10,220 companies made insolvency appointments, and 6,208 were declared insolvent for the first time.

According to the Federal Workplace Relations Minister Tony Abbot approximately 19,000 employees have lost between $100 and $464 million per annum.

Corporate pools

According to Burrow, ‘Corporations law should be changed to ensure that the assets of related entities within a corporate group be pooled and made available to creditors of an insolvent company or companies. The prima facie position should be that the assets of related companies should be available for distribution.’

Directors liability

‘In the case of insolvency prima facie, company directors should be deemed to be personally liable for unpaid employee entitlements,’ she said. ‘The trigger for liability is the appointment of an administrator, liquidator and/or the inability by the company to pay entitlements due. A defence of due diligence should be available with the onus of proof falling on the director.’

Employee priority

In the event of liquidation, employees should have their entitlements paid before secured creditors, she said. ‘The positioning of employee creditors before secured creditors is justified, as it is the employees who are least able to bear the burden of company collapses; least able to position themselves to avoid loss and have no control over how monies that would be otherwise used to pay their entitlements are utilised by their employer.’

‘Most employees rightly see their accrued entitlements and redundancy payments as their money; that is, payments which are due on termination and/or redundancy. Unions correctly point out that, in many cases, employees have struck an enterprise bargaining deal with their employer that trade benefits or future wage increases for improved payments in the event of redundancy. It is only fair that this bargain be adhered to.’

GEERS

The General Employee Entitlements and Redundancy Scheme (GEERS) should be legislated so it provided certainty to employees, employers and insolvency practitioners, Burrow said.

GEERS is an administratively based scheme that is funded by the Commonwealth, where people whose employment was terminated due to their employer's insolvency or bankruptcy on or after 12 September 2001 can claim:

  • all unpaid wages;
  • all accrued annual leave;
  • all accrued long service leave;
  • all accrued pay in lieu of notice; and
  • up to eight weeks redundancy entitlements (as per community standard).

Payments made under GEERS are subject to an annual income cap of $75,200 for 2001-2002 and $81,500 for 2002-2003.

GEERS should also be extended to include superannuation guarantee charge payments, Burrow said.

Trust accounts

Many unions wanted their members’ money placed in a trust account to ensure sufficient funds were available when payment was due, she explained.

‘The actions of some employers have resulted in the AIRC ordering the establishment of trust accounts.

‘Workers invest in the company they work for and have every right to secure their investment. If not via a trust account, through security over fixed capital owned by the company.’

Legislation

The ACTU advocates more legislation in the area of employee entitlements because it indicated a legal and moral position towards corporate behaviour, Burrow explained.

Information

Employees needed to be provided with information concerning the financial status of a company on a regular basis, she said. ‘Such reports should provide details on the level of accrued and contingent employee liabilities and the provisions, if any, made for payment of those entitlements.

‘Where directors and or company officers have asserted that there is adequate provisioning for employee entitlements and the company thereafter becomes insolvent and on the realisation of assets, employee entitlements are not paid in full, the company’s directors and officers should be personally liable,’ she said.

Australia Chamber of Commerce and Industry 

Placing employees above secured creditors in insolvency situations is opposed by ACCI in its Blue Print for the Workplace Relations System 2002-2010. 

‘Plans to raise employees above secured creditors in a small number of situations of non-payment of entitlements on insolvency have a range of negative implications that extend beyond the non-compliant business, and prejudice the interests of employers more generally’.

The establishment of special funds, industry levies or compulsory insurance is also opposed by ACCI. 

‘Proposals to force employers to contribute to multi-employer schemes or funds for employee entitlements, are fundamentally flawed as they would seek to impose upon solvent businesses the liabilities and responsibilities of an insolvent employer.’

However, ACCI does supports GEERS.

ACCI believed only a small percentage of business goes into insolvency and have insufficient funds to pay all debts. Obligations should not be imposed on third parties that do not have obligations for the debt due, ACCI said.

‘It’s not reasonable to expect that in every insolvency 100% of employee entitlements can be paid 100% of monies when their employer goes broke. There is no 100% guarantee that other persons owed money will receive their full entitlements.’

 

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