House of Representatives

Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018

Second Reading Speech

Ms O'DWYER (Higgins-Minister for Jobs, Industrial Relations and Women)

I move:

That this bill be now read a second time.

This bill amends the Corporations Act 2001 (Corporations Act) to address corporate misuse of the Fair Entitlements Guarantee scheme.

This vital legislation cracks down hard on companies which try to evade their obligations to workers and shift the burden to taxpayers.

Corporate misuse of the Fair Entitlements Guarantee scheme places an unfair burden on Australian taxpayers, who ultimately bear the costs of employers improperly relying on the scheme.

It also creates an unfair commercial advantage over honest competitor businesses which do the right thing by their employees.

This bill will mean we have stronger levers to ensure employers are held accountable for their obligations:

stronger penalties for those who do the wrong thing;
stronger options to recover entitlements; and
stronger powers to deal with directors and companies deliberately evading their obligations.

The FEG is an important safety net for Australian workers which protects employment entitlements when workers lose their job due to their employer's insolvency.

Whilst the overwhelming majority of companies are doing the right thing, unfortunately, some employers shift employee costs onto the FEG scheme for their own advantage or just to exploit the scheme.

These changes are tightly targeted to deter and punish only those who seek to avoid their employee entitlement obligations and exploit the FEG scheme.

This improper use of FEG is contributing to a significant increase in scheme costs.

Average annual costs under the scheme have more than tripled from $70.7 million in the four years to 30 June 2009 to $235.3 million in the four years to 30 June 2018.

The amendments in part 1 of schedule 1 of this bill strengthen enforcement and recovery options under the Corporations Act to deter and penalise company directors and other persons who engage in or facilitate transactions that are aimed at preventing, avoiding or significantly reducing employer liability for employee entitlements in insolvency.

The changes in part 1 of schedule 1 of the bill include:

extending the fault element necessary to contravene the existing criminal offence in part 5.8A of the Corporations Act to include recklessness;
significantly increasing the penalties applicable to contraventions of the criminal offences under part 5.8A of the Corporations Act;
introducing a new civil penalty for entering into a transaction that is likely to avoid, prevent or significantly reduce recoverable employee entitlements, with an objective test based on what a reasonable person in the circumstances would have known about the transaction; and
expanding the parties who can commence civil compensation proceedings to include the Australian Taxation Office, the Fair Work Ombudsman and the Department of Jobs and Small Business.

The amendments in part 2 of schedule 1 of this bill enable the court to make a contribution order against an entity in a corporate group or closely connected economic relationship with an insolvent company, where:

that insolvent company has unpaid employee entitlements;
the other entity has unfairly benefited from the work done by the insolvent company's employees; and
it would be just and equitable for the court to make the order.

The amendments in part 3 of schedule 1 of this bill strengthen the ability of the Australian Securities and Investments Commission to disqualify company directors and other officers, either directly or on application to the court, where they have a track record of corporate contraventions and inappropriately using the FEG scheme to pay outstanding employee entitlements.

The reforms are the result of extensive public consultation processes conducted during 2017 and 2018. They have been developed with the government's insolvent trading safe harbour reforms in mind and are tightly targeted to deter and punish only those who do the wrong thing by workers and taxpayers. They will not affect the overwhelming majority of companies that are doing the right thing.

The reforms build on other actions that the government has taken to protect employee entitlements, such as;

amending the Fair Work Act to protect vulnerable workers, including increasing penalties up to tenfold for serious contraventions of workplace laws, strengthening the Fair Work Ombudsman's investigative powers, and making franchisors and holding companies responsible for breaches of the Fair Work Act in certain circumstances.
providing a $20.1 million increase in funding to the Fair Work Ombudsman over four years;
establishing the interagency Migrant Workers' Taskforce led by Professor Allan Fels AO;
introducing legislation to tackle non-payment of the superannuation guarantee by targeting employers that fail to meet their superannuation obligations;
releasing draft legislation to combat illegal phoenix activities involving the deliberate avoidance of company debts, including employee entitlements, by company operators and pre-insolvency advisers who facilitate this activity; and
legislating that a company must pay its employee entitlements when they fall due, for its directors to rely on the insolvent trading safe harbour.

The Legislative and Governance Forum for Corporations was consulted in relation to the bill and has approved it as required under the Corporations Agreement 2002.

Full details of the measure are contained in the explanatory memorandum.

I am sure that all of those present will be keen to support the bill and ensure these important protections for workers and taxpayers come into effect as soon as possible.

Debate adjourned.