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2013-2014
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FAIR ENTITLEMENTS GUARANTEE AMENDMENT BILL 2014
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Employment, Senator the Hon. Eric Abetz)
Outline
FAIR ENTITLEMENTS GUARANTEE AMENDMENT BILL 2014
OUTLINE
The Fair Entitlements Guarantee Amendment Bill 2014 (the Bill) will amend the
Fair Entitlements Guarantee Act 2012 (the Act).
The Act provides financial assistance (called an `advance') to cover certain unpaid
employment entitlements for eligible employees who lose their job due to the liquidation or
bankruptcy of their employer. This includes assistance for up to 13 weeks of unpaid wages,
unpaid annual and long service leave; up to five weeks' payment in lieu of notice; and
redundancy pay, which is currently capped at four weeks per full year of service.
The Bill implements the Government's 2014-15 Budget announcement to align the maximum
redundancy pay entitlement under the Fair Entitlements Guarantee scheme (the Scheme) with
the maximum set by the National Employment Standards contained in the Fair Work Act 2009.
The new maximum redundancy pay entitlement will be 16 weeks' pay.
The Bill also makes a number of technical amendments to clarify the operation of the Act.
These technical amendments will:
clarify that where a claimant is eligible for an advance under the Scheme the
claimant's initial entitlement under the Act will be calculated without reference to any
amounts required to be withheld by law, such as pay as you go tax withholding;
establish a funding source in the legislation for certain legal costs associated with
applications to the Administrative Appeals Tribunal for review of decisions made by
the Department;
clarify that the death of a person does not prevent the person being eligible for an
advance, to enable the next of kin or estate to pursue a claim;
clarify that when a debt owed by a claimant to his or her employee is greater than the
employment entitlement to which it relates, it can be offset proportionally against any
of the claimant's other employment entitlements under the Scheme; and
remove the eligibility requirement that a person who was owed debts prior to the
insolvency event happening to their employer must have taken reasonable steps to be
paid those debts and instead allow the Secretary of the Department to reduce a
person's entitlement by the amount of any debts that he or she did not take reasonable
steps to be paid.
The Bill will commence on 1 January 2015 or the day after the Bill has received
Royal Assent, whichever is later. The amendment relating to the Department's funding
arrangements will apply from 1 July 2015 to align with the start of the 2015-16 financial
year.
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Financial Impact Statement
FINANCIAL IMPACT STATEMENT
The Bill will place a 16 week cap on the amount of redundancy entitlement payable under the
Scheme. This will result in an estimated saving of $79.4 million over the forward estimates:
2014-15 2015-16 2016-17 2017-18 Total
$m $m $m $m $m
9.2 20.8 23.3 26.1 79.4
The other technical amendments made to the Act by the Bill do not impact on the quantum of
entitlements able to be paid to an individual under the Scheme. There are no financial
implications flowing from these amendments.
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Abbreviations and common terms
ABBREVIATIONS AND COMMON TERMS
Abbreviation or
Meaning
common term
the Act Fair Entitlements Guarantee Act 2012
the Bill Fair Entitlements Guarantee Amendment Bill 2014
the Fair Work Act Fair Work Act 2009
GEERS General Employee Entitlements and Redundancy Scheme
The scheme for the provision of financial assistance established
the Scheme
by the Act
the Secretary The Secretary of the Department
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Fair Entitlements Guarantee Amendment Bill 2014
FAIR ENTITLEMENTS GUARANTEE AMENDMENT BILL 2014
Section 1 - Short title
1. This is a formal provision specifying the short title of the Act.
Section 2 - Commencement
2. The table in this section sets out when the provisions of the Bill commence.
3. Sections 1 to 3 of the Bill commence on the day after it receives Royal Assent.
4. Items 1 to 12 and 14 of the Bill commence on the later of 1 January 2015 or the day
after it has received Royal Assent.
5. Item 13 of the Bill commences on 1 July 2015. This will allow the changes to the
funding arrangements for the Scheme to commence at the start of the 2015-16 financial year.
Section 3 - Schedules
6. Clause 3 of the Bill provides that legislation that is specified in a Schedule is amended or
repealed as set out in that Schedule, and any other item in a Schedule operates according to its terms.
SCHEDULE 1 - AMENDMENTS
Item 1 - After section 7
7. This item inserts new section 7A which provides that nothing in the Act affects any
requirement for a person to withhold or deduct an amount as required by law. This item also
inserts a note which advises readers that the Secretary or another person may be required to
withhold or deduct an amount because of the pay as you go withholding rules contained in the
Taxation Administration Act 1953, or because of any other Commonwealth, state or territory law.
8. A requirement of any other law to withhold or deduct amounts is not a factor when
working out the amount of a claimant's employment entitlements for the purposes of the Act.
Such a requirement becomes relevant when payment is made to the claimant.
9. Payments are made to eligible claimants by the Commonwealth, the liquidator or
bankruptcy trustee for the employer or another person on the Commonwealth's behalf. The
payer continues to be responsible for identifying any laws of the Commonwealth, a state or a
territory that require an amount to be withheld and remitted to another party.
Illustrative Example
Matt is made redundant by his employer, The Café Pty Ltd. Matt is owed $5,000 for unpaid
wages. The Café goes into liquidation two weeks later.
As his debts had yet to be paid, Matt submits a claim under the Act. The Department assesses
Matt's claim and finds that he is eligible to be paid his unpaid wages entitlement of $5,000.
The Department pays $5,000 to The Café's liquidator, Ross and Associates. As Ross and
Associates is making a payment to Matt, it calculates the amount of pay as you go taxation
that it is required to be withheld, remits this amount to the Commissioner of Taxation and
pays the remainder to Matt.
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Fair Entitlements Guarantee Amendment Bill 2014
Item 2 - Paragraph 10(1)(f)
Item 3 - Subsection 10(1) (note)
Item 4 - At the end of subsection 10(1)
Item 5 - After section 17
10. The effect of these items is to remove the eligibility requirement that a claimant who
was owed debts prior to the insolvency event happening to their employer must have taken
reasonable steps to be paid those debts and instead allow the Secretary to reduce a claimant's
advance for failure to take reasonable steps.
11. Item 2 repeals paragraph 10(1)(f). This means that whether or not a claimant took
reasonable steps to be paid any of the debts owed by their employer before the insolvency
event will not be considered under the eligibility conditions, but instead considered when
determining the amount of their advance (see item 5). Without this amendment, the fact that a
claimant did not pursue a minor debt owed by their employer could mean that the claimant
would not be eligible for any advance, even if some of their debts were reasonably pursued.
12. Items 3 and 4 insert a new note under section 10 that advises readers that an advance may
be reduced under section 17A where a claimant has not taken reasonable steps to be paid a debt.
13. Item 5 inserts new section 17A which provides that where a claimant did not take
reasonable steps before their employer's insolvency event to be paid debts relating to their
unpaid employment entitlements, the Secretary may reduce the amount of the claimant's
advance by the amount of those debts. This approach will ensure that individuals are still
required to actively protect their own interests by pursuing debts but will also allow payments
to be made for debts that a claimant did take reasonable steps to pursue.
Illustrative Example
Jana is a recent emigrant from Krakozhia and English is not her first language. She was an
employee of The Cleaning Company Pty Ltd and was made redundant on 1 July. Jana had
two outstanding employment entitlements from the final month of her employment that were
not paid by The Cleaning Company: unpaid wages amounting to $800 and underpayment of
wages amounting to $700.
Jana was aware that her last few weeks of wages had not been paid and took a number of
steps to recover these unpaid wages before her employer's insolvency, including several
phone calls and emails to her employer. Jana was not aware that her wages had been
underpaid because she had difficulty understanding the terms of her Enterprise Agreement
due to her limited English language skills.
A liquidator for The Cleaning Company is appointed on 1 August. As her debts had yet to be
paid, Jana submits a claim under the Act and is assessed as being eligible with an initial
entitlement of $1,500. As Jana has taken reasonable steps to be paid her unpaid wages, this
amount is included in her payment under the Scheme. When considering whether Jana's
entitlement should be reduced by the amount of the debt she did not take steps to pursue, the
assessor considers the steps that Jana has taken as well as her language skills and personal
circumstances. The assessor determines that there were no other reasonable steps that Jana
should or could have taken to pursue her debt and she is advanced her full entitlement of
$1,500.
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Fair Entitlements Guarantee Amendment Bill 2014
14. The requirement to take `reasonable steps' will depend on the individual's unique
circumstances. As noted in the Explanatory Memorandum for the Act:
Where a person was unaware they were owed a debt, for example, it would generally
not be reasonable to expect them to have taken steps to be paid that amount. Also, it
will permit the Secretary to acknowledge that commencing legal action to recover
outstanding entitlements may not have been reasonable due to either the size of the
amount, or the level of education or language skills that the person holds.
Generally, a person will be eligible if they have taken `reasonable steps' such as
bringing the outstanding entitlement to the employer's attention or seeking assistance
from the Fair Work Ombudsman.
Item 6 - Paragraph 23(b)
15. This item repeals the four weeks per year of service cap on redundancy pay
entitlements and replaces it with the limitation that a claimant's redundancy pay entitlement
cannot exceed 16 weeks' pay.
16. This amendment aligns the maximum redundancy pay entitlement under the Scheme
with the maximum payment set by the National Employment Standards contained in the Fair
Work Act. This restores the level of redundancy pay entitlement that was available under the
GEERS Operational Arrangements that were in effect between 22 August 2006 and
31 December 2010. There will be no cap on the amount of entitlement accrued each year up
to the maximum of 16 weeks.
17. This amendment will apply to claims where the insolvency event occurs after the
commencement of this item. Section 2 provides that this item commences on the later of
1 January 2015 or the day after the Bill receives Royal Assent.
18. Claims relating to an insolvency event that occurs before the commencement of this
item will not be affected even if an application is submitted after the commencement of this
item.
Illustrative Example
Item 6 of the Bill commences on 1 January 2015.
Sue is made redundant on 2 January 2015 when her employer, The Accountants Pty Ltd,
enters liquidation. Sue has worked for The Accountants for five years and under the terms of
her governing instrument is entitled to a redundancy payment equivalent to 20 weeks' pay.
Sue submits a claim for her unpaid redundancy pay entitlement on 1 February 2015. Because
The Accountants' insolvency event occurred after 1 January 2015, Sue's redundancy pay
entitlement is capped at the equivalent of 16 weeks' pay.
Item 7 - Section 24
19. This item removes references to pay as you go taxation from the calculation of the basic
amount for a claimant's wages entitlement. This is a consequential amendment to the
insertion of the new section 7A.
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Fair Entitlements Guarantee Amendment Bill 2014
Item 8 - Paragraph 28(1)(b)
Item 9 - Paragraph 28(1)(c)
Item 10 - At the end of subsection 28(1)
20. These amendments are consequential to the amendments made by items 1 and 7 and
further clarify how amounts that are required to be withheld by law are treated by the Scheme.
21. Items 8 and 9 remove references to the withholding or deduction of amounts as
required by law from section 28. New section 7A consolidates these references and
specifically provides that nothing in the Act affects any requirement for a person to withhold
or deduct an amount as required by law
22. Item 10 inserts a note at the end of subsection 28(1) which directs readers to the new
section 7A. This further reinforces that all payments made under the Act are subject to any
laws of the Commonwealth, a state or a territory that require amounts to be withheld.
Item 11 - After subsection 32(2)
23. This item inserts a new subsection 32(2A).
24. New subsection 32(2A) clarifies that where a debt owed by a claimant to his or her
employer is greater than the employment entitlement to which it relates (for example, annual
leave taken before it is accrued), it can be offset proportionally against any of the claimant's
other employment entitlements that are payable under the Scheme.
Illustrative Example
Paul is made redundant when his employer, The Online Power Company Pty Ltd, enters
liquidation. Paul is owed $10,000 by his employer for unpaid wages. In the months leading
up to his redundancy, Paul had taken annual leave in excess of the entitlement that he had
accrued under his governing instrument. At the date of his redundancy, Paul's annual leave
debt was valued at $2,500.
Paul submits a claim for his unpaid wages entitlement under the Act. The Department
assesses Paul's claim and finds that he is eligible to be paid his unpaid wages entitlement of
$10,000. Because Paul owes a debt to his employer, the Secretary of the Department
exercises her discretion to reduce the amount of the advance by the amount of that debt.
Because Paul is not owed an amount in relation to annual leave, subsection 32(2A) provides
that the debt may be offset against his other entitlements. Paul's wages entitlement is reduced
by the amount of his debt and his advance becomes $7,500.
Item 12 - After section 49
25. This item inserts new section 49A to clarify that the death of a person at or after the end
of a person's employment does not:
prevent the person from being eligible for an advance under the Act, or
prevent that advance from being paid to the person's estate.
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Fair Entitlements Guarantee Amendment Bill 2014
Item 13 - Section 51
26. This item repeals section 51 and replaces it with a new section.
27. This new section provides that the Consolidated Revenue Fund is also appropriated for
the purposes of paying amounts to another person in respect of legal costs incurred by the
Department in relation to applications to the Administrative Appeals Tribunal made under
section 40 or an appeal to a court in respect of such an application.
Item 14 - Application
28. This item sets out when the amendments to the Act that are made by the Bill will
commence.
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Statement of Compatibility with Human Rights
ATTACHMENT
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Fair Entitlements Guarantee Amendment Bill 2014
The Fair Entitlements Guarantee Amendment Bill 2014 (the Bill) is compatible with the human
rights and freedoms recognised or declared in the international instruments listed in section 3 of
the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Fair Entitlements Guarantee Amendment Bill 2014
The Fair Entitlements Guarantee Amendment Bill 2014 (the Bill) will amend the Fair
Entitlements Guarantee Act 2012 (the Act).
The Act provides financial assistance to cover certain unpaid employment entitlements for
eligible employees who lose their job due to the liquidation or bankruptcy of their employer.
This includes assistance for up to 13 weeks of unpaid wages, unpaid annual and long service
leave; up to five weeks' payment in lieu of notice; and redundancy pay, which is currently
capped at four weeks per full year of service.
The Bill implements the Government's 2014-15 Budget announcement to align the maximum
redundancy pay entitlement under the Fair Entitlements Guarantee scheme (the Scheme) with the
National Employment Standards contained in the Fair Work Act 2009 (the Fair Work Act). The
new maximum redundancy pay entitlement will be 16 weeks' pay.
The Bill also makes a number of technical amendments to clarify the operation of the Act. These
amendments address provisions which, since the commencement of the legislation, have resulted
in some confusion or ambiguity about their intended operation.
Human Rights Implications
The Bill engages the right to social security, including social insurance, under Article 9 of the
International Covenant on Economic, Social and Cultural Rights (ICESCR). The Committee on
Economic, Social and Cultural Rights (the Committee) has stated that the right to social security
encompasses the right to access benefits, whether in cash or in kind, without discrimination in
order to secure protection from lack of work related income caused by unemployment.1
The Act establishes a basic payment scheme for persons whose employment has ended due to the
insolvency or bankruptcy of their employer. The scheme can be characterised as `social
insurance' because it provides a safety net for individuals by ensuring that certain unpaid
entitlements are met when a person's employer becomes insolvent. It seeks to protect individuals
from lack of work-related income due to unemployment and, in this way, promotes the right to
social security.
Limitations on human rights are permissible where they are aimed at achieving a legitimate
objective and are reasonable, necessary and proportionate.
1
Committee on Economic, Social and Cultural Rights, General Comment 19, The Right to Social Security, U.N. Doc. E/C.12/GC/19 (2008)
1
Statement of Compatibility with Human Rights
Technical amendments
The Bill makes the following technical amendments that do not limit the right to social security:
clarifying that where a claimant is eligible for an advance under the Scheme the
claimant's initial entitlement under the Act will be calculated without reference to any
amounts required to be withheld by law, such as pay as you go tax withholding;
establishing a funding source in the legislation for certain legal costs associated with
applications to the Administrative Appeals Tribunal for review of decisions made by the
Department;
clarifying that when a debt owed by a claimant to his or her employee is greater than the
employment entitlement to which it relates, it can be offset proportionally against any of
the claimant's other employment entitlements under the Scheme; and
clarifying that the death of a person does not prevent the person being eligible for an
advance, to enable the next of kin or estate to pursue a claim.
Capping redundancy entitlement at 16 weeks
Section 23 of the Act currently provides that a claimant's redundancy pay entitlement cannot
exceed the total of four weeks' pay for each full year of the claimant's service with the employer
but does not place a cap on the total number of weeks' pay that may be advanced to a claimant.
The Bill will amend the Act to cap the maximum amount of redundancy pay entitlement at
16 weeks' pay. This amendment will align the maximum redundancy payment under the Scheme
with the maximum available under the National Employment Standards contained in the
Fair Work Act. This also restores the level of redundancy pay entitlement that was available
under the administrative scheme from 22 August 2006 to 31 December 2010.
This amendment engages the right to social security by impacting claimants who have accrued
more than 16 weeks' redundancy pay entitlement as they will not be advanced their full
entitlement.
The legitimate objective of this amendment is to ensure the ongoing financial viability of the
Scheme. The Committee has recognised this as being a legitimate objective, stating that social
security schemes `should also be sustainable... in order to ensure that the right can be realized
for present and future generations'.2 The 2014-15 Budget indicated the cap on redundancy
combined with the pausing of the `maximum weekly wage' will result in savings of
$87.7 million over four years.3
The amendment is a reasonable, necessary and proportionate approach to achieving this
objective for a number of reasons.
First, the National Employment Standards were implemented to ensure that the national
workplace relations system was built on a strong safety net. Adopting the National Employment
Standards' amount on the redundancy pay entitlement may limit the amount of a claimant's
redundancy pay entitlement, but this is considered appropriate given the Scheme's status as a
safety net for workers who are owed debts by their insolvent employer. This means that the
Scheme continues to provide an effective safety net to persons who have been made redundant
2
Committee on Economic, Social and Cultural Rights, General Comment 19, The Right to Social Security, U.N. Doc. E/C.12/GC/19 (2008).
3
2014-15 Budget Measure, Department of Employment (http://budget.gov.au/2014-15/content/bp2/html/bp2_expense-10.htm)
2
Statement of Compatibility with Human Rights
because of the insolvency of their employer while at the same time assisting the financial
sustainability of the Scheme.
Second, the absence of a maximum cap on the total redundancy pay entitlement payable under
the Scheme has the potential to significantly undermine the Scheme's financial viability and
result in payments that are well above what is necessary to provide a social insurance scheme for
people made redundant as a result of their employer's insolvency event. Since the introduction to
the Scheme of the four week redundancy pay per year of service cap, 75 claimants have received
redundancy payments of more than $100,000. The highest amount paid to a claimant in respect
of redundancy pay entitlement was $297,693.22 under the 2011 version of the General Employee
Entitlements and Redundancy Scheme (which operated from 1 January 2011 until
4 December 2012) and $175,921.26 under the Act. These amounts go well beyond what can be
considered a reasonable community expectation of what a social insurance scheme should pay.
By contrast, prior to the four weeks' redundancy pay per year of service capping being
introduced on 1 January 2011, the highest payment for redundancy that was capped at 16 weeks'
pay was $43,200. This amount reflects a much more reasonable standard for what will be paid
under this Scheme.
Third, the Department estimates that the 16 week cap on the redundancy pay entitlement will
affect only around six per cent of future claimants who are paid an advance under the Scheme,
which will be approximately 815 people per year. Over the past three financial years 41,393
claimants have been paid an advance under the Scheme or its predecessor (the General
Employee Entitlements and Redundancy Scheme). Of these, 2446 received entitlements
equivalent to more than 16 weeks' pay out of 21,752 claimants who were entitled to a
redundancy pay entitlement.
Finally, where a claimant is owed more than 16 weeks' redundancy pay by their insolvent
employer, they will be able to pursue the portion of that debt that is not paid by the Scheme in
accordance with the Corporations Act 2001.
Partial payment
Paragraph 10(1)(f) of the Act states where a person was owed an unpaid employment entitlement
before an insolvency event happens to their employer, they must have taken reasonable steps to
be paid those debts before that event to be eligible under the Scheme. This may result in a
claimant being wholly ineligible if he or she has not taken reasonable steps to recover every one
of the debts they are owed before the insolvency event happens to their employer. This has the
potential to result in unfair outcomes for claimants.
The Bill removes paragraph 10(1)(f) from the eligibility criteria. The Secretary of the
Department will then be able to reduce the claimant's advance by the amount of any unpaid
employment entitlements that he or she did not take reasonable steps to be paid prior to his or her
employer's insolvency.
This amendment positively engages the right to social security. It will allow greater flexibility in
finding a claimant to be eligible for an advance by allowing the Department to advance portions
of a claimant's advance, rather than finding them wholly ineligible for any advance. This will
ensure a fairer operation of the Scheme.
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Statement of Compatibility with Human Rights
Conclusion
The Bill is compatible with human rights because it seeks to maintain the sustainability of the
Scheme of financial assistance without compromising minimum entitlements and to the extent
that the amendments may limit rights, those limitations are reasonable, necessary and
proportionate to that legitimate objective.
Eric Abetz, Minister for Employment
4