ATTACHMENT A

 

 

Details of the Fair Entitlements Guarantee Amendment Regulation 2014 (No. 1)

Section 1 - Name

This section provides that the regulation is to be known as the Fair Entitlements Guarantee Amendment Regulation 2014 (No. 1) (the Amendment Regulation).

Section 2 - Commencement

This section sets out the commencement information for the Amendment Regulation.

Sections 1 to 4 of the Amendment Regulation commence the day after this instrument is registered on the Federal Register of Legislative Instruments.

Schedule 1 of the Amendment Regulation commences on the later of the end of the period in which it could be disallowed in either House of the Parliament and the commencement of item 1 of Schedule 1 to the Fair Entitlements Guarantee Amendment Act 2014. This reflects the requirement in section 50 of the Act that a regulation made for the purposes of that section does not take effect before the end of the period in which it could be disallowed in either House of Parliament.

Section 3 - Authority

This section specifies that the Amendment Regulation is made under the Fair Entitlements Guarantee Act 2012.

Section 4 - Schedules

This section provides that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other items in a Schedule to this instrument has effect according to its terms.

SCHEDULE 1 - Amendments

Item 1 - After Part 2

Item 1 inserts a new Part 3 entitled 'Application and transitional provisions' after the current Part 2 in the Regulation.

New section 9A in Part 3 provides that the amendments made by the Amendment Regulation apply to insolvency events that happen to specified persons on or after the commencement of this section.

This ensures that the amendments being made by the Amendment Regulation will only apply where the relevant insolvency event happens after the commencement of the Amendment Regulation. Where an insolvency event happens to a specified person before the commencement of the Amendment Regulation, a claimant's application will be assessed in accordance with the Regulation as was in force before the commencement of the Amendment Regulation.

Item 2 - Item 6 of Schedule 1 (paragraph 10(1)(e))

Item 3 - Item 6 of Schedule 1 (note at the end of subsection 10(1))

Item 4 - Item 6 of Schedule 1 (at the end of subsection 10(1))

Item 5 - After item 12 of Schedule 1

The effect of these items is to remove the requirement for a TCF contract outworker who was owed debts prior to insolvency or bankruptcy to have taken reasonable steps to pursue that debt and instead allow the Secretary to reduce the claimant's advance for failure to take reasonable steps.

Item 2 repeals paragraph 10(1)(e) as applied by item 6 of the Regulation. This means that whether a TCF contract outworker took reasonable steps to be paid any of the debts owed by the specified person before the insolvency event will not be considered under the eligibility conditions, but instead when determining the amount of their advance (see item 5). This eligibility criterion had the potential to result in harsh outcomes where a person had taken reasonable steps to pursue some but not all of their debts as this would result in their exclusion from eligibility for any advance

Items 3 and 4 insert a new note under section 10 as applied by item 6 of the Regulation that advises readers that an advance may be reduced under section 17A (as applied by item 12A) of the Regulation where a claimant has not taken reasonable steps to be paid a debt.

Item 5 inserts a new section 17A as applied by item 12A of the Regulation which provides that where a claimant did not take reasonable steps before the insolvency event to be paid debts relating to work they did for the specified person, 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.

What constitutes 'reasonable steps' will depend on the individual's unique circumstances. As noted in paragraphs 52-53 of 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 - Item 18 of Schedule 1 (paragraph 23(b))

This item repeals the four weeks' per year of service cap on redundancy pay entitlements and provides that a claimant's redundancy pay entitlement cannot exceed 16 weeks' pay (at the rate relevant to working out the entitlement).

This amendment aligns the maximum redundancy pay entitlement under the Regulation with the Act, which the Fair Entitlements Guarantee Amendment Bill 2014 aligns with the maximum payment set by the National Employment Standards contained in the Fair Work Act 2009. There is no cap on the amount of entitlement accrued each year up to the maximum of 16 weeks' pay (at the rate relevant to working out the entitlement).

This amendment will apply to claims where the insolvency event occurs after the commencement of this item.

Item 7 - Item 19 of Schedule 1 (section 24)

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 consequential on the addition of new section 7A in the Act by the Fair Entitlements Guarantee Amendment Bill 2014 and reflects the removal of similar references from the Act. Consolidating this rule in new section 7A of the Act clarifies that the nothing in the Act or Regulation affects any requirement for a person to withhold or deduct an amount as required by law, including pay as you go taxation.

Item 8 - Item 22 of Schedule 1 (paragraph 28(1)(b))

Item 9 - Item 22 of Schedule 1 (paragraph 28(1)(c))

Item 10 - Item 22 of Schedule 1 (at the end of subsection 28(1))

These amendments are consequential on the amendment made by item 7 and clarify how amounts that are required to be withheld by law are treated when calculating a claimant's advance under the Regulation.

Items 8 and 9 remove references to the withholding or deduction of amounts as required by law from section 28 as applied by item 22 of the Regulation. The comparable references have been removed from section 28 of the Act and consolidated in new section 7A of the Act. New section 7A provides that nothing in the Act affects any requirement for a person to withhold or deduct an amount as required by law. This section applies without modification to claims that are made under the Regulation.

Item 10 insets a note at the end of subsection 28(1) as applied by item 22 of the Regulation which directs readers to the new section 7A of the Act. This further reinforces that all payments made under the Regulation are subject to any laws of the Commonwealth, a state or a territory that require amounts to be withheld.

Item 11 - Item 25 of Schedule 1 (after subsection 32(2)

This item inserts a new subsection 32(2A) in item 25 of the Regulation.

New subsection 32(2A) in item 5 of the Regulation operates where a claimant's advance has already been reduced under section 17 as applied by item 12 of the Regulation and clarifies that where a debt owed by a claimant to the specified person exceeds the entitlement to which it relates, it can be offset proportionally against the claimant's other entitlements that are payable under the Regulation.

Item 12 - After item 44 of Schedule 1

This item inserts a new section 49A as applied by item 44A of the Regulation. This new section modifies the application of the new section 49A of the Act inserted by the Fair Entitlements Guarantee Amendment Bill 2014.

This new provision clarifies that the death of a person at a time after the person no longer does work for the specified person does not prevent:

*         the person from being eligible for an advance; or

*         an advance that the person is eligible for from being paid to the person's estate (either directly or by being paid to someone else to pass an amount on to the estate).

ATTACHMENT B

 

Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Fair Entitlements Guarantee Amendment Regulation 2014 (No. 1)

 

This Legislative Instrument 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 Legislative Instrument

 

The Fair Entitlements Guarantee Amendment Regulation 2014 (No. 1) (the Amendment Regulation) amends the Fair Entitlements Guarantee Regulation 2012 (the Regulation), which is made under the Fair Entitlements Guarantee Act 2012 (the Act).

The Act provides financial assistance (called an 'advance') to cover certain unpaid 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' pay per full year of service.

In recognition of the evolving nature of employment relationships, section 50 of the Act provides for the making of regulations to establish schemes to provide financial assistance to individuals who are owed amounts for work they did for a person specified by the regulation (except as an employee of that person) who is insolvent or is reasonably expected to be insolvent.

The Regulation was made under section 50 of the Act to extend the scheme to allow for financial assistance to be advanced to contract outworkers in the textile, clothing and footwear industry (TCF contract outworkers) in the event those amounts are unpaid due to the insolvency or bankruptcy of the person who engaged them to carry out work. TCF contract outworkers are not eligible to receive an advance under the Act as they do not have an employment relationship with the person engaging them to perform work.

The Regulation gives effect to this by modifying the application of certain sections of the Act to reflect the contractual arrangements under which TCF contract outworkers are engaged. Where the Regulation does not reference a section of the Act, that section applies to TCF contract outworkers without amendment.

As part of the 2014-15 Budget, the Government announced that the maximum redundancy pay entitlement under the Act would be aligned with the maximum set by the National Employment Standards in the Fair Work Act 2009. The new maximum redundancy pay entitlement will be the equivalent of 16 weeks' pay. The Fair Entitlements Guarantee Amendment Bill 2014 (the Bill) gives effect to this Budget measure and makes a number of technical amendments to the Act.

The Amendment Regulation ensures that the scheme created by the Regulation continues to align with the Act by providing that the new maximum redundancy pay entitlement that is payable to TCF contract outworkers will be the equivalent of 16 weeks' pay (at the rate relevant to working out that entitlement).

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. The Amendment Regulation amends the Regulation to give effect to these technical changes.

 

Human Rights Implications

 

The Amendment Regulation engages the right to just and favourable conditions of work under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). Although the basic payment scheme does not provide assistance while a person is employed, redundancy payments made to workers (including TCF contract outworkers) in the event that person is made redundant relate to their conditions of employment.

 

The Amendment Regulation also engages the right to social security, including social insurance, under Article 9 of the 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 Regulation establishes a basic payment scheme for TCF contract outworkers in the event those amounts are unpaid due to the insolvency or bankruptcy of the person who engaged them to carry out work. The amount of the advance is determined in accordance with the instruments that govern the TCF contract outworker's performance of work. 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 specified person 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.

Technical amendments

The Amendment Regulation makes the following technical amendments that do not affect the right to social security:

*         clarifying that where a claimant is eligible for an advance the claimant's initial entitlement will be calculated without reference to any amounts required to be withheld by law, such as pay as you go tax withholding;

*         clarifying that when a debt owed by a claimant to the specified person is greater than the entitlement to which it relates, it can be offset proportionally against any of the claimant's other entitlements under the scheme created by the Regulation; 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 as applied by item 18 of the Regulation currently provides that a claimant's redundancy pay entitlement cannot exceed the total of four weeks' pay (at the rate relevant to working out the entitlement) for each full year of the claimant's service with the specified person but does not place a cap on the total number of weeks' pay that may be advanced to a claimant.

The Amendment Regulation will amend the Regulation to cap the maximum amount of redundancy pay entitlement at 16 weeks' pay. This amendment will align the maximum redundancy payment under the scheme created by the Regulation with the maximum available under the National Employment Standards contained in the Fair Work Act 2009.

This amendment engages the right to social security and the right to just and favourable conditions of work by affecting 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 schemes created by the Act and the Regulation. 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.

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 has the potential to limit the amount of a claimant's redundancy pay entitlement, but this is appropriate given the scheme's status as a safety net for workers who are owed debts by their insolvent employer. The scheme created by the Regulation continues to provide an effective and sustainable safety net to TCF contract outworkers who have been made redundant because of the insolvency of a person who engaged them to perform work.

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 created by the Act, which will be approximately 815 people per year. Over the past three financial years 41,393 claimants have been paid an advance under the Act 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. The effect is likely to be less significant in relation to claimants under the scheme created by the Regulation. To date, the Department has not received any claims under the Regulation.

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 created by the Regulation in accordance with the Corporations Act 2001.

Partial payment

Paragraph 10(1)(e) as applied by item 6 of the Regulation states where a person was owed an unpaid entitlement before an insolvency event happens to the specified person, they must have taken reasonable steps to be paid those debts before that event to be eligible to receive an advance. 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 the specific person. This has the potential to result in unfair outcomes for claimants.

The Amendment Regulation removes paragraph 10(1)(e) as applied by item 6 of the Regulation 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 entitlements that he or she did not take reasonable steps to be paid prior to the specified person'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 Regulation.

Conclusion

The Amendment Regulation is compatible with human rights because it seeks to maintain the sustainability of the scheme of financial assistance created by the Regulation 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.

Senator the Hon. Eric Abetz, Minister for Employment