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1998-1999-2000
The
Parliament of the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Employee
Protection (Employee Entitlements Guarantee) Bill
2000
Explanatory
Memorandum
Circulated by
Mrs Crosio
ISBN: 0642 43011X
Employee Protection (Employee Entitlements) Bill
2000
Outline
The
purpose of this bill is to provide for the establishment and administration of a
scheme to guarantee the payment of wages and certain other liabilities owed to
employees in the event of employer insolvency and for related
purposes.
Financial Impact
The Bill
will have no major impact on Government expenditure. It is envisaged that the
funds generated by the wage protection insurance scheme as outlined in this bill
will be sufficient to cater for its administration as well as to provide the
necessary outlays to workers owed entitlements due to their employer's
insolvency.
Background
Prior to 1993,
workers were treated as a group of creditors along with all other creditors to
whom an insolvent company owed money. Workers in an insolvent company, however,
are more than simply creditors. Worker's interests in keeping open the
enterprise, in which they are employed, are fundamentally different to external
creditors. Accordingly, worker's interests were allocated preference over other
external creditors, including the Tax Commissioner, following changes contained
in the Insolvency (Tax Priorities) Legislation Amendment Bill
1993.
However, even when preference in the order of priority is accorded
to workers following a company's insolvency, it often proves ineffective or
meaningless. If a bankrupt enterprise no longer has any assets then workers,
whatever their position in an order of priority, will not benefit.
Faced
with this predicament, many national, state and provincial governments
throughout the world (for example, The Netherlands in 1968, France and Finland
in 1973, the UK in 1975, Spain in 1976, Ireland in 1984 and Portugal in 1985)
have instituted wage guarantee funds to supplement - not replace - the systems
of preferences in the case of company insolvency.
Wage guarantee funds
operate on the notion of subrogation - if a company has become insolvent and
there are no funds for paying worker's claims protected by creditor preference,
then the insurance guarantee comes into effect.
All wage guarantee funds
work on several broad criteria, including:
(a) the principle of
'social solidarity' - the community of employers collectively guarantees the
liabilities of each other for the service-related claims of their employees;
(b) mandatory participation;
(c) universal coverage;
and
(d) the belief that workers should not bear the financial risks of
management's failure.
Explanatory notes on the
bill
The principal means by which this bill aims to
protect workers in the event of their employer's insolvency are the
following:
(a) to establish a scheme of employee entitlements protection
insurance;
(b) to require employers to insure their workforces under the
scheme; and
(c) to provide for the determination and enforcement of
claims under the scheme.
Under the scheme an insurance policy of employee
entitlements protection is taken out by an employer with an approved insurer to
insure the workforce of the employer against loss resulting from the insolvency
of the employer.
An 'approved insurer' is an insurer which enters an
agreement with the Insurance and Superannuation Commissioner (the body which has
responsibility for the general administration of the Act subject to the
directions of the Treasurer) under which the insurer accedes to meet all
requirements under the legislation.
A company is considered to have
become insolvent based on the provisions contained in clause 7 of the
bill.
The bill also allows for a broader definition of insolvency to come
into effect if a company finds itself unable to pay its debts without any formal
steps towards insolvency having been taken.
An employee is protected for
liabilities of the following:
(a) a liability for unpaid
wages;
(b) a liability resulting from termination of employment without
notice or with insufficient notice;
(c) a liability for annual leave
or long service leave;
(d) a liability for repayment of a premium or
other amount paid by the employee to the employer for training in a particular
trade or profession.
(e) a liability for payment relating to redundancy
or termination payments as provided for under the relevant employment
instrument;
(f) a liability of the employer outstanding in respect of the
employer’s obligations in respect of superannuation under legislation or
under the relevant employment instrument.
All employers must take out,
and maintain, a policy of employee entitlements protection insurance with an
approved insurer for the employer's workforce.
This bill does not apply
to a contract of employment, or the parties to a contract of employment, if:
(a) the employer is the Crown, or an agency, instrumentality or
representative of the Crown, in right of the Commonwealth, a State or a
Territory; or
(b) the employer is a body established under a law of the
Commonwealth, a State or a Territory conferring powers of local government on
the body.
An employer is exempt from the requirement to hold a policy of
wage protection insurance
if:
(a) the employer's employees are not
employed for the purposes of a trade or business carried out by the employer;
or
(b) the employer employs fewer than 20 employees.
Where the
Commissioner is satisfied that other satisfactory arrangements have been made,
the Commissioner may issue a certificate exempting the employer in respect of
some of the matters set out in section 9.
The Commissioner is to be
regarded as the nominal insurer under a policy of employee entitlements
protection insurance of employees of an employer who:
(a) is exempt from
insurance under this Act; or
(b) fails to hold a policy of wage
protection insurance for the benefit of the employer’s workforce as
required under this Act.
An approved insurer must contribute towards the
nominal insurer’s cost on a basis determined by the Commissioner and at a
level that is approximately the same for each approved insurer.
An
employee is entitled to make a claim under a policy of employee entitlements
protection insurance if:
(a) the employer is insolvent;
and
(b) an amount covered by the policy has fallen due for payment by
the employer; and
(c) the employer has failed to pay the unpaid
amount in full within 14 days after receiving a written claim for payment
made by or on behalf of the employee.
The employee’s right (if
any) to make a claim under the policy of employee entitlements protection
insurance is extinguished if the claim is not brought within 4 months after the
date the written notice was given.
The bill requires the Insurance
Commissioner and insurers participating in the scheme to participate in a
'bad risk cross-subsidisation' program.
Under such a program, an
insurer will be required to accept an insurance proposal - even from an employer
considered a bad risk - at a rate of premium not exceeding a maximum fixed by
the Commissioner.
The 'bad risk cross-subsidisation' scheme
allows for the transfer of some of the burden of bad risks away from the
individual insurer to the total body of insurers.
If a claim under a
policy of employee entitlements protection insurance is disputed, either the
insurer or the claimant may refer the dispute for conciliation in accordance
with the relevant conciliation procedures set by the
Commissioner.
Penalty Units - The value of a penalty unit is as set out
in the Crimes Act 1914. One penalty unit equals
$110.
____________
Printed by the Department
of the House of Representatives