The Sydney Morning Herald http://www.smh.com.au/news/9907/07/text/features4.html WORKPLACE RELATIONS Law leaves workers out in the cold Date: 07/07/99 Just because a company goes bust doesn't mean its employees should also end up broke. Tim Pallas explains how to protect them. Australia is way behind most developed countries when it comes to protecting workers' entitlements if their employer goes broke. The Australian Bureau of Statistics estimates that 12,000 workers lose their jobs every year because of the financial problems of their employers. There's no way to measure how many also lose their entitlements but in the past year alone, highly publicised insolvency cases have robbed 3,000 employees of more than $30 million in unpaid entitlements. Every plea from workers at Cobar, Oakdale and Woodlawn mines, Austral Pacific Buses, Yeppon and Rockhampton nursing homes, Grafton meatworks, and other cases which embarrass the Federal Government prompts a chorus of sympathetic rhetoric. Now it's time for action. Australia must adopt long-established international standards. In France, Spain and a number of African and South American countries, a system of "super preference" ensures workers receive their entitlements ahead of secured creditors, such as banks and other lenders. Levels of protection range from full entitlements to specified payments such as 30 or 60 days' wages. Some argue that placing secured creditors such as banks behind workers in the post-insolvency queue would restrict the availability of funds to businesses. But unlike most employees, lending institutions can properly evaluate risks. Why should banks be entitled to prop up a business, encourage employees to keep working, then close off the credit, precipitating insolvency and ensuring that employees will be not be paid? Many countries also have a wage guarantee insurance system which, like worker's compensation, shifts the risk from employees to those better able to bear it. Such a system operates in dozens of countries including Austria, Germany, Greece, Italy, Israel, Japan, the Netherlands, Portugal, Sweden and Britain, and in Oregon in the United States, and Quebec and Manitoba in Canada. Under such a system employers bear the cost of providing wage insurance, sometimes supplemented by the State. Some European schemes, operating since the early '80s, provide a minimum guarantee of between two and three months' pay. Maximum payments may also be specified. Funds are paid either directly to the worker or advanced to the administrator. Australia should establish a system of employee protection incorporating both "super preference" and wage guarantee protection. This would require a wage guarantee fund, financed mainly by employer contributions and possibly supplemented by unclaimed moneys held by State and Federal governments when employees cannot be found. European experience suggests such a fund would cost employers about 0.3 per cent of their annual wage bill. This is a decent way of ensuring a fair go for loyal employees who provide the backbone of the business. The fund should be operated and administered by the Federal Government and dedicated to prompt payment of all legal entitlements under awards and agreements. A limited "super preference" to give up to 60 days' entitlements to employees ahead of secured creditors should also be established. The fund would be able to recoup from administrators any money that would otherwise be payable to employees under the scheme. Finland has found that more than half the payments by its fund to needy workers have been recovered. This process of recovering payments puts the fund in place of the employee and ensures prompt payment for workers whose needs are often immediate. It also allows the costs to all employers to be reduced by making the insolvent company and its directors still responsible for unpaid entitlements. But their responsibility is now to the fund, which has already paid the workers. Employers who put employee entitlements in trust could be exempt from contributing to the fund while those who want to use their employees' entitlements to provide liquidity should expect to have to pay into a fund to protect them. The fund would also be able to recover money from directors who have breached their obligations by trading while insolvent. Proposed legislation placing greater personal liability on directors to pay employees in such circumstances is welcome. But on its own such change is inadequate. For workers to wait years for justice and the repayment of their entitlements may sound like a good idea to lawyers, but it would inevitably be a minefield of frustration and disappointment. There is nothing new or radical about the principle of ensuring that those in a position of trust take out insurance to protect those dependent upon their skills and capacity. It is well accepted in schemes such as workers' compensation, the Housing Guarantee Fund and the Solicitors' Guarantee Fund. It seems only fair that employers should assure their workforce that its entitlements will not be squandered, either by bad management or just plain bad luck. The Insolvency Practitioners Association of Australia supports the establishment of such a fund. The idea now has a long history. In 1988 an Australian Law Reform Commission inquiry into corporate insolvency recommended a fund to protect workers' entitlements. In 1993 the Corporations Law and Bankruptcy Act were amended to give employees priority over the Commissioner of Taxation. In 1994 Australia became a signatory to the International Labour Organisation's Convention No 173, which was designed to provide minimum protection for workers' entitlements in insolvency situations. And in August 1995 the Labor Government undertook to review and address the protection of workers' entitlements. No action has been taken since the Howard Government was elected three years ago. A private member's bill introduced by the Federal Opposition to establish a Wage Guarantee Fund has been mothballed by the Government for well over a year. Rewriting tax laws and a second wave of anti-worker industrial legislation have higher priority. Every new insolvency, with its associated list of ordinary Australians as its victims, is a testament to the triumph of vested interests over good government. The thousands of battlers who may otherwise be consigned to a lifetime of hardship deserve better. Tim Pallas is chief of staff of the Victorian Parliamentary Labor Party. 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