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Monday, 22 October 2018
Page: 10614


Dr LEIGH (Fenner) (17:52): I'm pleased to rise to speak on the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018; in particular, to speak on the second reading amendment moved by the member for Gorton. The amendment points out that the government has previously tried to cut the Fair Entitlements Guarantee scheme and is not committed to protecting employee entitlements; notes Labor's suite of measures, announced in May last year, to tackle illegal phoenixing activities; and points out that under this government we've seen real wages flatlining. It is a government bereft of policies to get wage growth going again, to get Australians the pay rise that they deserve.

Let me go to those points in turn. Labor is pleased to finally see coming onto the government's agenda a bill that will have some benefit for workers. It contains some sensible reforms to the Corporations Act to better deter and punish directors and companies who deliberately avoid liability for employee entitlements. As I said, this measure follows on from an announcement on 24 May last year by the shadow minister for employment and workplace relations, the then shadow minister for small business and financial services and me. We announced that Labor, were we to win government, would introduce a suite of measures to crack down on abuse by directors and the real problems associated with phoenixing in this country. We support a director identification number. The government has some process or other which it promises might one day produce a director identification number. The fact is that dodgy directors have been burning firms and hurting honest businesses, workers and taxpayers for well over a year, since Labor first called for a director identification number.

Part of the package announced by Labor in May 2017 was that a Labor government would introduce an objective test for transactions depriving employees of their entitlements. We also announced we would reform provisions for accessorial liability. The government bill adopts and implements those measures.

This bill follows on from an announcement in October last year that the government would make changes to the Fair Entitlements Guarantee scheme. There were consultations as a result of that, although in our view that consultation process could have been better. We are pleased to see the changes in this bill which should see a greater degree of recovery for employees who are owed entitlements and, indeed, for the government, which will be able to use these new capabilities to recover taxpayers' money to replenish the millions of dollars currently being paid out under the Fair Entitlements Guarantee scheme. It will strengthen the Corporations Act to better deter and reduce the incidents of dodgy companies and their associates structuring their affairs in a way that avoids paying employee entitlements and deliberately shifts liability for unpaid employee entitlements to the Commonwealth via the Fair Entitlements Guarantee scheme.

The Corporations Act currently contains a criminal offence provision which covers activity commonly known as 'illegal phoenixing activity'. That is where a director structures a company in a way in which they are deliberately aiming to avoid having to pay employee entitlements—in essence, allowing them to walk away from a collapsed business without paying up what it is owed to workers and then to start a new business. This has been a criminal offence under the act since 2000, but there has never been a conviction under it. Labor announced in May last year that we would reform the criminal offence of deliberately avoiding employee entitlements to make it easier to prove and make it easier to prosecute accessories. We're pleased that the government has, over a year later, adopted Labor's position on the bill.

The bill amends the Corporations Act to make it easier to prove the criminal offence of entering into an arrangement to avoid paying employee entitlements by including 'recklessness' as a mental element. It significantly increases the maximum fine for the offence of entering into an arrangement to avoid paying employee entitlements. It introduces a new civil penalty provision for avoiding paying employee entitlements, with an objective reasonable person test. It gives the Fair Work Ombudsman, the tax office and the Department of Jobs and Small Business standing to commence compensation proceedings to recoup money paid out via the Fair Entitlements Guarantee. It extends liability for unpaid entitlements to related corporate entities, and it extends ASIC's power to disqualify directors and other officers, either directly or on application to the court, where they have a track record of corporate contraventions and of inappropriately using the Fair Entitlements Guarantee scheme to pay outstanding employee entitlements. Labor believes this bill could be improved to give registered organisations standing to commence civil proceedings under the new provisions for compensation and the recovery of unpaid entitlements.

It's worth acknowledging that the increase in the financial penalty for the criminal offence is significant. At present, that penalty is minor relative to the amount that individuals and bodies corporate may be squirrelling away through complicated mechanisms to engage in phoenixing activity. Currently, the penalty is 10 years imprisonment or 1,000 penalty units, which equates to a little over $200,000. The new penalties for an individual would keep the imprisonment period the same but would raise the penalty to the greater of 4,500 penalty units, currently a little over $900,000, or three times the total value of the benefits obtained by committing the offence, or both. Including in the penalty provision some reference to the ill-gotten gains is, we believe, appropriate. For a body corporate, the fine is the greater of 45,000 penalty units, currently a little over $9 million, or three times the total value of the benefits obtained by committing the offence or 10 per cent of the body corporate's annual turnover during the 12 months before the body corporate committed or began committing the offence. We think that increasing the penalties will reinforce the serious nature of these crimes and act as a deterrent for people who might otherwise seek to engage in these types of evasive behaviours.

It's also the case that the civil penalty provision will make it easier to hold directors and companies liable for avoiding liability for employee entitlements. Labor established this scheme, the Fair Entitlements Guarantee, because employees should not be punished through the loss of their legal entitlements when an employer's business fails. Employees should not lose their leave, superannuation and unpaid wages. It is even more egregious that workers might face the prospect of losing their entitlements in a context in which the employer has deliberately structured their arrangement to avoid payment. The average annual cost under the Fair Entitlements Guarantee scheme has more than tripled. For the four-year period from 1 July 2005 to 30 June 2009, the scheme cost taxpayers $71 million. For the four-year period from 1 July 2014 to 30 June 2018, the scheme cost taxpayers more than three times as much—$235 million.

The Fair Entitlements Guarantee scheme was always designed to be there as a safety net—a guaranteed way to ensure that employees could get what they deserved in a timely fashion. Labor passed the Fair Entitlements Guarantee legislation in 2012, delivering the strongest protection for workers' entitlements ever seen in this country. We did this because of Labor's history of standing up for jobs and standing up for workers. But, in contrast, the Abbott-Turnbull-Morrison government has attempted to cut the Fair Entitlements Guarantee scheme. It said in 2014 that the current scheme created a moral hazard, encouraging 'employers and unions to sign up to unsustainable redundancy entitlements, safe in the knowledge that, if the company fails, the Fair Entitlements Guarantee and the Australian taxpayer will pay for it'.

Labor doesn't agree with that philosophy, and I'm pleased that at least the first speaker opposite hasn't sought to reprosecute that argument. It is appropriate that workers have decent redundancy provisions in their contracts. Workers shouldn't be forced onto contracts with inappropriate redundancy provisions simply because the government is concerned about the cost of the Fair Entitlements Guarantee scheme. The primary motivation here should be looking after the voters who put us in this place, not simply trying to penny-pinch on the Commonwealth budget.

Labor recognises the value that the Fair Entitlements Guarantee scheme plays as a safety net for Australians, yet we have a government which is united never more than when it is attacking workers and their representatives and which is doing nothing about the fact that underemployment is stubbornly high; that wages are stagnant; that worker employment is rife and work is, for many workers, too unsecure; and that we have, as Andy Haldane, the Chief Economist of the Bank of England has put it, a 'divided' workplace in many advanced countries, which is leading wages to depart from productivity growth. We're seeing solid productivity growth but a lack of real wage increases, even in places like the United States, where the unemployment rate is below four per cent. So we support the intent of the bill to the extent that it benefits employees, but we also warn against attempts to penny-pinch on the Fair Entitlements Guarantee scheme in a way that would hurt workers.

Finally, I would be remiss if I didn't also call upon the government, as it looks to improve the standing of protections for workers, to adopt Labor's plan to require large listed firms to report the ratio of CEO pay to median worker pay. This is done in Britain; this is done in the United States. It provides a measure of transparency when firms are required to report not just on what the CEO earns but also on the ratio between what the typical worker in the firm earns and what the CEO earns. Last year in Australia we had the situation where the average total pay of ASX 100 CEOs rose nine per cent, which is four times the speed of average wage growth. The typical ASX 100 CEO now earns more than $4 million, and the best-paid Australian CEO, according to work conducted by the Australian Council of Superannuation Investors, was Don Meij, who was estimated to have made $37 million last year.

Mr Meij supports Labor's plan for CEO transparency, so it does make you wonder why the coalition won't come on board. If the person judged by the Australian Council of Superannuation Investors to be the No. 1 paid CEO in Australia is comfortable with listed firms that employ more than 250 people having to report the ratio of CEO pay to median worker pay, then why on earth wouldn't the coalition come on board, back this transparency measure and get real wages growing again?