Government Moves to Cap Redundancy Pay by Amending Fair Entitlements Guarantee

Friday 5 September 2014 @ 10.17 a.m. | Industrial Law | Trade & Commerce

Yesterday (4 September 2014) the Federal Government introduced into the House of Representatives the Fair Entitlements Guarantee Amendment Bill 2014 (the Bill), a measure flowing from the government's first budget which the Minister for Education Christopher Pyne said, as he introduced the Bill, was a measure which:

" .  .  .  as well as addressing financial sustainability, .  .  .  also addressed the moral hazard that overly generous redundancy entitlements create".

That is to say capping the Fair Entitlements Guarantee Scheme (the scheme) would work to stop employers and workers agreeing on "overgenerous" terms in the knowledge that taxpayers pay if the company fails.

Development of the Scheme and Reason for Change

The Bill amends the Fair Entitlements Guarantee Act 2012 (Cth) (the Act) which 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.

The entitlements currently include:

  • 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 scheme created by the former Labor Government under the Act is the successor to the General Employee Entitlements and Redundancy Scheme (GEERS) introduced in 2001 by the Howard government to protect employee entitlements.

In his second reading speech the Minister indicated that the current government supported the current scheme but that it felt:

". . . the trajectory of increase in the cost of the scheme is not sustainable. To ensure the future sustainability of the scheme, changes must be made."

The increased costs for the scheme according to the Minister are:

  • from 8,626 claimants being paid $72.97 million in 2006-07
  • to 16,019 claimants being paid $261.65 million in 2012-13.

What the Bill will Change

The Bill will reverse the current assistance for redundancy entitlements which is for up to a maximum of four weeks' redundancy pay per year of service, with no cap on years of service and will reinstate the previous 16 week cap on redundancy payments made under the scheme. The change will apply to employer liquidations or bankruptcies occurring on or after 1 January 2015 and apply only to employees losing their job after that date.

The Minister points out that capping the assistance for redundancy pay entitlements to a threshold of 16 weeks' pay aligns redundancy payments under the scheme with the maximum amount payable under the National Employment Standards.

As a result of capping the scheme the government is, according to the Minister, looking to save $80 million over the next four years.

The Bill also makes several "technical amendments" to the Act, including the removal of the need for employees who were owed debts prior to their employer going bankrupt to take "reasonable steps to be paid those debts". Instead, the amendments proposed would give the Secretary of the Department of Employment the power to reduce the employee's entitlement by the same amount of debts on the assumption "that he or she did not take reasonable steps to be paid".

Governments Growing Line up of Industrial Amendments

The Bill joins a cue of other measures not yet passed by the Senate which seek to effect changes to industrial relations, namely the:

  • Fair Work Amendment Bill 2014 - criticised by the opposition who say the government “has clearly overstepped its election mandate to the disadvantage of employees”;
  • Fair work (Registered Organisations) Amendment Bill 2014 - seeking to implement the government’s promise to subject officials of registered organisations, including unions, to the same penalties that apply to company directors; and
  • Building and Construction Industry (Improving Productivity) Bill 2013 - which reintroduce the Australian Building and Construction Commission.

Along with these Bills, the government's Bill amending "entitlement guarantees" is expected to be debated during the next sittings, and if passed, will take effect from the start of 2015.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Related Articles: