Federal Election Held on 2 July 2016—Fate of Legislation to Enact Industrial Relations Reform Remains Unclear

As you may recall, a Federal Election was announced on 8 May 2016, after a double dissolution of Parliament that was triggered by the Senate's failure to pass a number of key pieces of industrial relations legislation (including bills to re-introduce the Australian Building and Construction Commission and establish a Registered Organisations Commission). The Federal Election was held on 2 July 2016, but at present the result is still uncertain, and there is no clear indication as to which party will claim victory, with the possibility of a hung Parliament still looming. It is difficult to say what this result will mean for the industrial relations legislation in question, as well as its broader impact on the future of labour and employment law in Australia.

However, it is apparent that even if the government is returned for a further term, the task of passing legislation will not be made easier by the composition of the newly elected Senate. It is likely the Senate will again comprise senators from across the political spectrum, including several crossbenchers from newly formed minor parties. If the bills in question once again fail to pass the Senate, then Parliament may have to proceed to a joint sitting. Thus, the future of this legislation remains very much in doubt.

Major Parties Outline Proposed Policies to Crack Down on Widespread Exploitation of Vulnerable Workers

Factual Background. In August last year, allegations came to light that large numbers of retail franchisees had systematically underpaid migrant workers, using threats and coercion to maintain workers' silence. The revelations drew public condemnation and forced the federal government and opposition to consider amendments to the Fair Work Act 2009 (Cth) ("FWA") to counter employee exploitation.

In the past few months, the two major parties have announced proposals to tackle the problem. In our January 2016 Update we reported on the Australian Labor Party's early proposals, and in our March 2016 Update, we analysed a bill introduced into the Senate by Labor. On 19 May 2016, the Liberal Party announced its proposals to deal with employee exploitation, and this Update will primarily focus on those proposals.

Liberal Party Proposals. On 19 May 2016, a policy document was released by the Minister for Employment, Senator Michaelia Cash. The document, The Coalition's Policy to Protect Vulnerable Workers("Policy"), outlines in broad strokes the Liberal Party's proposals to crack down on employers exploiting vulnerable employees. The Policy is an important blueprint of what a Liberal Government bill might look like. Important proposals within the Policy include:

  • Amending the FWA to increase penalties payable by employers who deliberately and systematically underpay workers and fail to keep proper pay records. The current maximum penalties for underpaying employees is $10,800 per breach for individuals and $54,000 per breach for corporations. The proposed penalties for underpaying employees is $108,000 per breach for individuals and $540,000 per breach for corporations. These are significant increases in pecuniary penalties.
  • Introducing a new offence that makes franchisors and parent companies liable for breaches of the FWA by their franchisees or subsidiaries, in circumstances where the franchisor should reasonably have been aware of the breaches and could reasonably have taken action to prevent the breaches from occurring.
  • Amending the FWA to strengthen the investigatory powers of the Fair Work Ombudsman. The Policy proposes that the Ombudsman be given powers that resemble the powers of the Australian Securities and Investments Commission, the Australian Competition and Consumer Commission and the Australian Taxation Office—currently the most powerful federal regulatory agencies.
  • Establishing a Migrant Worker Taskforce within the office of the Fair Work Ombudsman.
  • A promise to inject an additional $20 million of funding to the Fair Work Ombudsman.

In a statement released on 19 May 2016, Senator Cash remarked that these proposals were intended to improve safeguards for "vulnerable workers who have been let down ... by blatant non-compliance with workplace laws by employers across a number of industries and in many cases, multinational corporations who ignore their obligations under Australian laws." Senator Cash went on to criticise Labor's Bill, arguing that the proposed changes would fail to address the particular conduct that was leading to the exploitation of employees.

Labor Party Proposals. In our January 2016 Update, we reported on policy announcements that the Labor Party made early in the year. In our March 2016 Update,we reported on the Fair Work Amendment (Protecting Australian Workers) Bill 2016 introduced by Labor into the Senate. That bill lapsed when Parliament was prorogued on 15 April 2016, and a Senate Inquiry into the bill by the Senate Standing Committee on Education and Employment also lapsed on 9 May 2016, when Parliament was dissolved by the Governor-General in preparation for the 2 July election.

Consequences. Whatever the eventual outcome of the 2 July Federal Election, the Labor Bill is due to be debated soon. If the Labor Party form government, they will presumably seek to implement the bill in its current form. On the other hand, the Policy released by Senator Cash on 19 May gives an indication of the key amendments that would likely form part of a Liberal bill. If the Liberal Party are able to form government, they would presumably seek to pass a bill that incorporates the key changes outlined in the Policy.

At the time of writing, the outcome of the 2 July election is not at all clear. It appears that whichever party forms government will be required to negotiate with the other major party and a whole host of other parliamentarians in the Senate and potentially also in the House. Ultimately both major parties have put forward a legislative package that shares a common objective and many common mechanisms and features. With popular support and bipartisan parliamentary support to introduce legislation on this topic, this bill might be the only industrial relations bill that is written into law in the next Parliament.

Increase to the High Income Threshold under the Fair Work Act 2009 (Cth)

The High Income Threshold for former employees claiming unfair dismissal under the Fair Work Act 2009 (Cth) will increase from $136,700 to $138,900 on 1 July 2016. Under section 382, a person cannot bring a claim for unfair dismissal against a former employer where the sum of their annual rate of earnings exceeds the High Income Threshold, unless that employee is covered by a modern award or an enterprise agreement.

The following payments are included when determining an employee's earnings: (i) wages; (ii) amounts dealt with on the employee's behalf or as they direct; and (iii) the agreed value of non-monetary benefits. However, payments that cannot be determined in advance (e.g. incentive-based bonuses or non-guaranteed overtime), reimbursements and compulsory superannuation contributions by an employer are not included when calculating an employee's earnings.

The annual rate of earnings of an employee is calculated in accordance with regulation 3.05 of the Fair Work Regulations 2009 (Cth). Where an employee is continuously employed by the employer (and was not on leave without full pay at any time during the 12 months immediately before their dismissal), their annual rate of earnings will be the amount paid to the person in respect of the 12 months immediately before their dismissal. Therefore, while an employee's current annual salary may exceed the High Income Threshold, they may in fact fall under the threshold where they received a lower annual salary at any point during the 12 months immediately before their dismissal.

For example, an employee receives an annual salary of $140,000 at the time of their dismissal on 1 July 2016, having received a pay increase on 1 January 2016 from $130,000 to $140,000. This employee still will be under the new High Income Threshold because the employee earned $65,000 for the first six months and $70,000 for the remaining six months, bringing their annual rate of earnings for the 12 months immediately before their dismissal to $135,000.

The Coalition's Plans to Outlaw Employer "Sweetheart Deals" with Unions

The Coalition has announced that it plans to introduce legislation amending the Fair Work Act 2009 (Cth) to make "sweetheart deals" between employers and unions unlawful, by adopting recommendations of the Heydon Royal Commission into Trade Union Governance and Corruption ("Heydon Royal Commission"). However, it should be noted that due to the possibility of a hung parliament, or (at the very least) a hostile senate, the Coalition will likely struggle to enact many of these proposed changes.

In a statement released on 17 June 2016, Employment Minister Michaelia Cash stated that, if re-elected, the Coalition would "outlaw 'corrupting benefits'—payments between an employer and union that are not covered by legitimate exemptions." Senator Cash went on to remark that "Australian workers deserve to know that their employers and their unions are acting ethically and honestly and in their best interests … with strong penalties for anyone that does anything wrong".

The Heydon Royal Commission recommended in recommendation 41 that the Fair Work Act 2009 (Cth) be amended to make it: (i) a criminal offence for an employer to provide, offer or promise to provide any payment or benefit to an employee organisation (i.e. a union) or its officials; and (ii) a criminal offence for any person to solicit, receive or agree to receive any such prohibited payment or benefit. A maximum term of two years' imprisonment would apply for both offences and/or a fine of $90,000. However, certain legitimate categories of payment would be permitted, for example: membership payments, wage claim payments, charitable donations and payments for goods or services at the prevailing market price in the ordinary course of business of the employee organisation.