The collapse of Hunter Valley company National Textiles reveals again the urgency of the question of protecting employee entitlements. The Government and the Minister for Workplace Relations, Peter Reith, have attempted to pass blame to the states for the fact that 342 workers will lose their entitlements. The company can pay only $3.5 million of $7 million owed.
Mr Reith argued that the delay by NSW to agree to contributing to a national scheme was to blame. Not so. He and his government should have acted with leadership and diligence more than a year ago when the problem became evident. They should have put in place a comprehensive scheme to protect employees. That they did not indicates that their priorities lie with favouring employers when they should be acting more impartially. How long does it take to enact laws that will make it more difficult to misspend their employees money and to rearrange priorities of payments if they do?
The scheme proposed by Mr Reith is not good enough. It sets a cap of $20,000 per worker for owed pay and leave. Mr Reith argues the need for a cap because he says taxpayers should not have to pick up the tab for unlimited entitlements. He is right about taxpayers not picking up an unlimited tab. But he is wrong about a cap on entitlements. Mr Reith’s scheme should include a mechanism that prevents employers from using their employees’ money as working capital in the business. Employers should be made to pay entitlements into a trust fund, perhaps set up by the Tax Office. Employers are obliged by law to remit PAYE and other tax instalments taken out of pay every week or every fortnight as a matter of law. So it should be straightforward to insist that leave, long-service leave and other entitlements are also sent to the tax office, or at least a sizeable percentage be remitted.
Under present arrangements it is clear that some employers are trading with money they do not own. It is a breach of trust.
Employees on occasion might be willing to have their entitlements used in the hope that their employing company might be able to trade out of difficulties. But that should be an informed decision. Employees should not be in a situation where they turn up for work one day to be told, “”Sorry, the company used your money to trade, but we failed and we are going into receivership.”
Mr Reith’s scheme merely closes stable doors after the horses have bolted. It does nothing to prevent the spending of the employees’ money in the first place.
If the remitting of leave entitlements to the Tax Office was unacceptable, some sort of general employer contribution scheme should be set up to cover defaults when companies go broke. The present arrangements are unacceptable.
Another change to present arrangements to help matters would be to change corporations law so that workers’ entitlements moved higher up the list of priorities when leftover funds in a winding up are distributed. At present secured creditors take precedence over most worker entitlements. Often secured creditors are not mortgagees of buildings or identifiable assets but owners of floating charges over all a company’s assets. The former have a case to take precedent over wages because typically buildings and assets are bought with the borrowed funds which are net additions to company assets. Owners of floating charges however often make claims against existing assets which should be available to pay workers’ entitlements. Moreover, business lenders go in with their eyes open. Workers do not.
National Textiles will not be the last company to go broke owing workers leave entitlements. A comprehensive scheme must be worked out as a matter of urgency. If it does not include employers contributions and if it is not comprehensive it will be evidence that Prime Minister John Howard’s claim to govern for all and to require mutual obligation are suspect.