Meeting employee entitlements in the event of employer insolvency

• Steve O'Neill
• Parliamentary Library

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28 April 2011The issue of corporate insolvency and loss of accrued workers' entitlements (usually comprising: unpaid wages, accrued annual leave, accrued long service leave and redundancy pay) received public attention after mine closures affecting the Oakdale Colliery (NSW), the Woodlawn mine (NSW) and the Cobar copper mine (NSW) in 1998-99. The waterfront dispute of 1998 involving Patrick Stevedore company group and the Maritime Union of Australia, brought before the Federal Court the use of intra-corporate restructurings so as to create an employing company which supplied labour to the other corporate members, resulting in redundancy of its employees when inter corporate agreements for the supply of labour were terminated. In the Australian Parliament, the Hon. Janice Crosio raised concerns over the loss of employee entitlements following a business insolvency in her electorate in 1996, leading to her presenting a Bill for the protection of employee entitlements via employer insurance in 1998.

In 1999 the closures of the National Textiles establishment in the Hunter Valley (NSW) and later, Braybrook Manufacturing in Victoria involved the loss of accrued entitlements for employees in the textile industry. Other corporate failures of 2001 including One.Tel and HIH Insurance Ltd appear to have resulted in smaller losses. In the case of One.Tel, its short time since start-up meant that accrued entitlements would be low. The efforts of its directors, the relevant union, the Community and Public Sector Union as well as the Federal Government, helped ensure that entitlements were met by initially securing a federal redundancy award. Its purpose was to generate binding redundancy and other entitlements as the individual employment contracts for staff used by One.Tel were silent on redundancy pay.

In the case of HIH, employee entitlement loss due to competitors taking over parts of a business mitigated the impact on HIH staff. However the relevant union, the Financial Sector Union also commenced redundancy award proceedings with the provisional liquidator advising the Australian Industrial Relations Commission (AIRC) that a legal instrument determining the redundancy entitlement was preferable to the company's non-formal policy on redundancy benefits, as an enforceable legal instrument would be created and thus recognised under company law. However the insolvency of the Ansett group of companies in September 2001 resulted in widespread redundancies and loss of entitlements, as discussed below.

The spate of corporate closures highlighted the difficult position of employees and creditors when a corporation and non-corporate trading entities become insolvent. Business closures can be expected under the normal competitive workings of the economy, and indeed economic theory encourages the removal of inefficient or unprofitable businesses from a given market.