Employers should prepare for tough new laws to pay staff if business fails

Employers are being warned that the days of expecting taxpayers to cover staff entitlements for a failed business are over, with company bosses being held legally liable for the business’ unpaid dues.

Brisbane employment law expert Michael Coates says employers need to know that under proposed new laws, unpaid wages from a collapsed business could be recovered from related business entities that are not insolvent in circumstances where it is just and equitable (that is, “fair”) to do so. However what exactly is “fair” is yet to be determined.

The proposed laws are in response to a blowout of the taxpayer-funded Fair Entitlement Guarantee (FEG) system.  A notable example is the failure of Clive Palmer’s Queensland Nickel Refinery which collapsed in 2016. QNI’s failure to pay owed entitlements to workers led to about $70 million under the Fair Entitlement Guarantee being paid out to about 760 QNI workers. The Federal Government has been active in taking action to try to recover those monies from related entities of QNI.  About 400 staff have $6 million in outstanding entitlements.

Michael Coates, a Director with Bennett & Philp Lawyers, says the Government feels the taxpayer-funded FEG scheme – which should be a last resort for workers owed wages – is being taken advantage of.

The Government is saying that some employers are structuring their business affairs and taking advantage of insolvency laws to avoid paying employee entitlements.

“The FEG payouts have blown-out from almost $71 million in 2009 to more than $243 million in 2017 so now the Government wants to be able to hold company bosses and directors personally liable for unpaid employee entitlements,” Michael says.

Workplace Minister Craig Laundy has said employers that did the right thing have nothing to fear – meaning if directors can show that there was no way to avoid the circumstance then they should not be subject to the potential penalties.

Michael’s colleague, Bennett & Philp Associate Lachlan Thorburn says the message in the new laws is clear.

“For any employers planning to dud the system- watch out! And for workers in a failed business, FEG will still be there.”

The proposed laws will strengthen enforcement and recovery options, including:

• Penalising directors and others who engage in activity that prevents, avoids or reduces liability for entitlements.

• Strengthen laws to sanction directors and company officers with a track record of insolvencies where FEG is repeatedly relied upon.

• Ensure recovery of FEG from other entities in a corporate group when fair.

However both Michael and Lachlan say the definition of “fair” is likely to be the subject of spirited debate.

For the moment, they say, the priority is for employers to be aware of the changes and the reality that soon the days of taking advantage of insolvency laws and expecting the taxpayer to cover monies owed to staff may be over.

Authors

Michael Coates is a Director at Bennett & Philp Lawyers
Lachlan Thorburn is a Associate at Bennett & Philp Lawyers