Trade Unions – A highly regulated and supervised future…
Published on September 1, 2017 by Peter Punch
Trade unions have been a central feature of Australia’s industrial, social and political framework since Federation (1901). They remain so today, despite changes in Australia’s economic and social circumstances over that 120 year period. However, their membership levels have been in steady and recently more rapid decline, particularly over the last forty years – ie from a situation in 1976 where unions enrolled about 57% of the Australian workforce as members, to one where in 2016 that percentage has declined to about 16% (indeed only 9% in the private sector).
The reasons for that decline in numbers are complex and multi faceted, and are at least partly related to the profound changes in the Australian economy and social attitudes since the Second World War.
Some commentators contend that the principal reason why unions are in decline is legislative initiatives that have severely constrained their ability to operate as they are supposed to do – for example, their ability to take industrial action quickly and efficiently, and easily access workplaces for organising purposes, or force compulsory arbitration of disputes on employers, has been severely constrained by legislative change. Of course there can be no doubt that over the last twenty years legislative change, commencing with the amendments to the Workplace Relations Act 1996 (Cth), followed by the 2005 “WorkChoices” Amendments to that Act (operative March 2006) and the further changes in the Fair Work Act 2009 (Cth,) has hamstrung unions’ ability to apply “industrial pressure” on employers in the way that they could more easily do prior to the 1990s. But to regard that as the principal reason for unions decline in membership would appear to be a simplistic response – in any event, that type of legislative framework is unlikely to be removed any time soon (or at all).
That then leaves unions faced with a seemingly inexorable decline in members (with the consequent strain that places on revenue and resources) while at the same time legislative and judicial scrutiny over both their internal and external affairs continues to escalate.
External Regulation of Trade Unions internal affairs – a regulatory explosion
Of particular note however, has been the veritable explosion in legislation and regulatory activity with the object of improving accountability (both financial and otherwise) of officers and employees of trade unions.
The volume of legislation seeking to regulate these internal affairs of what are at law voluntary not for profit private associations, particularly since the Second World War, is enormous. It has tended to come in waves in response to particular identified “mischiefs”, but the end result is this: Australia has moved from a situation where the external regulation of the internal affairs of these entities was essentially contained in a few regulations made under the Conciliation and Arbitration Act 1904 (Cth) (“the C&A Act”) to a current state of affairs where Federal trade unions (and, as a side wind really, employer associations) are governed by their own specific statute, the Fair Work (Registered Organisations) Act 2009 (Cth) (“the RO Act”), other “special purpose” legislation (eg the Fair Work Amendment (Corrupting Benefits) Act 2017 that was enacted on 16 August 2017 ), the recently introduced Fair Work (Registered Organisations) Amendment (Ensuring Integrity) Bill 2017 and their own publicly resourced regulator, the Registered Organisations Commission/Commissioner.
Having practiced in this particular part of the “industrial law” space for the last thirty years or so, I have seen a number of “waves” of legislation seeking to externally regulate and scrutinise the internal affairs of trade unions – starting with the extensive amendments to the C&A Act in 1974 (generally known as “the Cameron amendments”), and ending (at least at present) with the even more extensive amendments to the RO Act that commenced in substance on 2 May 2017.
But in my experience the latest “wave” is the largest of all these – in the last five years there have been two major sets of amendments to the RO Act (2012 and 2017), the first following on from the scandals that came to light in the Health Services Union, and the second following on from (although not actually inspired by) the Royal Commission into Trade Union Governance and Corruption (which published its final Report in late 2015).
An article dealing with the myriad of changes that have now been legislated would be a large one indeed – individually many of the change would demand their own separate articles. That can be left for another time and/or context; here I do nothing more than highlight the major changes that have now been implemented, then make some “big picture” comments about where we are now and what may well be ahead this year or next – perhaps the current “wave” of changes may not be finished yet.
The major changes
As mentioned above, there have been two substantial sets of amendments to the RO Act that bring in the changes – the Fair Work (Registered Organisations) Amendment Act 2012 (Cth) and the Fair Work (Registered Organisations) Amendment Act 2016 (Cth). The first Amending Act was brought forward by the then Federal Labor Government, in response to the scandals in trade unions that came into the public domain in 2012. It introduced a new regime for financial disclosure and transparency requirements in the Rules of registered organisations, increased the investigative powers of the Fair Work Commission where deficiencies came to light in relation to the financial administration of any such organisation, and imposed mandatory training for all officers of organisations concerned in the financial administration of an organisation.
The 2016 Amendment Act, brought in by the current Federal Government, builds on and supplements those 2012 reforms, with a particular emphasis on:
(i) Imposing a regime of regulation on organisations and their officers akin to that of corporations under the Corporations Act 2001 (Cth); and
(ii) greatly increasing sanctions for non compliance with the RO Act’s requirements in terms of governance, reporting to members and the public, and financial administration.
[A more detailed examination of these changes can be found in a forthcoming edition of Workplace Review (Thomson Reuters), Volume 8, Number 2.]
Some general observations
Against the background of the foregoing, I make these general observations.
- It is worth noting that the entire regulatory system is equally applicable to registered organisations of employers. Previous submissions to the Government and the Parliament by such bodies as the Australian Industry Group and the Australian Chamber of Commerce and Industry, warning of the disincentive the regulatory burden will constitute for voluntary participation by individuals, have not had much (if any) effect.
- The overall regulatory burden that now prevails is such that I would have thought smaller organisations, whether of employers or employees, would need to consider either amalgamation with larger, better resourced organisations, or abandonment of registration.
- The Royal Commission into Trade Union Governance and Corruption (on foot for almost two years to late December 2015) has made a significant contribution to the current legislative regime — its public hearings and its Reports and Recommendations (although often controversial) have served to keep at the forefront of political debate the existence of unacceptable conduct and practices within a number (but certainly not all) trade unions. The Royal Commission has given the Federal Government vital support for some of its initiatives, including for example the desirability of a specific regulator for registered organisations with ASIC like powers of investigation. Even though that initiative was present in the Bill to amend the RO Act before the Royal Commission was established, it cannot be doubted that its Final Report provided significant weight to the arguments that the provisions of that Bill were needed.
- But quite apart from the Royal Commission it has to be said that some elements within the trade union movement have proven to be not only guilty of egregious breaches of trust and very serious criminal conduct, but far worse enemies of that movement than such well known anti-union groups as the H.R.Nicholls Society. By their behaviour, now so publicly aired in the media and in some instances before the Royal Commission was even established, they have smeared the good name of the bulk of trade union officials who endeavour to go about their duties diligently in good faith and what they see as the best interest of their members. That type of misbehaviour by what I believe (in my experience over 30 years) to be the minority of people, will linger much longer in the public consciousness than any criticism that might be made as to the independence (or alleged lack thereof) of the Royal Commissioner.
- An abiding political message in recent years has been that trade union officers should be subject to the same or equivalent obligations and sanctions, and regulatory oversight, as those that apply to company directors. Whether or not such an argument is right or not, it is now quite entrenched. The result is that a significant portion of the amendments made by the 2016 Amendment Act replicate provisions applicable to corporations and their directors. However, there is also no doubt that some of the “translation” of corporations law regulation to registered organisations has been rather “rough and ready” – for example, new Section 256A of the RO Act imposes a 5 year rotation requirement for auditors in all organisations and branches, although the rotation rule for auditors of corporations is limited to listed companies. Furthermore, the maximum penalty now prescribed for a “serious contravention” of a civil penalty provision in the RO Act is considerably in excess of the maximum penalty that is prescribed for such a contravention in the provision of the Corporations Act 2001 which is the inspiration for the new RO Act provision – ie Section 1317G of the former Act prescribes a maximum penalty of $200,000 (a maximum that has been fixed since the Section was introduced over 20 years ago) while the maximum penalty of 1200 penalty units for a serious contravention of a civil penalty provision in the RO Act by an individual translates to a maximum penalty after 1 July 2017 of $252,000.
- The potential sanctions that now adhere to contraventions of the RO Act stand in stark contrast to the regime of penalties that applied prior to May 2017. It cannot be denied that the maximum level of penalties for many categories of contraventions of the RO Act prior to the 2016 Amendment Act changes were unlikely to constitute a significant deterrent to bad behaviour (eg maximum penalties in many cases were no more than $10,800). Thus maximum penalties did need to change upwards. But the changes are in some cases very large indeed – ie previously, a contravention by an officer of Section 286 of the RO Act (concerning inter alia improper use of information to obtain a personal advantage) carried a maximum penalty of $10,800; now the same contravention attracts a maximum penalty of 100 penalty units ($21,000 after 1 July 2017) or 1200 penalty units for a serious contravention ($252,000 after 1 July 2017). Moreover, the new regime in many instances sets a maximum penalty for a contravention by a body corporate at up to five times the maximum penalty for an individual for that contravention.
- The “wave” of increased regulation does not appear to have finished. The Royal Commission made almost 80 Recommendations for changes to the law, most of which relate to the internal governance of registered organisations. Some have now been implemented, as described in this piece, but there appears to be more to come. At the time of writing the Fair Work Amendment (Corrupting Benefits) Bill 2017 is before the Senate and seems likely to be passed, if in some modified form. If enacted essentially as presented, it will in substance implement Recommendations 40, 41 and 48 of the Royal Commission, which recommended inter alia very strong prohibitions on unions/officials seeking or receiving money from employers for any but the most limited and benign of purposes, and requiring the disclosure to the members of a union involved in enterprise bargaining any benefits proposed to be provided to the union as part of any enterprise agreement. The criminal sanctions for breaches of some of these provisions are potentially enormous (ie up to 10 years imprisonment for an individual and a penalty up to $5,250,000 for an organisation). Yet more legislation may still be in the pipeline – in particular the writer would assume there will eventually be proposed legislation to implement at least some of the Recommendations of the Royal Commission for greater regulation and transparency around what are called in the Final Report (and the Commission’s Letters Patent) “relevant entities” (see Recommendations 42 to 47). The colloquial name for these entities is “slush funds” but that rather pejorative expression is not appropriate to all such entities, some of which can be very benign (eg a fund that a group of like minded officials voluntarily contribute to for the purposes of funding their next election campaign). It seems however likely that in the current political environment the prospects of a “nuanced” response by the legislature are not great.
- There is no reason to think that the current regulatory burden will be lifted, either soon, or ever. Trade unions, and employer organisations for that matter, will simply need to adapt to and cope with the new environment, as they have to previously with earlier ‘waves” of regulation. This “wave” (tsunami perhaps?) may constitute the greatest challenge yet.