Chapter2

REGULATION OF UNIONS

Subject / Paragraph
A – INTRODUCTION / 1
B – DUAL STATE AND COMMONWEALTH REGULATION / 7
C – REGISTERED ORGANISATIONS REGULATOR / 23
The current registered organisation regulator: General Manager of the Fair Work Commission / 24
An independent standalone registered organisations regulator / 28
Resources of the registered organisations regulator / 49
Powers of the registered organisations regulator / 50
D – FINANCIAL ACCOUNTABIILITY / 62
Training of officers and employees / 63
Requirements to have financial policies / 73
Financial disclosure requirements by organisations and branches / 81
Internal compliance and audit / 102
External auditing / 110
E – RECORD-KEEPING REQUIREMENTS / 132
Minutes of committee of management meetings / 132
Financial records / 145
F – WHISTLEBLOWERS / 146
Background / 146
Existing protected disclosure regime / 153
Persons who can make a protected disclosure / 159
Persons entitled to receive a protected disclosure / 164
Remedies for adverse action / 175
G – USE OF UNION FUNDS / 180
Use of union funds in union election campaigns / 181
Use of union funds as political donations or for political expenditure / 186
H – CONDUCT OF UNION ELECTIONS / 193
APPENDIX A

A –INTRODUCTION

1.This Chapter concerns law reform in relation to the regulation of unions generally.

2.A number of the case studies considered by the Commission have identified or exposed serious failures in the governance and financial management of a number of unions. Among other things, the case studies considered disclosed:

(a)misappropriation of union funds by senior union officials and/or employees;

(b)failures by committees of managementproperly tooversee the activities of union secretaries;

(c)failures by committees of management to scrutinise union finances, either properly or at all;

(d)a lack of internal accounting and audit processes to detect the misappropriation of union funds or other irregularities;

(e)the failure of external accounting and audit processes to detect the misappropriation of funds;

(f)a lack of, or unawareness about, union policies dealing with financial matters;

(g)misuse of credit cards by union officials;

(h)bullying, intimidation and victimisation of those opposed to the interests of the union Secretary; and

(i)failures in record-keeping.

3.More generally, a number of the case studies revealed an unhealthy culture within many unions whereby a longstanding union Secretary, often with an extremely autocratic leadership style, develops a cult of personality and the committee of management becomes little more than a rubber stamp. In the Health Services Union (HSU) and the National Union of Workers (NUW), New South Wales Branch this culture developed to such a point that those in charge of the union treated the union’s money as if it were their own.

4.The remainder of the Chapter is concerned with broadscale reforms to union governance and regulation to seek to address these issues. More specific reforms concerning the duties of union officials are considered in Chapter 3 of this Volume.

5.The remainder of the Chapter is divided into seven parts.

(a)Part B examines the desirability and practicality of uniform laws throughout Australia governing the registration, de-registration and regulation of registered employee and employer organisations: see paragraphs7-22.

(b)Part C asks which body, or bodies, should be responsible for regulating organisations registered under the Fair Work (Registered Organisations) Act2009 (Cth) (FW(RO) Act)and what investigatory and enforcement power that body, or those bodies, should have: see paragraphs 23-61.

(c)Part D concerns a range of measures to improve the financial accountability of registered organisations: see paragraphs 62-131.

(d)Part E deals with record-keeping: see paragraphs132-145.

(e)Part F examines measures to improve the protections for whistleblowers: see paragraphs 146-179.

(f)Part G considers the use of union funds, in particular for purposes associated with promoting a cause or causes of a union Secretary:see paragraphs 180-192.

(g)Part Hdeals briefly with the conduct of union elections: see paragraphs 193-200.

6.The Commission received a range of submissions in relation to these issues in response to the Issues Papers, the Discussion Paper and more generally.[1] The balance of theChapter refers to a number of these submissions in the course of discussing the issues raised. For reasons of brevity, not every submission received is referred to.

B –DUAL STATE AND COMMONWEALTH REGULATION

7.Oneoverarching issueaffecting the regulation of unions is the existence of multiple State and Commonwealth regulatory regimes.

8.As discussed above in Chapter 1 of this Volume, each State other than Victoria has legislation providing for the registration of associations of employees or employers as organisations, and the regulation of those organisations. The regulation imposed on registered organisations varies, sometimes considerably, between jurisdictions.

9.The problems and complexity that are created by the existence of multiple regulatory regimes can be illustrated by consideration of the NUW, New South Wales Branch:

(a)The NUW is an organisation registered under the FW(RO) Act. That union has a New South Wales branch which is a reporting unit for the purposes of the FW(RO) Act (Federal branch). It has no separate legal existence.[2]

(b)At the same time, the NUW, New South Wales Branch is registered as an employee organisation under the Industrial Relations Act 1996 (NSW) (State-registered branch). This is a separate legal entity which is a body corporate, incorporated by the law of New South Wales.

(c)The State-registered branch and the Federal branch have substantially the same members and the same officers. The two branches, and their officers, are subject both to regulation under the FW(RO) Act and the Industrial Relations Act 1996 (NSW). All funds are held for the benefit of the State-registered branch and the Federal branch jointly.

(d)However, there are separate State and Federal rules of the branch, which differ in important respects. There are also different requirements under the FW(RO) Act and the Industrial Relations Act 1996 (NSW) as to the content of the rules. Section 154D of the FW(RO) Act currently requires the rules of a federally-registered organisation or a branch of that organisation to have certain rules concerning financial training. There is no such requirement in the Industrial Relations Act 1996 (NSW).

(e)Further, there are different duties imposed on officers under the FW(RO) Act and the Industrial Relations Act 1996 (NSW).

10.These complex arrangements, stemming from the existence of dual State and Commonwealth regulation, are far from unique to the NUW, New South Wales Branch. In fact, they are extremely common.[3]

11.The potential for overlapping and conflicting State and Commonwealth laws is not new. The problems were identified in 1969 in Moore v Doyle.[4] In 1974, the Sweeney Report sought to address some of the issues.[5] But the problems remain. In New South Wales and South Australia, the potential for overlapping regulation in relation tonewly registered organisations is reduced by the relevant legislation drawing a distinction between, on the one hand, State-registered organisations that are organisations or branches of organisations registered under the FW(RO) Act (which are not generally subject to State regulation) and, on the other hand, those that are not registered under the FW(RO) Act (which are subject to State regulation).[6]

12.It is possible that some of the problems will decline over time. There has been a shift to a largely national industrial relations system. Buttransitional arrangements were put in place to ensure that State-registered organisations that previously represented employees within the State industrial relations systems could continue to do so in the new Federal industrial relations system. Currently, a number of State-registered organisations are ‘transitionally recognised associations’.[7] The consequence of being a ‘transitionally recognised association’ is that the State-registered organisation is regarded as a Federal organisation for the purposes of the FW Act.[8] Thus, it is able to continue to represent its members in the Federal industrial relations system. Transitional recognition expires on 1 January 2017, although it can be extended by up to two years in certain circumstances.[9] State-registered organisations can apply for permanent recognition as a ‘recognised State-registered association’ but only if they do not have a ‘federal counterpart’.[10] The overall result is that after 1 January 2019 many State-registered organisations with a federal counterpart will have a considerably reduced role in representing the industrial interests of members.[11] Consequently some State-registered organisations may cease to exist.

13.However, it is not clear that this will occur. And there will remain State-registered unions with coverage of public sector employees that remain covered by State industrial laws.

14.The Commission received a number of submissions about whether it was desirable and practicable to have a single set of rules in relation to the registration, deregistration and regulation of registered organisations throughout Australia.[12] The Discussion Paper raised two ways this could occur: by the States adopting uniform laws or by the States referring their powers to the Commonwealth. The third way – that the Commonwealth could unilaterally enact legislation ‘covering the field’ – is not possible given the current constitutional basis of the FW Act and the FW(RO) Act.

15.Apart from the submission received by the Employment Law Committee of the Law Society of New South Wales the submissions received were largely in favour of harmonisation of the various existing regimes.

16.The Committee did not support uniformity on the ground that in its perception there were insufficient benefits to be achieved.[13] It argued that any attempt to establish uniform laws would not be easy. Further, the introduction of uniform provisions would mean that New South Wales registered organisations operating only in the State or without a counterpart Federal body would be exposed to more regulation in their internal affairs. Yet, the argument ran, there is no evidence that the regulatory regime applicable to them under the State legislation is seriously deficient. The Committee also argued that it was undesirable and unlikely that State governments would refer their powers over the regulation of State registered industrial organisations to the Commonwealth. It submitted that any referral of powers would belikely to create additional complexity for the administration of registration, deregistration and regulation.

17.If past practice is a guide, it may be accepted that it is unlikely that the States would refer their powers concerning the regulation of employer and employee associations to the Commonwealth. Although in 2009, New South Wales, Queensland, South Australia, Tasmania and Victoria each referred a broad range of legislative powers to the Commonwealth, regulation of employer and employee associations was explicitly excluded from the reference.[14] And this was at a time when all of those States and the Commonwealth had Labor governments.

18.Further, given the continued existence of State-based industrial relations systems, there will be a continued need for organisations to be recognised under State-based industrial relations systems.

19.However, it is difficult to accept the proposition that a single set of rules governing registration, deregistration and regulation of employee and employer organisations could lead to additional complexity. To the contrary, this would simplify the very complex existing legislative frameworks. In terms of cost and efficiency, the referral of powers to the Commonwealth would have the very significant advantage that there would be a single statutory regulator with supervision of registered organisations throughout Australia rather than the multiplicity of current regulatory authorities. Uniform laws would have other obvious advantages including certainty of regulation and a reduced burden of regulation on dual registered organisations.

20.Whilst accepting the practical difficulties of implementing any uniform scheme of regulation within Australia, it is considered that the potential benefits justify the States and Commonwealth giving consideration to implementing a national regime in relation to the registration, deregistration and regulation of industrial organisations of employees and employers.

Recommendation 1

Commonwealth and State governments give consideration to adopting a national approach to the registration, deregistration and regulation of employee and employer organisations, with a single regulator overseeing all such organisations throughout Australia.

21.The balance of this Volume of the Report focuses on the governance and regulation of organisations registered under the FW(RO) Act. The reasons for this approach were explained in the Discussion Paper. First, the Terms of Reference identify, non-exhaustively, five specific unions for consideration, each of which is an organisation registered under the FW(RO) Act. It is therefore sensible to focus on that Act. Secondly, it is unmanageable to deal with the law in every jurisdiction. This Report is already long and dealing with each jurisdiction separately would make it even longer. Thirdly, the FW(RO) Act has the greatest coverage of members. Fourthly, apart from perhaps the Industrial Relations Act 1999 (Qld), the FW(RO) Act is the most comprehensive.

22.However, this Volume does draw on existing State laws as useful points of reference and comparison. Further, many of the recommendations have equal force and application to the regulation of State-registered organisations.

Recommendation 2

State governments give consideration to the recommendations concerning the Fair Work (Registered Organisations) Act 2009 (Cth) with a view to implementing, where appropriate, those recommendations in State legislation governing State-registered organisations.

C –REGISTERED ORGANISATIONS REGULATOR

23.There are two foundational issues in relation to the regulation of employee and employer organisations under the FW(RO) Act. Who should regulate registered organisations? That entity (or entities) is referred to below as the registered organisations regulator. What powers and resources should the registered organisations regulator have to investigate and enforce the FW(RO) Act?

The current registered organisations regulator: General Manager of the Fair Work Commission

24.Currently, the regulation of organisations under the FW(RO) Act is entrusted, albeit not completely, to the General Manager of the Fair Work Commission (the General Manager).

25.The General Manager’s primary function is to assist the President of the Fair Work Commission in ensuring that the Fair Work Commission performs its functions and exercises its powers.[15] The Fair Work Commission’s functions and powers are primarily adjudicative and concern substantive industrial relations matters. These include, for example, resolving unfair dismissal claims, settling industrial disputes, conducting reviews of modern awards and approving enterprise agreements. The General Manager is subject to the direction of the President, both generally and in relation to particular matters.[16] The President may delegate this power to a Vice President or a Deputy President.[17]

26.In addition to this role, the General Manager has statutory functions under the FW(RO) Act in relation to the regulation of registered organisations. The General Manager’s regulatory functions are separate from the adjudicative functions of the Fair Work Commission. However, the General Manager remains subject to a direction of the President, either generally or in relation to a specific matter.

27.Although the vast bulk of the regulation of organisations is entrusted to the General Manager, the Fair Work Commission proper has a role in registering[18] and deregistering[19] organisations, in relation to the amalgamation of organisations,[20] and in relation to changes to certain aspects of the rules of organisations.[21]

An independent standalone registered organisations regulator

28.Since 2013, the current Federal government has attempted to introduce legislation providing for the creation of a separate ‘Registered Organisations Commission’ and transferring most of the General Manager’s current regulatory functions concerning registered organisations to the Registered Organisations Commission.[22] Three attempts have been made. Each has failed. The most recent attempt to create a Registered Organisations Commission was the Fair Work (Registered Organisations) Amendment Bill 2014 [No 2] (Cth), which was defeated in the Senate on 17 August 2015.

29.The Discussion Paper invited submissions about whether there should be a single statutory regulator of organisations, separate and independent from the Fair Work Commission, and if so, who that regulator should be.

30.Most of the submissions received on this issue were in favour of a statutory regulator separate from the Fair Work Commission.[23] For example, the Institute of Public Affairs submitted:[24]

…in order to ensure that the lines of responsibility and accountability are clear, and to improve standards and behaviour, allfunctions to do with the registration, administration, compliance and deregistration of registered organisations should be transferred to a single, stand-alone authority.

31.The case against was put by the Shop Distributive and Allied Employees’ Association (SDA) who submitted that to remove the regulatory function from the Fair Work Commission would:[25]

…be to weaken the authority of the FWC and diminish the necessary trust and confidence between the FWC and organisations of employers and employees under the federal system.

32.In its submission to an inquiry by the Senate Education and Employment References Committee in relation to the Fair Work (Registered Organisations) Amendment Bill 2014 [No2] (Cth)the Australian Council of Trade Unions (ACTU) submitted that:[26]

There is absolutely no basis for suggesting that there is any institutional limitation inherent in the present regulatory structures. The General Manager, as the investigative authority, is functionally distinct from the remainder of the Fair Work Commission. Neither the fact that the General Manager’s appointment is made by government on the nomination of the President of the Commission, nor the fact that the General Manager has administrative as well as investigative functions, is remarkable or objectionable. For example, similar provisions apply to the appointment and role of the CEO of the Australian Crime Commission. A bare assertion that the formal institutional arrangements impacted [sic] the efficacy of the HSU investigations is insufficient to justify the evisceration of the General Managers [sic] regulatory powers and, moreover, is simply incorrect.

33.There are in fact several strong arguments in favour of establishing an independent regulator separate from the Fair Work Commission.

34.First, there are no apparent reasons why the General Manager of the Fair Work Commission, which is an adjudicative body, should also have the responsibility of regulating registered organisations and investigating breaches of the FW(RO) Act. Contrary to the SDA’s submission, it is not apparent how removing the regulatory functions from the General Manager would in any way weaken the authority of the Fair Work Commission or diminish ‘trust and confidence’ between the Fair Work Commission and organisations of employers and employees. Contrary to the ACTU’s submission, the General Manager is not analogous to the Chief Executive Officer of the Australian Crime Commission. The Chief Executive Officer is the head of a single regulator with a single focus. The General Manager’s administrative and regulatory tasks have no real connection.