Another Labor poison pill: it’s called FEG

Some of you may recall GEERS, which stands for General Employee Entitlements and Redundancy Scheme, which was reluctantly introduced by the Howard government.  The background to this scheme was the collapse of National Textiles – in the dying days of Australia’s protected TCF industry- the chairman of which was Stan Howard, the Prime Minister’s brother.

As the company had become insolvent and there were insufficient funds to pay out the entitlements of the workers, the government stepped in to provide a very limited form of guarantee of workers entitlements, including some wages, unused leave and redundancy pay, capped at 16 weeks.

This was always the sort of scheme with great appeal for Labor – get the taxpayer to pick up the tab for workers’ entitlements (think, indirectly, SPC, auto industry, Qantas).  But GEERs was always too low-rent for Labor and the unions – think big, think uncapped.

The policy developement occurred in two phases: the first was to plump up GEERS and then to introduce a new scheme called FEG.  The incentive of FEG is for unions to approach failing companies and negotiate excessive redundancy pay (104 weeks, say), in the knowledge that the taxpayer will effectively be paying the bill.

This scheme is causing considerable consternation in the automotive component industries, where many of the firms are facing a bleak future.  Of course, the irony is that these sorts of provisions make it almost impossible for the firms to downsize and adjust because the cost of making some workers redundant is prohibitive.

And the fiscal liability is large and rising.  Just another mess for the Coalition to fix up.

See the details below:

GEERS (Part 2)

From 1 January 2011, assistance for unpaid redundancy entitlements will be extended under the General Employee Entitlements and Redundancy Scheme (GEERS).

GEERS is a basic payment scheme established to assist employees who have lost their employment due to the liquidation or bankruptcy of their employer and who are owed certain employee entitlements.

If a liquidation or bankruptcy occurs on or after 1 January 2011, eligible claimants will now be able to access GEERS assistance for redundancy entitlements, as specified in their industrial instrument, up to a maximum of four weeks for each year of continuous service. Prior to this change, redundancy pay was capped at 16 weeks under GEERS.

In addition to redundancy pay, eligible claimants may be able to access GEERS assistance for up to three months unpaid wages for the period prior to the appointment of the insolvency practitioner, annual leave, long service leave and up to five weeks payment in lieu of notice.

GEERS assistance is calculated in accordance with an employee’s entitlements under legislation, an award, a statutory agreement or a written contract of employment. For example, all employees will not necessarily receive redundancy pay of 4 weeks per year of service – the assistance an employee receives will be based on the redundancy entitlement provided for in their legal instrument.

The changes have been made through amendment of the GEERS Operational Arrangements, prior to the Government’s introduction of the Fair Entitlements Guarantee.

Fair Entitlements Guarantee (looks pretty like GEERS part 2, need to check differences)

The Fair Entitlements Guarantee is a government scheme helping employees who lose their job and have outstanding entitlements because their employer goes into liquidation or is bankrupt.  This scheme is run by the Department of Education, Employment and Workplace Relations.

Eligible employees may be able to get assistance through the Fair Entitlements Guarantee for:

  • up to 13 weeks unpaid wages
  • unpaid annual leave
  • unpaid long service leave
  • up to 5 weeks unpaid payment in lieu of notice
  • up to 4 weeks unpaid redundancy entitlement per year.


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9 Responses to Another Labor poison pill: it’s called FEG

  1. johanna

    What a great incentive for management to fail to make proper provision for employee entitlements as they take their own generous salaries and perks!

    Of course it’s theoretically illegal to do this, but when is the last time anyone was prosecuted for it?

  2. Baldrick

    So in theory, the TWU could withdraw their labour, force Qantas into liquidation and still have it’s workers redundancy entitlements government guaranteed.

  3. Go Tiges

    So in theory, the TWU could withdraw their labour, force Qantas into liquidation and still have it’s workers redundancy entitlements government guaranteed.

    Funnily enough, one of the big early customers of GEERS was Ansett. But under that scheme, the Government worked with the liquidators to recover some of the funds through asset sales. Under FEG that won’t happen. As Judith points out, it’s very generous and paid under a special appropriation, like Health, Newstart, DSP, Youth Allowance… if you have an entitlement you get paid. Uncontrolled and uncontrollable expenditure.

  4. Charles

    It makes you wonder doesn’t it, how many of the nefarious schemes the unions and ALP have slung the tax-payer on the hook for? Worse, we don’t ever know about and never get to vote on it. It just becomes one of those costs to society that we keep on picking up as baggage until we wonder why our economy and budgets are failing when we have no way of getting rid of them.

    It would help if the Libs managed to toss a few more of these carpet bag schemes overboard and diverted the funds into real purpose rather than featherbedding the unionists and all their fellow travelers.

  5. Pyrmonter

    FEG is one of the stranger policy measures we have. But it is important to recall that it is an advance, and is repayable from the circulating assets of the company in priority to almost all other claims: it provides for subrogation to the employees’ priority for repayment.

    More remarkable (and I’d suggest pernicious) is the persistence of uncapped general priorities for employee entitlements over all creditors other than secureds with fixed charges and a small number of administrative and tracing priorities: if there is a policy failure in this area, this is surely the better target.

  6. Pyrmonter

    @ johanna

    – if by “managers” you mean directors and their spouses, they, at least, do not enjoy the general priority.

  7. Louis Hissink

    Long service leave ? What’s that? (/sarc).

  8. Pedro

    I’ve long thought that all pay should be for current work and no redundancy or other accrued entitlements. Pay the NPV of the entitlements in the wage each week. People can insure for risk with their own money. The reason is not that I believe in controlling contracts, because I don’t, but I do believe in controlling moral hazards that will be foisted on the taxpayer.

  9. wreckage

    Yeah I’m not really sure why someone on a decent wage wouldn’t insure it.

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