THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES FAIR WORK LAWS AMENDMENT (PROPER USE OF WORKER BENEFITS) BILL 2017

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1 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES FAIR WORK LAWS AMENDMENT (PROPER USE OF WORKER BENEFITS) BILL 2017 EXPLANATORY MEMORANDUM (Circulated by authority of the Minister for Employment, Senator the Hon. Michaelia Cash)

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3 Outline FAIR WORK LAWS AMENDMENT (PROPER USE OF WORKER BENEFITS) BILL 2017 OUTLINE The Fair Work Laws Amendment (Proper Use of Worker Benefits) (the Bill) will amend the Fair Work (Registered Organisations) Act 2009 (the RO Act) and the Fair Work Act 2009 (the FW Act) to protect workers through greater governance and transparency of worker entitlement funds consistent with recommendations made by the Royal Commission into Trade Union Governance and Corruption (the Royal Commission). The Royal Commission was established on 13 March 2014 to inquire into governance and financial irregularities associated with the affairs ofregistered organisations. The Royal Commission provided a final report (the Report) to the Governor-General on 28 December The Report examined in detail various case studies concerning misconduct and corruption within, and by parties associated with, registered organisations. On the basis of these case studies, the Report made 79 recommendations for law reform to address problems associated with the current regulation and transparency of registered organisations. The examples of corruption, financial misconduct and mismanagement outlined in the Report have demonstrated that the existing regulatory framework is not satisfactory in preventing fraud and financial mismanagement, and promoting acceptable standards of democratic governance in the interests of members. A consistent theme in many of the case studies considered by the Royal Commission was a lack of transparency and accountability of the financial affairs of registered organisations and associated entities. The Bill will ensure appropriate governance and transparency requirements are applied to related entities of registered organisations, in particular worker entitlement funds and other similar funds. The Bill will amend the RO Act to apply governance, financial reporting and financial disclosure requirements to worker entitlement funds (giving effect to recommendations 45 and 46 of the Report). Supporting these amendments, the Bill will also amend the FW Act to: prohibit terms of a modern award or an enterprise agreement requiring or permitting contributions for the benefit of an employee to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (giving effect to recommendation 49 of the Report); require any term of a modern award or enterprise agreement that names a worker entitlement fund or insurance product to allow an employee to choose another fund or insurance product, prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund for an industrial association (giving effect to recommendation 43 of the Report); and House of Representatives page i Fair Work Laws Amendment (Proper Use of Worker Benefits)

4 Outline prohibit any action with the intent to coerce an employer to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (giving effect to recommendation 50 of the Report). The Bill will also amend the RO Act to: require registered organisations to adopt, and periodically review, financial management policies (giving effect to recommendation 9 of the Report); require registered organisations to keep credit card records and to report certain loans, grants and donations (responding to recommendations 10 and 39 of the Report); require specific disclosure by registered organisations and employers of the financial benefits obtained by them and persons linked to them in connection with employee insurance products (giving effect to recommendation 47 of the Report), welfare fund arrangements and training fund arrangements; and introduce a range of new penalties to ensure compliance with financial management, disclosure and reporting requirements (giving effect to recommendations 9, 10, 17 and 45 of the Report). The Bill also makes consequential amendments to the Fringe Benefits Tax Assessment Act 1986, Income Tax Assessment Act 1997 and Taxation Administration Act House of Representatives page ii Fair Work Laws Amendment (Proper Use of Worker Benefits)

5 Financial Impact Statement FINANCIAL IMPACT STATEMENT The Bill will have a minor financial impact. House of Representatives page iii Fair Work Laws Amendment (Proper Use of Worker Benefits)

6 Regulation Impact Statement REGULATION IMPACT STATEMENT The Interim and Final reports of the Royal Commission into Trade Union Governance and Corruption have been certified by the Department of Employment as being informed by a process and analysis equivalent to a Regulation Impact Statement as set out in the Australian Government Guide to Regulation. The Office of Best Practice Regulation ID for this proposal is The Office of Best Practice Regulation does not assess independent reviews. These Royal Commission reports can be accessed at: House of Representatives page iv Fair Work Laws Amendment (Proper Use of Worker Benefits)

7 Human Rights Compatibility Statement STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Fair Work Laws Amendment (Proper Use of Worker Benefits) Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Fair Work Laws Amendment (Proper Use of Worker Benefits) The Fair Work Laws Amendment (Proper Use of Worker Benefits) (The Bill) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview of the Bill The Bill will amend the Fair Work (Registered Organisations) Act 2009 (the RO Act) and the Fair Work Act 2009 (the FW Act) to ensure better financial governance and transparency of registered organisations and worker entitlement funds. The Bill addresses Government and community concerns, highlighted by the Final Report of the Royal Commission into Trade Union Governance and Corruption (the Royal Commission), that the current regulation of registered organisations and their related entities is not satisfactory. Consistent with recommendations made by the Royal Commission, the Bill will provide for increased transparency of the financial affairs of registered organisations and worker entitlement funds, thereby ensuring greater accountability of registered organisations and worker entitlement funds to their members. In particular, the Bill will amend the RO Act to: require registered organisations to adopt, and periodically review, financial management and accountability policies that are binding on all officers and employees (Recommendation 9); introduce new and robust financial disclosure requirements (Recommendations 10 and 39); deal comprehensively with the governance, financial reporting and financial disclosures required by worker entitlement funds (Recommendations 45 and 46); require specific disclosure by registered organisations and employers of the direct and indirect financial benefits obtained by them and other linked persons in connection with employee insurance products, worker entitlement funds, training funds and welfare funds (Recommendation 47); and House of Representatives page v Fair Work Laws Amendment (Proper Use of Worker Benefits)

8 Human Rights Compatibility Statement introduce a range of new civil penalties to ensure compliance with the new financial management and disclosure requirements (Recommendations 9, 10, 17 and 47). The Bill will also amend the FW Act to prohibit: any term of a modern award, enterprise agreement or contract of employment requiring or permitting employee contributions to a fund established for the purpose of funding elections for offices of industrial associations (Recommendation 43); any term of a modern award or contract of employment requiring or permitting employee contributions to an unregistered worker entitlement fund (to support Recommendsation 45); any term of an enterprise agreement requiring or permitting contributions for the benefit of an employee to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (Recommendation 49); and any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training or welfare fund or employee insurance scheme (Recommendation 50). Consequential amendments will also be made to the Fringe Benefits Tax Assessment Act 1986 and the Taxation Administration Act Human rights implications The definition of human rights in the Human Rights (Parliamentary Scrutiny) Act 2011 relates to the seven core United Nations human rights treaties. The Bill engages with the following rights: rights in work in Article 22 of the International Covenant on Civil and Political Rights (ICCPR) and Articles 6 and 8(1)(a) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) including: o the right to freedom of association; o the right to form and join trade unions; and o the right of trade unions to function freely; The content of the rights to work and rights in work in the ICESCR can be informed by specific obligations in treaties of the International Labour Organization (ILO), such as the Freedom of Association and Protection of the Right to Organise Convention 1948 (No. 87) (ILO Convention 87), which provides employer and employee organisations with protection for their organisational autonomy. The Bill also engages with: the right to the presumption of innocence and the minimum guarantees in Article 14 of the ICCPR; and House of Representatives page vi Fair Work Laws Amendment (Proper Use of Worker Benefits)

9 Human Rights Compatibility Statement the right to privacy and not to be subject to unlawful attacks on a person s reputation in Article 17 of the ICCPR. The Right to Freedom of Association Article 22(1) of the ICCPR protects the right to freedom of association, including the right to form and join trade unions. Article 8(1)(a) of the ICESCR also provides for: The right of everyone to form trade unions and join the trade union of his choice, subject only to the rules of the organization concerned, for the promotion and protection of his economic and social interests. No restrictions may be placed on the exercise of these rights other than those prescribed by law and which are necessary in a democratic society in the interests of national security or public order or for the protection of the rights and freedoms of others. Article 8(1) of ILO Convention 87 provides that: 1. In exercising the rights provided for in this Convention workers and employers and their respective organisations, like other persons or organised collectives, shall respect the law of the land. 2. The law of the land shall not be such as to impair, nor shall it be so applied as to impair, the guarantees provided for in this Convention. ILO Convention 87 also provides employer and employee organisations with protection for their organisational autonomy. Article 3 of Convention 87 provides: 1. Workers and employers organisations shall have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programmes. 2. The public authorities shall refrain from any interference which would restrict this right or impede the lawful exercise thereof. The ILO Committee on Freedom of Association has made the following observations on the rights of organisations to organise their administration: Legislative provisions which regulate in detail the internal functioning of workers and employers organizations pose a serious risk of interference by the public authorities. Where such provisions are deemed necessary by the public authorities, they should simply establish an overall framework in which the greatest possible autonomy is left to the organizations in their functioning and administration. Restrictions on this principle should have the sole objective of protecting the interests of members and guaranteeing the democratic functioning of organizations. Furthermore, there should be a procedure for appeal to an impartial and independent judicial body so as to avoid any risk of excessive or arbitrary interference in the free functioning of organizations. 1 1 ILO, Freedom of Association: Digest of decisions and principles of the Freedom of Association Committee of the Governing Body of the ILO Geneva, Fifth (revised) Edition, 2006, para 369. House of Representatives page vii Fair Work Laws Amendment (Proper Use of Worker Benefits)

10 Human Rights Compatibility Statement Amendments On the basis of these observations, the following amendments in the Bill engage the right to freedom of association: enhanced financial disclosure, record keeping and financial compliance (Recommendations 10, 39 and 47), and prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43). Where the provisions of the Bill engage the right to freedom of association they pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate. They have the sole objective of protecting the interests of members of organisations through enhanced financial transparency and accountability of registered organisations. 1. Enhanced financial disclosure and record keeping (Recommendations 10, 39 and 47) The Bill will enhance the current financial disclosure requirements by: amending and expanding financial disclosure and record keeping requirements for registered organisations (responding to recommendations 10 and 39 of the Report), and requiring specific disclosure of any direct or indirect financial benefits obtained by an organisation or employer or other linked persons in connection with employee insurance products, worker entitlement funds, training funds or welfare funds (Recommendation 47). These new provisions engage the right to freedom of association and pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate. They pursue the legitimate objectives of improving the financial governance of registered organisations and protecting the interests of members. The enhancement of transparent disclosure requirements and obligations to maintin proper records are basic good governance measures. These measures are a necessary and proportionate means of improving the financial accountability and transparency of registered organisations to prevent financial abuses and the mismanagement of members funds. Each of these amendments responds to findings of the Royal Commission demonstrating the ineffectiveness of the current financial expenditure provisions and the shortcomings of the current financial disclosure provisions. Consistent with the observations of the ILO Committee on Freedom of Association, these amendments establish a framework allowing organisations the autonomy to prepare and lodge their own statements and to collect and store credit card statements in a manner suited to each organisation. The provisions requiring specific disclosure of any direct or indirect financial benefits obtained by an organisation or employer or person linked to them in connection with employee insurance products, worker entitlement funds, training funds or welfare funds pursue the legitimate objective of protecting members interests by ensuring that members are fully informed about any financial benefits being received by organisations and employers. These provisions are reasonable and proportionate in that they do not prohibit or restrict organisations and employers from entering into the relevant arrangements but only require that such arrangements and any benefits obtained by them are disclosed. House of Representatives page viii Fair Work Laws Amendment (Proper Use of Worker Benefits)

11 Human Rights Compatibility Statement 2. Prohibiting terms of industrial instruments requiring payments to election funds (Recommendation 43) The Bill would amend the FW Act to prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund (Recommendation 43). The amendment seeks to remove any legal or practical compulsion on employees to contribute to election funds. The amendment does not prevent employees making genuine contributions voluntarily and independently of a relevant instrument. The amendment addresses the possibility of contributions made in accordance with a relevant instrument being used to avoid the intent of the prohibition on organisations using their resources to favour a particular candidate in an election (section 190 of the RO Act). Section 190 prohibits any direct diversion of an organisation s funds for the purposes of the election of a particular candidate and this amendment will ensure that organisations cannot achieve indirectly what they cannot do directly. The Right to Work and the Right to Just and Favourable Conditions of Work Article 6(1) of the ICESCR recognises the right to work and Article 7 requires that States Parties recognise the right of everyone to enjoy just and favourable conditions of work. These rights are informed by Article 4 of the ILO Right to Organise and Collective Bargaining Convention 1949 (No. 98) (ILO Convention 98), which protects the right of employees to bargain collectively for terms and conditions of employment. Amendments On the basis of these observations, the following amendments in the Bill engage the right to work and the right of everyone to enjoy just and favourable conditions of work: Prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43); Prohibiting terms of industrial instruments requiring or permitting contributions to unregistered worker entitlement funds and other funds (Recommendation 49). The Bill also prohibits terms of modern awards and enterprise agreements that limit employee choice to pay into these funds; and Prohibiting any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular employee benefit fund, superannuation fund or employee insurance scheme (Recommendation 50). Where the provisions of the Bill engage the right to work and the right of everyone to enjoy just and favourable conditions of work, they pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate. 1. Prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43) House of Representatives page ix Fair Work Laws Amendment (Proper Use of Worker Benefits)

12 Human Rights Compatibility Statement The Bill would amend the FW Act to prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund (Recommendation 43). Any restriction on the content of an enterprise agreement engages with the right to negotiate terms and conditions of employment voluntarily. The amendment has two objectives. First of all, the amendment seeks to remove any legal or practical compulsion on employees to contribute to election funds. The amendment does not prevent employees making genuine contributions voluntarily and independently of a relevant instrument. As noted above, compelling contributions to an election fund could be said to infringe basic principles of freedom of association and, by prohibiting mandatory contributions, the amendments promote human rights. Further, requiring contributions to an election fund is unlikely to be a just or favourable condition of employment. Secondly, the amendment addresses the possibility of contributions made in accordance with a relevant instrument being used to avoid the intent of the prohibition on organisations using their resources to favour a particular candidate in an election (section 190 of the RO Act). Section 190 prohibits any direct diversion of an organisation s funds for the purposes of the election of a particular candidate and this amendment will ensure that organisations cannot achieve indirectly what they cannot do directly. In the circumstances, prohibiting mandatory employee contributions to an election fund is a necessary, reasonable and proportionate means of giving effect to both objectives. 2. Prohibiting terms of industrial instruments requiring or permitting contributions to unregistered worker entitlement funds and other unregistered funds (Recommendation 49). Prohibiting terms of modern awards and enterprise agreements that limit employee choice The Bill contains detailed provisions that deal comprehensively with the governance, financial reporting and financial disclosures required by worker entitlement funds (new Part 3C of Chapter 11). Worker entitlement funds are established for the purpose of funding employee entitlements such as redundancy pay and sick leave. Funds are typically established as joint ventures between industry parties. These funds share many of the features of a managed investment scheme; however, worker entitlement funds are currently exempt from the regulatory requirements that apply to managed investment schemes and financial products under the Corporations Act The Royal Commission noted that worker entitlement funds invariably distribute the income generated on contributions received by the worker entitlement fund to industry parties to be used as the parties see fit rather than for the benefit of the employers who contribute to the fund or the employees who are ostensibly the intended beneficiaries of the fund. The amendments contained in the Bill address a regulatory gap that has the potential to allow registered organisations to favour their own interests over those of their members. As worker entitlement funds are separate from the industry parties that establish them, regulation of these funds does not engage the right to freedom of association. However, the new provisions in the Bill that prohibit any term of an enterprise agreement from requiring or permitting House of Representatives page x Fair Work Laws Amendment (Proper Use of Worker Benefits)

13 Human Rights Compatibility Statement contributions for the benefit of employees being made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (Recommendation 49) engage with the right to work and the right to just and favourable conditions of work. The Bill would amend the FW Act to prohibit any term of a modern award (section 151A) or an enterprise agreement (paragraphs 194(i)-(k)) requiring or permitting contributions to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity or deductible gift recipient (Recommendation 49). This amendment complements other amendments to the RO Act that will require the registration of worker entitlement funds to address the lack of prudential regulation of worker entitlement funds. Additionally, the amendments will require any term of a modern award or enterprise agreement that names a worker entitlement fund or insurance product, to not prohibit an employee from choosing another fund or insurance product. These restrictions on the content of a modern award or enterprise agreement engage with the right to negotiate terms and conditions of employment voluntarily. The legitimate objectives of this amendment are to address the potential for misappropriation of funds and avoid conflicts of interest and possible coercion. The Royal Commission recommended that where a fund controls workers entitlements it should be subject to appropriate regulation. The amendments address the problems identified by the Royal Commission in a reasonable, necessary and proportionate manner. The amendments do not prohibit contributions to worker entitlement funds. Rather, they require such contributions to be made to registered worker entitlement funds that are subject to basic governance and disclosure requirements designed to address potential conflicts of interest, breaches of fiduciary duty and the potential for coercion. Furthermore, the amendments will provide employees with a guarantee that any contributions they voluntarily make to a worker entitlement fund is subject to appropriate scrutiny. 3. Prohibiting any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (Recommendation 50). The amendments will prohibit any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (Recommendation 50). The amendment seeks to remove any legal or practical compulsion on employees to contribute to certain funds. The amendment does not prevent employees making genuine contributions voluntarily and independently into a worker entitlement fund, superannuation fund, training fund, welfare fund or an insurance scheme. Compelling contributions to such a fund or scheme could be said to infringe basic principles of freedom of association. By prohibiting mandatory contributions, the amendments promote human rights. The amendments address the problems identified by the Royal Commission in a reasonable, necessary and proportionate manner. Right to the presumption of innocence and other guarantees House of Representatives page xi Fair Work Laws Amendment (Proper Use of Worker Benefits)

14 Human Rights Compatibility Statement Article 14(2) of the ICCPR provides that everyone charged with a criminal offence has the right to be presumed innocent until proved guilty according to the law. Amendments The Bill inserts two new offence provisions in the RO Act to ensure compliance with the new registration and disclosure requirements for worker entitlement funds including the following criminal offences: operating an unregistered worker entitlement fund (section 329JA); and failing to comply with a request for information from the Registered Organisations Commissioner (the Commissioner) in respect of breach of a condition by a worker entitlement fund (subsection 329NF(4)). These provisions engage the right to the presumption of innocence and are consistent with that right. These offences pursue the legitimate objective of ensuring compliance with the new registration and disclosure requirements for worker entitlement funds under new Part 3C of Chapter 11. The need for the new provisions regulating worker entitlement funds was discussed at length above. These offences underpin a scheme of regulation of worker entitlement funds that, with the exception of operating an unregistered worker entitlement fund, are not punishable by a term of imprisonment. Right to Privacy and the Right to, and Freedom from Unlawful Attacks Upon, Reputation The right to privacy in Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with a person's privacy, family, home and correspondence. It also prohibits unlawful attacks on a person's reputation. Right to Privacy Amendments The following amendments in the Bill engage the right to privacy through proposed new requirements to disclose personal information: Item 6 of Schedule 1 disclosure to the Commissioner of loans, grants and donations. Item 3 of Schedule 5 disclosure of financial benefits in relation to certain disclosable arrangements. These measures are permissible as they are necessary in order to ensure adequate financial transparency in relation to the affairs of registered organisations. It is also relevant to note that the Commissioner must omit any residential addresses disclosed and has a discretion to omit other personal information (subsection 237(4A) and section 329SB). Right to, and Freedom from Unlawful Attacks Upon, Reputation Amendments House of Representatives page xii Fair Work Laws Amendment (Proper Use of Worker Benefits)

15 Human Rights Compatibility Statement Section 329LA of the Bill provides that the Commissioner cannot allow the registration, or continued registration, of a worker entitlement fund if any of the officers or staff of the operator who perform duties in relation to the fund are not of good fame or character (condition 8). Paragraph 329LE(c) provides that the Commissioner must have regard to any other matters, not otherwise mentioned in section 329LE, the Commissioner considers relevant when making an assessment as to whether an officer or staff member is of good fame or character. In allowing the Commissioner to consider the reputation of an officer, sections 329LA and 329LE engage the right to protection from interference with, or attacks upon, reputation. The Commissioner s powers are prescribed by law and will not be arbitrarily imposed. The Commissioner is provided with this capacity as part of a reasonable and proportionate response to the concerns about the integrity of those who control worker entitlement funds. Conclusion The Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. House of Representatives page xiii Fair Work Laws Amendment (Proper Use of Worker Benefits)

16 Notes on Clauses NOTES ON CLAUSES In these notes on clauses, the following abbreviations are used: 2016 Amendment Act Fair Work (Registered Organisations) Amendment Act 2016 AAT Commission Commissioner Administrative Appeals Tribunal Registered Organisations Commission Registered Organisations Commissioner Corporations Act Corporations Act 2001 FBTA Act Fringe Benefits Tax Assessment Act 1986 FW Act Fair Work Act 2009 FWC Fair Work Commission ITA Act 1997 Income Tax Assessment Act 1997 Legislation Act Legislation Act 2003 Regulatory Powers Act Regulatory Powers (Standard Provisions) Act 2014 RO Act Fair Work (Registered Organisations) Act 2009 Royal Commission Royal Commission into Trade Union Governance and Corruption ( ) TA Act Taxation Administration Act 1953 the Bill the Report Fair Work Laws Amendment (Proper Use of Worker Benefits) The final report of the Royal Commission into Trade Union Governance and Corruption Clause 1 Short title 1. This is a formal provision specifying the short title. Clause 2 Commencement 2. The table in this clause sets out when the provisions of the Bill commence. Clause 3 Schedules House of Representatives page Fair Work Laws Amendment (Proper Use of Worker Benefits)

17 Notes on Clauses 3. Clause 3 of the Bill provides that an Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule has effect according to its terms. House of Representatives page Fair Work Laws Amendment (Proper Use of Worker Benefits)

18 Schedule 1 Amendments relating to financial management and accountability Schedule 1 Financial management and accountability 4. Schedule 1 of the Bill will introduce a number of new financial management obligations into the RO Act. 5. Part 1 contains the principal amendments to the RO Act which respond to Recommendations 9, 10, 17 and 39 of the Report. 6. Part 2 contains application and transitional provisions relating to the amendments contained in Part 1. Part 1 - Amendments Fair Work (Registered Organisations) Act 2009 Item 1 Section 6 7. This item amends section 6 by inserting three new definitions related to the amendments made in this schedule. 8. The item inserts a new definition of credit card for the purposes of new section 252A which will require that reporting units retain certain records relating to the use of credit cards. The new definition provides that credit card has the meaning provided in subsection 252A(7). 9. The item also inserts new definitions of reportable loan and reportable grant or donation for the purposes of the amendments made to section 237. Section 237 concerns when a reporting unit must notify the Commissioner of loans, grants and donations. The new definitions provide that reportable loan has the meaning provided in new subsection 237(1A) and reportable grant or donation has the meaning provided in new subsection 237(1B). Item 2 Paragraph 141(1)(ca) Item 3 Section 142A 10. These items repeal provisions that will no longer be required due to the amendments contained in new Division 5 of Part 2A of Chapter 9 see item 16 below. 11. Item 2 repeals paragraph 141(1)(ca) of the RO Act which currently provides that the rules of an organisation must require the organisation and each of its branches to develop and implement policies relating to financial expenditure. 12. Item 3 repeals section 142A of the RO Act which enables the Minister to make model rules for the purposes of paragraph 141(1)(ca). 13. These provisions will be replaced by a direct statutory requirement that organisations and branches adopt financial management and accountability policies that are binding on all officers and employees see new section 293N in item 16 below. The Commissioner will also be able to publish model policies - see new section 293R in item 16 below. 14. These amendments give effect to recommendation 9 of the Report. House of Representatives page 3 Fair Work Laws Amendment (Proper Use of Worker Benefits)

19 Schedule 1 Amendments relating to financial management and accountability Item 4 Section This item amends the simplified outline of Chapter 8 contained in section 229 to take into account the amendments made to section 237 by items Section 229 is amended to provide that the details of some types of loans, grants or donations made by, or to, an organisation must be provided to the Commissioner. Item 5 Subsection 237(1) 16. This item repeals and replaces subsection 237(1) and inserts new subsections 237(1A) and 237(1B) to respond to recommendations 10 and 39 of the Report. Under amended section 237, organisations will have to provide the Commissioner with a statement including the details of each loan, grant or donation over $1,000 made by, or to, an organisation during a financial year. The statement must also include the details of each loan, grant or donation under $1,000 made by the organisation to a particular person or made to the organisation by a particular person if the total of those loans, grants and donations would together exceed $1,000 within a financial year. 17. Currently, organisations must make statements under section 237 but these statements only concern loans, grants and donations over $1,000 made by the organisation. The Report recommended that the RO Act be amended so that the details of relevant loans, grants and donations made to the organisation must be provided. 18. New subsection 237(1) provides that an organisation must, within 90 days of the end of a financial year (unless allowed a longer period by the Commissioner), lodge with the Commissioner a statement setting out the particulars of: any reportable loans made by the organisation during the financial year; any reportable grants or donations made by the organisation during the financial year; any reportable loans made to the organisation during the financial year; and any reportable grants or donations made to the organisation during the financial year. 19. An organisation that contravenes subsection 237(1) by failing to provide the Commissioner with the reports in time will face a civil penalty of up to 100 penalty units. 20. New subsection 237(1A) provides that a loan is a reportable loan where: a loan is made to or from an organisation and exceeds $1,000; or a loan is made to the organisation by a particular person or is made by the organisation to a particular person if the total of all the loans, grants and donations made to or by the particular person would together exceed $1,000 within a financial year. 21. New subsection 237(1B) provides that a grant or donation is a reportable grant or donation where: a grant or donation is made to or from an organisation and exceeds $1,000; or House of Representatives page 4 Fair Work Laws Amendment (Proper Use of Worker Benefits)

20 Schedule 1 Amendments relating to financial management and accountability a grant or donation is made to the organisation by a particular person or is made by the organisation to a particular person if the total of all the loans, grants and donations made to or by the particular person would together exceed $1,000 within a financial year. Item 6 After subsection 237(4) 22. This item inserts new subsection 237(4A) providing that, when allowing a member of an organisation to inspect their organisation s statements as provided for under current subsection 237(4), the Commissioner must omit residential addresses and may, at the Commissioner s discretion, omit other personal information. This gives the Commissioner the necessary power to ensure that other personal or sensitive material can be redacted to protect the privacy of such information during an inspection. Item 7 Subsection 237(5) Item 8 Paragraph 237(5)(d) 23. These items amend subsection 237(5) to take into account the fact that statements must now be prepared for loans made by or to an organisation. Item 7 replaces the phrase relevant particulars, in relation to a loan made by with particulars, in relation to a loan made by or to. Item 8 repeals and replaces current paragraph 237(5)(d) with new paragraphs 237(5)(d) and 237(5)(e). 24. New paragraph 237(5)(d) provides that a statement setting out the particulars of a reportable loan made by an organisation must set out the name and address of the person to whom the loan was made and the arrangements for repayment of the loan (unless the loan was made to relieve a member of the organisation, or a dependent of a member, from severe financial hardship). New paragraph 237(5)(e) provides that a statement setting out the particulars of a reportable loan made to an organisation must set out the name and address of the person who made the loan and the arrangements for repayment of the loan. Item 9 Subsection 237(6) Item 10 Paragraph 237(6)(c) 25. These items amend subsection 237(6) to take into account the fact that statements must now be prepared for grants or donations made by or to an organisation. Item 9 replaces the phrase relevant particulars, in relation to a grant or donation made by with particulars, in relation to a grant or donation made by or to. Item 10 repeals and replaces current paragraph 237(6)(c) with new paragraphs 237(6)(c) and 237(6)(d). 26. New paragraph 237(6)(c) provides that a statement setting out the particulars of reportable grant or donation made by an organisation must set out the name and address of the person to whom the grant or donation was made (unless the grant or donation was made to relieve a member of the organisation, or a dependent of a member, from severe financial hardship). New paragraph 237(6)(d) provides that a statement setting out the particulars of reportable grant or donation made to an organisation must set out the name and address of the person who made the grant or donation. Item 11 Paragraph 252(1)(a) House of Representatives page 5 Fair Work Laws Amendment (Proper Use of Worker Benefits)

21 Schedule 1 Amendments relating to financial management and accountability 27. This item amends paragraph 252(1)(a) to take into account the insertion of new section 252A (see item 14, below) and the requirement it places on reporting units to retain certain records relating to credit card expenditure. The amendments to paragraph 252(1)(a) mean that a failure by a reporting unit to keep such financial records as required by new section 252A will be a contravention of a civil penalty provision, with a penalty of up to 100 penalty units (see also the amendments contained in item 12). Item 12 At the end of subsection 252(1) 28. This item inserts new paragraph 252(1)(d) and a civil penalty for contraventions of subsection 252(1). Section 252 of the RO Act requires reporting units to keep proper financial records. Subsection 252(1) details the purposes for which financial records must be kept. 29. New paragraph 252(1)(d) provides that a reporting unit must keep its financial records in a manner that will enable an officer and related party disclosure statement for the organisation to which the reporting unit relates or, if the reporting unit is made up of one or more branches, each such branch, to be prepared in accordance with section 293J. Section 293J was inserted into the RO Act by the 2016 Amendment Act and requires that organisations prepare officer and related party statements concerning the remuneration of the top five most highly remunerated officers and payments made to related parties and declared persons or bodies. 30. Recommendation 17 of the Report was that there should be a civil penalty for failures to keep financial records in accordance with section 252. The new civil penalty inserted by this item for contraventions of subsection 252(1) provides for penalties of up to 100 penalty units. This new penalty will work to ensure greater compliance by providing consequences for failures to comply with record keeping requirements. Item 13 - At the end of subsection 252(5) 31. This item responds to recommendation 17 of the Report by inserting a new civil penalty of up to 100 penalty units for failures to comply with subsection 252(5). Subsection 252(5) requires that organisations keep the financial records required under subsection 252(1) for a period of at least seven years after the completion of the relevant transactions. Item 14 After section This item responds to recommendation 10 of the Report. It inserts new section 252A which provides that statements or records relating to certain credit card expenditure must be retained by reporting units. Requiring that reporting units retain records relating to credit card expenditure will ensure that relevant records are available if ever they should be needed for the purpose of an investigation. Failure to keep the specified records will be a contravention of a civil penalty provision with a penalty of up to 100 penalty units. 33. New subsection 252A(1) states that section 252A sets out the credit card records that must be kept by reporting units for the purposes of paragraph 252(1)(a). 34. New subsection 252A(2) provides that a reporting unit must keep credit card statements or copies of those statements provided by the issuer of a credit card where the reporting unit is the holder of the relevant credit card account. House of Representatives page 6 Fair Work Laws Amendment (Proper Use of Worker Benefits)

22 Schedule 1 Amendments relating to financial management and accountability 35. New subsection 252A(3) provides that, where the reporting unit does not hold the account for a credit card, the reporting unit must keep records of a particular use of that credit card in accordance with subsection 252A(4). This subsection will apply if: the organisation to which the reporting unit relates or a branch that is, or is part of, the reporting unit, is obliged to make a payment to the credit card account in relation to that use; and the user of the credit card was an officer of the organisation to which the reporting unit relates, or an officer of a branch that is or is part of the reporting unit; and the use of the credit card was on behalf of, or purportedly on behalf of the reporting unit in the course, or purported course of, performing the officer s duties in relation to the reporting unit. A reporting unit is not obliged to keep the actual credit card statement in situations where it is not the holder of the relevant credit card account to avoid the reporting unit being required to keep personal information that is not relevant to the transaction it is obliged to make a payment in relation to. 36. New subsection 252A(4) sets out that the record of a particular use of a credit card for the purposes of subsection 252A(3) must, at a minimum, include the information on the credit card statement about the use. This subsection does not preclude the actual credit card statement from being retained with information that is not relevant to the transaction that the reporting unit is obliged to make a payment in relation to being redacted. 37. New subsection 252A(5) provides that the payment made by the reporting unit, organisation or branch where the credit card is not held by the reporting unit may be made by payment to the relevant credit card account or by reimbursement to the holder of the account or another person who pays, or is obliged to pay, an amount to the credit card account. 38. Subsection 252A(6) clarifies that records relating to credit card expenditure incurred by officers in the manner described above in subsection 252(3) must be retained whether or not the credit card account is held by the officer or any other period and whether or not the credit card is also used in other manners. This subsection also clarifies that subsection 252A(3) does not require a reporting unit to keep records of a particular use of a credit card if that use is not covered by subsection 252(3). 39. Subsection 252A(7) provides that a credit card is any of: an article of a kind commonly known as a credit or charge card; any similar article intended for use in obtaining cash, goods or services on credit; or an article of a kind that persons carrying on business commonly issue to their customers or prospective customers for use in obtaining goods or services from those persons on credit. 40. This definition of credit card has been adapted from the definition provided in subsection 39(5) of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010). House of Representatives page 7 Fair Work Laws Amendment (Proper Use of Worker Benefits)

23 Schedule 1 Amendments relating to financial management and accountability Item 15 Section 293A 41. This item amends the simplified outline of Part 2A of Chapter 9 to include reference to the requirement for organisations and branches to maintain approved binding policies in relation to financial management and accountability, as required by new Division 5 of Part 2A (see item 16, below). Item 16 At the end of Part 2A of Chapter This item inserts a new Division 5 in Part 2A of Chapter 9 requiring registered organisations and branches to have binding financial management and accountability policies. These provisions give effect to recommendation 9 of the Report. 43. The RO Act was amended in 2012 to require each organisation to have rules requiring the organisation and each of its branches to develop and implement policies relating to their financial expenditure (paragraph 141(1)(ca)). However, evidence before the Royal Commission demonstrated the ineffectiveness of those amendments, which did nothing to alleviate financial mismanagement of members funds. 44. The Royal Commission expressed concern that there is very little detail concerning what topics should be covered by financial expenditure policies, even if the model rules created under section 142A of the RO Act are taken into account. The Royal Commission also noted that there is no requirement that policies relating to financial expenditure be in writing and that this makes it hard to find evidence of whether an organisation has financial expenditure policies, let alone if an officer or employee has acted in accordance with those policies. 45. The Bill replaces the 2012 provisions with a statutory obligation in new Division 5 requiring organisations and branches to adopt, periodically review and lodge, specified financial management and accountability policies that would be binding on all officers and employees. Division 5 Policies in relation to financial management and accountability 46. Division 5 is entitled Policies in relation to financial management and accountability and contains new sections 293N, 293P, 293Q and 293R. New section 293N Organisations and branches to have policies in relation to financial management and accountability 47. New subsection 293N(1) requires organisations and branches to have written policies dealing with specified financial management and accountability matters that are binding on all officers and employees. These policies must be approved by the committee of management and a failure to have such policies will attract a maximum civil penalty of 100 penalty units. 48. Organisations and branches will be required to have policies relating to each of the following matters: financial decision-making; receipts; House of Representatives page 8 Fair Work Laws Amendment (Proper Use of Worker Benefits)

24 Schedule 1 Amendments relating to financial management and accountability levels of authorisation of expenditure; credit cards; procurement; hospitality and gifts; the establishment, operation and governance of related parties; and any other matters prescribed by the regulations. 49. New subsection 293N(2) provides that organisations and branches must ensure that policies developed in accordance with subsection 293N(1) are not inconsistent with the RO Act. Subsection 293N(2) is a civil penalty provision with a maximum penalty of 100 penalty units. 50. New subsection 293N(3) provides that policies developed in accordance with subsection 293N(1) must be reviewed at least once in the four years after it is approved by the committee of management and at least once in the four years after the completion of the last review. Subsection 293N(3) is a civil penalty provision with a maximum penalty of 100 penalty units. 51. New section 293P provides that regard may be had, when determining whether an officer or employee of an organisation or branch has contravened a provisions of Division 2 of Part 2 of Chapter 9 (general duties in relation to the financial management of organisations), to whether the officer or employee has acted in compliance with policies created in accordance with subsection 293N(1). 52. New subsection 293Q(1) provides that organisations and branches must provide a copy of each financial management and accountability policy created in accordance with section 293N to the Commissioner within 28 days after the creation and approval, or a review or material change, of the policy is complete. A failure to do so will attract a maximum civil penalty of 100 penalty units. 53. Subsection 293Q(2) provides that policies provided to the Commissioner in accordance with subsection 293Q(1) must be made available on the website of the organisation or branch (if it has one) or given to each member of the organisation or branch. The option of giving a copy triggers section 11 of the Electronic Transactions Act 1999 which allows the copy to be given electronically if consent to do so has been given. 54. New section 293R provides that the Commissioner may publish on the Commissioner s website one or more model policies relating to the matters set out in subsection 293N(1). These model policies may be adopted by an organisation or branch in whole or in part and with or without modification. 55. Model policies created by the Commission may provide guidance to organisations seeking to develop their own policies. Part 2 Application and transitional provisions Item 17 Application of amendments of section 237 House of Representatives page 9 Fair Work Laws Amendment (Proper Use of Worker Benefits)