ROYAL COMMISSION INTO TRADE UNION GOVERNANCE AND CORRUPTION ELECTRICAL TRADES UNION OF AUSTRALIA VICTORIAN BRANCH

Transcription

1 CHECK AGAINST DELIVERY ROYAL COMMISSION INTO TRADE UNION GOVERNANCE AND CORRUPTION ELECTRICAL TRADES UNION OF AUSTRALIA VICTORIAN BRANCH COUNSEL ASSISTING OPENING STATEMENT 5 SEPTEMBER 2014 The Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) was formed by the amalgamation of several federally registered organisations from plumbing, electrical and communications trades. The most recent figures indicate that at the end of 2013 the CEPU had 112,049 members. Over 60% of these members belong to the Electrical, Energy and Services Division. The hearing today concerns relevant entities associated with a branch of this division, namely the Electrical Trades Union of Australia Victorian Branch. I refer to this branch as the Victorian ETU. From time to time the Victorian ETU negotiates a framework Enterprise Bargaining Agreement (EBA) with the National Electrical and Communications Association (NECA). NECA is the industry body representing employers in the industry. NECA negotiates the terms of the framework agreement on behalf of its members. The outcome of these industry negotiations at a state level between NECA and the ETU is that NECA s members, after agreement is reached on the framework agreement, put it to a vote of their employees. Each employer subsequently submits its EBA reflecting the terms of the framework agreement and as voted on by its employees to the Fair Work Commission for approval. The focus of the hearing today is clauses in these EBAs which require employers to make payments to, or acquire services from, relevant entities associated with the ETU or other unions. Why are specific service providers chosen? How much do NECA and the ETU receive in payments from these service providers? Do these arrangements inappropriately and unnecessarily inflate employers costs and hence project costs? Is there adequate disclosure to

2 2 employers and employees of these arrangements and the quantum of revenue received by NECA and the ETU? The starting point is the Framework Agreement negotiated by the Victorian ETU and NECA. That pro forma agreement includes the following clauses. First, a severance fund clause. It requires employers to make weekly severance (or redundancy) payments to the PROTECT Severance Fund [133D]. The PROTECT Severance fund is a relevant entity associated with the Victorian ETU. Second, an income protection insurance fund clause. This clause requires employers to provide Income Protection Insurance through an ETU nominated policy and scheme [133J]. The premium is collected and administered by the Protect Severance Scheme. Third, a super fund clause. It requires an employer to pay all weekly superannuation contributions for employees into the C+BUS industry superannuation fund. C+BUS is a relevant entity associated with the CFMEU. Fourth, a long service leave fund clause. This clause requires employers to make long service leave contributions to a not-for-profit entity, Co-INVEST Limited. These clauses have ultimately been adopted in numerous EBAs now approved by the Fair Work Commission. I will deal with each clause in turn. I will do so by reference to a diagram that shows the relationships between entities and the money trail. The diagram shows the amounts paid during the financial year ending 30 June Severance payments The Protect Severance Scheme, known as the Electrical Industry Severance Scheme was established by the Victorian ETU and NECA by a trust deed dated 19 February 1998 [298]. Mr Dean Mighell, who resigned as State Secretary of the Victorian ETU in March last year, was instrumental in the establishment of the scheme. So too was Philip Green. Mr Green was the Executive Director of NECA Victoria until June this year. Both will give evidence today. ElecNet (Aust) Pty Ltd is the trustee of the Protect Severance Scheme [301]. Its constitution requires that it have three directors appointed by the ETU and two by NECA [358]. It also has an independent director. Mr Mighell and Mr Green are directors of this company [287]. Under the trust deed for the Protect Severance Scheme, employers become members of the scheme and make severance or redundancy contributions to the scheme on behalf of their employees in the amounts specified in an EBA (cl 5) [310]. ElecNet, as trustee, credits each

3 3 contribution made in respect of an employee to what is called a Worker s Account (cl 6) [312]. A severance payment will be made from the Worker s Account to him or her if the worker s employment is terminated, or on his or her retirement or death (cl 8) [314]. The balance of a worker s account is forfeited to the scheme if he or she cannot be located (cl. 12) [317]. Significant severance contributions are made to the scheme by employers each year. As at 30 June 2013, the Protect Severance Scheme held assets totalling $245.8 million [426]. In that same financial year it earned $11.8 million in income from its investments and other operating activities [425]. Under the trust deed (cl. 14) this income from the scheme may be used to pay the reasonable administrative expenses of the scheme [426], make payments to members [426], or be retained in the trust [427]. Income retained by the trust and capitalised is available for distribution to NECA and the ETU. NECA is entitled to 25% of the trust distribution; the Victorian ETU to 75% of it [322]. The Trust has not made a distribution since ElecNet, as trustee of the Protect Severance Scheme, engages another entity, Protect Services Pty Ltd, to provide administrative services to the Scheme. Those services are the collection of severance and income protection premiums from employers, and extend to collection of arrears and the engagement of debt collection services to pursue any recovery action [583]. The services agreement provides that ElecNet will pay Protect Services $3.30 per week per employee for those services [579]. In the financial year ending 30 June 2013 this totalled $3.9 million [E]. ElecNet pays these service fees out of the income it generates from its investment activities. The Board of Protect Services is identical to that of ElecNet [472]. Its constitution also requires that the board comprise three directors nominated by the ETU and two nominated by NECA (cl 4.2) [482]. Protect Services is trustee of the Protect Services Trust. The beneficiaries of that trust fall into two classes (Schedule) [561], the ETU Class and the NECA Class. In any year where there is a trust distribution, the Victorian ETU is entitled to 75% of it; the Victorian Chapter of NECA to 25% of it [565]. For the financial year ending 30 June 2013, the Victorian ETU was allocated half a million dollars. The Victorian Chapter of NECA was allocated $170,000 [654]. In addition to the trust distributions, both ElecNet and Protect Services pay directors fees to the Victorian ETU and NECA. In the financial year ending 30 June 2013, ElecNet and Protect Services paid the Victorian ETU almost $300,000 in director s fees. NECA was paid $160,000. Income Protection Insurance

4 4 The Framework Agreement between NECA and the ETU requires an employer to provide Income Protection Insurance through an ETU nominated policy and scheme (cl 29 of Part A; cl 30 of Part B) [133J/133S]. It further provides that the premium and charges are to be collected and administered by the Protect Severance Scheme. The clause sets out the rates of payment. Individual EBAs replicate those rates exactly. They also contain the notation that it is the intention of NECA and the ETU to seek a lower premium [133J/133T]. What the clause does not disclose and nor do the clauses in the individual EBAs which give effect to the framework agreement is that the ETU has separately done an exclusive deal with a company named ATC Insurance Solutions. The so-called Supply Agreement records ETU s appointment of ATC to procure insurance cover for the benefit of employees under the relevant EBAs [215]. ATC receives approximately $14.8 million per year in premiums and charges by reason of this Supply Agreement. The Supply Agreement sets the price ATC will charge employers for income protection insurance. The price incorporates an ETU Management Fee (cl 4.1) [222]. The ETU Management Fee is not disclosed separately to employers in the insurance premiums quoted in the EBAs. What the employer s EBA sets as the rate for income protection insurance is the bundled up amount incorporating the ETU Management Fee. This is not an insignificant matter. The ETU Management fee is set at $4 per week per apprentice, and $5.50 per week per tradesman. That represents around 20% of the cost of the insurance product charged to the employer [233]. In the financial year ending 30 June 2013 the inclusion of the ETU Management Fee resulted in $3.7 million being paid to the Victorian ETU [446]. The title Management Fee is apt to mislead. Protect Services Pty Ltd provides the necessary administrative services for managing the collection, application, and monitoring of employer payments. Protect Services is not paid for those services by the Victorian ETU. Rather, it is paid either by ElecNet as trustee for the Protect Severance Scheme pursuant to the Services agreement I have already mentioned [603], or, by a $1.65 per employee per week surcharge levied directly on the employer by Protect Services [575]. The $1.65 levy is charged to any employer who only pays income protection insurance premiums and does not also make severance contributions to the Protect Severance Scheme. Additionally, the Victorian ETU receives an additional $60,000 per year in cost-recovery fees from ATC [G]. That sum is paid directly to the Victorian ETU from ATC.

5 5 The result of this complex series of arrangements is that the ETU Management fee is, in effect, a 20% surcharge that passes intact, albeit via an intermediary, from an employer s books to the Victorian ETU s accounts. The Supply Agreement between the Victorian ETU and the insurance-provider ATC provides that the very existence of the Supply Agreement, and its terms, and any information relating to it, is confidential subject to limited exceptions [216, 227]. It was signed in 2012 by Mr Mighell as Secretary of the Victorian ETU [232] and Mr Christopher Anderson, director of ATC Insurance Solutions [196]. The following year, in April 2013, Mr Mighell, through his company Dean Mighell & Associates Pty Ltd [235], signed an Independent Contractors Agreement with ATC Insurance Solutions. A $100,000 upfront payment was payable within 30 days of Mr Mighell signing the agreement [240, 247]. ATC agreed to pay Mr Mighell $15,000 per month exclusive of GST in return for Mr Mighell providing advice and expertise in relation to Income Protection Schemes for Trade Unions [238, 240]. ATC terminated the agreement earlier this year [259], although Mr Mighell invoiced ATC a fortnight later for an additional $165,000 said to be due as a bonus payment [260]. Mr Anderson will also give evidence today. Superannuation The Framework EBA provides that employers must pay their superannuation contributions for employees to the industry fund CBUS. That fund, a relevant entity associated with the CFMEU, has already been the subject of hearings of this Commission. So too has the issue of the appropriateness of EBAs removing individual choice from employees as to the destination of their superannuation entitlements. The Commission will be considering further the justification for nominating CBUS in an EBA as a mandatory, as opposed to default, fund. Long Service Leave The final clause of the framework agreement of relevance to today s hearing is a clause which provides that employers make long service leave contributions to a non-profit company, CoInvest Limited. Mr Green, previously of NECA, and Mr Troy Gray, the current State Secretary of the Victorian ETU are both directors of the company. It administers a portable long service leave scheme for the construction industry in Victoria. The rationale for the scheme is that the industry

6 6 is characterised by project work and a very large percentage of workers in the industry therefore shift employers frequently and would not be eligible for typical long service leave entitlements. Pursuant to statutory arrangements, all members of the construction industry, including employers, workers, working subcontractors and apprentices are required to be registered with CoInvest. It is included in today s hearing as a kind of counter-point: it is not a relevant entity of the Victorian ETU as that term is defined in the Commission s terms of reference, although the Victorian ETU does receive about $46,000 in director s fees from Co-Invest in return for the services of Mr Gray. Its relevance is to provide the Commission with a more complete picture of the range of circumstances in which the standard Victorian ETU EBA may require an employer to obtain services from, or make payments to, a nominated service provider. As the diagram shows, the effect of the totality of the arrangements I have described is that the Victorian ETU derives approximately $4.5 million per annum in fees and other income from payments made by employers pursuant to the terms of the EBAs negotiated by them or by NECA on their behalf with the Victorian ETU. Finally, I will say something briefly about the evidence of the first witness today. Mr Andrew Ermer is an Employee Relations Specialist employed by Thiess Pty Ltd. He was involved, as a Thiess representative, in the negotiation of an Enterprise Agreement for the Victorian Desalination Project in Wonthaggi, Victoria. He will give evidence as to the negotiation of severance and income protection insurance clauses in that Enterprise Agreement. The Thiess Enterprise Agreement was negotiated under enormous time pressure. The project tender had been awarded to Thiess in June 2009 and the project was to be built in two years. The evidence will be that work on the project had to commence by or about the end of A number of unions were involved in the negotiations of the Enterprise Agreement. The CFMEU and the ETU were dominant players. As concerns severance or redundancy payments, Mr Ermer will give evidence that the ETU was steadfast that the Protect Severance Scheme be used for electrical instrumentation trades employees. The CFMEU, AMWU, AWU and PTEU preferred a different industry scheme named INCOLINK. Thiess did not shop around for competitive tenders and agreed to the unions requests.

7 7 However, when it came to income protection insurance, Thiess did shop around. The CFMEU and the AMWU wanted Thiess to pay premiums to the Incolink Income Protection and Trauma Scheme. The initial starting point was $43.00 per week per employee. Mr Ermer sourced a competitive quote from Aon Consulting Pty Ltd. Aon was, after intense negotiations, prepared to offer the same or similar coverage as Incolink but for $20.00 per worker per week less. Incolink ultimately split the difference. ETU s preferred provider, identified as PROTECT, could not match Incolink s offering and the ETU reluctantly proposed that its workers also be covered by Incolink for income protection insurance. Thiess was by this point running out of time on its time-sensitive project. It bowed to the demands of the unions and agreed to go with Incolink s income protection insurance policy despite it being $10.00 per worker per week (roughly 40%) more than Aon s offering. Today s hearing is concerned with the reasons for why the unions were steadfast in insisting on the use by Thiess of relevant entities associated with a registered organisation, and why Thiess bowed to the demands.