Author: Mike

An Interesting Year-bought a business.

I was born in 1951 in Northampton, England. My father made shoes, my mother was a dress maker, and my brother was a hairdresser. After school I chose a mechanical apprenticeship and ended up working as an automotive technician, though one with a whole range of second jobs in a variety of fields. It was a hands-on, blue-collar existence: if you wanted more, you had to work harder to get it, whatever the prize was.

By the late 1970s, however, life in Britain – thanks to the Oil Crisis – had become increasingly hard. The country was bankrupt, and work was hard to come by. Emigrating seemed a good chance at a fresh start, and Australia called. Once here, we found out that the Oil Crisis had arrived right before us, and the country’s economy was not as great as we had been led to believe at Australia House in London. Nevertheless, the sun shines a lot in Queensland, and being poor here was much better than being poor in England! We got on with life the best we could, working double jobs, raising our children, and developing the small hillside acreage we had bought. This all came to an end in 1995, when while working on the locomotives in the cane fields, I fell off a moving train and broke my neck. In a few seconds, my life came to a crushing halt. Work was over, my physical life was over, and soon my marriage was over.

On the other side world, though, another marriage was coming to an end at the same time. My current wife had grown up in a country dominated by the USSR, but its dissolution had improved things little in her now-independent home country. She had a career as a teacher, two jobs, and two children she was now raising alone. Like me before, she too yearned for a better life.

We met online in 2001. We were both black sheep to an extent, and both ready to take risks to find what we were searching for. A meeting, a long introduction to family & friends , a marriage, and then ,a mountain of paperwork later, we were all together in Queensland, ready to tackle our new life in the tropics. I helped her, she helped me: together we found work and as a team , made a new start in life.

In 2005 my daughter left school disappointed in not being able to find a traineeship in her field of choice. My wife was having trouble in getting her international teaching qualifications accepted in Australia. As for me, I was working at a local bakery, but found the job increasingly hard due to spinal problems incurred from my accident. As a solution to all our problems, I ended up putting down my savings, superannuation, and mortgaged our house to buy a small but established business in a Queensland tourism centre. The previous owner, who had recently been diagnosed with cancer, was happy to sell, and the takeover proceeded smoothly.

With one full-time employee left over from the previous management, my daughter became a trainee under supervision, while my wife took up the position of a trainee manager. For myself I found a shop assistant’s position that I could manage and assisted at the new family business on the side. By 2006 we had settled into a routine and rhythm we were contented with.

Meanwhile, economic and political changes were taking place at both state and federal level. On the federal level, industrial relations were in turmoil. The same year the Liberal-National government had gained control of both houses of the parliament. Secure in its position, the government pushed forward with a set of proposals it had been sitting on for several years, all of them heavily backed by the business community.

One of the most hotly contested of the proposals was the new workplace relations plan for individual work agreements, which would severely damage the negotiating power of both unions and workers. The problem with the proposal was the same one that had marked the ’88 Super Levy Act’ : Individual Work Agreements was a federal initiative, but the government wished to impose it on the states. However, in order to compel the private business sector in the states to support the initiative, the government required Corporations Act jurisdiction that they knew they did not have.

In late 2005 the federal High court ruled on a case brought by the States and the Unions that the Corporations Act could not be extended to include jurisdiction over the state private sector businesses. The court decision was a split one- Yes, the federal Corporations Act could be stretched to cover the incorporated businesses operating in the States, but it would not have jurisdiction over the non-incorporated sectors in any of the states. [link] This ruling put down in ink the exact legal position of the jurisdiction of the Super Bill which had been imposed on the non-incorporated back in 1993.( see chapter 2)

In March 2006 the federal government passed its Work Choices initiative, which granted the Work Choices system power over incorporated businesses. Shortly prior to this, most state, city and town councils de-corporatised as they were public unionised companies. [info] This decision left individual councils open to lawsuits, but this was considered a reasonable price for being able to avoid the new Federal Work Choices Legislation. Again, this demonstrates that the states and territories were fully aware of the scope and jurisdiction of the Federal Corporations Act in 2006.

In mid-2006, Labor and the unions sat down to put together a strategy for the 2007 federal election. Publicly, it would be presented as an Anti-Work Choices plan. In reality, opposition to A.W.As was only a minute part of a larger, more ambitious overall strategy.

In early 2007 at the federal labor conference the new plan was presented to the states and unions that had not been party to its beginning. During the conference it became quite clear that the main objective of the plan would be the takeover of the non-incorporated sector in the participating states. This would involve extending the union-agreed award system to the non-incorporated sector. In other words, small and micro businesses would be forced to operate under an Industrial relations Federal awards system tailored for large, unionized industrial companies, regardless of the costs. (info)

The Labor manifesto made it plain that non-unionized private sector businesses – over 90% of them – would be targeted if Labor won the 2007 election, regardless of the fact that the limited operating conditions and increased costs would shrink the sector. That shrinkage, in turn however, could be taken up by the unionized incorporated sector.

Amazingly, the new plan was accepted by the membership, knowing that the 2005 High Court decision had clearly stated there was no federal jurisdiction over the non-incorporated private sector.

Once the plan had been cleared with the rank and file, it had to be legitimized. This was done by three labor-leaning academics, who in three months came up with an official version. [link] In August, Forward with Fairness was rolled out for the election. The issue of legality was never raised – nor was mention of the Non-Incorporated publicly mentioned.

The election of November 2007 was fought on the question of Work Choices. Labor’s favored slogan was ‘ we are fighting for all Australian Workers’. Yet nothing could have been further from the truth. A.W.A’s impacted only a tiny percentage of the labor market, but most those impacted would be unionised workplaces.

At the same time, the global financial crisis, which had begun in Wall Street, was slowly spreading out over the world. In terms of the Australian elections, this meant that the winner of the 2007 elections would also be dealing with the fallout, which in all likelihood would cost them the following election. This was probably the main reason why the Liberal-Nats sat back during the election and they never mention the non-incorporated either..

Unsurprisingly, the 2007 election ended in a landslide victory for labor. Immediately after New Year, the Forward with Fairness plan was introduced into parliament. While superficially the bill was presented as an anti-A.W.A-legislation, over two hundred pages of it were dedicated to getting rid of hundreds of existing state awards and replacing them with a lesser number of union-negotiated federal ones, which then could be imposed on the non-incorporated sector and incorporated sector. While the subsequent debate was particularly furious by the standards of Australian politics, the issue of legality was never raised, nor was the private, non-incorporated sector ever mentioned.

So far, the practice of negotiating bargaining agreements between unions and businesses to vary awards to suit unionized deals had been widespread in Australia. Since the early 2000s these agreements had been detrimental to the workers, often functioning as sweetheart deals between unions and management, with the former receiving cash payments for training funds etc,that were used to support Labor people into the various parliaments.

During 2008, there were very few new bargaining agreements. In 2009, as the new awards under Fair Work were being finalized by C.O.I.L., the old bargaining agreements were extended, and a flurry of thousands of new ones poured through the rubber stamping office of the Fair Work Commission. In late 2009 a huge list of state councils and other government bodies were exempted from the new Fair Work System. Consequently, the only businesses that would be impacted were the non-union incorporated and all non-incorporated businesses. The former lawfully, the latter unlawfully.

Shortly after the bill was passed, the waters were muddied further by the industrial relations minister, who presented in parliament a 4 page Ministerial Request directing the manner in which the A.I.R.C. chairman was to carry out the Modern Awards re-organization. [info] This request was a legal parliamentary instrument,as it was tabled in parliament, yet when viewed through the legal parameters of how an independent government body, such as the A.I.R.C., may be directed, its content was more than questionable, it was unlawful.

The Industrial relations Minister’s request instrument of 28/3/2008 contained demands and directives on the A.I.R.C. in order to control the outcomes of the Modern Awards System. This despite the fact that legally, a government minister may only make requests in general terms, as laid out in the parliamentary guidelines. The request, thus, was as unlawful as the legislation itself. (info)

Both the legislation and the request were accepted by the head of the A.I.R.C. with no questions asked

This leaves the federal labor Govt. with a major problem, the jurisdictional problem was acknowledged in the back room, but how was it to be overcome if the Fair Work future legislation was to go ahead with the Modern Federal Awards System lawfully in 2009/10.

Industrial Relations: Lies and Intimidation

In this chapter I will present a brief overview of the economic changes and decisions that took place in Australia between the 1980s and the early 2000s and consequently helped create the landscape we found ourselves in 2006. Moreover, it will illustrate the lengths governments will go to in order to protect themselves in financially crippling situations.

The process began in the late 1970s, when the Oil Crisis rocked Australia’s economy to its core. By the mid-1980s, the dollar had collapsed, and the financial system was under extreme strain. Interest rates had shot up, exports were in decline, and the rising prices of imports had begun to affect the cost of living. In order to keep both itself and the business sector viable, the federal government needed access to cheap money in Australia.

The federal government, the state governments, major financial institutions, several corporations, and the unions sat down to find a solution that would suit all those involved.

In the end, the only solution satisfactory to everyone involved, turned out to be the expansion of the superannuation scheme. Up to this point, public sector workers, major corporations, and large companies, had all had their own, separate superannuation schemes. From now on, all private sector workers in Australia would come under a federal superannuation scheme. The publicly presented rationale for the policy change, was improving workers’ retirement outcomes – a percentage of their income would be invested , in order to ensure their future financial security in retirement.

In practice, this meant that the Federal Government would gain access to funds it could control for its own short and long term needs. The State Governments would continue to control their own public service workers’ Super Funds, while the federal Scheme would only apply to the private sector workers’ contributions.

Large corporations, in their turn, would be getting the new Super funds investing the private sector Workers’ funds into the share market, and so could support those major corporations and businesses by giving them an improved capital base to assist their operations.

As it was a decision related to industrial relations, it was necessary for the scheme to have the support of the unions. For them, the deal offered an opportunity to improve their support base – and via association, that of the labor government – by presenting the scheme as their own initiative and success. The unions having long suffered from falling membership numbers, believed the deal would boost their relevance and halt the decline in union membership.

As stated before, the Superannuation Scheme was presented to the public as a way to ensure that all working Australians have a better retirement. Yet the way in which the superannuation money would be invested, and on what grounds, was never explained, and most importantly, unlike public workers’ schemes, the private sector workers’ super funds would not be protected, which was –and has – never been publicly stated.

At no point was it explained either, that inflation was to be kept at 2-3%, and that this would erode the dollar value of the funds over the years. Nor was it ever explained that superannuation funds would be run by major finance corporations, with ex-politicians and union heavyweights – all of whom would be compensated well for their time – being appointed to the super funds boards. The money for all their salaries would of course come from fees and out of the profits made by the funds each year. If a loss was made , then deductions would be made from each individual super account to cover the losses.

The deal presented to the public in 1988 stated that an agreement had been reached between the unions and the Federal Government, with big business and their lobby groups supporting the initiative. A pay rise of 3% would be awarded to the workers, and this would be kept as a super contribution in a designated fund. This agreement was made under the Industrial relations portfolio and was presented to the Australian public as the ‘ Wages Accord’ .

However, there was one major problem with implementing the scheme: the Australian Corporations Act, which governs federal laws on industrial relations. At the time, the act only applied to large corporations, while the states controlled their own industrial relations independently. The private non-incorporated sector did not come under the A.C.A. at all, as the people within them were designated as working individuals, not company entities. At the time there were questions raised about whether it would be lawful to impose this accord on state controlled private companies and their employees.

Thus, in order for the plan to work, the states would have to come on board and hand over the control of their private sector industrial relations. Giving up their independence in this area was not what they wanted, but the growing pressure from all around in the federal area, forced their hand. This regardless of the fact that such legislation would be unlawful if passed in parliament, given that under the Corporations Act there was no lawful jurisdiction to do so.

During this period, however, Australia had slipped into a full-blown recession, and those in power were forced to make decisions that were not in the best interests of the country. The states decided to keep control of their private sectors but agreed to allowing the Super Wages Accord to go ahead.

The law was passed. The small business sector, however, was slow to implement the plan, and in 1992, in order to enforce the collection of superannuation payments, the scheme came under the supervision of the Australian Tax Office. This was clearly intimidation aimed at the private sector and was allowed to go ahead with little protesting from the states.

Legally, the A.T.O. has federal control over any tax that is implemented by parliament on the Australian public. What the A.T.O. has no jurisdiction over whatsoever is imposing industrial relations laws having to do with wages or working conditions on either a federal or state level. In other words, bringing the Super system for the private sector into the Australian Tax office was unlawful.

The fact that this unlawful piece of legislation was allowed to go through parliament when most of the members and senators had a law background shows just how bad the financial system was in the early 1990s during that recession. The fact that it was not corrected when things gradually improved in the early 2000s, tells us that all the groups involved, were getting out of the Super system everything they had expected all along.

Although the matters above were generally known throughout the Federal & State Governments the Private sector Superannuation System was allowed to continue. Indeed, when a cash injection was required the Federal Govt. along with the unions, agreed to increase the wages deduction from the 3% to 9.5% and continued to call it the Employers contribution.

The original plan was to use a wage increase as the base for the Super Guarantee and it continued to do so as more wage increases were directed to employers to pay. When the super rate was not increased then the Federal & State Commisions increased wages through yearly cost of living increases.

The 18 years that this questionable process continued without any serious problems, received a setback in 2006, that setback will become clearer as this story progresses.

1987 Super Bill Info

The story began one bright blue day in a small Queensland tourist centre on the coast of the northern tropics. It was late winter ­–August – peak season for the small family businesses that make a living serving the thousands of tourists who come to holiday in the area each year. That morning, one of these businesses received a visit.

Around ten am, two official-looking people entered the reception and introduced themselves as Fair Work Inspectors. Having showed their licenses, they proceeded to inform the owners that the reason for the visit was to give a free educational talk concerning the changes in Workplace Relations the Federal Government had begun to roll out since the first of January 2010. As the owners were busy setting the place up for the day, Mike, who happened to be present that morning, sat down for a talk with them.

As it happened, Mike had recently made several phone calls to the Federal Government information line concerning the effects that the federal takeover of the state’s businesses would have for his family’s business. The phone calls, however, had only left Mike and his family confused as to how they would operate from the first of January 2011 onwards, when the law would come into effect for non-incorporated businesses. [clarification information]

One of the inspectors, Colleen, proceeded to explain the legislative changes, while John, her partner, had a look around the premises. To Mike’s surprise, the explanation put forth by Colleen matched none of the information he had received via the federal phone line. As it turned out, the new federal awards under which they would supposedly have to operate from the beginning of 2011 on were not even completed. Colleen then told Mike that their current state award would be amalgamated with the federal award for another, similar industry. Having described the award briefly, she then immediately contradicted herself by informing Mike that it was meant for incorporated businesses, and actually a different version of the award would apply to non-incorporated ones – a version that was still being worked on as they spoke – and whose exact differences when compared to the corporate version she could not quite explain.

During and after the federal election of 2007, repeated assurances had been made that the new system would be simple to implement, and would not cost a dollar more to the small businesses that would come under the federal Modern Awards. Between Colleen’s confusing statements and the look of the new award – shockingly different from the old one – it was clear that something was not right.

For those unfamiliar with Queensland’s legislation, under the state system (non-incorporated) businesses in tourism areas had been able to operate seven days a week with ordinary pay and no penalties for weekends or holiday loadings. The new system, on the other hand, would make it impossible to operate the state’s tourism industry without huge increases in labour costs. Nevertheless, Colleen assured Mike and his family that the increase in their costs would be minimal. Since the new award arrangement was still being debated, she could not say what kind of an effect it would have on the family’s business. Instead, she suggested that Mike and his family consult the government website as soon as the information became available.

What followed were several months of worry and confusion. In the end, the information in question remained unavailable until shortly before Christmas, when the new awards for small businesses finally came online, leaving them with a less than two weeks to get the paperwork organised for the new year.

Among other things, it turned out that the new award would have a transition period of five years, over which there was to be a gradual increase in loadings, penalties, and limitations on the operating hours and days which could be worked, effectively bringing the award into line with the one meant for large federal companies. In practice, it would remove the tourism operating state instruments from all private businesses that operated under them. “Easy to implement” and “not a dollar more” were beginning to look like bad jokes.

For Mike’s family, the year 2011 began with great confusion. Implementing the new award had turned out to be anything but straightforward. The employees were unhappy about both the time sheet arrangements and the work agreement in regards to days worked.

Eventually, one of the staff called the Fair Work infoline, and in another bizarre turn of events, was given information completely different from what had been explained by Colleen. As a result of this, some the employees began to insinuate that Mike and his family were lying to them, and that they were due a considerably larger increase in wages. When Mike tried to pull up the information on the award in order to settle the matter, he found that the documents had been deleted from the government website.

When he later called the federal infoline, Mike was told that he was wrong, and that this award, the one Colleen had initially named, was the correct one for his business – this despite the fact that the award in question was meant for incorporated businesses.

The staff, however, refused to believe the family, with some continuing to demand the wages they believed they were entitled to. This lead to a rearrangement of the hours and days worked until the true position could be established. No one was happy with this outcome, and relations between the owners and the staff continued to deteriorate. Things finally came to a head in February, when the owners received a call from a Fair Work inspector, who informed them that a case had been lodged for underpayment. (Said underpayment had supposedly occurred since 2010, despite the fact that in 2010 the business had not even been under the new award system.)

Shortly the business received another visit from John and Colleen. This time, however, the inspectors were not as friendly as before, as they proceeded to lay out the underpayment claims made by a graduate employee. In addition, the inspectors denied all knowledge of the missing award, and insisted that the corporate award was the correct one for them. Having been threatened with a fine of $33,000, the owners decided to pay the unsubstantiated claim. The full implications of the new system were beginning to become clear.

Not surprisingly, a new claim appeared shortly, this one regarding a trainee of six months. The claim was based on federal training rates, not the Queensland ones under which the trainee had been taken on under. Again Colleen made it clear that the business would have to pay a large increase in hourly rates. When Mike asked for evidence to substantiate her claim, no information applicable to a non-incorporated business could be presented. As a result, Mike began to investigate the new system and its history, going back to its inception in 2007.

As the second claim case dragged on, Mike discovered that the trainee had been contacted by Fair Work and had been encouraged to bring a case with the promise of a large settlement. This spurred Mike to double down on his research. Among other things, he discovered that the whole of the Fair Work legislation might have been unlawful from day one in 2008. When the inspectors came again – in twos, as always – Mike posed them several interesting questions, the answers to which turned out to be even more interesting for the family. The main one at the time was a seemingly simple on: What is the difference between an incorporated business and a non-incorporated one?

To clarify matters here: In an incorporated business, the owner(s) function as the company’s directors, and they are paid a salary by the company. An incorporated company has to report to the national tax office and Australian Securities and Investments Commission, has to hold board meetings and employ an accountant, all of which adds to the complexity and costs of running the company. Should an incorporated company go bankrupt, only the assets of the company are at risk, while the directors’ personal assets are unaffected.

A non-incorporated business, on the other hand, is usually a small business with a sole operator or a family partnership. In order for them to grant loans for setting up or running such a business, banks will typically demand the owners’ personal assets, including the family home, to be put up against the loans. Should the business go bankrupt, the owners will lose everything. Therefore the paperwork and book-keeping will usually be on a considerably simpler system, and an accountant is hired only briefly at the end of the financial year to do the tax returns.

This is a reasonably clear distinction. What’s more, Fair Work Inspectors must complete a three-month training course on the Modern Awards system, including the differences in the way the system affects incorporated and non-incorporated businesses.

However, when asked to define this simple but essential difference, the only answer given was “you will have to get legal advice”. When pressed on this point, Colleen became increasingly defensive and proceeded to intimidate the business owners with threats of court action and fines if the new claim was not settled quickly.

Over the period of January to March of 2011, Mike had found enough inconsistencies to ask more questions of Fair Work in regards to its legislative proof over the imposition of the modern awards on the referring states (QLD, NSW, SA and Tasmania). The main reason was that the Fair Work infoline had clearly stated that the awards covered all private businesses in Australia – a statement that clearly was not true, as Western Australia had declined to join the new system. At this point Mike began to look for the reasons why and how WA was operating in regards to incorporated and non-incorporated businesses, which turned out to be an eye opener.

For now, let’s leave Mike and his family to battle the day-to-day operations of their business (they have bills to pay and problems to sort out), and instead have a look at the Australian business landscape.