RUBBER, PLASTIC AND CABLE MAKING INDUSTRY - GENERAL - AWARD 1998

Shop, Distributive and Allied Employees Association

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY - AWARD 2000

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union

AWARD, 1998 - PART I**

Australian Municipal, Administrative, Clerical and Services Union

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY - GENERAL - AWARD 1998

INFORMATION TECHNOLOGY INDUSTRY (PROFESSIONAL EMPLOYEES) AWARD 2001

AWARD, 1998 - PART I**

The Australian Retailers Association (Victoria)

Victorian Employers' Chamber of Commerce and Industry

BUSINESS EQUIPMENT INDUSTRY - TECHNICAL SERVICE - AWARD 1999

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY - GENERAL - AWARD 1998

LIQUOR AND ACCOMMODATION INDUSTRY - RESTAURANTS - VICTORIA - AWARD 1998

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY - AWARD 2000

AWARD, 1998 - PART I**

The Restaurant and Catering Association of Victoria

LIQUOR AND ACCOMMODATION INDUSTRY - RESTAURANTS - VICTORIA - AWARD 1998

s.170FB applications for employment termination orders

Victorian Employers' Chamber of Commerce and Industry and others

Shop, Distributive and Allied Employees Association

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union

Printing Industries Association of Australia and others

Australian Municipal, Administrative, Clerical and Services Union

Victorian Employers' Chamber of Commerce and Industry and others

Employers of Fewer than 15 Employees

Should the TCR Standard Clause "Cover the Field"?

Employers of Fewer than 15 Employees

Australia's International Obligations and International Practice

The Agreed Redundancy Disputes Clause

The 1984 Decision and Other Relevant Federal Decisions

Should the TCR Standard Clause "Cover the Field"?

Appendix B - Outline of the General Employee Entitlements and Redundancy Scheme (GEERS)

In this decision the following abbreviations are used:

1984 decision :

Australian Council for Industrial Relations Research and Training

Workplace Relations Act 1996

Report of the Committee of Inquiry into Technological Change in Australia

Corporations Act 2001

Employment Protection Act 1982

General Employee Entitlements and Redundancy Scheme

Industrial Relations Act 1996 (NSW)

Organisation for Economic Co-operation and Development

Restaurant and Catering Industry Association of Victoria

Report by the Senate Employment, Workplace Relations and Education References Committee on Small Business Employment

Termination, Change and Redundancy decision [Print F6230 ; (1984) 8 IR 34]

Termination, Change and Redundancy Supplementary decision [Print F7262 ; (1984) 9 IR 115]

Victorian Employers Chamber of Commerce and Industry

[1] This decision concerns applications to vary the standard provisions governing termination of employment in the Commission's safety net awards. The termination of employment provisions concerned, for the most part, have their origin in test case proceedings in 1984. In those proceedings the Commission handed down two decisions. The first decision, in August 1984, we shall refer to as the TCR No. 1 decision. [1] The second decision, in December 1984, we shall refer to as the TCR No. 2 decision. [2] We shall refer to the decisions collectively as the 1984 decision. In those decisions the Commission developed a standard clause which was suitable at that time for inclusion in the Commission's awards. The clause dealt with consultation in relation to organisational change, the notice to be given of termination of employment, severance pay and related matters. The standard clause has been subject to some alteration from time to time to suit the circumstances of particular industries. The clause was also modified significantly in 1997 in the Award Simplification Decision [3] We shall refer to the clause resulting from the 1984 test case proceedings, amended in accordance with the Award Simplification Decision , as the termination, change and redundancy (TCR) standard clause. The TCR standard clause is set out in Appendix A to this decision.

[2] There are 25 applications before the Commission to vary the TCR standard clause. There are 12 applications brought by registered organisations of employees. The remaining 13 applications are brought by registered organisations of employers.

[3] The applications made by organisations of employees were developed and prosecuted by the Australian Council of Trade Unions (the ACTU). We shall refer to them jointly as the ACTU application. The applications are in two classes. First there are applications to vary six awards. For the most part the awards contain provisions conforming to the TCR standard clause and the variations sought are in substantially the same form in each case. Next there are six applications for orders pursuant to s.170FB of the Workplace Relations Act 1996 (the Act). The substance of those applications is the same as the award variation applications. As will be later discussed, these applications are only intended to be dealt with in the event that the Commission's power to vary awards is found to be insufficient to support the variation applications.

[4] Turning to the applications made by the employer organisations, the Victorian Employers Chamber of Commerce and Industry (VECCI) has applied to vary four awards. The Australian Retailers Association (Victoria) (ARAV), the Printing Industries Association of Australia (PIAA), the ACT & Region Chamber of Commerce and Industry (ACT&RCCI), the Restaurant and Catering Industry Association of Victoria (RCAV) and the Metal Industries Association Tasmania (MIAT) have each applied to vary one award. The Australian Industry Group (AiG) has applied to vary four awards. The case on behalf of the employer organisations, other than AiG, for the most part was presented by the Australian Chamber of Commerce and Industry (ACCI). We shall refer to the applications made by those organisations collectively as the ACCI application. AiG appeared and presented the case in support of its applications, which we shall refer to jointly as the AiG application.

[5] The various applications constituting the ACTU application were filed in August 2002. The applications constituting the ACCI and AiG applications were filed in September 2002. Following negotiations and conferences chaired by Senior Deputy President Marsh many matters were resolved through conciliation. We are required to arbitrate in relation to a limited number of matters which are still in dispute.

[6] The main outstanding matters in relation to the ACTU application are claims to:

(b) extend the provision of severance pay to employees of small businesses;

(c) extend the provisions of notice and severance pay to long-term casuals;

(d) remove the provisions which limit severance pay to the amount the employee would have received if he or she had retired in the normal way; and

(e) provide for an allowance to assist employees to obtain professional advice in redundancy situations.

[7] The main outstanding matters in relation to the ACCI and AiG applications are claims to:

(a) extend the severance pay scale while maintaining the maximum of eight weeks' pay;

(b) include definitions of "large employer" and "small employer";

(c) in the context of opposition to the ACTU's claim to extend the provision of severance pay to employees of small businesses, include a provision permitting the Commission to order that employees of small businesses should receive severance pay in exceptional circumstances;

(d) exclude employers bound by federal awards from any state law or other instrument dealing with notice of termination or payment in lieu thereof ("covering the field");

(e) exempt insolvent businesses from certain provisions; and

(f) extend the existing provision for an employer to seek a variation of the severance pay prescription based on incapacity to pay to allow for an application by a group of employers.

[8] The issues which require resolution can conveniently be dealt with under the following headings:

• The amount of severance pay;
• Retirement date limitation;
• Employers of fewer than 15 employees;
• Casual employees;
• Professional services allowance;
• Insolvency;
• Employers' incapacity to pay;
• Should the TCR standard clause "cover the field"?;
• Redundancy disputes procedures; and
• Interpretation and clarification.

[9] There are two matters principally at issue. The first is whether the scale of payments should be altered. The claim in the ACTU application is for a revised severance pay formula which would increase the maximum payment to 16 weeks' pay after six years of service, with an additional 25 per cent loading on severance pay for an employee over the age of 45. Employers represented by ACCI seek to alter the scale so as to increase the years of service necessary to qualify for the existing severance pay entitlements. The second matter concerns the definition of the term "a week's pay" . ACCI and AiG seek to alter the definition of a week's pay in the standard TCR clause by specifically excluding certain payments. An earlier claim by the ACTU to include some additional matters was not pursued.

[10] The ACTU seeks the deletion of the provision within the TCR standard clause limiting severance payments to the amount an employee would have earned had employment continued until retirement.

[11] There are three matters principally at issue in relation to employers of fewer than 15 employees. First, the ACTU proposed that the exemption of such employers from the requirement to make severance payments to redundant employees should be removed from the TCR standard clause. Second, the employers submitted that if the consultation procedures which have been agreed by the parties are to be included in the TCR standard clause, employers of fewer than 15 employees should be exempted from those procedures. Third, ACCI and AiG submitted that some modifications should be made to the exemption provision. In addition, AiG and ACCI proposed that if redundancy entitlements are extended to employees of small businesses, insolvent small businesses should be exempted.

[12] The standard clause does not require employers to afford any termination benefits to casual employees. The ACTU seeks to extend the standard termination benefits to casuals other than what are referred to as short-term casuals. ACCI seeks to make some changes to the relevant provision in the TCR standard clause to make the operation of the exemption more certain.

[13] The ACTU claim as amended seeks the creation of an award obligation upon employers to pay redundant employees an amount of $300 by way of reimbursement for professional and counselling services, unless the employer provides such services.

[14] AiG proposed that, should severance pay entitlements be increased as a result of this decision, employees of insolvent companies should have no greater entitlement to severance pay than that currently provided by the TCR standard clause (a maximum of eight weeks).

[15] The TCR standard clause provides for variation of the severance pay obligations on the basis of the incapacity of an employer to pay. ACCI proposed that the provision be amended to provide that applications may be made in that respect by a group of employers rather than by individual employers only.

Should the TCR Standard Clause "Cover the Field"?

[16] ACCI and AiG proposed that the TCR standard clause should be amended so as to provide that it operates to the exclusion of redundancy and severance pay provisions in state laws and awards.

[17] One of the matters upon which agreement has been reached is the inclusion of a redundancy disputes procedure in the TCR standard clause. If the provision is not an allowable award matter pursuant to s.89A (2), or is not a s.89A (6) provision, the Commission would have no power to include the provision in an award made under Part VI of the Act. We are required to decide whether the provision is an allowable award matter or a s.89A (6) provision.

[18] The agreed redundancy disputes procedure is said to operate when an employer "contemplates" termination of employment due to redundancy and a dispute arises. If the Commission approves the provision for inclusion in the TCR standard clause, ACCI and AiG have asked us to rule upon the meaning to be given to the term "contemplates" for the purpose of clarifying the operation of the provision. The parties have also asked us to make a statement concerning the treatment of confidential information provided as a requirement of the redundancy disputes procedure.

[19] In the event of termination by reason of redundancy the TCR standard clause provides for severance pay based on a sliding scale ranging from four weeks' pay after one year of service to a maximum of eight weeks' pay after four or more years of service. The ACTU application provides for an extension of the scale and an increase in the amount of severance pay at various points on the scale. The ACCI application provides for an extension of the scale without an increase in the maximum amount. The following table illustrates the changes sought.

[20] The ACTU application provides for these amounts to be increased by 25 per cent for an employee aged over 45 years at the date of termination.

[21] The ACTU contended that while the existing scale of payments was formulated to provide compensation for non-transferable credits and the inconvenience and hardship imposed on redundant employees, it does not do so adequately. It also contended that severance pay should be set at a level which recognises the requirement upon redundant employees to search for another job, possibly during a period of unemployment.

[22] It was submitted that severance pay should compensate employees who are made redundant for losses of the following kinds:

• trauma associated with the actual event of termination;
• for those affected, the cost of withdrawing permanently from the labour force;
• for those affected, periods of unemployment;
• loss of non-transferable credits such as sick pay;
• for those affected, reduction in earnings; and
• the cost associated with loss of employment security, inferior conditions, loss of seniority, lower job satisfaction and diminished social status.

[23] It was further submitted that such losses are positively correlated with both tenure and age.

[24] The ACTU contended that the severance pay scale in the TCR standard clause was intended to compensate employees for non-transferable credits and inconvenience and hardship. It does not primarily relate to the requirement to search for another job and the possibility of a period of unemployment.

[25] Workers unemployed after redundancy suffer deleterious psychological effects and may withdraw from the labour force completely, in which case they are forced to forego income accordingly. Retrenched employees find it harder to get employment than other job losers. About one-quarter of retrenched employees are unemployed for at least six months and close to half for more than three months. Severance pay should be fixed at a level which is adequate to provide some income support during the post-redundancy phase. This has been recognised by state industrial authorities in South Australia and New South Wales. Since 1984 the number of two income households has increased so that retrenched members of such households have no access to unemployment benefits.

[26] Loss of non-transferable credits and loss of earnings in post-redundancy employment are often significant. Job security may also reduce if post-redundancy employment is part-time or casual.

[27] Severance pay should provide compensation with respect to all aspects of an employee's potential loss. That loss results in reciprocal benefits to employers and the national economy and it is fair and appropriate that those who benefit should compensate those who suffer losses. The existing level of severance pay does not provide adequate compensation for the losses likely to be suffered by employees made redundant. It does not even provide adequate compensation for loss of non-transferable credits and the inconvenience and hardship imposed on employees.

[28] Employees covered by state awards in New South Wales, public sector employees and a significant number of private sector employees covered by agreements already enjoy severance pay at the level claimed.

[29] The ACTU relied upon a number of research papers. Some of the authors of those papers submitted witness statements and also gave oral evidence. We shall briefly summarise the findings of the principal research papers and the evidence given by their authors.

[30] Retrenchment and Labour Market Change , Webber and Weller. [4] Retrenchment is the main reason for involuntary job loss in Australia. The incidence of retrenchment is not distributed evenly through the labour force. Retrenchment is more common among older workers, males, employees with short tenure, employees in blue collar occupations, those living outside capital cities and sole parents. It affects both permanent and casual employees. Based on statistics up to and including the month of July 2001, the proportion of long-term casuals retrenched is relatively small and long-serving employees who are retrenched are mainly permanent.

[31] The Australian labour market is growing, and the growth has been accompanied by a substantial change in structure. There have been changes in the size and composition of industries, the nature of occupations, conditions of employment and the pattern of wages distribution. Employment has increased in the service sectors and declined in direct production industries. New jobs tend to be low-skill or higher skill with a decline in intermediate skill job types. There has also been a trend towards specialisation, such that skills and training are specifically tailored to a particular task in a particular organisation. As jobs become more specialised they become less transferable to other contexts and firms. These conditions alter the distribution of wages - those with skills in high demand have their wages and conditions pushed up, by contrast with those whose skills are less attractive or over-abundant. This narrows the post-retrenchment options for workers from specialised jobs. The number of women in the workforce has increased, as have the number of households which have two or more wage earners. Because spouse income is taken into account in measuring eligibility for social security benefits, fewer retrenched employees are eligible for government income support now than were eligible in 1984. More than three-quarters of jobs growth in recent years has been in "non-standard" classifications, including full-time and part-time casual, permanent part-time and non-employees (self employed). In the early 1990s most retrenchment activity was focused on low-skill jobs in industrial sub-sectors that were newly exposed to international competition. In the mid 1990s growing numbers of jobs were shed in intermediate skill occupations as government services and utilities were privatised and restructured.

[32] Webber and Weller described the areas in which they suggested retrenched employees suffer hardship. Under the heading of trauma they described the emotional impact of retrenchment, the effect of financial hardship, which can lead to social exclusion and diminished quality of life, and the negative effects of short notice and insensitive handling of retrenchment. They then examined a series of possible post- retrenchment outcomes and the costs of each. Individual employees may withdraw from the labour market entirely, endure a period of unemployment, find work at lower remuneration, or find work of a lower quality. They described the factors which determine who will permanently withdraw from the labour market after being retrenched and identified the costs and the impact through reduction in earnings and reduced post-retirement standard of living due to smaller superannuation savings. For those who do not withdraw from the labour market, the duration of post-retrenchment unemployment is dependent on the circumstances. Some may experience a more traumatic retrenchment process than others, some may accept an inferior job as a stepping stone to a job comparable with the one they lost. Some may suffer because of skills specialisation. Some may suffer discrimination based on popular perceptions of their previous employer. And the longer employees are unemployed the longer they are likely to remain so. Many redundant workers who accept work in a new occupation or a new industry sector have to start at the bottom of the ladder, suffering a greater loss of earnings than those who are able to find work in their specialist field. Furthermore, because of changes in the labour market, new jobs are likely to be non-standard casual or part-time, meaning that workers may find themselves in more precarious employment than previously.

[33] In addition to the paper just discussed, Professor Webber furnished a witness statement by way of reply to material relied upon by the Commonwealth. The statement also dealt with evidence given on behalf of ACCI by Professor P Lewis. Professor Webber contended that in drawing attention to the impact of the ACTU claim on the labour market, the Commonwealth submissions had failed to recognise that the regulation of termination of employment should be reasonable, fair and equitable. An appropriate level of severance benefits would compensate individual workers for their disproportionate burden in structural adjustment. Australia's implementation of severance protections will not have the effect of excluding women and young people from the labour market. Extending the reach of regulation to workers employed on a casual basis will mitigate any negative effects experienced by those who are not protected by internal labour markets. He also commented on a paper by Canziani and Petrongolo relied on by the Commonwealth [5] and said that it concerns conditions in the Spanish labour market where high employee protection makes dismissal a relatively more serious event than in Australia. The price of labour is only one determinant of the number of jobs in an economy and the Commonwealth's conclusions represent a simplistic account of the labour market and the complexities of inclusion and exclusion in Australia's highly segmented and gendered labour markets. Professor Webber rejected the Commonwealth's claim that increases in severance payments would adversely affect flexibility, adjustment and innovation, describing it as "far-fetched".

[34] Professor Webber noted the Commonwealth's rejection of his claim that most of the job growth since 1984 has been in non-standard employment. He pointed out that of the full-time jobs which have been created (about 50 per cent of all new jobs) many were casual jobs, and non-standard employment is generally taken to include both part-time and casual employment types. Webber also disputed the Commonwealth's claim that people with part-time jobs are happy with the hours they work and he cited Australian Bureau of Statistics (ABS) data which indicate that many part-time employees would like more hours. He also took issue with the Commonwealth's contention that economic and labour market conditions are more conducive to retrenched employees regaining employment now than they were in 1984. While some employees who are younger, highly skilled or mobile might be better off, for many others retrenchment is a devastatingly negative experience. The Commonwealth also ignored the regional impacts of restructuring. Its argument that the ACTU claim would over-compensate many employees is based on the assumption that severance entitlements are a substitute for loss of wages between jobs. The issue, however, is the long-term effect of career shifts or status downgrade. The Commonwealth's claim that retrenched women and older workers move between full-time and part-time employment depending on how they juggle family and work commitments is nonsense because retrenchment is involuntary. The "stepping stone" thesis, that people find permanent employment more quickly if they have casual jobs first, is not very convincing. Casual employment is more likely to be a trap for the unemployed because in 76 per cent of cases when an employee, whose previous job was a casual one, moves into a new job, the new job will also be a casual one. And whilst the ABS's definition of unemployment is independent of social security arrangements, those arrangements do affect the number of people who are counted as unemployed or who perceive themselves to be unemployed.

[35] Professor Webber suggested that he and Professor Lewis have made a similar analysis of the changes in the labour market but differ in their assessment of the implications. In Professor Webber's view the relationship between labour supply and demand is reflexive in that employers adopt strategies that enable them to colonise available supplies of labour (e.g. women, students) that secure their skill needs for a lower cost. Lewis' statement that more generic skills rather than firm-specific skills are required is unsubstantiated. Professor Webber said that in an oversupplied labour market, generic skills are base line expectation, specialist skills capture interest. He agreed some groups of workers are particularly vulnerable, but the characteristics of long-term unemployment are not the same as those associated with a higher likelihood of retrenchment or with poorer post-retrenchment outcomes. He rejected Professor Lewis' claim that education rather than age is the best indicator of labour market disadvantage. By way of illustration of this point he asserted that shop assistants do not compete with biochemists. Within occupational labour markets age remains the most significant predictor of post-retrenchment outcomes. The mobile workers that Professor Lewis described are often managers and professionals employed on fixed-term contracts that are not subject to termination provisions.

[36] Retrenchment and Labour Market Disadvantage: The Role of Age, Job Tenure and Casual Employment, Peetz. [6] This paper, as the title suggests, examines labour market disadvantage by reference to three factors - age, tenure and casual employment. The author relied on data for the year ending in June 2002 to show that an unemployed person over 55 years of age is almost 1.8 times as likely to be experiencing high duration unemployment as one under 55. He contended that Australian companies have a minimal interest in hiring people over 45 and that discouraged job-seeking is a particular problem amongst mature age people.

[37] There is also a significant relationship between age and tenure. Older workers are more likely to have been in long duration jobs, and they are also disadvantaged because their skills and experience have been specific to a particular employer and they may not be readily transferable. Those who suffer the greatest disadvantage in this respect are those with very short and those with very long tenure in their previous employment. Employees who previously had long tenure are more likely to shift to part-time or casual employment and are likely to take longer to find a job. In relation to casual employees, retrenched long-term casual employees suffer greater disadvantage than retrenched permanent employees. This is so in all age groups except the over-55 age group in which the experience of both is equally poor.

[38] In a supplementary statement in reply to submissions made by the Commonwealth, Associate Professor Peetz took issue with the Commonwealth on a number of matters and further supported his thesis that the principal problem for older workers is not that they are more likely to be retrenched, but that their employment prospects post-retrenchment are bleaker than those of other workers. Hence, once retrenched, many older workers drop out of the labour market. He contended that the Commonwealth had substantially underestimated the proportion of older part-time workers wanting more work.

[39] Labour Market Outcomes Among Retrenched Workers in Australia: A Review , Webber and Campbell. [7] In examining the impact of retrenchment on retrenched employees the authors identified a number of effects such as shock, anger, a sense of powerlessness, loss of income, changes in household relations, change in the structure of everyday life and loss of social interaction. The negative effects depend not only on the labour market experiences of those who have been retrenched but also on the manner in which the retrenchments were carried out.

[40] The authors gave an overview of various studies of the experiences of workers post-retrenchment and pointed to some shortcomings in those studies. They postulated a number of personal characteristics which affect the duration of unemployment. Those characteristics are age, sex, family status, education and skill, job tenure, job search, ethnicity, participation in government sponsored training and wage and labour market programs.

[41] In examining issues of earnings and quality of working life the authors pointed to the loss of earnings and occupational status for retrenched workers whose new job pays less than the old one. They also found that retrenched workers who find another job are more likely to be retrenched again following "last-on first-off" hiring practices. They acknowledged that some surveys had found that some workers rated their new job more highly than the old, and agreed that retrenchment was good for them.

[42] Finally the authors reviewed and criticised some of the assumptions underlying Australian studies of labour market outcomes for retrenched workers.

[43] The Impact of Redundancy on Subsequent Labour Market Experience , Wooden. [8] This paper, published in 1988, focuses on the subsequent labour market experience of persons made redundant. It is argued that the psychological impact of job loss, arising from work role deprivation, is relatively mild. The loss in income that results from job loss is much more important. The implication for policy is that the effects of redundancy can be most effectively mediated by the provision of direct financial assistance and compensation.

[44] Professor Wooden's review of overseas studies into the duration of post-retrenchment unemployment identified the following factors: the state of the labour market, the number of people made redundant at the same time relative to the size of the local labour force, as well as factors identified in the studies referred to earlier such as age, sex and skills. The number of persons who will find alternative employment will increase over time.

[45] In relation to earnings, the author contended that even when jobs are found workers may not be as well off as they were before. The literature indicates that a decline in real earnings is typical. As workers often continue to search for better jobs once they have secured a job after redundancy, the earnings loss can be eroded over time.

[46] The likelihood of occupational downgrading increases with the amount of time spent in unemployment. Consistent with that contention, the greater the likelihood of finding re-employment in the same industry, the less likely it is that deskilling and occupational downgrading will occur. The extent to which re-employment in the same industry takes place depends largely on the size and scope of the industrial base in the region in which the retrenchments occur, the state of the labour market, the state of the industry's output, the willingness of those retrenched to relocate and the scale of the retrenchments made.

[47] Those who become redundant are vulnerable to further redundancies in the future. This is particularly so for those who find re-employment in the same or an allied industry because redundancies occur in industries in structural decline.

[48] A Review of the Recent Empirical Literature on Displaced Workers , Fallick. [9] This US study discusses the problem of defining " displaced workers " and examines the incidence of worker displacement and the experiences of displaced workers: non-employment, under employment and diminished earnings. It also reviews some of the policies which might assist displaced workers.

[49] Unemployment and Re-employment of Displaced Workers , Murtough and Waite. [10] This paper deals initially with a review of some research, focussing on economy-wide research rather than narrow case studies whose findings may reflect the unique circumstances of the group examined, as opposed to experiences of displaced workers generally. Most of the studies originated from the United States of America, reflecting the wealth of detailed data available there. The Australian data are not as detailed. The factors which influence the incidence of displacement are tenure, education, age, gender, industry, occupation, and cyclical and structural changes. Post-displacement adjustment is examined with emphasis on employment and earnings effects. Relatively high adjustment costs (long-term for earnings and short-term for non-employment) are correlated with the individual characteristics identified.

[50] The paper contains a descriptive analysis of detailed Australian cross-section data for the period 1994-97. By examining the incidence of retrenchment for a number of areas the conclusion was reached that during the period in question workers were more likely to be retrenched if they were male, had short tenure in their job, a low level of education, worked in a blue collar occupation or were employed in manufacturing. The incidence of re-employment was affected by a number of factors - tenure, age, etc.

[51] The paper contains a detailed econometric analysis of the incidence of retrenchment among various types of workers and the post-retrenchment adjustment of different groups. The paper concludes that while short-term movements in the rate of retrenchment are largely driven by the business cycle, there have been structural changes in the rate of retrenchment over the long-term since the mid 1980s which are independent of the business cycle. The further conclusion is stated that the adjustment process following retrenchment varies between different groups of workers.

[52] Job Security in the 1990s: How Much is Job Security Worth to Employees? , Kelley, Evans and Dawkins. [11] The central conclusion of this piece of research is that job security is rapidly declining in Australia. In 1990, 73 per cent of workers reported having secure jobs. By 1997 the number had dropped to 56 per cent. Part-time workers have much less secure jobs than full-time workers; government employees are more secure than their private sector peers and those in higher status jobs are in general no more secure than those in middle or lower status jobs. Education has no impact on job security. While education is a key factor in getting a good job, good jobs are not necessarily secure. Men feel less secure than women in similar jobs. Older workers feel only slightly more secure than younger workers. The level of worker satisfaction with pay and standards of living is strongly influenced by perceptions of job security.

[53] In addition to the material and evidence given by academics and scholars, the ACTU relied upon witness statements and oral evidence from a number of employees and former employees as to their own experiences with retrenchment situations. While in one sense all were relevant to the claim to increase the amount of severance pay, in many cases the primary purpose of their evidence was related to some other part of the ACTU claim. The evidence was not, and did not purport to be, representative but it did give some insight into the situations in which some employees find themselves when their employers encounter financial difficulties.

[54] We were provided with information about the severance payments which apply to employees in the Australian Public Service and in the public services of the mainland states and territories. We were also given a report prepared by the Australian Council for Industrial Relations Research and Training (ACIRRT) reviewing the retrenchment and redundancy provisions which are to be found in legislation, awards and agreements.

[55] ACCI not only opposed the ACTU claim for increases in severance pay, it proposed that the scale of payments in the TCR standard clause should be altered. Under the ACCI proposal, in some cases employees who are retrenched would receive less severance pay than they would under the TCR standard clause. The rationale for this approach is said to be that the notion of "employee attachment", which formed the background for the 1984 decision, has changed significantly over the last 20 years. The 1984 decision was made when career progression within firms was seen as warranting a certain level of protection against dismissal and redundancy. Now, however, individuals conceive of careers as progressing across rather than within firms, and firms seek services to be delivered in a more flexible way than the traditional norm of full-time, long-term employment. Labour mobility does not necessarily create the negative consequences it may once have, and not in the manner that was considered to warrant compensation in 1984. The idea of a severance pay scale in which severance payments increase based on years of service was to compensate for an employee's exclusion from seniority-based pay systems. Those systems are less widespread today.

[56] Another change since 1984, at both federal and state level, has been the creation of statutory protections against harsh, unjust or unreasonable termination of employment. Those protections apply equally to termination of employment by reason of redundancy as to termination for other reasons. The current standard was formulated without regard to these substantial rights of redress, and any variation on this occasion should properly take this added protection into account.

[57] It was also contended that the 1984 decision was guided by the Report of the Committee of Inquiry into Technological Change in Australia (CITCA Report). The report cited loss of non-transferable credits (e.g. sick and long service leave), loss of seniority and an employer's contribution to pension or superannuation as aspects of redundancy requiring compensation. However, statutory and labour market developments have rendered some of these factors no longer relevant. Changes in occupational superannuation legislation and greater labour market mobility led ACCI to contend that this part of the safety net does not have the relevance it may have once had.

[58] Because of changes in the labour market and the nature of the employment relationship (including the decline in employee attachment) it is appropriate to re-examine levels of severance for employees with lower levels of service. In the post-Fordist labour market employees develop skills and career opportunities by moving across firms and by working flexibly, rather than by progressing up a well-defined career ladder within a single firm. It follows that severance pay has become a less important component of the safety net. ACCI relied on research purporting to show that attachment in the sense of years of service with a particular firm may no longer bring the earnings benefits traditionally associated with it. Notions of lifetime employability are replacing notions of lifetime employment.

[59] Restructuring of a business is a sign that decisions are being made to protect and enhance the well-being of the business and its employees. Employers should not be prejudiced for seeking the efficiency that arises from restructuring. Unreasonable burdens associated with termination of employment can have this effect. ACCI contended that globalisation and increased exposure to foreign competition will produce an increased imperative on Australian business to restructure and adapt to survive and this in turn highlights the need to have an award redundancy safety net which facilitates rather than hinders essential restructuring. Severance represents a cost and potential barrier to businesses engaging in restructuring, where retrenchments form part of the plan. Severance pay soaks up funds that may be available for other purposes as part of the restructure. Ultimately high levels of severance pay can have a paralysing effect on businesses, especially those in financial difficulties, by making a restructure which might otherwise save a business too expensive.

[60] In the year to February 2002, 15 per cent of the employed Australian labour force had been in their jobs for less than one year, and had worked in a previous job during that year. ABS figures illustrate that there is a strong correlation between the age of an employee and their propensity to experience job mobility in the Australian labour market (either of their own volition, or for some other cause). The variation proposed by ACCI would more closely accord with the labour market experience of these essentially younger employees with less service. The rate of progression of redundancy payments towards the maximum level of entitlement would more appropriately reflect the propensity of those with fewer years service to greater labour mobility, whilst still protecting those employees who have accrued extended periods of service.

[61] The likelihood of retrenchment varies with economic cycles and retrenchment rates overall remain significantly lower than they were when the TCR standard clause was arbitrated in 1984.

[62] ACCI also contended that the ACTU claim involves a completely new award entitlement akin to income maintenance packaged under the label redundancy. ACCI suggested that income maintenance is not an allowable award matter pursuant to s.89A (2) of the Act and also submitted that the Commission should not duplicate the income maintenance scheme provided by social security payments.

[63] Like the ACTU, ACCI relied upon a range of research material contained in academic papers and other documents. Many of the authors provided witness statements and gave oral evidence as well. Reliance was placed on the following material and evidence in particular.

[64] Unemployment and Re-employment of Displaced Workers , Murtough and Waite. [12] This paper was also relied upon by the ACTU and we have summarised the main points earlier. ACCI relied on the paper for the finding that retrenchments usually account for less than one-quarter of job separations in Australia, and that figure also includes termination of employment for poor performance. The annual rate of retrenchment is relatively stable at 5 per cent.

[65] Is Job Stability Really Declining? , Wooden. [13] ABS data appear to indicate that if anything job mobility has declined not increased. Job changing can take place for negative and positive reasons, therefore job mobility is a relatively crude indicator of changes in job insecurity. There is little evidence to support claims that job instability has been rising and there is no evidence that the average duration of jobs is decreasing.

[66] Looking at job duration by sex, women are more heavily concentrated in part-time and casual jobs and therefore more highly concentrated in short-term jobs. There is no evidence of a decline in job duration for either sex. For both sexes the proportion of long-term jobs is rising while the proportion of short-term jobs is stable or falling. There is, however, a marked difference between men and women with the increase in average job tenure much more marked among women workers than among their male counterparts. This is consistent with other trends in female labour-force participation which suggest an increasing desire among women for jobs which offer long-term career prospects.

[67] Looking at job duration by age, only among males aged 55 years or more has job duration clearly fallen with short-term jobs more prevalent and long-term jobs in decline. This is consistent with the increased incidence of early retirement. For younger men the incidence of long-term jobs has increased, though in some cases this has been offset by a tendency for the incidence of short-term jobs to rise. But with the exception of the youngest and oldest age groups, it is the increase in long-term jobs which has exerted the larger effect. With the exception of women under the age of 25 years, the data reveal marked increases in the proportion of women in long-term jobs and marked declines in the proportion of women in short-term jobs. These results are symptomatic of major changes in the roles that women fulfil in the labour market.

[68] Despite views to the contrary, job stability in Australia is not on average declining. This does not mean, however, that job insecurity is not increasing.

[69] How Long do Jobs Last in Australia? , Norris and Mclean. [14] Following on from the research in the Wooden article just discussed, this article estimates completed job durations in Australia and investigates whether the average duration has reduced over the previous 15 years. Have the considerable changes in the labour market led to a reduction in the average length of jobs? Using two different survey measures, one based on the duration of jobs starting in the year prior to the survey year and one based on the duration of jobs held on the survey date, the authors found no evidence at all that job duration in Australia is getting shorter. Trends in job duration by industry and occupation, although varying considerably, in aggregate have been increasing. The authors conclude that over the past two decades job durations have increased. While they vary from industry to industry, there is no evidence that the increase in average job tenures was due to relatively fast employment growth in those occupations where job durations are relatively long.

[70] The Changing Nature of Careers: A Review and Research Agenda , Sullivan. [15] ACCI relied on this article for two propositions. The first was that the kinds of career opportunities provided by internal labour market structures are less apparent than at the time of the 1984 decision. The second proposition was that notions of lifetime employment are giving way to the concept of lifetime employability giving rise to notions of a boundary-less career in which employees pursue skills and opportunities across firms.

[71] Internal Labor Markets and Earnings Trajectories in the Post-Fordist Economy: An Analysis of Recent Trends , DiPrete, Goux and Maurin. [16] This article explores the implications of "post-Fordism" for labour markets. It argues that formerly internal labour markets were regarded as more important and workers who were trained in the specific methods of the firm were more valuable. They were rewarded for their increased value through regular advancement and increases in remuneration. Internal advancement protected the firm's investment by creating disincentives for workers to leave the firm. Much of post-Fordist production, however, takes place across organisational boundaries. While workers become more valuable as they gain experience, the experience is not situated within the boundaries of the firm. Post-Fordism predicts a weaker relationship between tenure and job rewards and a correspondingly stronger relationship between general labour force experience and job rewards for the highly educated workers that arguably have become an even more dominant source of value creation in the post-Fordist economy.

[72] Flexible Firms, Skills and Employment , Vickery and Wurzburg. [17] This article examines three different approaches to adaptability and flexibility. The market-driven approach which is orientated towards numerical and external flexibility, but institutional, regulatory and historical differences exist. The consensual approach is heavily based on negotiation to arrive at a consensus among various stakeholders. The company-centred consensual approach emphasises company-based vocational training and mobility within the company. ACCI relied on the research for the proposition that enterprises require the flexibility to add and shed fixed assets through takeover and divestment strategies and well developed external labour markets are needed so that firms can dismiss workers who are not needed and hire those with the requisite skills.

[73] Labour Market Flexibility and Employment Adjustment: Micro Evidence from UK Establishments , Haskel, Kersley and Martin. [18] This paper studies how firms react to demand shocks, examining how different aspects of flexibility shape their responses. The main findings are that very few firms choose to adjust price in response to a demand shock and that firms with more flexibility are more likely to respond by adjusting employment and hours. The results provide a microeconomic explanation for recent macroeconomic evidence that labour input has become more closely aligned to the business cycle.

[74] Downsized & Out? Job Security and American Workers , Schultze. [19] This article examines the perception that whereas 20 years ago senior staff had worked their way up the wage ladder and had job security, there are no longer the same prospects of job security as a reward for long service. Research suggests that job attachment has fallen and that the risk of job loss facing tenured workers has increased, albeit less than reported by the media. Wage losses suffered by re-employed displaced workers with substantial tenure in their old jobs are quite large and such wage losses are growing.

[75] Professor P Lewis, Professor of Economics, Head of School of Business and Director of the Centre of Labour Market Research, University of Canberra, was called to refute some of the conclusions propounded by Webber and Weller. Before doing so he summarised the major changes in demand in the Australian labour market. Demand for full-time workers, especially males, has not kept pace with supply and there has been a substitution of females, particularly part-time females. This is partly the result in turn of changes in the composition of output in the economy. In 1975 service industries accounted for just over 50 per cent of all jobs, by 2000 they accounted for almost 70 per cent. In the same period manufacturing jobs almost halved to about 11 per cent in 2000. Demand for skills has also changed. Motor skills are vulnerable to substitution by technology and cheap external labour through globalisation, while interactive and cognitive skills will become increasingly important for survival in the New Economy. Professor Lewis said that for most Australians the labour market and its education and training systems have facilitated the adjustment of labour supply to meet the changes in demand. The growing incorporation of knowledge into the production process implies significant changes in the skill mix of workers. For example the printing industry used to be essentially manufacturing, now it is more service industry/computer based.

[76] Professor Lewis contended that one of the main effects of the emergence of the New Economy has been the impact on internal labour markets, which provide a limited protection from the external labour market (with respect to both unemployment and wage flexibility), together with government regulations, union membership and the welfare state. From the 1980s there have been signs worldwide of the destabilisation of internal labour markets. There are a number of factors associated with the decline. Growth in employment has been less than the growth in labour supply and therefore firms are less willing to pay premiums to train workers and to retain them for long periods. A number of factors related to changes in financial markets have resulted in firms having a greater emphasis on the short-term which discourages long-term employment contracts. Competitive pressures arising from globalisation reduce the incentive for firms to enter into long-term contracts. Falling union density has also been important. Internal labour markets are associated with employer response to union pressure. In Australia union density has fallen from 50 per cent to 23.1 per cent in 20 years and union power has significantly diminished as employment has shifted from the public sector to the private through such developments as contracting out. As described earlier, technological change has led to skills being more transferable, permitting greater flexibility and interaction with the external labour market, diminishing the need for internal labour markets. These developments suggest several policy responses which include more flexible wages, wage subsidies, early retirement, investment in education and training and improved job search programmes for displaced workers.

[77] Professor Lewis rejected Webber and Weller's conclusion that labour market adjustment difficulties faced by retrenched workers are greater now than in 1984. He claimed that the incidence of retrenchments as a proportion of total employment has not changed significantly. Retrenchment can be due to a number of factors and the ability to adjust the quantity of labour at the firm level is an important adjustment mechanism in ensuring an efficient economy. Impediments to retrenchment, such as increased costs, will reduce the ability of firms to restructure. While there are significant costs to retrenched workers, these are mainly a matter for government policy and social security. Much of the job loss during and since the 1980s has been due to a transition from an old to a new economy. The pattern of retrenchments now and in the future is likely to resemble the early 1980s. As the importance of internal labour markets diminishes, the costs to employees arising from non-transferability of firm-specific skills would be expected to decrease.

[78] Professor Lewis also disputed Webber and Weller's contentions that the likelihood of retrenchment is over-determined by the combined effects of age, tenure, industry and occupation and that the measure of tenure best captures the firm specific factors that impoverish retrenchment outcomes. He argued that factors such as age, skills and employment in the old economy industries are important, but job tenure is not a useful proxy. The fact that particular types of employees are susceptible to retrenchment means that there is a need for government policy to assist them.

[79] Next Professor Lewis argued that Webber and Weller were mistaken in saying that age is the best indicator of labour market disadvantage in re-employment. In his view education is more significant. The skills base of older workers is largely not in demand in New Economy industries and there is a need for government policy to facilitate adjustment.

[80] While Professor Lewis agreed that retrenchment is often traumatic, he took this as an indication that warning and access to counselling facilities and job search strategies need to be put in place. The trauma of retrenchment may not be so great for the new generation of workers who accept that life is more uncertain than it was for their parents.

[81] Finally Professor Lewis tackled Webber and Weller's contentions that the period of unemployment after retrenchment is an important measure of labour market disadvantage and a significant contributor to the cost of retrenchment, and that the duration of post-retrenchment unemployment is directly related to occupational specialisation, the circumstances of retrenchment and the strength of attachment to a previous employer. He argued that these contentions have validity so far as they relate to those with greater firm-specific skills and the evidence that the probability of re-employment is negatively related to the length of unemployment. That is due to the nature of structural and technological change and implies the policy solutions already identified.

[82] In the Professor's view, staying with the same firm is frequently viewed today as undesirable by employees who seek to gain readily transferable skills from different workplaces. In some occupations it can be an advantage in gaining employment if one can show motivation to "get ahead" by being willing to change places of employment. There is evidence that staying in the one place for extended periods of time is a disadvantage in terms of skill development, career path and remuneration. Despite the potential for greater job mobility, the evidence suggests there has not been a reduction in the average job length. This can be interpreted as indicating that for most workers there has been no decline in job security.

[83] Mr I Masson, National Industry Manager, Australian Mines and Metals Association (AMMA), gave evidence about the position of the resources sector. Amongst the economic considerations he stressed the impact of globalisation and the constant pressure on the resource industries to continuously improve their performance in productivity, efficiency, technology, quality, processes and work practices. The mining sector traditionally makes an important contribution to the Australian economy and to Australia's balance of trade. Mineral and energy exports in 2002-03 are forecast to be $58.7 billion. But the world economic outlook is uncertain and in some areas of exploration and development the prospects in Australia remain poor. The industry experienced a sharp downturn in the wake of the Asian economic crisis and as a consequence there has been a deep cut in mining investment. Profitability has been reduced, demand for minerals is down and currency fluctuations pose challenges.

[84] Labour costs, for wages and salaries, are a significant component of production costs. Redundancy payments associated with industry restructuring continue to contribute to the level of wages and salaries paid in the industry. Within the minerals sector redundancy payments were the major contributing factor to gross wage and salaries per employee, rising by 29 per cent during 2001-02. The ACTU claim holds the potential to further increase labour costs.

[85] Remuneration is higher in the resources sector than in other sectors which should be a relevant consideration when reviewing the adequacy of existing redundancy standards and the impact of any increase. A survey conducted by the AMMA in 2000 found that approximately 10 per cent of employees covered had a federal or state award as the principal form of regulation of their employment conditions. Agreement making in the resources sector would generally deal with a full range of employment conditions including redundancy entitlements. Over the last decade there has been a strong trend towards contracting as a means of obtaining access to specialist skills and equipment, which a mine operator cannot develop or retain in-house, and of saving costs. While a number of contractors maintain a relatively stable workforce, many others are small operators and it is important to make a distinction between entitlements of employees in larger companies and those of smaller ones that operate in a different and highly competitive environment. The latter group is least able to pass on increased labour costs resulting from an increase in the redundancy standard.

[86] AMMA conducted a survey of its members to gauge the impact of the claim. According to the survey results, while a significant proportion of AMMA members would be substantially unaffected if the ACTU claim is granted, a substantial proportion of resource sector companies would be adversely affected. Mr Masson contended that the ACTU claim has the potential to more than double the costs of redundancies for many companies - with employers in the resource sector least able to handle or pass on increased employment costs. It could also result in a retrospective cost upon employers because there is no date included in the clause as to when it would be effective from. This would be particularly harsh on those smaller operators who have carried over service and entitlements through business transmission arrangements.

[87] AiG submitted that if the ACTU application were to be granted there would be a negative impact on employment. The current maximum of eight weeks' severance pay is fair, balances the interests of employees and other creditors in the case of insolvency and is the same as the General Employee Entitlements and Redundancy Scheme (GEERS) provision. Any increase in the payments would create disputation. An outline of GEERS is set out at Appendix B.

[88] AiG argued that there are a number of significant threshold hurdles which the ACTU application has failed to overcome. The application is properly characterised as an application to vary award conditions above the safety net. AiG strongly opposed the claim saying that if it were successful small business employers who currently provide no severance pay would have to provide pay of up to 20 weeks' (potentially over $7000) per redundant employee. It would be a significant deterrent for businesses to hire new staff, especially older workers, and could affect borrowing from lending institutions. It might also cause inappropriate employee behaviour, be unfair and have a negative impact on enterprise bargaining. The long-term effect would be reduced competitiveness, which could result in firm closure or relocation offshore, reduced regular full-time employment and increased non-standard employment.

[89] The objects of the Act emphasise the importance of maintaining a strong economy including high employment, low inflation and international competitiveness, the safety net nature of the federal award system and the importance of promoting agreement making in the workplace. These considerations mean that the current federal system is very different to the system of 1984 and to the New South Wales and Queensland systems in which applications to increase redundancy entitlements have been made in recent years. Federal awards are designed to be a safety net and the ACTU's argument that many employers currently pay above the minimum misses the point.

[90] In the proceedings leading to the 1984 decision, the ACTU was unsuccessful in arguing that redundancy pay should compensate employees for a wide range of factors including loss of security of regular employment, possible loss of earnings, problems produced by compulsory change of jobs, including finding alternative employment, loss of employee's investment in their job and loss of seniority. The Full Bench found that the problems of the unemployed are a community and social responsibility rather than an industrial one and employers should not be required to compensate for all losses and hardships associated with redundancy. The Commission's existing approach recognises that a comprehensive social security safety net exists at a level which the community has determined is appropriate. The degree of hardship incurred varies from person to person and employers are required to make severance payments whether a particular employee experiences a period of unemployment or not. The fact that in 2003 the social security safety net is more comprehensive than it was in 1984 reinforces the argument that there is no valid basis for changing the rationale for redundancy pay. Notwithstanding that all of the major parties supported the retention of a general test case standard, they also submitted that the rights of parties should be reserved to examine the wording on an award-by-award basis.

[91] AiG contended that there is an adverse redundancy culture in Australia. According to that culture, employees would rather take a redundancy payment than allow a business to restructure to remain viable. The imposition of more onerous redundancy obligations on companies would be counterproductive. AiG believes the focus should be on retention of employment through a business environment where companies operate profitably and competitively rather than making it more attractive for employees to lose their jobs. Presently companies typically choose to maintain a higher pool of casuals and contractors than they historically have. Increased redundancy payments have contributed to this change in the workforce. If unions proceed with their strategy of increasing redundancy payments for full-time staff, extending redundancy and other entitlements to casuals and forcing companies to restrict their use of casuals, it will drive lower employment levels and companies will go out of business or move offshore. International material establishes that those Organisation for Economic Cooperation and Development (OECD) countries with strict regulations on termination and redundancy are generally associated with a range of adverse effects including reduced capacity for employment adjustment and productivity improvement, lower employment levels and higher incidence of non-standard employment.

[92] To survive and compete Australian firms have had to rationalise, merge, downsize and cut costs as an inevitable response to globalisation and the opening-up of the Australian economy. There have been major productivity improvements, but there are worrying signs ahead. In recent years there has been a sharp deterioration in labour productivity gains, and the ability of companies to readily restructure is an important element of productivity improvement. Globalisation means businesses can restructure outside national borders. Capital and jobs are fluid and do not need to be created or maintained in Australia. This highlights the imperative of avoiding award and other changes which impose excessive costs on employers who need to restructure to remain globally competitive. While the Australian economy performed well in 2002, 2003 is shaping up to be a year of economic risks which are mostly centred on events and issues outside Australia. It is not a good time to increase business costs and decrease labour market flexibility. AiG submitted that the claim would increase business failures, reduce international competitiveness and the profitability of Australian companies, and increase costs and risks associated with innovation and entrepreneurship.

[93] Manufacturing and labour hire are two sectors which would be impacted upon particularly harshly. Manufacturing is the greatest source of full-time jobs in Australia, comprising 12.5 per cent of the total workforce. Ninety per cent of jobs in the industry are full-time. It makes up a smaller proportion of the economy than it did 20 years ago, but today manufacturers face the full brunt of world competitive pressures, and they now operate leaner enterprises. The ACTU claim would be very damaging for manufacturers because the costs of restructuring would increase dramatically. The impact would be greater than in other industries because a large percentage of employees are full-time and have lengthy periods of service. Some segments of the manufacturing industry, for example the textile, clothing and footwear (TCF) industries, are experiencing negative growth rates and declining employment.

[94] Although there is a lack of clarity about the size of the labour hire industry, it continues to experience strong growth. It is an industry which exists because of the flexibility and cost effectiveness it offers its clients. Even relatively small increases in costs for a labour hire company can have a significant impact. A large proportion of employees are engaged on a casual basis and for extended periods. If redundancy pay were extended to casuals it would have a significant negative impact on the sector.

[95] AiG relied upon the results of a survey conducted by Professor J Benson, Associate Professor in the Faculty of Economics and Commerce, University of Melbourne, and the Director of the Centre for Human Resource Management at the University, [20] and in particular the following key findings. In 2002, 37.3 per cent of federal award companies terminated employees for redundancy reasons, usually due to a decline in demand, restructure or financial reasons. Most companies used the standard federal award provisions to calculate severance pay and most consulted with the relevant union where possible and the affected employees. A number of job search measures were provided which were used by the majority of employees and a variety of non-award assistance was also provided including recommendations to other employers and extra time off to search for work. A minority of companies were faced with unfair dismissal claims following the retrenchments and in more than half of these cases extra payment resulted. Taken together these findings illustrate that the current federal award provisions governing redundancy are operating effectively. They cast doubt on the need to increase the award safety net in relation to termination and redundancy. Reference is also made to data which show that Australian levels of job security have not changed markedly over the last 25 years. Australia ranks highly in international terms for job tenure and mobility, the degree of casualisation does not appear to have strongly influenced levels of perceived job security and there is a strong relationship between perceived job security and the stage of the business cycle and employment growth.

[96] Termination and redundancy are the subject of regulation under the Act, awards, enterprise bargaining and the social security system. The Act provides entitlements and protection for employees when employment is terminated, including in circumstances of redundancy. Unfair dismissal and unlawful termination laws afford protection for employees against harsh, unjust, unreasonable or unlawful terminations. There is evidence that these laws are being used by employees to secure extra payments in the case of redundancy. The Commission can deal with industrial disputes which arise over redundancies and various relevant protections and entitlements are set out in Part VIA of the Act. Minimum periods of notice are established and the Act also empowers the Commission to make orders about severance payments in certain circumstances. Redundancy provisions in awards generally provide for the benefits in the TCR standard clause. It is clear that it is the intention of the Act that the primary mechanism for dealing with the issues covered by the ACTU's applications is enterprise bargaining. Evidence demonstrates that many companies have negotiated redundancy agreements with more than a third of these containing the standard federal award provisions. Negotiated outcomes include amounts to achieve industrial peace, supplement employee income while job searching, gain employee support for restructuring, maintain parity with other companies and encourage early retirement among older workers. These purposes differ from the rationale adopted by the Commission in setting minimum standards. Furthermore, governments and government funded networks are best situated to implement strategies to facilitate individuals finding employment, and those networks are significantly better than those which were provided in 1984.

[97] An independent comparative analysis of employment protection systems in various advanced market economies reveals that the nature and degree of employment protection benefits for Australian employees ranks very highly in international terms and casts further doubt on the need to alter the safety net.

[98] AiG strongly opposed the claim, saying it is counterproductive because the focus should be on the retention of employment through maintenance of a business environment in which companies can operate profitably and competitively. The claim would increase costs for all companies and be particularly harsh on small companies. Most companies would fund the claim by increasing casual employment, engaging independent contractors, using ordinary working capital and reducing their workforce through natural attrition. There would be a disproportionate cost impact on those who employ long serving and/or mature age workers. Other problems would include reduced employment, inability to borrow from lending institutions and administrative problems. There would also be a negative impact on enterprise bargaining - higher claims for redundancy and limited scope for bargaining over other issues. The long-term effect of the claim would be reduced competitiveness, less regular full-time employment and increased non-standard employment.

[99] AiG's first witness was Mr M Dwyer, until recently the National President of the Insolvency Practitioners Association of Australia (IPAA). Mr Dwyer's evidence was relied upon primarily to support AiG's claim that the Commission should recognise the unique circumstances surrounding employer insolvency and provide preferential treatment for firms in administration. Some of the evidence on that issue is dealt with later in this decision. AiG also relied on Mr Dwyer's evidence to support a conclusion that high redundancy payments in Australia restrict companies from restructuring their businesses to improve efficiency. He contended that where termination due to redundancy cannot be avoided, the current maximum of eight weeks' pay represents an adequate compromise between the interests of employees and other unsecured creditors who face significant economic loss, hardship and deprivation. Any increase in that amount will create strong potential for industrial unrest, and disruption to external administrators, partly because of the inconsistency with GEERS.

[100] The second witness was Mr N McGloin. He testified to the circumstances in which Plastyne Products Pty Ltd went into liquidation. In his view the employees showed a preference for securing a redundancy payout over making changes in operations which would have permitted the company to reduce costs and restructure. Employees sought more generous redundancy entitlements as the company's performance deteriorated. Paradoxically there had been insufficient funds from the liquidation to satisfy the employees' severance pay entitlements.

[101] Professor Benson gave evidence concerning the survey he had conducted on AiG's behalf. We have mentioned some of the findings AiG relied upon earlier. The survey report contains the following summary:

"The impact of the ACTU claim would be to reduce profits for most companies and would either convert a profit into a loss or further increase the yearly loss for nearly half the companies. This latter scenario was particularly the case for small companies. The most common ways that companies would fund the claim would be to increase casual employment, accept lower profits, engage independent contractors, use ordinary working capital, and reduce their workforce through natural attrition. Half the companies felt that the claim would impact on future enterprise bargaining by higher future claims, limiting the scope for bargaining over other issues, and requiring significant cost offsets in future bargaining. The long-term implications of the claim were the reduced competitiveness which could result in closure or locating offshore, reduced permanent employment caused by companies downsizing, and reduced profits." [21]

[102] Mr M Roberts, a researcher at the University of Melbourne, gave evidence concerning his report entitled Employment Protection Systems: A Fifteen Country Comparative Study [22] AiG relied upon the report for the following conclusions:

"Australia is one of very few advanced countries that provides for employer-funded severance pay benefits to be made directly to retrenched employees.

Australia has relatively high redundancy costs for employers by world standards.

Unlike Australia, many OECD countries require employees to make financial contributions toward the cost of their own termination/redundancy benefits.

Australia's minimum wage (upon which redundancy benefits are based) is the highest in the OECD.

Australia has some of the most comprehensive unfair termination laws in the world.

Australian laws governing transmission of business, employer insolvency and the protection of employee entitlements (such as severance pay) compare very favourably with overseas countries.

Social security networks in Australia provide reasonable levels of protection for retrenched persons by international standards."

[103] AiG called evidence from a number of witnesses about the trading and financial circumstances of particular employers of various sizes in a range of industries. The evidence dealt with issues such as the effect of international competition on exporters and import-competing industries, the impact of changes in international market conditions, reducing tariff protection, particularly in the textile, clothing and footwear manufacturing industries and the likelihood that trading conditions will be in decline when redundancy costs are incurred. In addition, reliance was placed on a range of documentary material including reports of various kinds.

[104] A paper prepared by the Productivity Commission entitled Review of TCF Assistance was relied upon as identifying how redundancy issues are creating serious problems for companies operating in the TCF sector, causing disputation, distracting attention from mutually beneficial ways of enhancing performance, increasing the cost of liquidation, hampering restructuring and in some cases causing liquidation. [23]

[105] The Commonwealth submitted that it has a comprehensive range of programmes and policies that reduce the need for retrenchments and mitigate the impact of unemployment on retrenched employees. Key elements include policies to maintain strong and sustainable economic and employment growth, income support for the unemployed, an education system and vocational training arrangements that produce a highly skilled, flexible workforce together with a range of programs and assistance to help the unemployed into jobs.

[106] While the Commonwealth recognised that retrenchments cannot be eliminated, it submitted that redundancy pay should not be set at levels that stifle adaptability and discourage innovation and growth. Experience since 1984 has shown some need to clarify and strengthen some of the provisions of the TCR standard, but in general it works well and strikes a suitable balance between employers and employees.

[107] The Commonwealth strongly opposed the ACTU application to increase the current level of severance pay, remove the small business exemption from severance pay, extend notice and severance pay to long-term casuals, remove the retirement date limitation on severance pay and introduce a new professional services allowance. It contended that the cost implications are significant, the national economy cannot afford the increased costs and that granting the claim would not serve the interests of employers, employees or the Australian community in our highly competitive international economic climate. The claim directly conflicts with the basis of the existing TCR standard, namely: there should be no component to tide workers over until they obtain another job. The Commonwealth argued that the Commission should not be influenced by the higher levels of severance pay in the public sector which have been developed in the context of an emphasis on voluntary retrenchment. These levels are inappropriate for a safety net standard, especially for businesses that are forced to make redundancies because of financial difficulties or insolvency.

[108] The reasoning of the Industrial Relations Commission of New South Wales (IRC NSW), that severance pay should include a component to tide a retrenched employee over during a period of unemployment, was specifically rejected by the federal Commission in the 1984 decision. That is a function that rightly belongs to the social security safety net, not employers, and the issue of whether that safety net is adequate should not be considered by industrial tribunals. In its 1984 decision the Commission saw severance pay in terms of "compensation for non-transferable credits and the inconvenience and hardship imposed on employees" (e.g. accrued sick leave, long service leave, loss of seniority, loss of employer's contribution to superannuation). The Commonwealth submitted that the ACTU has not seriously attempted to demonstrate any change in these elements to justify an increase in severance pay. In fact these elements are of less monetary value in 2003 than in 1984. As examples, merit is now more important in remuneration than seniority, and superannuation is portable. Also in its 1984 decision the Commission rejected the claim that sick leave and long service leave should be fully paid out on redundancy. The Commonwealth submitted that employees who are retrenched are now better placed to avoid the negative consequences of retrenchment because today's economy is stronger and better able to sustain employment growth as a result of structural reform.

[109] The Commonwealth submitted that there is no evidence of a significant gap in severance pay between the average award-covered employee and the average agreement-covered employee. Research shows that the current standard is still highly relevant and provides the basis for most redundancy provisions and practices. [24] The evidence indicates that only 20.8 per cent of federal agreements and 17 per cent of agreements across all jurisdictions include severance pay above the TCR standard. Furthermore, the higher level of severance pay in agreements will generally have been influenced by additional factors such as the need to compensate retrenched employees for future losses in income because the agreements are often designed to elicit support for restructuring and to encourage voluntary retrenchment.

[110] A substantial increase in the level of severance pay will reduce the scope for terms and conditions of employment to be settled at the workplace level. Employers who can afford, or who have reasons for wanting to include higher severance payments, can include them in agreements. Employers who cannot afford them should not have them unilaterally imposed. The Commonwealth also submitted that the claim is inconsistent with the objects of the Act because it will not promote economic prosperity or high employment, nor the determination of wages and conditions at the workplace level. The current provisions are an effective safety net.

[111] The Commonwealth provided documentary material relating to the Australian Government Employment Redundancy Arrangements, the conditions applying to redundancy in the public services of the states and territories, GEERS and the incidence of awards and agreements containing provisions which exceed the provisions in the TCR standard clause. The Commonwealth also relied upon a range of statistical material to support various contentions.

[112] The State of New South Wales supported the elements of the ACTU application which would achieve comity between the redundancy provisions which apply to New South Wales workers covered by federal instruments and those covered by New South Wales legislation and industrial instruments.

[113] The State of Queensland also supported the new scale of severance payments sought by the ACTU. It submitted that the new scale would add 0.6 per cent to the annual wages bill in Queensland and relied on what it submitted was a community standard evidenced by the level of severance pay applying in New South Wales, the public sector and certain certified agreements. It contended that severance pay should compensate employees for the disadvantage of retrenchment and help employees during a period of temporary unemployment. It also submitted that there is merit in looking at ways to phase in the new standard in order to alleviate any potential impact on business. It favoured a delay in the operative date.

[114] The State of Victoria supported the increase in severance pay claimed by the ACTU on the basis that it would provide improved practical assistance to retrenched employees during a period of unemployment caused through no fault of their own, ensure the gap between the award safety net and broader community standards is not inappropriately wide and encourage employers to consider alternatives to retrenchment.

[115] The State of Western Australia supported the ACTU claim to increase severance pay in principle and submitted that the Commission should grant the increase if it found that the current provision required revision.

[116] Job Watch Inc (Jobwatch) submitted that the Commission should grant the ACTU application in its entirety, including the severance pay claim. It supported its submission by reference to the results of a telephone survey of callers who had sought advice in connection with redundancy between July 1999 and June 2001. Those years were selected to obtain a long-term perspective of redundancy and its effects and to get the views of workers removed from the immediate impact of retrenchment.

[117] The Housing Industry Association (HIA) and the National Farmers' Federation (NFF) adopted ACCI's submissions on the severance pay issues.

[118] Parties made various estimates of the cost of the ACTU application. For the most part the estimates were concerned with the cost of all elements of the claim in aggregate. The estimates were primarily concerned with the increased cost which would result from the alteration sought in the severance pay formula. For that reason we deal with the cost estimates mainly in this part of our decision. Some submissions were made about the impact on small business of removing the exemption for employers of 15 or fewer employees from a number of the obligations in the standard TCR clause. We deal with those submissions when dealing with that part of the ACTU application.

[119] The ACTU submitted that the cost of implementing its application in federal awards is negligible at about 0.09 per cent of the wages bill for the economy as a whole. If the changes sought were to apply in all state jurisdictions the cost would rise to 0.15 per cent of the total wages bill. The Commonwealth pointed out that estimates of the cost of the claim depend upon the annual rate of retrenchment. It submitted that because the ACTU base data is derived from the level of retrenchments in 2001, the resulting cost estimate is artificially low. It submitted that it would be more appropriate to base the calculation on the level of retrenchments experienced during the recessionary conditions of the early 1980s and the early 1990s, when the level of retrenchments was much higher. Taking this consideration into account the Commonwealth suggested that the ACTU estimate should be 0.26 per cent rather than 0.09 per cent. If a further adjustment is made for the fact that the claim would only affect the private sector, the effect on the wages bill in the private sector would be 0.33 per cent. Yet another adjustment would be needed, in the Commonwealth's submission, to reflect the fact that the claim will affect only employees covered by federal awards. If that adjustment were made the cost would rise to 0.83 per cent of wage costs of private sector firms in the federal system.

[120] As can be seen by the controversy which has arisen between the ACTU and the Commonwealth, attempts to model the cost of the claim will produce different results depending upon the assumptions. We are prepared to accept that the increase in wage costs to the economy from year to year might vary between the estimates provided by the ACTU and the Commonwealth, depending upon the rate of retrenchment in the year in question. That is an economy-wide increase in wage costs of between 0.09 and 0.26 per cent. If less than the full claim were granted, the increase in cost would be less. We accept that increases of this magnitude are significant and for that reason the claim requires careful consideration. While expressing concern about the cost to the economy, the employers and the Commonwealth directed their arguments mainly to the cost to the private sector and to the employers which would be directly affected. We accept that it is important to look at where the cost of any increase falls.

[121] As the Commonwealth pointed out, the employers who would be directly affected by any increase in severance costs resulting from the claim are those in the private sector covered by federal awards. The Commonwealth's estimate of an increase in wage costs of 0.83 per cent on average for private sector employers covered by federal awards is probably an overestimate. There are two reasons why this might be so. The first is, as already pointed out, that the Commonwealth estimate is based on an assumption of recessionary conditions resulting in a high level of retrenchments. The second is that some allowance should be made for the fact that around 20 per cent of private sector employees covered by federal awards are entitled to severance benefits greater than those in the TCR standard clause. When allowance is made for these factors, it is likely that the average increase in wage costs among private sector employers covered by federal awards would be considerably less than the Commonwealth's estimate of 0.83 per cent in recessionary years and might be less again in other years. As already noted, these estimates are based on the assumption that the ACTU application is to be granted in full.

[122] Various estimates were also provided of the cost to the firms which might be directly affected if the ACTU application were granted. The Commonwealth used the economy-wide cost estimate referred to earlier and applied it to an estimated 18 per cent of private sector firms which intentionally reduce the size of their workforce each year to derive an increase in the annual wages bill of those firms of about 4.62 per cent. It also calculated that should firms decide or be required to put aside funds to cover potential severance entitlements, their annual wages bill might increase by 6.4 per cent.

[123] AiG relied upon a survey of its members conducted by Professor Benson. This survey showed an average cost per redundant employee of $6464 in small companies, $3251 in large companies and $3405 in companies overall. It was also pointed out that average calculations disguise the fact that for some employers the costs will be much higher. AiG also relied on calculations provided by a number of employers who gave evidence about the impact of the ACTU application upon their individual businesses in the event of redundancies. The material AiG relied on was expressed in actual dollar terms and in most cases we were left with little indication of the relative magnitude of the costs involved. ACCI attempted to illustrate the cost of the claim through a hypothetical scenario which showed the effect of different amounts of severance pay as a ratio of a new employee's yearly salary.

[124] To say the least, estimates of the impact of the claim upon individual firms are problematic. It is generally accepted that for employers forced to implement redundancies the major component of employee redundancy costs is likely to be severance pay. The cost of severance pay to individual firms will vary depending upon a range of factors such as the number of employees made redundant and their length of service. While the Commonwealth's averaging approach has some merit, we are reluctant to place too much weight on it. Firstly, being an average the estimate is inherently inaccurate for particular employers. Secondly, the assumptions to which we have already referred suggest that the estimate is inflated. There is no doubt, however, that for most of the employers actually affected the cost of the claim would be very significant.

[125] It was also submitted by AiG that if the Commission were to grant the claim there would be an impact on firms not currently contemplating retrenchment. They pointed out that prudent managers should take steps to ensure that severance pay is adequately provided for, a course which unions have encouraged in a number of serious industrial disputes in recent years. Added to this, the increased contingent liability would increase borrowing costs for businesses because in making loan assessments banks take potential redundancy costs into account.

[126] We accept that prudent managers would take steps to ensure that all potential costs, including the costs of redundancy, are properly taken into account. Nevertheless there are some important qualifications which must be borne in mind. Accurate assessment of the amount and significance of employee redundancy costs in advance may be difficult. While it would be possible to ascertain the employee redundancy costs of complete closure of a firm, assessment of the cost of anything less than complete closure would involve prediction and a level of uncertainty. Furthermore, the contribution of employee redundancy costs to total firm costs would vary significantly from firm to firm. It is also clear enough from the evidence that credit providers may take potential redundancy costs into account in deciding whether to advance credit and upon what terms. The weight given by credit providers to potential redundancy costs in particular cases will depend upon the cost assumptions and a range of other issues.

[127] A number of parties also relied upon what may be referred to as indirect costs of the claim. For example, ACCI submitted that increased severance payments affect restructuring by directing funds which would otherwise be available for purposes such as hiring staff, retiring debt, purchasing new plant or equipment and so on. AiG predicted a negative impact on employment levels, job security and enterprise bargaining. It also submitted that there would be a longer term impact on profitability, international competitiveness and entrepreneurship and innovation. The Commonwealth drew our attention to international research said to support the proposition that "onerous firing costs" have a harmful affect on the labour market. It also submitted that because most retrenchments occur as firms try to adjust to competitive pressure or adverse circumstances, increased retrenchment costs will weaken firms' survival prospects and place more jobs at risk. Finally, the Commonwealth submitted that by making firm-based adjustment more expensive, if granted the claim would make it more difficult for Australia to respond to technological, social and economic change.

[128] Almost any improvement in the award safety net will lead to an increase in labour costs for some employers. In every case in which an improvement is sought it is a question of balancing all of the considerations, including whether any improvement is appropriate. All of the employers' arguments may be accepted in principle, yet the question remains whether in all of the circumstances an adjustment is warranted. We have concluded that when regard is had to the cost impact on individual firms directly affected and to the so-called indirect effects, the ACTU application is excessive. That conclusion forms a significant part of the reasons for our decision overall. As will be seen, we have concluded that some adjustments to the TCR standard clause are appropriate. While the cost of those changes will be far less than the cost of the ACTU application, it must be accepted that there will be an increase in costs both for the economy as a whole and for the employers directly affected. While cost is a very important consideration it is not the only one and our decision in relation to each element of the claim has been made in light of the relevant evidence and our statutory obligation to ensure that a safety net of fair minimum wages and conditions is established and maintained.

[129] The basis for the severance pay provisions in the TCR standard clause was identified by the Commission in the TCR No. 1 decision in these terms:

"Having regard to the other aspects of our decision and having regard to what we have said about the existence of, and reason for, unemployment benefits we do not believe that the primary reason for the payment of severance pay relates to the requirement to search for another job and/or to tide over an employee during a period of unemployment.

We prefer the view that the payment of severance pay is justifiable as compensation for non-transferable credits and the inconvenience and hardship imposed on employees. In this respect we agree with the conclusions contained in the CITCA Report but would indicate, at this stage, that in fixing the quantum we have been prepared to take into account the standards established in recent decisions of this Commission and the State Industrial Tribunals.

We are aware that extended notice, which we have granted, will not be sufficient to ensure that all employees find alternative employment and we are aware that these provisions will not solve the problems of the chronically unemployed. However, these must remain, in our view, primarily a social rather than an industrial responsibility. Nevertheless, as we have indicated earlier, it would be misleading to assume that success in obtaining a new job indicated that an individual made redundant had managed to recover the security built up over years of service in the redundant job and we are prepared to grant severance pay, in addition to the measures we have awarded to assist employees to find alternative employment.

We are prepared to have regard to length of service in determining an appropriate quantum but, for the reasons outlined by the ACTU and because the problems of age on the evidence before us are related more towards the attempt to find alternative employment, we have decided not to provide for age related payments. Of course, indirectly, older employees will benefit from a scale of payments based on years of service." [25]

[130] The ACTU argument for an increase in the severance pay scale rests on two propositions. The first is that the existing scale does not properly recognise the losses arising directly from termination of employment for redundancy. The second is that the scale does not include any compensation for the requirement to search for another job and the possibility of a period of unemployment. We shall deal with the second proposition first.

[131] The ACTU pointed to research indicating that a proportion of retrenched workers never work again and contended that for various reasons the Commission should extend the rationale for severance pay to include compensation for loss of income. Those reasons included that retrenched employees have significantly worse unemployment outcomes than other job losers, unemployment following termination for redundancy should be seen as an effect of termination and be ameliorated by the provision of income, some state industrial authorities have accepted that income maintenance should be a factor in the fixation of severance payments and since 1984 the number of two income households has increased such that many people made redundant have no access to the social security system.

[132] A number of those opposing the inclusion of income maintenance as a consideration in fixing the level of severance pay submitted that the social security safety net is more effective now than it was in 1984. They also submitted that post-retrenchment unemployment experiences vary considerably from worker to worker thus making it difficult to measure the loss on a general basis. The social security system, on the other hand, takes individual circumstances into account. It was also suggested that there is widespread acceptance that income maintenance should be provided by the community.

[133] While in the passage which we have set out from the TCR No. 1 decision the Commission took the view that the "primary" reason for the payment of severance pay did not relate to the requirement to search for another job and/or to tide over an employee during a period of unemployment, it is clear that those requirements played very little if any part in the level of severance pay which was then decided upon. We have not been persuaded that in these respects the Commission's approach was wrong. Nor have we been persuaded that we should depart from that approach because circumstances have materially altered since 1984. We agree with those who submitted that the responsibility for providing income during periods of unemployment should be borne by the community through the social security system, and not by employers. The Commonwealth is able, through a range of integrated social security programs, to target income maintenance transfers more effectively than could the Commission. On the material in this case, we see no justification for altering the approach which was decided upon in 1984 and which has been followed in the federal jurisdiction since. We do not intend to take income maintenance during a period of unemployment into account in assessing the adequacy of severance pay.

[134] We think it is important, however, to identify what we intend in using the term "income maintenance". We use that term to refer specifically to compensation for periods of unemployment. In excluding income maintenance from our consideration of the appropriate level of severance pay, we do not intend to exclude all income related loss experienced by redundant employees. We think that the Commission's reference in the TCR No. 1 decision to "the inconvenience and hardship imposed on employees" by redundancy should not be given an artificially narrow reading. The term "hardship" should be given its ordinary and natural meaning. That meaning is broad enough to cover areas such as loss of seniority, loss of security of employment and other kinds of losses which were identified in the evidence.

[135] The question remains whether an increase in severance pay is justified having regard to the basis upon which the Commission introduced severance pay in 1984. The ACTU submitted that it is. It relied upon a number of areas of loss and hardship which it submitted were not fully taken into account in 1984. Leaving aside income maintenance issues, those areas include trauma associated with the termination itself, loss of non-transferable credits such as sick leave, and the potential costs associated with loss of employment security, inferior conditions, loss of seniority, lower job satisfaction or diminished social status.

[136] Dealing first with the trauma associated with termination of employment for redundancy, the evidence indicates that the effects can be very severe. For example, the work of Webber and Campbell identifies the emotional and other effects which can accompany retrenchment - shock, anger, a sense of powerlessness, changes in household relations, change in the structure of everyday life and loss of social interaction. ACCI contended that these effects may be less severe because employees' expectations of job duration have declined. But there is little evidence before us of an actual decline in job duration. While trauma was an element which the Commission no doubt took into account in 1984, it may be that the relationship between length of service and trauma was not fully appreciated and not reflected in the scale which was adopted. We shall return to this issue.

[137] We turn now to the issue of loss of non-transferable credits. By non-transferable credits we mean primarily accrued untaken personal leave and contingent long service leave accruals. While those are clearly the most important non-transferable credits, there are others such as pro rata annual leave loading and unpaid parental leave which might also have an impact in the case of a particular termination. We shall deal with seniority separately. This area is not amenable to precise calculations, although long service leave is one area in which some quantification is possible. Under the standard federal long service leave provision, where pro rata leave is payable on termination of employment for redundancy, after 10 years' service a redundant employee receives 8.7 weeks' pay. An employee made redundant with less than 10 years of service is not entitled to anything on account of long service leave. A pro rata loss can be calculated for shorter periods of service. It must always be borne in mind, however, that until the entitlement to long service leave is vested it remains a contingency. It may be lost if the employment is terminated by the employer for cause or by some other means. In the same way all other non-transferable credits are contingent also. With respect to personal leave, we note the submissions by various parties that the Commission has always refused to award payout of sick leave credits on termination and that consistent with that approach we should not take personal leave into account in assessing the loss of non-transferable credits. While we do not intend to depart from the authorities relied upon, we think it is permissible to take into account in a general way that a loss of personal leave entitlements on termination for redundancy may lead to subsequent hardship when personal leave is needed but no credit is available. As we have with parental leave and annual leave loading, however, we place only limited weight on this factor.

[138] It is not appropriate, even if it were mathematically possible to do so, to establish severance pay at levels which fully compensate redundant employees for loss of non-transferable credits. We have already mentioned the contingent nature of credits. To that consideration must be added the high cost to employers of such an approach and the fact that we are concerned with the fixation of award provisions which are to operate as a safety net. Nevertheless, the loss of non-transferable credits is a significant factor to be taken into account.

[139] In relation to loss of security, the ACTU has demonstrated that many employees who are made redundant experience a significant loss of employment security. This is evident from the incidence of part-time and casual employment among employees made redundant from full-time jobs. We accept that this change in status is largely involuntary and that looked at overall, part-time and casual employment may be less secure than full-time employment. Furthermore, depending on their length of service, employees may go from an environment of relative security based on the duration of their employment to an environment in which, having no or short service with their new employer, they are vulnerable to retrenchment in the event of further rationalisation.

[140] Loss of employment security is not the only area in which employees who are made redundant may experience a reduction in conditions in their later working life. There is a real likelihood that, for some, employment post-redundancy will be of a lesser quality, that the remuneration will be lower and that job satisfaction and social status will be reduced. Whether this type of employment is in fact a stepping stone to employment of equivalent quality and remuneration, the deprivation is real.

[141] In relation to seniority, we have concluded that loss of seniority should be taken into account. It is obvious that to the extent that loss of seniority is a component in the hardship suffered by redundant employees, the loss varies dependent upon length of service. Loss of seniority is more significant for longer serving employees.

[142] It is also legitimate to take into account that the hardship associated with retrenchment is likely to vary relative to length of service with a particular employer. This is likely to be so in relation to the emotional trauma associated with retrenchment. It is also true in relation to loss of non-transferable credits and the other elements of hardship that we have discussed. Research cited by the ACTU and apparently accepted by ACCI shows that employees with long tenure experience more significant adjustment costs after being made redundant. [26] Even taking into account that part of those adjustment costs arise through unemployment, this finding reinforces the conclusion that length of service should be a significant factor in the assessment of the hardship resulting from redundancy.

[143] The existing severance pay scale reaches a maximum of eight weeks' pay after four years of service. There is no disclosed reason why that should be so. The hardship associated with retrenchment is likely to be greater after five years service than after four and greater after nine years service than after five, to take some illustrative examples.

[144] ACCI submitted that since at least 1984 there has been a decline in the significance of internal labour markets and the importance of employee attachment to the firm. This indicates, it was argued, that years of service are now less relevant to severance pay. ACCI contended that the decline in employee attachment should lead the Commission to reject the ACTU claim for increased severance pay and instead to provide that an employee should be entitled to the maximum of eight weeks' severance pay after five years of service rather than, as the TCR standard clause provides, after four years service.

[145] We have some reservations about the magnitude and significance of the changes which ACCI alleged have occurred. It may be that the importance of internal labour markets is declining and that experience and skills are more easily transferable between firms. But if this is so it does not appear to have affected the length of time for which jobs are held by individual employees. In fact, the average duration of jobs may be increasing. [27] On the other hand, we are not prepared to accept the proposition advanced by the ACTU that occupational specialisation has increased in recent years, particularly since 1984. All that can be said is that the evidence suggests that average job duration has not declined since 1984 and if anything has increased marginally. While these are aggregate measures and therefore mask changes in job duration for particular segments of the labour market, in the context in which our decision must be made, a broad approach is appropriate.

[146] ACCI and a number of the other employer bodies submitted that legislative changes which have occurred since 1984 militate against the ACTU claim. They pointed to the significant statutory protections which now exist against termination which is harsh, unjust or unreasonable. We accept that the creation of a statutory right for federal award employees to seek a remedy in relation to termination of employment is a material change and that it must be taken into account. We were also urged to take into account the introduction of compulsory occupational superannuation. It was contended that the potential for loss of non-transferable superannuation credits is now less significant than it was in 1984, before the current statutory superannuation arrangements were introduced. We accept that this is also a factor which we should take into account.

[147] At the more general level, employers submitted that the cost of the ACTU claim should be carefully considered. We were urged to reject the severance pay claim, and the other claims, because any additional costs on restructuring would inhibit the ability of firms to compete successfully, sometimes on international markets, and would have a negative effect on employment and enterprise bargaining. Concern was also expressed that retrenchment costs would be so high as to drive employers operating at marginal levels of profitability into liquidation. We accept that the costs of retrenchment are significant, particularly for employers facing trading or financial difficulties. We also note, however, that many firms restructure to improve profitability rather than to avoid liquidation.

[148] The evidence shows that not all advanced countries provide employer-funded severance pay directly to redundant employees although a significant number do. In looking at the cost of redundancy to employers in other countries and comparing them with those affecting Australian employers, it is necessary to bear in mind that factors may need to be taken into account with which we are unfamiliar. For example, unemployment insurance schemes exist in many countries. Such schemes provide varying levels of unemployment benefits and are partially funded by employers through a levy on payroll. In some countries unemployment insurance payments operate alongside severance pay while in other countries insurance payments are a substitute for severance pay. Despite the limitations of international comparisons, however, there are indications that the current level of employment protection in Australia is not so high in relative terms as to give cause for concern that any further increase in severance pay will significantly affect the ability of Australian employers to compete with employers in comparable economies. [28]

[149] We have had some regard to more generous severance pay arrangements operating in the state industrial jurisdictions. In New South Wales the maximum amount of severance pay is 16 weeks' pay after six years of service. The scale was fixed partly on the basis of the need to tide redundant employees over during periods of unemployment. As we have indicated earlier, we do not think it is appropriate to attempt to take income maintenance into account in fixing the level of severance pay in federal awards. In Queensland the maximum severance payment is 16 weeks' after 12 years of service. In our view the Queensland scale pays insufficient regard to the overlap between severance pay and long service leave. We shall return to that issue shortly. For these reasons we have chosen not to adopt either the New South Wales or Queensland scales for the fixation of severance pay in the federal jurisdiction.

[150] Leaving aside the rationale for the severance pay scale applying in the New South Wales and Queensland jurisdictions, the fact remains that severance pay for employees under federal awards in those two states is less than severance pay for employees under state awards. This situation should be borne in mind in assessing the fairness of the scale in the TCR standard clause.

[151] We have taken into account the various submissions that have been made about enterprise bargaining. We note that the level of severance pay in the TCR standard clause is the current entitlement in most federal awards and there is only a relatively small number of agreements which contain more generous provisions. With the exception of those in New South Wales and Queensland, most state award severance pay provisions are the same as the TCR standard clause. In this area we do not think that the market is necessarily a good guide in the fixation of the safety net. The question is whether in all of the circumstances, including the statutory provisions, the minimum severance pay level established in 1984 is still appropriate.

[152] We have not been persuaded that the rationale of the 1984 decision is incorrect or that the level of severance pay then established, so far as it went, was manifestly inadequate. In addition, because the severance pay formula is based on weekly pay the amount of severance pay awarded has maintained its value. As award rates have increased so too have the amounts of severance pay. It follows that, at least so far as employees of less than five years service are concerned, we see no justification for an increase in severance pay. We have concluded, however, that because the maximum amount of severance pay is reached after four years of service, the current scale does not adequately take into account the effect of redundancy on employees with more than four years' service. The various aspects of hardship which we have referred to - in particular the trauma associated with termination of employment, loss of seniority and loss of non-transferable credits - continue to increase after four years of service and more.

[153] We think it is appropriate to extend the severance pay scale from four years of service to ten years. While the current scale reaches the maximum payment after four years of service, under the formula we have decided upon there will be increases in the amount of severance pay with each year of service between five and nine years. The scale will not go beyond 10 years of service. The new severance pay scale will be as follows:

[154] Our decision to increase severance payments for employees whose employment is terminated by reason of redundancy after five or more years of service is based, to a significant extent, on the loss of non-transferable credits. The largest non-transferable credit is long service leave which accrues at the rate of 13 weeks' leave for 15 years of service. The amount of 12 weeks' severance pay for 10 or more years of service, while still greater than the current maximum, has been fixed having regard to the fact that under the standard long service leave provision in federal awards employees with 10 or more years of service whose employment is terminated on account of redundancy are entitled to pro rata payment of long service leave. It would be double counting not to make an allowance for that fact in fixing the amount of severance pay to apply after 10 years of service.

[155] It should be clear that our decision in relation to the new severance pay scale is based on the standard federal long service leave provision. Not all employees under federal awards are covered by the standard federal long service leave provision. In some cases employees under federal awards whose employment is terminated by reason of redundancy may be entitled to a pro rata payment for long service leave even though they have less than 10 years' service. While the Commonwealth provided material illustrating the position in relation to the standard long service leave provision, insufficient material was advanced to enable us to form a conclusion about the extent to which employees covered by federal awards accrue a right to pro rata long service leave on being made redundant with less than 10 years of service. For that reason we shall provide for applications to be made to vary the severance pay amounts to take such situations into account. Whether an adjustment should be made in the scale, and if so of what kind, are matters which could only be decided in the circumstances of the particular case.

[156] We have decided not to accede to the ACTU claim for an additional 25 per cent loading on severance pay for employees over the age of 45 years whose employment is terminated on account of redundancy. There are a number of reasons. The first is that we have decided that the approach to severance pay adopted in the 1984 decision is fundamentally correct. We do not think it is appropriate to depart from that decision by introducing an additional criterion into the scale based on the age of the employee. To the contrary we have built on the approach adopted in the 1984 decision by extending the severance pay scale to 10 years of service. Furthermore, as the Commission pointed out in the TCR No. 1 decision, a scale based on years of service indirectly takes age into account. Our second reason for rejecting the claim is that it appears to be based to a large degree on empirical evidence of the difficulty experienced by older workers in obtaining employment after termination for redundancy. We have made it clear that it is not appropriate to take income maintenance considerations into account in fixing the level of severance pay. Finally, even if the other objections could be somehow overcome, there is no particular reason why 45 years of age should be selected among the range of ages which might be selected for special treatment. In other words, there is an arbitrary aspect to the claim which weighs against it.

[157] ACCI and AiG seek to alter the definition of "a week's pay" in the TCR standard clause by excluding various payments, namely: overtime, penalty rates, disability allowances, shift allowances, special rates, fares and travelling time allowances, bonuses and any other ancillary payments of a like nature. ACCI and AiG contended that this change is not one of substance, is consistent with the 1984 decision and constitutes a useful clarification of the manner in which ordinary pay is to be calculated. They referred to s.143(1C) of the Act in relation to the last aspect. The ACTU submitted that there are no grounds for, nor evidence to support, the claim.

[158] We think there is merit in clarifying the definition of a week's pay in the manner proposed. No argument of substance was advanced against it. We grant the claim.

[159] The ACTU application seeks to remove the provision in the TCR standard clause which limits severance payments to the maximum amount a retrenched employee would have earned had their employment proceeded to their retirement date. The provision reads:

"Provided that the severance payments shall not exceed the amount which the employee would have earned if employment with the employer had proceeded to the employee's normal retirement date." [29]

[160] The ACTU contended that this provision is no longer needed because the concept of a "normal retirement date" is ceasing to have relevance "because of an ageing workforce and the passage of age discrimination legislation ".

[161] This aspect of the ACTU's claim was supported by the States of New South Wales and Victoria. It was opposed by the Commonwealth and employer parties.

[162] AiG seeks to vary the existing provision by replacing the current reference to "normal retirement date" with "age 65 years" . It submitted that this amendment is principally directed at clarifying the provision and ensuring that it effectively serves the purpose for which it was originally intended. AiG advanced the following points in support of its proposal:

• Section 143 of the Act requires that awards be easy to understand in structure and content. AiG's proposed provision would be easier for employees and employers to understand than the existing provision.
• As pointed out by Commissioner Wilks in Re Coal Mining Industry (Production and Engineering) Consolidated Award 1997, 30 many federal awards already contain limits on severance pay based upon specific retirement ages. [31]
• Under the Social Security Act 1991 , Australian males are entitled to an Age Pension when they reach the age of 65 years. The 65-year age requirement is being phased in for females. Women born on or after 1 January 1949 are entitled to an Age Pension at age 65 whereas previously the entitlement was based on an age of 60 years.
• An age limit of 65 for redundancy pay is consistent with legislation in place in various overseas countries. For example under the United Kingdom's Employment Rights Act 1996, redundancy pay is not payable to employees aged 65 or over and those who are above the normal retirement age established by their particular organisation. From 64 to 65, the amount payable under the scheme is reduced by one-twelfth for every month up to age 65 when it becomes nil.

[163] We have decided to reject the ACTU's claim to delete the retirement date limitation. In our view the current provision should be retained. The original purpose of the provision - to ensure that employees who are retrenched in reasonable proximity to their projected retirement date should not receive more than they would have earned had they remained employed until retirement - is still apposite. The principle underpinning the existing provision is sound. The amount of money paid to a retrenched employee by way of severance pay should not cause that individual to be better off than if they had never been retrenched.

[164] The ACTU did not seek to challenge the original rationale for including this restriction in the TCR standard clause. Rather, as we have noted, it argued that the provision ought to be removed because the concept of a normal retirement date will cease to have relevance. We do not find these arguments persuasive. It seems to us that despite the passage of age discrimination legislation, the concept of a normal retirement date will continue to be relevant where a particular occupation or industry continues to have a fixed retirement date.

[165] Where employees and employers agree in advance to a retirement date the principle underlying the current provision will also continue to be relevant. It is not uncommon for employees and employers to discuss and plan retirement dates in advance. Where they do so, the principle underlying the existing retirement age provision remains relevant - if the employee is retrenched before the agreed retirement date, severance pay should be capped so that the employee does not receive more than if the employee had worked through to the retirement date.

[166] Nor are we persuaded to amend the current retirement date limitation in the manner proposed by AiG. While the proposal has the virtue of clarity it seems to us that it erroneously assumes that 65 years of age is the common retirement age across federal awards. Further the proposed amendment does not seem to take into account the prospect that an employer and employee may agree on an earlier retirement date.

[167] We note AiG's concern that the existing provision has led to debate at the enterprise level with an attendant risk of unnecessary industrial action, but in our view such matters are best addressed on a case-by-case basis by way of dispute notification.

[168] We have decided to retain the retirement date limitation in its current form.

[169] Subject to an order of the Commission in a particular redundancy case, the TCR standard clause does not apply to employers who employ fewer than 15 employees. The ACTU seeks the removal of the existing exemption. Jobwatch supports the ACTU's submissions in this regard.

[170] ACCI and AiG oppose the removal of the exemption and seek two variations to the existing exemption provision. Where an employer is solvent ACCI and AiG seek a clause that provides:

(i) The provisions of 4.4.2(c) apply only to small employers (as defined).

Employees of small employers (as defined) are not entitled to severance pay.

The Commission may vary this provision in a particular redundancy case if the Commission is satisfied that there are exceptional circumstances ." [emphasis added]

[171] ACCI contended that this variation would not materially alter the balance in the award system between the interests of employers and the interests of employees. The ACTU argued that the variation proposed would introduce a substantive change to the operation of the current small business exemption.

[172] In circumstances where a small business is insolvent, ACCI and AiG seek to amend the small business exemption so that it provides:

(i) The provisions of 4.4.3(d) apply only to small employers (as defined).

Employees of small employers (as defined) are not entitled to severance pay."

[173] The effect of this variation would be to remove the Commission's discretion to provide for severance payments in circumstances where a small business is insolvent. The proposed variation would also exclude the making of severance payments where a small business was insolvent even if, prior to the insolvency, the Commission had determined that severance payments should be made.

[174] The ACTU argued that employees of small businesses should be entitled to severance payments as a matter of fairness and equity since they face the same losses when retrenched as employees of larger businesses.

[175] On economic grounds, the ACTU argued that small businesses are no less able than larger businesses to make severance payments, and that there is no evidence that the imposition of a requirement on small businesses to make severance payments will have adverse employment effects. It also argued that claims about the job generating role of small businesses do not constitute a cogent basis for selective assistance to small business employers in the form of regulatory exemption.

[176] The ACTU also relied on the fact that there is no small business exclusion under South Australian or Tasmanian state awards, or in a significant number of federal awards. Finally it was said that the exclusion of small business employees from an entitlement to severance pay is arbitrary and unfair.

[177] The Commonwealth opposed the removal of the small business exemption. It contended the exemption should be retained for a range of reasons. We shall summarise the main reasons briefly. Small business is less able to bear the costs of the claim, a fact repeatedly recognised by industrial tribunals. In particular, the substantial new liabilities which would be imposed if the ACTU's claim were granted could be expected to significantly influence the hiring behaviour of small businesses and the ability of small businesses to adapt to changing levels of demand, to the business cycle and to technological change would be impeded.

[178] It also contended that arbitral authority does not support the claim in that most jurisdictions have taken the same approach to small business as was taken by the Commission in the 1984 decision. In 1994, the IRC NSW, when deciding to retain the exemption, pointed to the "relative lack of financial resilience of small business" [32]

[179] The incapacity to pay provision in the TCR standard clause is not an alternative to the exemption because the exemption and the incapacity to pay provision serve different purposes. History and experience demonstrate that the incapacity to pay provision has not been able to serve the more limited function for which it was designed. A search of electronic databases reveals only seven decisions where an employer has sought relief under the incapacity to pay provisions of the TCR standard clause.

[180] It was further submitted that the States do not support the removal of the exemption and that removal of the exemption in the federal jurisdiction would clash with state awards in most states. Different standards would create the potential for industrial unrest arising from employees with different employment arrangements working side by side. On the other hand, maintenance of the exemption would be consistent with Australia's international obligations and international practice. The relevant International Labour Organisation (ILO) instruments authorise the exemption of small businesses from certain termination of employment obligations. [33]

[181] In the Commonwealth's submission the aim of severance pay for employees of small businesses is more appropriately dealt with through workplace bargaining. Enterprise bargaining is available for employers and employees to negotiate severance pay where it is affordable. Bargaining is preferable to removing the exemption and imposing an obligation on small businesses that cannot afford to pay severance pay.

[182] ACCI opposed the removal of the exemption, submitting that the proposed level of cost impost is completely inappropriate for small businesses, especially at those times when redundancies occur and the business is most vulnerable and under threat. It rejected the ACTU's contention that there is no evidence that small business has any less capacity to pay severance than large business.

[183] It submitted that the ACTU contention is inconsistent with a number of findings from the 2003 report by the Senate Employment, Workplace Relations and Education References Committee on Small Business Employment (Senate Small Business Report). It relied in particular on the Committee's findings that the needs and capacities of small businesses differ markedly from those of larger businesses and that small businesses face difficulties and disadvantages in obtaining the key inputs of capital and skilled labour. The Committee also found that the compliance burden associated with government regulation is a major and growing concern for small businesses and ACCI submitted that the ACTU's claim will add substantially to the compliance burden. Reliance was also placed on the findings that the limited financial resources of many small businesses is a constraint on their capacity to weather revenue downturns and to grow and compete with larger businesses, small to medium businesses tend to operate on much tighter inventory controls than big businesses and have less financial flexibility and are more closely monitored by their banks. Many small businesses operate on small margins, with highly variable cash flow, particularly in their early years and most small businesses rely on their own equity or borrowings, frequently using the family home as security. In addition, small business is often subject to higher interest rates and higher bank fees/charges partly because of a more limited bargaining capacity and also because of perceptions of increased risk.

[184] It was also submitted that the ACTU's conception of fairness only goes one way, it ignores fairness of outcomes for small business employers, in particular the financial imposts for these employers, many of whom are low income earners themselves.

[185] AiG contended that there are powerful reasons for retaining the small business exemption. It argued that small business should be treated differently for severance pay purposes because small businesses could not bear the cost of the claim, the additional contingent liability would increase borrowing costs for small businesses and the claim would lead to a number of non-financial problems including reduced employment and firm closures.

[186] A number of other arguments were advanced in support of the retention of the exemption, including that the exemption is supported by arbitral precedent, and if granted, the claim would lead to jurisdictional conflict. The exemption is consistent with international practice and small business employees can obtain severance pay through enterprise bargaining or orders of the Commission when it is affordable.

[187] The NFF generally supported the ACCI and AiG submissions and also highlighted the increased volatility of agricultural business under current drought conditions.

[188] The State of New South Wales noted that this element of the ACTU's claim "is inconsistent with the New South Wales standard . . . Furthermore, it is inconsistent with major industry awards . . ."

[189] The State of Western Australia did not support the removal of the exemption on the basis that it:

"[I]s not convinced at this stage that removal of the current exemption is warranted. Supporting small business whilst providing protection for employees is a delicate balance. In this instance WA would fall on the side of caution.

This proposal could have a concentrated impact on small business, as redundancy payments would represent a greater proportion of the overall labour costs to small business, than it would for larger enterprises."

[190] The State of Queensland "recognises the particular difficulties faced by small business employers and does not support any additional burden being placed on this section of the economy"

[191] The State of Victoria neither supported nor opposed this aspect of the ACTU application.

[192] The ACTU's contention that the nature and extent of losses suffered by small business employees upon being made redundant are broadly the same as those suffered by employees of medium and larger businesses, was not seriously contested. In this context the evidence of employees of small businesses provides some useful illustration of those losses. Mr W Albury said that he was "very shocked to find out that the business was closing down . . ." . Ms B Burrows said: "After being actively employed for 9 years I became depressed, I felt like I had been chopped off at the knees." Mr B Bedford was unemployed for some 10 weeks after being made redundant, during which time he did not receive any social security benefits. He also lost a considerable amount of accrued sick leave upon being made redundant. He said in evidence:

"I have only taken a small amount of sick leave in my 15 years of employment. My employer does not show the accrued sick leave on my pay slip however I believe I will have close to the maximum of 640 hours of leave accrued. At any new job I will have no accrued sick leave, I will not receive a pay out for my accrued sick leave from my current employer."

Having obtained subsequent employment Ms M Carter suffered a loss in earnings and her hours of work now fluctuate markedly: "I now find it very difficult to survive financially, let alone budget. There is no security in my employment and I have no idea what my income will be in any one week."

[193] We also accept that the current exemption is arbitrary and can give rise to inequities in circumstances where a business reduces employment levels over time. This is exemplified in Mr Albury's evidence:

"9. On 20 November 2002, I was given notice that my employment would be terminated in five weeks time. I was not told prior to this time that the shop was being closed down.

10. Two of my colleagues were also made redundant.

11. We were told that the owner was closing the business down on 20 December 2002. The remaining business would be passed on to a Print Broker and the machinery would be sold.

12. A Webb & Sons is a profitable business and has been for a long time. I have been asked to work overtime in the weeks leading up to the closure of the business to meet the workload.

13. Around seven or eight years ago, there was a reduction in staff due to the introduction of new technology. At the time there were sixteen staff employed in the business. The person with the shortest length of service was made redundant and paid a severance payment. A short time later, a number of other staff were made redundant and they did not receive severance payments.

14. A Webb & Sons have said that, as they have less than fifteen employees, the Award does not require them to make a payment of severance benefits, regardless of our length of service."

[194] We also note that the potential unfairness in the operation of the small business exemption was one of the reasons that led a Full Bench of the Commission to remove the exemption from the Clothing Industry Award 1982:

"There is also the difficulty of the uncertainty of knowing when the test of 15 employees is to be applied. The evidence shows a contraction of employment in the clothing industry over recent years as the reduction in tariff and other protection has occurred as part of the Commonwealth Government's Textile Clothing and Footwear Industry Plan (TCF Plan). It may be that an employer could have 20 employees and reduce that number by 6 who would be paid all of the award benefits. But some or all of the remaining employees may be retrenched some months later, at which stage the employer may be seen to be exempt from the relevant provision of the Award on account of having less than 15 employees at the time of retrenchment. This situation is a very real prospect in this industry and highlights the inherent unfairness and injustice in the present provision." [34]

[195] We deal with the rest of the ACTU's contentions in our consideration of the submissions of those opposing the removal of the exemption.

[196] There is a significant degree of overlap among the submissions of those opposed to the ACTU's claim. Rather than go through the submissions of each of the parties we propose to take a thematic approach to the issues.

[197] A common thread in the submissions of those opposing the removal of the exemption was the proposition that small businesses have less ability to bear the costs of severance pay than larger businesses. It was argued that it is the relative lack of financial resilience of small business which supports the retention of the exemption. In this regard the Commonwealth contended that the central cause of this lack of financial resilience is the relative difficulty encountered by small business in obtaining finance on reasonable terms. As noted by the Commonwealth, Carpenter and Petersen observed:

"Many small companies - even companies with promising growth opportunities - find it extremely difficult or impossible to raise outside capital on reasonably favourable terms." [35]

[198] AiG contended that the additional contingent liability associated with the removal of the small business exemption will increase lending costs for small businesses. In support of this proposition AiG presented an extensive amount of witness evidence from small business employers in the manufacturing sector. Broadly speaking the concerns expressed by these witnesses were in two areas. The first concerned the impact on small businesses of a requirement to set aside funds to cover the contingent liability associated with redundancy pay. The second concerned the ability of small businesses to fund redundancy payments in the event that they have to undertake retrenchments.

[199] The impact of removing the exemption on a small business's contingent liabilities, and whether a provision needs to be made for such a liability, was a matter of some contention in the proceedings. Mr B Taylor asserted that if the small business exemption were to be removed and the quantum of severance pay entitlement increased "it would effectively make most small businesses technically insolvent". It appears from Mr Taylor's oral evidence that this assertion was premised on his view that such potential severance payments should be treated as contingent liabilities in the business's accounts.

[200] The issue of contingent liabilities and accounting for employee entitlements are dealt with in the relevant accounting standards. Accounting Standard AASB 1044 - Provisions, Contingent Liabilities and Contingent Assets - states:

"A provision must be recognised when, and only when:

(a) It is probable that a future sacrifice of economic benefits will be required; and

(b) the amount of the provision can be measured reliably."

[201] Accounting Standard AASB 19028 deals with accounting for employee entitlements. In short the accounting standard:

"(a) defines `employees', `employers' and `employee entitlements';

(b) requires that employees entitlements, wages and salaries, annual leave, long service leave, sick leave, non monetary benefits, medical benefits, retirement, termination, retrenchment and redundancy payments be recognised as a liability in an employer's accounts where the employer has a present obligation based on services rendered by employees up to the reporting date; i.e. to the reporting date which those financial statements refer to."

"the existence of liabilities relating to retirement, termination, retrenchment or redundancy of employees depends on the existence of a present obligation of the employer as at the reporting date. Existence of a liability which should be recognised in the Balance Sheet is dependent upon events which bind the employer to make payments to employees. Where there exists an award, agreement or established custom or practice which provides for retirement, termination, retrenchment or redundancy payments to employees in specified circumstances, the point of time at which the obligation becomes binding on the employer will normally be clear. In such cases, present obligation of the employer will exist at the point in time at which the employer is bound by the conditions of the award, agreement or established custom or practice to make payments to employees."

[203] Mr M Humphris dealt with the effect of these accounting standards, and with Mr Taylor's evidence. He testified that:

"5. The underlying premise in the accounting standards, particularly with respect to retirement, termination, retrenchment or redundancy payments is dependent on the existence of the present obligation of the employer as at the reporting date. In summary the only financial obligations that need be recorded in the Balance Sheet are the present obligations of the company.

6. In the instance of contingent liabilities, those liabilities are defined to be

(a) liabilities of the entity that have not been recognised because

(i) of significant uncertainty as to whether a sacrifice of future economic benefits will be required or

(ii) the amount of the liability cannot be measured reliably

(b) items that are not recognised as liabilities because of significant uncertainty as to whether an obligation presently exists.

Accordingly, if termination/retrenchment entitlements can be defined as above then they will be referred to as a contingent liability. However, unless there is some probability of liability arising there is no obligation to note a contingent liability for employee entitlements."

[204] In relation to Mr Taylor's evidence Mr Humphris said:

"The accounting standards do not require any liabilities for redundancies to be included in the Balance Sheet until such time as the liability exists. Accordingly, there is no argument as to Balance Sheet Insolvency or Cashflow Insolvency, or any other `technical' insolvency."

[205] We accept Mr Humphris' evidence in this regard. In doing so we note that during the course of his cross-examination Mr Taylor agreed that as a matter of practice severance pay entitlements are not recorded as contingent liabilities in business accounts and do not impact on a businesses cash flow until an employee is made redundant.

[206] The impact of a contingent liability for redundancy pay was also addressed by Mr Dwyer:

"We have observed over the years that redundancy pay liabilities are a major contributing factor toward the incidence of business failures and the corresponding problem of unpaid employee entitlements."

[207] Mr Dwyer subsequently clarified this evidence as follows:

"6. In paragraphs 6 and 10 of his Statement, Mr Humphris suggests that I believed the most common cause of company failure was the contingent liabilities arising from employee entitlements. This is not in fact what paragraph 27 of my original statement says. It states that a lack of working capital and an inability to restructure operations (often due in turn to the high level of employee entitlements) are some of the common causes of failure. In fact, they were listed in my statement as the fourth or fifth causes of company failure.

7. The view that was expressed in my original statement that a high level of employee entitlements will limit the ability to restructure operations was formed on the basis that higher levels of redundancy payments will lead to a greater amount payable in the event that employees are made redundant. As part of an ongoing restructuring program, this higher amount will be a disincentive to proceeding with the restructuring (including any restructuring which involves potential purchase of the insolvent business by an external party)."

[208] During the course of cross-examination Mr Dwyer could only recall one instance in which he recorded employee entitlements as a cause of insolvency in a report to a second creditors' meeting. Mr Dwyer's evidence was general in nature and he was unable to say whether severance payments of the level claimed by the ACTU had been a major contributing factor to the incidence of business failure or had led to firms not being able to undertake necessary restructuring or downsizing.

[209] As we have noted a number of the AiG witnesses expressed concern about the impact on their business if they were to be required to set aside funds to cover the contingent liability associated with redundancy pay. For example, Mr S Reynolds, the Managing Director of Reynolds Engineering Pty Limited, said:

"If the Company was required to provide for the liability of redundancy payments, then it would need to go back into debt. There are no shareholder funds or other accumulated capital set aside to meet these types of payments. We would need to borrow the money from the bank or utilise our overdraft."

[210] Similar comments were made by other witnesses. When a number of these witnesses were cross-examined with respect to this evidence they conceded that they did not currently make any provision for costs associated with termination of employment (i.e. notice periods). Some also conceded that if they were not required to make provision for the potential cost of redundancy there would not be the stated consequences for their business, as the following exchange indicates:

"Mr Watson: So when you talk in paragraph 16 about the consequences which would flow to the company if you were required to provide for the liability of redundancy, I take it, it follows from that, that those consequences not flow if there was no requirement, or if no provision were made?

Mr Watson: Well you say, for example in that first sentence:

`If the company was required to provide for the liability of redundancy then it would need to go back into debt.'

But if you didn't make any provision for redundancy then you would not need to go back into debt, would you?

[211] We accept that, depending on the circumstances confronting a particular business, there may be instances in which redundancy entitlements will properly be regarded as a contingent liability and be reflected as such in the businesses accounts. In such instances the creation of such a liability could have a negative impact on the business. But we do not accept that this would generally be the case if the small business exemption was removed. It would depend on the particular circumstances of the business concerned.

[212] The second concern expressed by a number of the witnesses called by AiG went to the ability of their businesses to fund the cost of redundancy in the event that they had to undertake retrenchments. One witness said that if there was a need to implement redundancies then it would impact on his business "very negatively" [36] Another said that the only way his business could afford to make redundancy payments "would be to borrow money from the bank or seek an extension of the existing overdraft" [37] Mr N Jukes testified:

"12. I am at a complete loss to know how I could afford redundancy payments. No money has been set aside for these payments, and there are insufficient profits in the business to meet these liabilities.

13. Nor could I borrow enough money to cover the cost. I have limited security for loans. My house and other possessions are already on the line. And cash flow is usually on a roller-coaster ride because I have to pay out money before I collect it."

[213] The ACTU contended that under cross-examination a number of the AiG witnesses conceded that they could find the additional funds to meet redundancy costs. We accept that this is so but the evidence also establishes that such payments would have a negative impact on the business. For example Mr Jukes conceded that if he had to find a sum in the order of $12 000-$15 000 he could do so, but only by selling assets, such as a truck, and "then it makes you less profitable because you've got less equipment to operate with . . .". Mr T Butchard made a similar observation.

[214] In addition to the evidence of employers operating small businesses, AiG relied on the survey conducted by Professor Benson of AiG/Engineering Employers Association, South Australia (EEASA) members on current practices and implications of the ACTU redundancy pay claim. In its final submissions AiG contended that the report prepared by Professor Benson highlighted the negative implications of the ACTU claim upon small business profitability and viability. Three propositions were relied upon in particular.

[215] First, those companies which had implemented retrenchments during 2002 were asked how they would meet the cost obligation of the ACTU claim, if the claim had any cost implication. Small companies reported that they would be substantially more likely to sell assets or to sell part or whole of the business (82.6 per cent), reduce workforce size (73.9 per cent) or seek loans from financial institutions (60.9 per cent), than larger companies. Only 21.7 per cent of small companies indicated that the option of using funds previously committed to further investment or expansion was available to them to fund the severance payments.

[216] Second, those companies which had implemented retrenchments during 2002 were also asked, if the claim had any cost implication for their businesses, what impact would this have had on profits. Significant differences existed between small and large companies. Over half of small companies indicated that if implemented the claim would further increase their yearly loss (52.2 per cent) and a further 39.1 per cent of these companies stated that the claim would have converted a profit into a loss for that year.

[217] Third, companies were asked if there were any other implications for their business associated with the ACTU claim. Small companies were substantially more likely to state that the claim would result in reduced competitiveness that could force closure or the need to locate offshore (48.7 per cent) compared to large companies (17.0 per cent).

[218] It is important to bear in mind that the percentages referred to by AiG in the first and second propositions are not referable to all small business respondents but only to the 23 small companies that responded to the relevant survey questions. Similarly, in relation to the third proposition the percentages referred to only relate to the 39 small companies who responded to that question. [38]

[219] The Benson survey was of a sample of 1096 companies drawn from all member companies of AiG and EEASA. Each of the companies selected was sent a questionnaire. By the end of the survey period 305 questionnaires had been returned, representing a response rate of 28 per cent. The primary purpose of the survey was to provide AiG with information regarding the cost of the ACTU claim and any other problems which granting the claim might cause for AiG member companies.

[220] There are a number of reasons for treating the survey results with some caution. Professor Benson agreed that the survey results cannot be extrapolated to either the manufacturing sector generally or to the economy as a whole. The survey was only intended to ascertain the views of AiG/EEASA members. Further, given the stated purpose of the survey and the 28 per cent response rate, there is a possibility of non-response bias, that is, companies which were not subject to additional costs as a result of the claim may have been more likely not to have responded to the survey. Professor Benson conceded such a possibility, though he concluded that it was "not a major problem" . Subject to these limitations we have had regard to the survey results in our consideration of this issue.

[221] We also note that ACCI and AiG relied on the Senate Small Business Report. We acknowledge that some of the Committee's findings provide support for some of the contentions advanced on behalf of ACCI and AiG, and we have taken them into account. But it is also important to acknowledge that a majority of the Committee did not advocate an exemption for small business from compliance with employment related regulations as an appropriate way of addressing the problems identified, as paragraph 6.80 of the report makes clear:

6.80 Compliance with employment-related regulations is clearly a major issue for small business and the costs, complexity and uncertainty can make small business reluctant to employ. Commonwealth and state and territory governments need to explore ways to make compliance simpler and easier for small business. The committee does not consider that deregulation or an exemption or `tiered requirement' for small business is an appropriate way of addressing the problem, because it would require compromise of important public interest objectives and also lead to the development of small business as a second class employer, exacerbating its difficulties in recruiting suitable, skilled staff." [39]

[222] It seems to us that the available evidence does not support the general proposition that small business has a relative lack of financial resilience and has less ability to bear the costs of severance pay than larger businesses. We accept that this is true of some small businesses, but the evidence falls well short of establishing, as a general proposition, that small business does not have the capacity to pay severance pay. Three considerations support our conclusion. The first is that small business is generally profitable. The second is that some small businesses make severance payments despite the absence of a legal liability to do so. A third consideration is the absence of evidence from those jurisdictions where the small business exemption does not exist, or in those industry sectors where it has been removed from the relevant federal award, that small business is less profitable or more likely to fail.

[223] A large proportion of small businesses are profitable, about 70 per cent. While this proportion is lower than the proportion for medium and large businesses, the differences are not great. The latest available official statistics are shown in Table 2.

Table 2: Business Profitability by Business Size 1997-98

[Source: ABS Small and Medium Enterprises Cat No. 8141.0 (unpublished data).]

[224] Data concerning business profitability by business size and employment change are set out in Table 3.

Table 3: Business Profitability by Business Size and Employment Change Category 1997-98 [40]

[Source: ABS Small and Medium Enterprises Cat No. 8141.0 (unpublished data).]

[225] The data in Table 3 show that in the period 1997-98 some 70 per cent of small businesses which reduced employment still made a profit. The table also shows a pattern of profitability amongst small businesses, regardless of whether the number of persons they employ is increasing, decreasing or static.

[226] The ABS data on the proportion of small businesses decreasing employment which are still profitable is consistent with the findings of Bickerdyke, Lattimore and Madge, in Business Failure and Change: An Australian Perspective [41] According to this report, while small business accounts for more than 97.5 per cent of all business exits, the single greatest reason for business exit is realising a profit. The report also found that of the 7.5 per cent of businesses which exit in any year, only 0.5 per cent do so for reasons of bankruptcy or insolvency. It is also significant that while just over a quarter of small businesses cease in their first five years and around half cease in their first 15 years, many business exits are anticipated years before they actually occur allowing for adjustment and a reduction of the costs of exiting.

[227] The evidence establishes that some small businesses make severance payments, despite the absence of any legal requirement to do so. The Benson survey suggests that informal redundancy arrangements in small companies operate on the basis of the TCR standard clause. [42] More than 90 per cent of the small companies who responded to the survey made severance payments, and provided job search entitlements, in accordance with the TCR standard clause despite the absence, in many cases, of a legal requirement to do so. [43]

[228] The submission by Jobwatch and other evidence also supported the proposition that some small businesses pay severance pay despite the absence of a legal obligation. Mr Bedford, who was made redundant by A Webb & Sons Pty Ltd, gave evidence that all of the employees who were made redundant were paid a six-weeks ex gratia payment despite the fact that the company was covered by the small business exemption. Two employees made redundant by Portland Fleet Maintenance Pty Ltd were paid severance pay based on the current TCR standard. Mr R Dun's evidence was that the first employee (made redundant in 1996) was paid all of the severance pay he would have been entitled to had the company not been covered by the small business exemption. The second employee (made redundant in 2003) was paid half the standard TCR severance payment.

Absence of evidence where the exemption does not operate

[229] The final consideration supporting our conclusion about the capacity of small business to pay severance pay is the absence of any evidence that in those jurisdictions where the small business exemption does not exist or in those industry sectors where it has been removed from federal awards, small businesses are less profitable or are more likely to fail.

[230] There is no significant difference between the bankruptcy experience in South Australia and that in other states. [44] Mr Dwyer indicated that there is no evidence that the level of insolvency for small business in South Australia is higher than in the rest of Australia. [45] Nor is there any evidence of interstate differences with respect to the number of small business employers subject to claims under GEERS. The data are set out in Table 4.

[231] The first line in Table 4 shows a breakdown by state and territory, of the proportion of applications under GEERS by small businesses. The next line sets out the number of employing small businesses as a percentage of all employing businesses, by state and territory. The next two lines record the number of employees in small businesses as a percentage of GEERS claims received and the number of small business employees as a percentage of all employees, by state and territory.

[232] These data show that the experience with respect to GEERS claims involving small business is broadly consistent across all states and territories. The evidence does not suggest any significant over-representation in any state or territory in terms of the number of small business GEERS claims as a proportion of all claims, compared to the small business sector as a proportion of all businesses. [46]

Table 4: Comparison of GEERS with General Characteristics of Business

Employing small businesses as % of all employing businesses

Employees in small business as % of GEERS claims received

[Source: Exhibit ACTU 28 .]

[233] The Commonwealth contended that the absence of evidence of differential outcomes between states does not support an inference that the imposition of severance pay did not have a serious impact on small businesses in South Australia. It argued that many factors combine to determine the relative performance of South Australian small businesses compared with those in other jurisdictions.

[234] As a general proposition we accept that in order to quantify the effect of severance pay on the performance of small businesses, a range of other relevant variables would need to be controlled for. [47] For example, it may be that during the relevant period the South Australian economy was growing at a faster rate than the economies of other states or that the South Australian Government was providing some subsidy to small business which was not available in other states. Such variables might explain the fact that there is no significant difference in the level of insolvency amongst small businesses in South Australia compared to the rest of Australia, despite the fact that South Australian small businesses are required to pay severance pay. It is significant, however, that no such confounding variables were suggested during these proceedings. The Commonwealth did not point to any particular factor which could explain the absence of any different outcome for small businesses in South Australia compared to the rest of Australia, nor was any evidence adduced about it.

[235] Further no evidence was adduced in support of the contention that to require small business to pay redundancy benefits will stifle small business innovation and entrepreneurship. It was not suggested that small businesses in those jurisdictions or industries in which the exemption does not apply are any less innovative or lacking in entrepreneurial flair than small business in general.

[236] In addition to the inability of small business to bear the costs of severance pay, the Commonwealth and employers also relied on the relevant arbitral history in support of the retention of the existing exemption. We now turn to consider those contentions.

[237] The Commonwealth, ACCI and AiG contended that arbitral authority is against granting this part of the ACTU claim. It was argued that the unique characteristics of small businesses, and in particular their less robust financial position, have been recognised by Australian industrial tribunals and that the ACTU failed to show that the small business environment is relatively more favourable today than it was 19 years ago when the exemption was granted.

[238] It was also argued that the removal of the exemption in the federal jurisdiction would clash with state awards in most states. It was submitted that such different standards would create the potential for industrial unrest arising from employees with different employment arrangements working side by side.

[239] In the TCR No. 1 decision the Commission excluded employers who employ fewer than 15 employees from the notification and consultation provisions only, [48] not from the requirement to make severance payments. Further proceedings took place after the Commission "received a multitude of complaints from employers about the decision" [49] The TCR No. 2 decision was subsequently issued. In that decision the Commission determined that:

". . . in the interests of uniformity with New South Wales and in the light of the material presented about the effect of taking into account previous service, we are prepared to grant an exemption for employers of less than 15 employees. This exemption will also be subject to further order of the Commission." [50]

[240] In New South Wales at that time the Employment Protection Act 1982 (NSW) (EPA 1982) provided that employers employing fewer than 15 employees were exempt from the "compulsory notification" procedures set out in EPA 1982. Sections 7 and 8 of EPA 1982 provided for compulsory notification to the Registrar where an employer proposed to terminate the employment of one or more employees. Upon such notification the relevant unions were notified (s.10) and a report provided to the President of the IRC NSW (s.11). The IRC NSW had the power to make orders, including orders for the payment of severance pay (s.14(1)(a)).

[241] The small business exemption in EPA 1982 only related to the compulsory notification requirements and did not affect the power of the IRC NSW to order severance pay. Subsection 14(9) of EPA 1982 states:

"An order under this Act has effect notwithstanding that the number of employees employed by the employer concerned falls below 15."

[242] In Sykes Menswear (Corrimal) Pty Ltd v Shop Distributive & Allied Employees' Association, New South Wales [51] the IRC NSW held that the EPA 1982 did not affect the Commission's jurisdiction to make an award requiring an employer of fewer than 15 employees to make payments to employees whose employment had been terminated on the grounds of redundancy. However, the IRC NSW also noted that the provisions of the EPA 1982 had "a considerable bearing on how the jurisdiction as to the awarding of severance pay under the Industrial Relations Act should, as a matter of discretion, be exercised" [52] In particular, the IRC NSW said:

"In circumstances where Parliament has so recently and specifically legislated on this subject matter in a special Act, we consider that it would be only in a most unusual and exceptional case that a tribunal, acting under the jurisdiction conferred by the Industrial Arbitration Act, might properly make an award conferring a severance pay entitlement to employees, such as employees of an employer employing less than 15 employees, who are effectively denied such a benefit under the provisions of the Employment Protection Act." [53]

[243] The extent to which the Commission relied on the small business exemption in EPA 1982 as a rationale for its decision to exempt small business from the obligations to pay severance pay in the TCR No. 2 decision is not entirely clear. There is no overt recognition in the TCR No. 2 decision that the exemption for employers of fewer than 15 employees in EPA 1982 was confined to the obligation to notify redundancies and did not affect the power of the IRC NSW to require that severance payments be made.

[244] The exemption in the TCR standard clause is expressed to be "subject to an order of the Commission in a particular redundancy case . . ." . In each of the following cases the Commission, after considering the circumstances of the industry, decided that the small business exemption should be removed from the award in question:

• Re Municipal Employees (WA) Award 1982 and other awards ; [54]
• Building and Construction Industry TCR Case ; [55]
• Re Clothing Trades Award 1982 ; [56]
• Re Furnishing Trades Award, 1981 ; [57]
• Australian Municipal, Administrative, Clerical and Services Union and Armidale Family Day Care Ltd and others ; [58]
• Re Timber Industry Award 1990 ; [59] and
• Re National Joinery and Building Trades Products Award 1993 [60]

[245] In a number of specific award applications to remove the exemption the Commission has consistently rejected the notion that the number of employees and the capacity of an organisation to make severance payments was directly linked. In Re Clothing Trades Award 1982 a Full Bench of the Commission found that:

"There was no evidence produced in these proceedings which showed that the capacity of employers to pay the benefits contained in the standard clause was necessarily related to the size of the enterprise or, more appropriately, to the number of persons employed in the particular undertaking." [61]

[246] We now turn to consider the position taken in each state jurisdiction.

[247] In 1987, in Re Clerks (State) Award & Other Awards , [62] the IRC NSW adopted the TCR standard clause albeit with some modifications. Although the IRC NSW maintained its different rationale for severance pay, it granted provisions that were generally consistent with the federal provisions, including consistency with regard to the small business exemption.

[248] The IRC NSW's approach to redundancy was subsequently reviewed in 1994 in Re Application for Redundancy Awards Case [63] The continuation of the small business exemption was an issue in that case. The IRC NSW rejected a union application to remove the exemption, in the following terms:

"Lastly, we have closely considered Mr Sams' submissions that the scale should apply to enterprises employing under 15 employees and the trenchant opposition of the employers. We note that this level of exception is contained in the Employment Protection Act and has been extensively followed elsewhere. In the circumstances . . . we determine to maintain the barrier in the same terms." [64]

[249] When the Industrial Relations Commission of South Australia (IRCSA) considered the matter in 1987 it decided not to exempt small business. In Re Clerks (SA) Award & Another Award [65] the exemption was rejected on the grounds that it would be "unjust" . The IRCSA said:

"[W]e are persuaded that it would be unjust to grant an employer an automatic exemption from the redundancy provisions simply because he employees less than fifteen employees.

It seems to us that the rationale behind such an exemption must assume, we think incorrectly, that an employer who employs less than 15 employees cannot afford to pay the redundancy benefits to his retrenched employees. It may well be that he has not the capacity to do so. But many employers who employ only a small number of employees have very lucrative businesses, whilst employers of a larger number of employees might make a relatively small profit . . . A provision of that kind is arbitrary and in our view is devoid of merit. All employees who are made redundant for whatever reason, are likely to suffer the same adverse effects no matter whether they were employed at a small enterprise or by a multi-national company. In our view all employees who are made redundant should prima facie be entitled to the same benefits. If any employer considers that he does not possess the capacity to pay the benefits bestowed by the redundancy provisions then he will have the right to come to the Commission to be exempt therefrom. Each case can then be dealt with on its individual merits." [66]

[250] The Western Australian Industrial Relations Commission (WAIRC) in Court Session considered this issue in 1985 in Amalgamated Metal Workers and Shipwrights Union of Western Australia v Anchorage Butchers Pty Ltd and others In that case the WAIRC decided that:

"The claim to exclude from the redundancy provisions employers who employ less than 15 employees appears hard to rationalise and no real attempt was made by the applicants to do so. It is surely not the case that an enterprise that employs fewer than 15 people will generally not have the resources to meet redundancy payments and the like. Some enterprises forced to retrench 100 employees may find their resources taxed to a greater degree than an enterprise employing 14 people, and dismissing just one employee through redundancy. In the absence of argument to justify if this arbitrary exclusion appears to us to be unnecessarily and illogically discriminatory." [67]

[251] In the subsequent 1986 decision of the WAIRC in Amalgamated Metal Workers and Shipwrights Union of Western Australia v Anchorage Butchers Pty Ltd and others the small business exemption was incorporated (for the sake of consistency) but the WAIRC said:

"Having studied all of the material before us on this subject and having considered the submissions of the parties, we are convinced that the figure 15 is quite arbitrary and has its origin in the New South Wales Employment Protection Act 1982. It is our belief that it has its genesis in Section 9 of that Act and probably its inclusion in the Act had more to do with problems of administration than with intrinsic merit. Be that as it may consistency demands that the union's claim be rejected and the exclusion . . . for employers who employ less than 15 employees should appear also in the State Award . . ." [68]

[252] We note ACCI's contention that there is no single TCR standard in Western Australian state awards, (within the meaning of Principle 10, of that State's statement of principles [69] ). But for present purposes we need only observe that the WAIRC has adopted the general small business exemption that operates federally, albeit with some reservations.

[253] The most recent consideration of the small business exemption occurred in Queensland in the QCU v QCCI decision of 18 August 2003. [70] In that decision the Queensland Industrial Relations Commission (QIRC) decided to retain the small business exemption. [71] The QIRC concluded that:

"In our view, the small business exemption should be retained.

Many small businesses operate in marginal circumstances.

An obligation to make severance payments has the very real potential to result in the insolvency of a number of small businesses.

The lack of financial resilience in small business previously referred to has not changed since 1994. We accept the Queensland Government's submission that small business would generally have smaller cash reserves to meet severance pay requirements, and redundancies occurring would represent a greater proportion of the overall labour costs of the business.

It is likely that small business facing a downturn or restructure sufficient to generate redundancies would not have sufficient cash reserves to launch a case in the Commission against an industrial organisation of employees (with perhaps greater access to financial resources) seeking an exemption from the application of severance pay provisions - see Building Products, Manufacture and Minor Maintenance Award - State (1997) 154 QGIG 458. Importantly, the majority of other States and the federal jurisdiction retain a small business exemption." [72]

[254] The position in Tasmania is a little different from that in other states. In 1985 the Tasmanian Industrial Commission rejected the notion of making general provision for redundancy or retrenchment procedures in favour of the continuation of a case by case approach. [73] As a consequence there is no general exemption for small business from the requirement to pay redundancy in that State.

[255] The existence of a small business exemption in most state jurisdictions is clearly a factor which supports the retention of the exemption in federal awards. But it is not a determinative consideration. It must be balanced against other factors such as the inequities that may arise in circumstances where a business reduces employment over time, and the inconsistency of treatment of redundant employees based on the number of persons their employer employs.

[256] In relation to the potential for industrial unrest arising from inconsistent state and federal standards, we note that such inconsistency already exists. There is no general exemption for small businesses in South Australia and Tasmania, and the severance pay standard in New South Wales and Queensland differs from that in other states and in federal awards. No evidence was adduced to support the proposition that such different standards have given rise to industrial disputation.

Australia's International Obligations and International Practice

[257] The Commonwealth contended that ILO Convention 158 concerning Termination at the Initiative of the Employer and ILO Recommendation 166 both recognise "the need for and permit exemptions for small businesses in regard to severance pay" [74] It was also put that a stated objective of the Act is to assist in giving effect to Australia's international obligations in relation to labour standards.

[258] We acknowledge that Article 2 of Convention 158 provides that ILO member countries may exclude the following categories of employed persons from some or all of the provisions of the Convention:

"(a) workers engaged under a contract of employment for a specified period of time or a specified task;

(b) workers serving a period of probation or a qualifying period of employment, determined in advance and of reasonable duration;

(c) workers engaged on a casual basis for a short period."

[259] Further, Article 5 of the Convention states:

"5. In so far as necessary, measures may be taken by the competent authority or through the appropriate machinery in a country, after consultation with the organisations of employers and workers concerned, where such exist, to exclude from the application of this Convention or certain provisions thereof other limited categories of employed persons in respect of which special problems of a substantial nature arise in the light of the particular conditions of employment of the workers concerned or the size or nature of the undertaking that employs them." [75]

[260] These provisions are relevant to the determination of the matters before us. In that regard s.3(k) of the Act states:

"The principal object of this Act is to provide a framework for cooperative workplace relations which promotes the economic prosperity and welfare of the people of Australia by:

(k) assisting in giving effect to Australia's international obligations in relation to labour standards."

[261] We accept that the exemption of small businesses from the TCR standard clause is consistent with the relevant ILO instruments. It should be added, however, that those instruments permit exemptions, they do not require them. Removal of the exemption in this case would not be inconsistent with those instruments.

[262] The Commonwealth also contended that exemptions based on business size apply in "many countries" that have a legislated obligation upon employers to provide severance pay. The Commonwealth produced the following table in support of its contention:

Businesses with less than 20 employees are exempt from notice periods. Casuals with less than three months' service are not provided with notice periods.

The Civil Code, as amended in 1996, excludes establishments regularly employing less than 10 full-time equivalent employees from severance payments (that is, not counting vocational trainees and part-time workers).

The Labour Standards Act of 1997 exempts businesses and workplaces with less than five permanent workers from severance payments.

Severance pay only applies where 50 or more employees are made redundant during a four week period.

Companies employing less than 20 employees must retain 10 workers or more to be exempt from severance payments.

Companies with fewer than 20 employees may increase notice periods instead of awarding severance payments. These extended notice periods range from five months for those between five and 10 years service to 18 months for white collar staff with over 30 years' service.

Employees with at least five years service are entitled to a severance payment.

A business with less than 10 employees must dismiss at least five employees for the dismissal to be deemed a redundancy. Companies with less than 100 employees must dismiss at least 10 employees to be obligated to pay severance pay. Where businesses with less than 25 employees make a collective dismissal, a wage guarantee fund pays 40% of the severance payment.

[263] We do not find the Commonwealth's submissions in this regard particularly persuasive. International comparisons of labour standards are inherently problematic and run the risk of failing to adequately account for contextual considerations. The material does not enable us to discern whether "many countries" which impose a legislative obligation on employers to pay severance pay exempt small businesses. Only six countries were identified and no information was provided as to the number of countries which impose a legislative requirement to pay severance pay. It is also apparent from the material that was provided that there is no consistent approach evident amongst the countries identified.

[264] Finally we note that both the Commonwealth and AiG contended that enterprise bargaining is available for employers and employees to negotiate severance pay in those small businesses where it is affordable. It was argued that such bargaining is preferable to removing the exemption and imposing an obligation on small businesses that cannot afford severance pay.

[265] In our view the availability of enterprise bargaining over severance pay is not an impediment to the removal of the small business exemption. Small businesses which cannot afford to pay the standard redundancy entitlements may seek to have those entitlements waived or reduced through enterprise bargaining. As the Commission noted in the Safety Net Review-Wages May 2003 decision:

"The Act sanctions contracting out of awards in certain circumstances. Parties are free to negotiate, and to have certified, terms and conditions of employment that do not meet the no-disadvantage test under the Act, provided that the Commission is satisfied that certification is not contrary to the public interest. An example of a case that would not be contrary to the public interest is an agreement that is part of a reasonable strategy to deal with a short-term crisis in, and to assist in the revival of, the business [Sections 170LT(3) and (4) of the Act; see also s.170VPG(4)]." [76]

[266] The incapacity to pay provision is also available to small businesses who cannot afford to pay severance pay and it is to that matter that we now turn.

[267] The TCR standard clause deals with incapacity to pay in the following terms:

An employer, in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied on the basis of the employer's incapacity to pay."

[268] We again note the Commonwealth's contention that "history and experience" demonstrate that the incapacity to pay provision has not been able to protect businesses with an incapacity to pay. The basis of this contention was that a search of electronic databases revealed only seven decisions where an employer had sought relief under the provision.

[269] In these proceedings ACCI seeks to replace the existing incapacity to pay provision with a clause in the following terms:

"The Commission may vary the severance pay prescription on the basis of an employer's incapacity to pay. An application for variation may be made by an employer or group of employers."

[270] ACCI argued that the variation sought is particularly important in the context of the ACTU's claim to extend severance pay to smaller employers. It submitted:

"a) Smaller businesses are less likely to have the business diversity or resources across industries, markets or regions, to insulate themselves from a specific adverse market, regional or industry circumstance. They are therefore directly exposed and vulnerable to shared or common incapacity in response to particular market or geographic downturn.

b) Smaller businesses are more likely to share a common lack of financial resources to meet additional redundancy obligations.

c) Smaller employers are likely to become incapable of applying a severance obligation without other adverse effects at some point prior to their larger counterparts, and this is likely to be a common experience across small businesses in a particular industry or region."

[271] Later in this decision we set out our reasons for granting this part of the ACCI application. This amendment to the TCR standard clause should assist small businesses to gain access to the provision.

[272] Having considered all of the material and submissions with respect to this issue we have concluded that we should partially remove the small business exemption. As a general proposition the employees of small businesses are entitled to some level of severance pay. The evidence establishes that the nature and extent of losses suffered by small business employees upon being made redundant is broadly the same as those employed by medium and larger businesses. It is also clear that the level of the exemption is to some extent arbitrary and can give rise to inequities in circumstances where a business reduces employment levels over time.

[273] While some small businesses lack financial resilience and have less ability to bear the costs of severance pay than larger businesses, the available evidence does not support the general proposition that small business does not have the capacity to pay severance pay. In the period 1997-98, the most recent period for which data are available, some 70 per cent of small businesses which reduced the number of persons they employed made a profit. For those businesses which are unable to meet their redundancy pay obligations the incapacity to pay provision, as amended by this decision, provides an avenue for relief.

[274] We acknowledge that the weight of arbitral authority supports the retention of the existing exemption. In most state jurisdictions small businesses are exempt from the obligation to pay severance pay and this is clearly a factor which supports the retention of the exemption in federal awards. But it is not a determinative consideration and must be balanced against those considerations which favour the removal of the exemption.

[275] While we have decided that small businesses should not be exempt from liability for severance pay, the extent of that liability is also a matter for determination. As ACCI pointed out the removal of the exemption would expose small businesses to the increased severance pay scale we have decided to award in this case in circumstances where small business would be assuming a severance pay obligation for the first time. Such an outcome would be neither fair nor reasonable. Accordingly we consider that at this stage, having regard to the material before us, small businesses should not be required to implement the extension we have made to the severance pay scale.

[276] We have decided that the severance pay scale in the TCR standard clause should apply to employers who employ fewer than 15 employees up to a maximum of eight weeks' pay after four years of service. The other limitations in the TCR standard clause will also apply.

[277] In addition to the general submissions advanced with respect to the ACTU's application to remove the existing small business exemption, which focussed on severance pay, submissions were also made in relation to the application of the agreed redundancy disputes clause to employers with fewer than 15 employees.

[278] The proposed redundancy disputes clause is in the following terms:

3.2.4 Clauses 3.2.5 and 3.2.6 impose additional obligations on an employer where an employer contemplates termination of employment due to redundancy and a dispute arises (`redundancy disputes').

3.2.5 Where a redundancy dispute arises and, if they have not already done so, an employer must provide affected employees and the relevant union or unions (if requested by any affected employee) in good time, with relevant information including:

(b) The number and categories of workers likely to be affected; and

(c) The period over which any proposed redundancies are intended to be carried out.

3.2.6 Where a redundancy dispute arises and discussions occur in accordance with this clause the employer will, as early as possible, consult on measures taken to avert or to minimise any proposed redundancies and measures to mitigate the adverse affects of any proposed redundancies on the employees concerned."

[279] The employers and the Commonwealth argued that the agreed clause should not apply to employers with fewer than 15 employees. For example, AiG submitted that it would be unreasonable to apply the clause to small businesses because:

• small businesses do not typically employ specialist human resources personnel to ensure compliance with detailed procedural requirements in circumstances of redundancy;
• similar to larger businesses, small businesses are subject to onerous unfair dismissal laws if they do not adopt fair and reasonable procedures when making staff redundant;
• the Act recognises in ss.170CG(3)(da) and (db) that small businesses generally are not able to implement termination of employment procedures which are as sophisticated as larger businesses;
• the consultation requirements which were contained within the redundancy test case clause, prior to simplification, are largely similar to the requirements set out in the agreed dispute settlement clause. The Full Bench in the TCR No. 2 decision held that these consultation requirements were not appropriate for small businesses;
• the consultation requirements set out in s.170GA of the Act do not apply to situations where less than 15 employees are to be made redundant; and
• exempting small businesses from specific consultation requirements when redundancies are to occur is consistent with clause 5 of Article 2 of the Convention Concerning Termination of Employment at the Initiative of the Employer (set out in Schedule 10 of the Act).

[280] We are satisfied that it is appropriate to exempt small business from the agreed clause. A feature of the clause is the requirement to discuss alternatives to redundancy (such as redeployment options) and to consult with employees generally. We accept that if the clause applied it would have the potential to cause a number of problems within small businesses including disruption to the workplace, lost productivity and administrative difficulties. Some of these problems were highlighted by the Benson survey.

[281] While the results of the Benson survey should be treated with some caution they are also broadly supported by the individual employer witnesses in these proceedings. For example, Mr Butchard stated that the requirements inherent in the agreed clause would "take up too much time, energy and resources . . . takes me away from being out there getting work for the business" . He also expressed the view that a requirement to consider and discuss alternatives to redundancy would be of little practical value in a business of his size:

"We do not have the capacity to redeploy redundant workers, create part-time roles, or find other alternative employment." [77]

[282] The ACTU contended that the objections raised by these small business owners are based on a lack of understanding of the intent of the redundancy disputes clause. It was submitted, correctly in our view, that the disputes clause only gives rise to additional obligations on employers where a dispute arises with respect to redundancy. If such a dispute arises the discussions that are required are about the reasons for the redundancies, who will be affected, the time period and steps taken to minimise the proposed redundancies. The ACTU argued that nothing in the agreed clause suggests that any discussions should be limited to redeployment prospects, though it was conceded that such an issue would be a legitimate point of discussion.

[283] We do not accept the ACTU's contention that the objections raised about the clause are based on a lack of understanding. It seems to us that any discussion about the minimisation of proposed redundancies would generally include a discussion of the prospects for redeployment. Further, the issue of when the obligations in the clause arise may be problematic for small businesses as the determination of whether a dispute exists in respect of a particular issue is not always straightforward.

[284] In all of the circumstances we have decided that it is appropriate to exempt small businesses from the agreed redundancy disputes clause.

[285] As noted earlier ACCI and AiG sought to amend the TCR standard clause to remove the Commission's discretion to extend the redundancy pay provisions to a small business which is insolvent.

[286] AiG contended that the variation should be granted because the decision in Australian Liquor, Hospitality and Miscellaneous Workers Union v Home Care Transport Pty Ltd [78] (Home Care) means that it will be difficult for an application to be made to the Commission to vary the exemption. This argument was predicated on the retention of the current small business exemption. Our decision to partially remove the exemption renders the submission largely irrelevant. In addition the judgment in Home Care must be considered in light of subsequent Commission decisions. [79]

[287] A further reason for rejecting the amendment proposed is that distinguishing between solvent and insolvent small businesses in the manner proposed may have undesirable consequences for employment. We deal with this issue later in this decision.

[288] The ACTU application seeks to amend the TCR standard clause to include persons designated as casuals with at least 12 months' service with the same employer for the purpose of notice of termination of employment and severance payments. The method of achieving this objective is to provide that the clause excludes from its operation "short-term casual employees". That term is to be given a meaning similar to that in s.170CBA(3) of the Act, although this is not made clear by the application.

"For casual employees this claim recognises that after 12 months of service a casual employee is casual in name only. As the unfair dismissal legislation and parental leave standards now recognise, after 12 months of service all employees regardless of their legal designation of permanent or casual deserve security in their employment.

As a result, we say, long-term casuals should be compensated for the loss of that security when they are made redundant."

[290] The claim was supported by the State of Queensland and Jobwatch. The States of New South Wales and Victoria neither supported nor opposed the ACTU claim, and the State of Western Australia "does not specifically support the extension of the notice or redundancy pay entitlements to long-term casuals at this time"

[291] The claim was opposed by the Commonwealth, ACCI, AiG, NFF, HIA and the Victorian Automobile Chamber of Commerce. Indeed the ACCI application seeks to vary the TCR standard clause to make it clear that a person employed as a casual and/or in receipt of a casual loading should not have the benefit of the clause, regardless of the length of any period or periods of employment and regardless of access to any other leave entitlements under an award or any law of the Commonwealth or any state.

[292] In support of its claim the ACTU argued that:

• since the 1984 decision, the proportion of casual employees in the workforce has increased from 16 per cent to 27 per cent;
• for all occupations other than managers and professionals the net increase in jobs in the 1990s consisted entirely of part-time casual jobs;
• over half of all casual employees have more than 12 months' employment, have regular work patterns and have an expectation of ongoing employment;
• no party contends that casual employees do not suffer losses associated with redundancy situations similar to those suffered by full-time employees but rather, the issue is how that is to be compensated. In this connection the ACTU relied upon a finding in the study conducted by Webber and Weller:

"Long-term casual workers share similar experiences to permanent workers in terms of the likelihood of retrenchment and the quality of outcomes. However, casual workers are more likely to be retrenched and more likely to suffer poorer outcomes " [80] ;

• the existing loading for casuals, including that determined in the Metals Casuals Case , [81] is inadequate to compensate for losses associated with termination due to redundancy and in particular inconvenience and hardship;
• it is inappropriate for employers to keep people on as casual employees for long and extended periods and the claim, if successful, will play a part in ensuring that there is no incentive for employers to keep employees on as casuals for more than 12 months;
• both the provisions of the Act in relation to unfair termination of employment [82] and the Parental Leave for Casuals Test Case [83] support the change proposed

[293] The ACTU led evidence from a number of witnesses who had each worked as casual employees for periods varying from three to 21 years.

[294] ACCI argued that casual employees have been clearly and consistently exempted from redundancy provisions since the 1984 decision and that the ACTU bears the onus of demonstrating that change is appropriate. It was submitted that "the nature of casual employment is fundamentally at odds with the basis upon which severance pay was initially included in awards" . Further, ACCI argued that:

• changes in the labour market for casuals do not demonstrate a need to provide redundancy payments;
• the use of casual employment is not on trial and the ACTU's objective of seeking to discourage the use of casual employment is not a ground for granting redundancy benefits;
• the passage of time has not changed the nature of casual employment, nor the reasons in the 1984 decision for the exclusion of casuals;
• in the event that the claim was granted it would have the potential to reduce casual employment opportunity;
• casual employment is mutually agreed and employee preference for working as a casual is a relevant consideration;
• there are very real practical difficulties in calculating redundancy benefits for casual employees where hours may vary during a period of employment; and
• to grant redundancy to casuals with over 12 months service would be inconsistent with the decision in the Metals Casuals Case [84] and constitute "double counting of the most flagrant nature" [85]

[295] Professor Lewis commented on the paper by Webber and Weller and expressed the view that providing redundancy benefits for casuals would lead to a significant turnover in jobs and would have an adverse effect on young people.

[296] Professor Lewis noted Webber and Weller's contention that long-term casual workers share similar experiences to permanent workers in terms of likelihood of retrenchment and quality of outcome, but casual workers are more likely to experience retrenchment and more likely to suffer poorer outcomes. But in his view, most people who seek out casual employment do so for the flexibility it offers, and in the New Economy casual labour is attractive to employers. Over 80 per cent of young people in casual work are students and the income they derive has been important in financing the growth in tertiary education in Australia. There is no evidence that casual jobs are more precarious than full-time ones and if retrenchment payments are introduced employers would terminate casuals within the qualifying period. This would lead to significant turnover in jobs and reduce the duration of employment for many people, especially the young.

[297] AiG also submitted that the claim involved double counting, failed to have regard to employee preferences, would have adverse outcomes for casual employees and would lead to "churning" of casuals prior to the 12-months qualifying period. It was also contended that the claim would be unworkable and would produce a prohibitive cost outcome.

[298] The Commonwealth argued that the 1984 decision refused to include casuals relying upon earlier decisions which highlighted the double counting element in the proposition. Emphasis was given to the recent decision of the QIRC where it reviewed its current standards for termination, change and redundancy. [86] The Commonwealth submitted that in that case the QIRC accepted the submission that to extend severance payment to traditional casuals would be to "double dip". In addition, the Commonwealth submitted that the claim was a "cherry picking" exercise where the best of both worlds was being sought. This, it was submitted, would give long-term casuals superior overall conditions.

[299] Other submissions in opposition to the ACTU claim supported the objections raised by ACCI and the AiG.

The 1984 Decision and Other Relevant Federal Decisions

[300] The Full Bench's consideration of the position of casuals in the 1984 decision was heavily influenced by the decision in the Milk Processing and Cheese Manufacturing etc. (Appeal) Case. [87] In the TCR No. 1 decision the Commission excluded casual employees on the basis that to exclude casuals would be consistent with decisions of the Commission and other industrial authorities. [88] In the TCR No. 2 decision, the Full Bench noted that both the ACTU and ACCI supported the exclusion for the purpose of notice and severance benefits, but that the ACTU sought the application of the TCR clause in other respects. [89]

Australian Municipal, Administrative, Clerical and Services Union v Auscript 90

[301] This matter arose from the sale by the Commonwealth Government in 1997 of the court reporting service known as Auscript. The casual court reporting officers (CROs) then sought redundancy payments. The Full Bench considered a number of factors and concluded that CROs were not true casuals and on this basis it would not be inconsistent with the 1984 decision for severance payments to be awarded to them. [91]

Parental Leave - Casuals Case 92

[302] In this case the ACTU on behalf of a number of unions sought parental leave for an eligible casual employee. Such a class of person was defined as:

"An eligible casual employee means a casual employee employed by an employer on a regular and systematic basis for several periods of employment or on a regular and systematic basis for an ongoing period of employment during a period of at least 12 months.

And that the employee has, but for the pregnancy or the decision to adopt, a reasonable expectation of ongoing employment." [93]

[303] In granting the application, the Full Bench considered it to be inequitable to deny parental leave to such casual employees while making it available to full-time and regular part-time employees. The Bench also decided that to provide parental leave for such casuals was consistent with Australia's international obligations [94] and would assist employees balance their work and family responsibilities effectively though the development of mutually beneficial work practices with employers.

[304] Finally, the Bench decided that to grant the application would have a negligible cost impact.

[305] An examination of the position under state awards shows that, with the exception of the most recent decision by the QIRC, a claim has not been pursued for redundancy benefits to be extended to casuals. The standard with respect to casuals in the state jurisdictions is the one determined by the Commission in the 1984 decision.

[306] In relation to Queensland, the decision of the QIRC was:

"[114] Across the board, the various tribunals have , to date, rejected the payment of severance and other benefits for casual employees in addition to the casual loading. In these circumstances, we accept the submission that to extend severance payments to traditional casuals is to `double dip'.

[115] On agreeing to accept work as a casual the employee is accepting certain risks, including the risk of redundancy and retrenchment, in lieu of a substantially increased hourly rate. The casual who is paid the casual loading over many years has, in our view, been compensated, to some extent , should the risk undertaken eventuate in a redundancy. If the QCU or AWU, as a result of this decision, form a view that the casual loading should be increased then that should be the subject of a further application to the QIRC.

[116] We do however acknowledge that the term `casual' now encompasses a wide variety of types of employment. The `traditional' casual is but one of those types. No Member of this Full Bench was a Member of the Casual Loading Case , the Queensland TCR Case or, of course, any AIRC Bench that has dealt with TCR provisions and their applicability to casual employment or casual loading. We are also aware of an ACTU foreshadowed application to the AIRC relating to casual employment.

[117] We indicate that we have some sympathy for those non-traditional long term casuals who are displaced as a result of retrenchment.

[118] However, based on the material before us, we are not prepared, at the present time, to grant the claim as it relates to casuals. We have already referred to the fact that the AIRC is currently hearing a similar application by the ACTU to that raised in these proceedings by the QCU and AWU. The material before the AIRC on the issue of casuals appears to be more extensive than the material before this Full Bench. That material may also be different in nature. We reserve the right of the QCU and AWU to revisit this part of their application once the AIRC has made its determination." [95]

[307] There appear to us to be two competing approaches in relation to whether or not long-term casuals should receive the benefit of redundancy payments. They are:

• whether or not a consideration of losses associated with redundancy are, or should be, comprehended in the casual loading; or
• in addition to the current casual loading, whether redundancy payments should be made.

[308] We agree with ACCI that this is not the case in which to examine all aspects of the use of casual employment, but rather, these proceedings are confined to examining whether or not it is appropriate to grant a condition and payment which is separate from the loading paid to casuals. The Commonwealth's use of the term "cherry picking" also highlights the need to ensure that types of employment, and the incidents which attach to them, are clearly defined.

[309] The Commission's decision in the Metals Casuals Case is clearly an important one. It needs to be said, however, that in that case the Full Bench dealt with the matter before it in the specific context of the industry covered by the award. It is self evident that the Bench did not determine the matter for general application.

[310] In reaching its decision to increase the casual loading from 20 per cent to 25 per cent the Bench heard argument going to whether the absence of notice and severance payments should be compensated for in the casual loading and if so how its loss should be quantified. [96]

" [178] Except in relation to quantification, the debate between the applicant and respondents about the inclusion of components for notice of termination and severance was not responsive to the counter-propositions each advanced. In our view, no one aspect of the award entitlements is more prominent on the face of the Award than the discrepancy between the notice of termination required to be given to full-time and other continuing employees, and the lack of any such requirement applicable to casuals. Like the express exclusion of casuals from paid leave and severance benefits, the difference in entitlements to notice of termination of employment is an intended difference in the award based incidents of full-time and casual employment. The question that must be determined in this context is what, if any, value should be attributed to those differences in a loading designed to achieve a balance between different types of employment related to the minimum standards established by the Award.

[179] Notice of termination is an award right for full-time and part-time employees. Thus it is a vested but contingent benefit and incident of that type of employment. The standard of notice of termination established by the TCR Award in 1984 is identical in quantum to the statutory prescription now applied to termination of employments other than summary dismissals by section 170CM of the Act. Conversely, there is no more important incident of casual employment than the term of hire and the associated lack of entitlement to reasonable notice; or, at least to notice corresponding to that made available to full-time or part-time employees. Fixed term employees whose contracts expire also have no award or statutory right to notice. There is no termination of their employment: it merely expires.

[180] It is no less clear in our view that the comparative disadvantage of casual employees relative to weekly hire employees in relation to entitlement to notice has widened since 1974, and quite markedly again since 1984. That widening is a consequence, indeed an intended effect, of the legislative scheme as well as a by-product of some changes imported into the Award.

[181] We consider that the different entitlements to notice and to severance benefits are appropriately to be taken into account in any judgment of the adequacy of the casual rate loading." [97]

[312] It is plain on the face of the decision that the Full Bench took into account an estimate of losses associated with redundancy in arriving at the new casual loading of 25 per cent. It is also apparent that the absence of entitlement to severance pay and other termination related conditions is generally comprehended in the loading which is paid to casuals.

[313] The provision in relation to parental leave deals with a different issue. In the Parental Leave-Casuals Case the emphasis was on maintenance of the employment relationship. Similarly, in relation to longer-term casual employment and the termination of employment provisions of the Act, the emphasis is on the employment as such. In this case the question is what terms and conditions should apply to casual employment.

[314] Whilst it is true that statistics reveal that casual employment is becoming longer in its duration and this may give rise to a conclusion that this type of employment is preferred for conditions attached to it rather than it being truly casual, nonetheless we are not persuaded to overturn the long-term approach of the Commission to casual employment illustrated by the decision in the Metals Casuals Case

[315] That concept, its historical context and treatment, is set out in the decision of the Full Bench in the Metals Casuals Case . Casual employment is often characterised as irregular, uncertain and without any expectation of a long-term duration, although the decision indicates that some employees are engaged as casuals on a long-term basis.

[316] We have reached the conclusion that it would be inappropriate to award severance pay for casuals. Such an approach would, in the case of the metal industry at least, be "double dipping" and likely to be so in other industries. Although there are other cogent arguments for and against this part of the ACTU application, this issue is decisive. It follows that we reject this aspect of the application.

[317] We also decline to insert the provision sought by ACCI and prefer instead to leave the issue of whether or not a person is a casual employee to be determined on the facts of each case.

[318] The ACTU application seeks to amend the TCR standard clause to provide for the payment of a professional services allowance of up to $300 per employee. The provision sought is in the following terms:

"Where an employee is made redundant the employer must pay to the employee an allowance of up to $300 (in total) to enable the employee to obtain professional services or counselling:

(a) relating to job interviewing and job search techniques; or

The allowance is payable on the production of satisfactory evidence by the employee that the expense has been incurred by that employee.

This clause does not apply where the employer has provided employees made redundant with professional services of this kind and the value of such services exceeds $300."

[319] It is intended that an employee who is made redundant would be eligible to receive an allowance referable to the cost of obtaining professional services in the areas of interview and job search techniques or with respect to financial planning. The allowance would only be payable where there was evidence of the expense incurred by the employee in obtaining those professional services and in circumstances where the employer did not provide those services to the stipulated value.

[320] The ACTU contended that such a provision would assist redundant workers to find new employment as quickly as possible hence minimising the costs of redundancy.

[321] This aspect of the ACTU's claim was supported by Jobwatch and opposed by the Commonwealth and employer parties. The States made no submission in support of, or in opposition to, this claim.

[322] In addition to a range of submissions opposing the claim on merit grounds, the Commonwealth, ACCI, and AiG contended that the proposal does not fall within the scope of s.89A (2) and is not allowable. ACCI raised a further jurisdictional impediment to the claim. It argued that as the allowance would only be paid "where an employee is made redundant" it is a claim for a past employment entitlement and as such there are "very real queries" about whether the claim pertains to the relationship between employers and employees.

[323] We have decided to reject this aspect of the ACTU's claim. In our view the case has not been made out. We accept that the provision of assistance in relation to job interviewing, job search techniques and financial planning may assist in minimising some of the loss suffered by employees when they are made redundant. But we are not persuaded that employers should be required by a safety net award to meet the costs of providing such assistance in addition to their obligation to pay severance pay.

[324] Further, we agree with AiG's contention that the claim is vague and imprecise. The interpretation of the expression "professional services or counselling" is likely to give rise to practical difficulties and has the potential to generate disputation.

[325] As we have rejected the proposed allowance on merit it is unnecessary for us to deal with the various jurisdictional arguments advanced by those opposing the claim.

[326] The AiG application seeks to include a new provision in the TCR standard clause recognising what it submitted are the unique circumstances surrounding employer insolvency. It submitted that it is appropriate to recognise insolvency in setting national standards for redundancy. It proposed that the maximum amount of award-based redundancy payments be limited to eight weeks' pay in the case of insolvency in large businesses, the same amount guaranteed by the Federal Government's GEERS. AiG submitted that the exemption of small businesses in circumstances of insolvency remains appropriate.

[327] The employer parties claimed that changes in insolvency regulation since the 1984 decision, particularly the introduction of voluntary administration provisions in 1993, warrant a distinction being made based on the cause of redundancy. AiG submitted that whilst voluntary administration is designed to maximise the chances of a company continuing in existence and trading out of difficulties, redundancy arrangements can disrupt the process. This in turn has a flow-on impact to all creditors of the company, including supplier firms, customers and subcontractors, not just the employees. Further, if redundancy pay entitlements were to be increased, as sought by the ACTU, the funds available for these other creditors would be reduced and thus potentially creating a bigger incentive for employers to liquidate rather than to restructure.

• IPAA supported the AiG claim that it is in the community's interests to avoid businesses being wound up;
• increased redundancy pay liabilities would make it more difficult for an administrator of a business to find a purchaser for that business;
• IPAA has observed that redundancy pay liabilities are a major contributing factor towards business failure and have hindered necessary restructuring; and
• increasing redundancy entitlements would exacerbate the shortfall in employee entitlements in insolvency situations.

[329] Under cross-examination Mr Dwyer agreed that if a distinction were to be drawn between the level of severance pay in insolvency situations and other instances, in some cases the immediate beneficiary would be any holder of a floating charge with a claim against the assets of the insolvent business. Mr Dwyer also agreed that differing levels of severance pay could create an incentive for creditors of a company to have the company enter into insolvency, thus reducing employee entitlements and making available a larger proportion of the company's assets for distribution to other creditors.

[330] We have previously referred to evidence given by Mr McGloin, former managing director of a company that went into liquidation. He alleged that the level of the employees' redundancy entitlements hindered a proposed restructure of his business to avoid liquidation. Consequently the enterprise could not continue to trade, was wound up and all employees lost their jobs.

[331] Mr McGloin agreed that a month before his company was placed into receivership he had agreed to a new certified agreement which continued severance pay entitlements for his employees at a level significantly above that sought in the ACTU application. He also conceded that he had not attempted to reduce the severance pay entitlements during negotiations over that agreement and that the matter of reducing employees' severance entitlements was not raised until the second creditors meeting when the employment of over half of the workforce had been terminated.

[332] The ACTU opposed the AiG application. It submitted that to distinguish between solvent and insolvent employers would be unfair to employees of insolvent companies who experience the same losses on redundancy as employees of solvent companies. It was also argued that if the claim were granted it would provide business operators and holders of floating charges with a financial incentive to place the business into insolvency rather than keep it as a going concern. Further, it was submitted that the evidence showed that in most cases of insolvency in small to medium businesses restructure is not possible due to the approach taken by the holders of fixed asset securities.

[333] Mr Humphris stated that, in his opinion, a distinction between redundancies in solvent and insolvent businesses would create an incentive for business operators to engineer circumstances of insolvency in order to reduce the amount of employee entitlements. Further, in Mr Humphris' view, such a situation would give banks and financial institutions an incentive to place companies into a formal insolvency administration rather than try to have them continue as a going concern. Although penalties provided under Corporations Law should act as a deterrent to the engineering of insolvency, he did not believe that the penalties were a significant deterrent. In a later statement Mr Dwyer said that Mr Humphris had overlooked the fact that s.596AB of the Corporations Act 2001 (Corporations Act) would render such actions, on the part of any business or director, illegal. But during cross-examination Mr Dwyer agreed with the proposition that s.596AB would not provide a complete answer "because in desperate times people do desperate things" [98]

[334] In any event s.596AB has no application to creditors exercising any rights they may have to allow a business to continue trading or to have it placed into administration. The distinction sought to be drawn in the employers' claim may create an incentive for creditors to have a company enter into insolvency. [99]

[335] The Commonwealth supported, in principle, the employers' proposal to restructure the TCR standard to distinguish between insolvency-generated redundancies and other redundancies. It was the Commonwealth's position that employers facing insolvency are not in a position to meet the significant costs of severance pay, while those who are job-shedding through restructuring are in a superior financial position.

[336] It was submitted, however, that there was no scope for such a distinction to be made in 1984 and there is no scope in the context of this application, given the lack of any justification for an increase in the level of redundancy entitlements. Were such a distinction to be made, however, the Commonwealth argued that the Corporations Act contains sufficient prohibitions to prevent any person from engineering an insolvency situation to reduce the level of employee entitlements. It was the Commonwealth's view that the overall level of severance payments might convince the holder of a floating charge to prefer insolvency to a rescue package, rather than a distinction made in the level of the employee entitlement in insolvency and non-insolvency situations.

[337] The State of Western Australia supported the ACTU in opposing the employer claim submitting that the role of redundancy payments should be to ameliorate the consequences of retrenchment and subsequent unemployment, regardless of the individual business situation.

[338] No similar claim was made to the QIRC in the recent state TCR case and the Queensland Government did not address it in the submission made to the QIRC. The State of New South Wales' submission did not deal with the AiG application. The State of Victoria's submission neither supported nor opposed the AiG claim in relation to insolvent employers.

[339] No state jurisdiction provides for lesser redundancy entitlements in circumstances where the reason for the redundancy is the insolvency of the employer. Nothing in the evidence put in support of the claim suggests that employees made redundant as a result of the insolvency of their employer are less affected by the resultant hardship.

[340] The evidence does not support the claim that increased redundancy entitlements as a result of this decision would induce employees to choose redundancy instead of continued employment. While that may be an element in some cases where an employer is facing possible administration or liquidation, we do not accept that employees are incapable of looking to their long-term interests. The evidence does indicate, however, that under the relevant bankruptcy and corporations legislation, a reduction in employees' redundancy entitlements in an insolvency situation would generally provide a reciprocal benefit to the other creditors.

[341] No cogent argument has been put to support the suggestion that the level of entitlements in insolvency situations should be limited to the amount guaranteed by GEERS. We note, in this respect, that the level of redundancy entitlements guaranteed under GEERS is that provided by the TCR standard clause.

[342] The AiG claim for a general amendment to the TCR standard clause to provide a reduced level of entitlements for redundant employees of all insolvent employers is refused. We should add that nothing in this part of our decision affects the right that any employer may have to make application on the basis of incapacity to pay.

[343] The ACCI application seeks to amend the incapacity to pay provision in the TCR standard clause to enable groups of employers to apply for a variation of the severance pay prescription in circumstances where they allege they are incapable of meeting severance payments either in part or in full. ACCI submitted that the experience of common adversity may include an industry or sub-industry, a dependent industry, a regional area or those exposed as a group to a specific market development.

[344] Arguments in relation to incapacity to pay were raised in other submissions, in particular the submissions in relation to small business, and have been dealt with. It was generally submitted by those supporting the change in the incapacity provision that exclusions from severance payments via the incapacity to pay provision have been too difficult to achieve.

[345] As we stated earlier, the existing provision in relation to incapacity to pay is:

"An employer, in a particular redundancy case, may make an application to the Commission to have the general severance pay prescription varied on the basis of the employer's incapacity to pay."

"An employer, or a group of employers , in a particular redundancy case, may make an application to the Commission to have the general severance pay prescription varied on the basis of the employer's , or group of employers' incapacity to pay." [new words underlined]

[347] In advancing its proposition ACCI stated:

"We have not, however, sought to propose any specific tests of incapacity which would materially change the considerations which the Commission applies and in particular we have not proposed any particular weakening or alteration to any standard or test. Instead, we have restricted our proposition and incapacity to seek an additional recognition of shared or common incapacity."

[348] ACCI argued that its proposal permitted flexibility and would allow the Commission to consider incapacity to pay on a sector or geographic basis. Further, it would allow for decisions to be made which gave scope to adjust the redundancy standard to fit particular circumstances. AiG also argued that the incapacity to pay provisions were, in effect, "dead letter" provisions. The Commonwealth focussed its attention on small businesses and submitted that the incapacity to pay provision was not an effective substitute for the small business exemption. In this connection, it submitted that history and experience demonstrate that the incapacity to pay provisions have not even been able to protect larger businesses with an incapacity to pay.

[349] The ACTU opposed the alteration to the clause and submitted:

"On changing the incapacity to pay principle, we simply see no reason to do so. If groups of employers want to make an application, they can. But inherent in the nature of redundancy is that it will more usually be the sort of circumstance that a business faces individually, rather than as part of some group."

[350] Provisions for relief from award conditions based on incapacity to pay have a considerable history in decisions of the Commission. Decisions in national wage cases and safety net reviews have consistently reached the conclusion that relief should only be granted to those experiencing incapacity and as a matter of equity and fairness, it should not be granted to those not able to demonstrate incapacity.

[351] In its Safety Net Review-Wages April 1998 decision the Full Bench concluded:

"[T]he Commission has long expressed the view that incapacity arguments should be limited to individual respondents and/or groups of respondents where all members of the group can claim `very serious or extreme economic adversity'. The diversity of economic positions in sectors covered by an award may make it inappropriate to exempt all sectors from an increase in labour costs (see Food Preservers' Award 1973 (1982) 285 CAR 10; Pastoral Industry (Wages and Allowances) Award, Print G5732; Pastoral Industry case, Print J1761)." [100]

[352] The same decision also cited with approval a decision of a Full Bench on the Victorian Minimum Wage orders:

"It would be unfair to delay access to fair minimum wage levels to persons employed by firms which are not experiencing economic adversity on the basis of the very serious or extreme economic adversity experienced by other employers within a region or industry. Further, it would diminish the effect and intent of relief to employers experiencing very serious or extreme economic adversity if competitors not experiencing such economic difficulties enjoyed similar relief." [101]

[353] Against this background we have examined the present incapacity to pay provision. It would be inequitable and unfair to exempt an employer from the requirement to make severance payments in circumstances where there was not an incapacity to pay. This does not mean that a number of employers in a sector cannot claim that there is an incapacity to pay. This was conceded by the ACTU. This was also recognised by a Full Bench in Re Pastoral Industry Award 1986 , [102] but on the basis that a strong case would have to be made out by each employer.

[354] We recognise that any incapacity to pay case may present the applicant or applicants with difficulties. Almost by definition, an employer's resources to conduct such a case are under serious strain. However, the Commission is experienced in these matters and has sat out of hours, on-site, and has assisted both employers and employees who may not be represented. An example of an approach adopted by the Commission is provided by a recent matter involving the Pastoral Industry Award 1998 [103]

[355] On the basis that ACCI has submitted that its proposal is not designed to weaken the incapacity to pay principle but to simply improve access to it, we will make the alteration sought. It must be clearly understood, however, that for relief to be granted, the concept of averaging cannot be used and incapacity must be shown in the case of each employer.

[356] This is particularly so in circumstances where an incapacity to pay application is made in relation to a severance payment not simply for deferral, but for relief from the requirement to make the payment, or part thereof, at all. There may be scope to make a partial award of severance pay, but that would be a matter for the Commission when hearing the application in relation to incapacity.

[357] Our decision in this matter also introduces a consistency between award provisions in relation to redundancy and the incapacity to pay principle contained in the Statement of Principles arising from Safety Net Review cases. Incapacity to pay applications in relation to redundancy are subject to Principle 12 of the Statement of Principles.

SHOULD THE TCR STANDARD CLAUSE "COVER THE FIELD"?

[358] The employer parties seek a provision in the TCR standard clause expressing the intention that the federal award "cover the field" with respect to notice of termination of employment, and payment in lieu thereof, and severance or redundancy payments. ACCI and AiG submitted that whilst for many years it was assumed that federal awards did in fact oust the operation of inconsistent state awards in relation to termination of employment and redundancy, a number of decisions by state industrial tribunals have cast doubt on the situation. They submitted that inserting the proposed provisions would clarify the issue, reduce the problem of inconsistent treatment between employees of different employers operating in a particular industry and prevent "forum shopping" between state and federal jurisdictions.

[359] In order to explain the nature of this claim it is necessary to refer to s.109 of the Constitution and s.152 of the Act. Section 109 provides:

"109. When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid."

[360] For present purposes it is only necessary to refer to subsection (1) of s.152 of the Act. It provides:

"(1) Subject to this section, if a State law or a State award is inconsistent with, or deals with a matter dealt with in, an award, the latter prevails and the former, to the extent of the inconsistency or in relation to the matter dealt with, is invalid."

[361] Awards made by the Commission have the status of Commonwealth laws for the purpose of s.109 by virtue of s.152(1) of the Act. [104] Accordingly federal awards prevail over inconsistent state laws to the extent of any inconsistency. One of the tests which may be applied to determine whether a state law is inconsistent with a federal award, and thus a federal law, is the "covering the field" test. The test was stated by Dixon J in Ex parte McLean in these terms:

"The inconsistency does not lie in the mere coexistence of two laws which are susceptible of simultaneous obedience. It depends upon the intention of the paramount Legislature to express by its enactment, completely, exhaustively, or exclusively, what shall be the law governing the particular conduct or matter to which its attention is directed. When a Federal statute discloses such an intention, it is inconsistent with it for the law of a State to govern the same conduct or matter." [105]

[362] The application made jointly by ACCI and AiG seeks to exclude the operation of state laws relating to notice of termination and payment in lieu thereof and such laws providing for redundancy and/or severance pay for employees covered by federal awards. The means adopted is to include statements of intent to cover the field, and thereby unambiguously to attract the operation of s.152(1) and render the state legislation inoperative in these cases.

[363] ACCI and AiG drew our attention to a number of decisions of the IRC NSW in Court Session. In the first case it was held that an employee covered by an agreement which was certified under the Workplace Relations Act 1996 and which contained provisions relating to redundancy was nevertheless entitled to pursue a remedy under s.106 of the Industrial Relations Act 1996 (NSW) (IR Act NSW) arising out of termination of employment. [106] In the second case, which also concerned an application under s.106, the IRC NSW dismissed a strike out application brought by the respondent in reliance on its respondency to a federal award and s.109 of the Constitution. [107] Attention was drawn to another decision which, it was submitted, cast doubt upon the paramountcy of federal award provisions dealing with termination of employment, including redundancy pay. [108] That case also concerned an application pursuant to s.106 of the IR Act NSW.

[364] The employers submitted that the comprehensive nature of the TCR standard clause demonstrates that the clause is intended to cover the field to the exclusion of state industrial laws dealing with termination of employment - including redundancy. They were concerned that the recent decisions will encourage employees covered by federal awards containing the TCR standard clause to seek additional redundancy benefits under state laws. This would lead to increased costs for employers, duplication and would encourage what was described as "forum shopping" and the potential for one industrial tribunal to be "played off" against another.

[365] AiG further submitted that because federal award employees are excluded from the benefits of unfair dismissal laws in some states but not in others, the Commission should remove the inconsistency by excluding the operation of all state unfair dismissal laws. The same principle should be applied generally so as to exclude the operation of, for example, s.106 of the IR Act NSW thereby ensuring consistency of treatment for all federal award employees. It was submitted that the variation sought could be validly made and is an allowable award matter pursuant to s.89A (2) of the Act.

[366] Both ACCI and AiG submitted that the terms of the logs of claims giving rise to the disputes upon which each of the awards before the Commission was made demonstrate that the awards were intended to cover the field in relation to termination of employment.

[367] The case for inclusion of "covering the field" provisions is based in substance upon a number of interlocutory decisions relating to s.106 of the IR Act NSW. No evidence was adduced, nor cases referred to, other than where relevant to s.106 of the IR Act NSW, to justify the claim. We do not think that the case put is sufficient to justify a variation to the TCR standard clause. There are three reasons. The first is, as we have just noted, the case put was in substance about the availability of a remedy under s.106 for employees covered by a federal award containing the TCR standard clause. There was nothing to suggest that any significant problems have arisen in states other than New South Wales from clashes between state and federal provisions. The TCR standard clause has wide application throughout the federal award system.

[368] Secondly, it is by no means clear, in relation to s.106 itself, that the IRC NSW in Court Session has decided that s.106 is available to persons formerly employed under a federal award containing the TCR standard clause. In the only final, as distinct from interlocutory, decision to which we were referred it was decided that the orders sought pursuant to s.106 could not be granted because they would be inconsistent with the terms of the federal award covering the applicant and would be invalid. [109]

[369] Thirdly, it appears to us that statements of intent, of the kind which the proposals contain, may not be effective. It is primarily the substantive provisions of the TCR standard clause which need to be considered in order to determine whether the state laws dealing with the same subject are inconsistent.

[370] We note AiG's strong plea for consistency of treatment which underpins its submissions. While we are sympathetic to the objective of achieving consistency, on this occasion the other matters to which we have referred indicate that the concerns about inconsistency in this area may be overstated.

[371] In the circumstances it is not necessary that we deal with the question of whether clauses in the form proposed are allowable award matters pursuant to s.89A (2) of the Act.

[372] The parties have agreed, subject to the Commission's approval, that the TCR standard clause should be amended to include dispute settlement procedures in relation to redundancy disputes. The ACTU contended that the provision in question is an allowable award matter. No party or intervenor contended otherwise.

[373] The ACTU relied upon s.89A (2)(p) of the Act which includes in the list of allowable award matters "dispute settling procedures" . The agreed provision is as follows:

"3.2.4 Clauses 3.2.5 and 3.2.6 impose additional obligations on an employer where an employer contemplates termination of employment due to redundancy and a dispute arises (`redundancy disputes'). These additional obligations do not apply to employers who employ less than 15 employees

3.2.5 Where a redundancy dispute arises and, if they have not already done so, an employer must provide affected employees and the relevant union or unions (if requested by an affected employee) in good time, with relevant information including:

(b) The number and categories of workers likely to be affected; and

(c) The period over which any proposed redundancies are intended to be carried out.

3.2.6 Where a redundancy dispute arises and discussions occur in accordance with this clause the employer will, as early as possible, consult on measures taken to avert or to minimise any proposed redundancies and measures to mitigate the adverse affects of any proposed redundancies on the employees concerned."

[374] The underlined sentence at the end of clause 3.2.4 was a matter of contention. Consistent with our earlier conclusions about the provisions to apply to employers of fewer than 15 employees, the sentence will be included in the revised clause.

[375] In our view the provision is an allowable award matter. The whole of the provision is properly characterised as a dispute settling procedure. In the circumstances it is unnecessary to consider the applications pursuant to s.170FB of the Act. These applications would only have become relevant if we had found that the agreed clause was not allowable.

[376] It has been noted previously that, as a consequence of conciliation in relation to these applications, a number of issues were resolved between the parties. A statement of that agreement can be found at Exhibit AiG 11, Tab 2. In final submissions a number of aspects of that agreement were referred to by AiG, ACCI, the ACTU and the Commonwealth. In particular, certain aspects of the agreed redundancy disputes clause were raised.

[377] The document setting out the basis of the agreement between the parties includes section 4, entitled: Understandings upon which this Agreement is based . The preamble to that section provides that " [t]he agreement of the parties is subject to the following:" and then sets out a number of matters including:

"4.5 In respect of the meaning of the word `contemplates' in 3.2.4 - `Redundancy Disputes', the employers will indicate on the record of proceedings that the proposed clause is intended to mean where an employer intends or has the purpose of implementing redundancies, and not a broader meaning."

"4.9 In respect of the requirement to provide `relevant information' in 3.2.5, all parties accept that where a dispute arises regarding the provision of information which is confidential the Commission will (consistent with current practice) preserve that confidentiality. All parties will encourage the AIRC to make an express statement to this effect in any decision on these applications."

[378] Consistent with the terms of that agreement, AiG and ACCI urged the Commission to clarify the meaning of the word "contemplates" in the context of the redundancy disputes clause. The employer parties urged a definition of the word which made it clear that the word "contemplates" envisaged a decision having been made to implement redundancies. The Commonwealth submitted that the employer view concerning the meaning of the word "contemplates" should be adopted and stated that if the Commission considered the word ambiguous or that it did not give the result the employers intended, then consideration should be given to replacing the word "contemplates" with the word "decides" in the relevant clause.

[379] The ACTU stated that the word "contemplates" was taken from the Termination of Employment Convention and submitted that the word should take its meaning from that Convention and "be given an appropriate meaning" . In this respect Mr Watson noted that the ACTU did not think it was that far away from ACCI and the submissions they made, although they wouldn't commit to every nuance they place on the meaning of the word.

[380] In relation to the meaning of the word "contemplates" in the context of the redundancy disputes clause, we are of the view that the agreement is the parties' - not the Commission's. If the need arises to determine the meaning of particular words, that will be done at the time by the decision-maker concerned. It would not be appropriate for the Commission to pre-empt that determination when not all of the parties to the agreement consent to us giving a determination.

[381] ACCI and AiG also sought a statement from the Commission that existing law and practice concerning the treatment of confidential information in the context of the redundancy disputes clause should continue to apply. The Commonwealth gave in-principle support to the employer proposition for appropriate protection of commercial-in-confidence material.

[382] The ACTU confirmed the agreed position of the parties that the Commission would be urged to make a statement about the treatment of confidential information. Mr Watson noted, however, that it was not part of the agreement between the parties that there should be a specific exclusion, as was the position in the TCR case. It was the ACTU position that the Commission's practice in relation to confidential information is well understood and often adapted to the circumstances of the particular case.

[383] In our view, and speaking generally, the existing law and practice in the Commission's treatment of confidential information should continue to apply for the purposes of disputes about redundancy. If necessary, the Commission's statutory powers can be invoked to protect confidential material.

[384] We have given careful consideration to the various submissions about an operative date. In particular, the increase in the severance pay scale and the partial removal of the exemption for small businesses from the TCR standard clause will result in cost increases and should be given due weight. On the other hand we are conscious that several of the changes in the TCR standard clause made by this decision might be avoided by bringing forward termination of employment decisions. Furthermore, the various applications were lodged more than 18 months ago and accordingly employers have had a great deal of notice of what was sought in the ACTU application, only part of which has been granted.

[385] In all of the circumstances we have decided that the changes in the TCR standard clause in the awards before us should operate 28 days from the date of this decision. The operative date in other awards should be fixed having regard to the terms of s.146 of the Act in the circumstances of the case.

[386] It was the expectation of all those who participated in the case that the result of our decision in the various applications would be reflected in a revised version of the TCR standard clause and that the proceedings were in the nature of a test case. We should make it clear, however, that like all test case provisions the TCR standard clause, while embodying sound general principles, may require some modification to suit the circumstances of particular industries.

[387] The orders necessary to give effect to our decision in the awards before us should be drawn and filed by the ACTU within 14 days.

[388] In conclusion we note with respect that the late Senior Deputy President Polites was a member of this Bench as first constituted. Sadly, due to illness and his subsequent death, he was unable to join in our final deliberations or in the formulation of this decision.

T.1.1 In order to terminate the employment of a full-time or regular part-time employee the employer shall give to the employee the period of notice specified in the table below:

T.1.2 In addition to this notice, employees over 45 years of age at the time of the giving of the notice with not less than two years continuous service, are entitled to an additional week's notice.

T.1.3 Payment in lieu of the notice will be made if the appropriate notice period is not required to be worked. Employment may be terminated by the employee working part of the required period of notice and by the employer making payment for the remainder of the period of notice.

T.1.4 In calculating any payment in lieu of notice, the wages an employee would have received in respect of the ordinary time they would have worked during the period of notice had their employment not been terminated will be used.

T.1.5 The period of notice in this clause, shall not apply in the case of dismissal for conduct that justifies instant dismissal including inefficiency within the first fourteen days, neglect of duty or misconduct and in the case of casual employees, apprentices or employees engaged for a specific period of time or for a specific task or tasks.

T.1.6 Continuous service is defined in clause ?

T.2.1 The notice of termination required to be given by an employee is the same as that required of an employer, save and except that there is no requirement on the employee to give additional notice based on the age of the employee concerned.

T.2.2 If an employee fails to give notice the employer has the right to withhold monies due to the employee to a maximum amount equal to the ordinary time rate of pay for the period of notice.

Where an employer has given notice of termination to an employee, an employee shall be allowed up to one day's time off without loss of pay for the purpose of seeking other employment. The time off shall be taken at times that are convenient to the employee after consultation with the employer.

Redundancy occurs when an employer decides that the employer no longer wishes the job the employee has been doing to be done by anyone and this is not due to the ordinary and customary turnover of labour.

Where an employee is transferred to lower paid duties by reason of redundancy the same period of notice must be given as the employee would have been entitled to if the employment had been terminated and the employer may at the employer's option, make payment in lieu thereof of an amount equal to the difference between the former ordinary rate of pay and the new ordinary time rate for the number of weeks of notice still owing.

#.3.1 In addition to the period of notice prescribed for ordinary termination in clause ? - Termination of employment, an employee whose employment is terminated by reason of redundancy must be paid, subject to further order of the Commission, the following amount of severance pay in respect of a continuous period of service:

#.3.2 Week's pay means the ordinary time rate of pay for the employees concerned.

#.3.3 Provided that the severance payments shall not exceed the amount which the employee would have earned if employment with the employer had proceeded to the employee's normal retirement date.

An employee whose employment is terminated by reason of redundancy may terminate his/her employment during the period of notice and, if so, will be entitled to the same benefits and payments under this clause had they remained with the employer until the expiry of such notice. However, in this circumstance the employee will not be entitled to payment in lieu of notice.

An employer, in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied if the employer obtains acceptable alternative employment for an employee.

#.6.1 During the period of notice of termination given by the employer an employee shall be allowed up to one day's time off without loss of pay during each week of notice for the purpose of seeking other employment.

#.6.2 If the employee has been allowed paid leave for more than one day during the notice period for the purpose of seeking other employment, the employee shall, at the request of the employer, be required to produce proof of attendance at an interview or he or she shall not receive payment for the time absent. For this purpose a statutory declaration will be sufficient.

#.7.1 Subject to further order of the Commission where an employee who is terminated receives a benefit from a superannuation scheme, he or she shall only receive under clause #.3 hereof the difference between the severance pay specified in that clause and the amount of the superannuation benefit he or she receives which is attributable to employer contributions only.

#.7.2 If this superannuation benefit is greater than the amount due under clause #.3 hereof then he or she shall receive no payment under that clause.

#.8.1 Where a business is before or after the date of this award, transmitted from an employer (in this clause called the transmittor ) to another employer (in this clause called the transmittee ) and an employee who at the time of such transmission was an employee of the transmittor in that business becomes an employee of the transmittee:

#.8.1(a) the continuity of the employment of the employee shall be deemed not to have been broken by reason of such transmission; and

#.8.1(b) the period of employment which the employee has had with the transmittor or any prior transmittor shall be deemed to be service of the employee with the transmittee.

#.8.2 In this clause business includes trade, process, business or occupation and includes part of any such business and transmission includes transfer, conveyance, assignment or succession whether by agreement or by operation of law and transmitted has a corresponding meaning.

This clause shall not apply where employment is terminated as a consequence of conduct that justifies instant dismissal including inefficiency within the first fourteen days, neglect of duty or misconduct, and in the case of casual employees, apprentices or employees engaged for a specific period of time or for a specific task or tasks.

Subject to an order of the Commission, in a particular redundancy case, this clause shall not apply to employers who employ less than fifteen employees.

An employer, in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied on the basis of the employer's incapacity to pay.

APPENDIX B - OUTLINE OF THE GENERAL EMPLOYEE ENTITLEMENTS AND REDUNDANCY SCHEME (GEERS) 110

The protection of employee entitlements in circumstances of employer insolvency was initially addressed through the implementation of the Employee Entitlements Support Scheme (EESS) in 2000. Under the EESS an employee with a legal entitlement as at the date of their employer's insolvency could be eligible for a maximum equivalent to 29 weeks' pay, including up to:

• 4 weeks unpaid wages;
• 4 weeks annual leave accrued in the last year;
• 5 weeks pay in lieu of notice;
• 4 weeks redundancy pay; and
• 12 weeks long service leave.

The maximum rate of payment for each week's equivalent under the EESS was the rate corresponding to an annual wage of $40 000, with a $20 000 cap on the amount any individual may receive from the fund. The Commonwealth contributes 50 per cent of the funds required and the relevant state or territory government contributes the remaining 50 per cent.

The terms of the General Employee Entitlements and Redundancy Scheme (GEERS) are set out in its Operational Arrangements. Paragraphs 6.5-6.7 of those Operational Arrangements state:

6.5 Amounts payable under GEERS will be reduced where payments in respect of employee entitlements are made to employees during the insolvency process and after the employee's employment has been terminated. For example, if an employee is owed seven weeks' redundancy pay at the time of termination, and if two weeks' redundancy pay is provided for the former employee during the insolvency process but before GEERS makes a payment, the maximum GEERS payment would be five weeks' redundancy pay. The Scheme does not relieve employers or insolvency practitioners of their responsibility to meet employee entitlements to the extent that there are sufficient assets to do so.

6.6 Circumstances which would lead to reduced GEERS payments in the way described in paragraph 6.5 may include proceeds of asset sales or funds that become available to creditors under Deeds of Company Arrangement.

6.7 Any payments made under GEERS are made without any legal obligation on the part of the Commonwealth to do so and the Commonwealth reserves to itself the right to determine in its absolute discretion matters of eligibility and amount of any payments that it makes under GEERS. Without limiting the application of this discretion, it will be applied in cases where outstanding entitlements are unable to be adequately verified and in cases where Uncommercial Transactions benefiting the employees (as defined in section 588FB of the Corporations Act 2001) may be occurred.

Specifically, where employees have a legal entitlement derived from legislation, an award, a statutory agreement or a written contract of employment, as it was at the date of their former employer's insolvency, they may be eligible to receive GEERS payments equivalent to the following:

• all unpaid wages including unpaid amounts in respect of paid leave already taken and allowances such as shift allowance and overtime;
• all unpaid annual leave including annual leave loading;
• all unpaid pay in lieu of notice;
• up to eight weeks' redundancy pay; and
• all long service leave.

The maximum annual income at which GEERS assistance is calculated is $75 200 for employees terminated in 2001-02 and $81 500 for employees terminated during 2002-03. This income cap is indexed annually. Recipients earning more than this amount are still eligible for GEERS, but GEERS will be paid as if they earned the relevant income cap.

GEERS pays up to eight weeks' redundancy pay. This eight-week limit, which reflects the current maximum national TCR standard for severance pay, ensures that all eligible employees who are owed redundancy entitlements are guaranteed a "safety net" payment of up to eight weeks' redundancy pay.

Workers who receive more than eight weeks' redundancy pay from other sources are not eligible for GEERS in respect of the amount of redundancy above the eight weeks.

Additional information on the operation of GEERS is set out in Table XA on the next page.

GENERAL EMPLOYEES ENTITLEMENTS AND REDUNDANCY SCHEME ACTIVITY

Cost of Removal of Small Business Exemption (Excluding 45 years & over employees)

Number of Employees Paid Redundancy 45 years and over

Notes: 24.8% Self Identified casuals; Of these 54% are long term casuals. Average RED paid for casual labour is 40% of the Average. Figures from ABS Cat 6359.0.

[Source: Exhibit Commonwealth 3, Attachment D at p. 150.]

A Watson with M Bissett , S Burnely and J Nucifora for the Australian Council of Trade Unions, the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia and the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union.

S Barklamb with J Bates, C Harris and P Anderson for the Australian Chamber of Commerce and Industry, the Victorian Employers' Chamber of Commerce and Industry and the ACT & Region Chamber of Commerce and Industry, Metal Industries Association Tasmania, and with M Weldon for the Australian Retailers Association, and J Hargrave for the Printing Industries Association of Australia.

M Moir with S Davis , S Smith and L Stewart for the Australian Industry Group and the Engineering Employers' Association of South Australia.

J Stewart with P Drever , J Macken , I Neville and J Rees for the Minister for Employment and Workplace Relations.

Printed by authority of the Commonwealth Government Printer

[1] Termination, Change and Redundancy Case , Print F6230 ; (1984) 8 IR 34.

[2] Termination, Change and Redundancy Case , Print F7262 ; (1984) 9 IR 115.

[3] Print P7500 at pp. 16-17; (1997) 75 IR 272 at pp. 285-286.

[4] Webber, M & Weller, S, December 2002, Retrenchment and Labour Market Change

[5] Canziani, P & Petrongolo, B, March 2000, Firing Costs and Stigma: A Theoretical Analysis and Evidence from Micro Data

[6] Peetz, D, December 2002, Retrenchment and Labour Market Disadvantage: The Role of Age, Job Tenure and Casual Employment

[7] Webber, M & Campbell, I, 1996, Labour Market Outcomes Among Retrenched Workers in Australia: A Review , National Key Centre in Industrial Relations, Monash University, Working Paper No. 44.

[8] Wooden, M, March 1988, The Impact of Redundancy on Subsequent Labour Market Experience , Journal of Industrial Relations, at pp. 3-31.

[9] Fallick, B, October 1996, A Review of the Recent Empirical Literature on Displaced Workers , Industrial and Labour Relations Review, Vol. 50 No. 1 at pp. 5-16.

[10] Murtough, G & Waite, M, October 2000, Unemployment and Re-employment of Displaced Workers , Productivity Commission Staff Research Paper.

[11] Kelley, J, Evans, MDR & Dawkins, P, September 1998, Job Security in the 1990s: How Much is Job Security Worth to Employees? , Australian Social Monitor, University of Melbourne, Melbourne Institute of Applied Economics and Social Research.

[12] Murtough, G & Waite, M, October 2000, Unemployment and Re-employment of Displaced Workers , Productivity Commission Staff Research Paper.

[13] Wooden, M, September 1998, Is Job Stability Really Declining? , Australian Bulletin of Labour, Vol. 24 No. 3.

[14] Norris, K & Mclean, B, June 2000, How Long do Jobs Last in Australia? , Australian Bulletin of Labour, Vol. 26 No. 2.

[15] Sullivan, SE, May-June 1999, The Changing Nature of Careers: A Review and Research Agenda , Journal of Management, Vol 25 i3 p457(2).

[16] DiPrete, T, Goux, D & Maurin, E, 2002, Internal Labor Markets and Earnings Trajectories in the Post-Fordist Economy: An Analysis of Recent Trends , Social Science Research 31 at pp. 175-196.

[17] Vickery, G & Wurzburg, G, October-November 1996, Flexible Firms, Skills and Employment , OECD Observer, No. 202 at p. 17(5).

[18] Haskel, J, Kersley, B & Martin, C, 1997, Labour Market Flexibility and Employment Adjustment: Micro Evidence from UK Establishments , Oxford Economic Papers 49 at pp. 362-379.

[19] Schultze, CL, 1999, Downsized & Out? Job Security and American Workers , Brookings Review, Vol. 17 i4 at p. 9.

[20] Benson, J, April 2003, Termination of Employment Due to Redundancy: A Report on a Survey of AiGroup/EEASA Members on Current Practices and Implications of the ACTU Redundancy Pay Claim

[22] Roberts, M, April 2003, Employment Protection Systems: A Fifteen Country Comparative Study

[23] Review of TCF Assistance , April 2003, Position Paper, Productivity Commission.

[24] A Review of Prevailing Community Standards Concerning Redundancy and Retrenchment Across Australia , March 2002, ACIRRT at para 139. A report prepared for the Queensland Department of Industrial Relations.

[25] Print F6230 at p. 45; (1984) 8 IR 34 at 73.

[26] Murtough, G & Waite, M, October 2000, Unemployment and Re-employment of Displaced Workers , Productivity Commission Staff Research Paper at para 4.39.

[27] Wooden, M, September 1998, Is Job Stability Really Declining? , Australian Bulletin of Labour, Vol. 24 No. 3; Norris, K & Mclean, B, June 2000, How Long Do Jobs Last in Australia? , Australian Bulletin of Labour, Vol. 26 No. 2; Duration of Current Job - Persons , table from ABS Labour Mobility, Cat No. 6209.

[28] OECD Employment Outlook 1999 , Chapter 2 at Tables 2.5 and 2.6; Transcript at para 959.

[29] (1984) 9 IR 115 at 131.

[31] Also see Re Metropolitan Daily Newspapers Redundancy Award 1996 , Print S8526 (July 2000).

[32] Re Application for Redundancy Awards Case , (1994) 53 IR 419 at 444.

[33] Convention 158 Concerning Termination at the Initiative of the Employer, Article 2 at para 5; Recommendation 166 Concerning Termination at the Initiative of the Employer.

[34] Re Clothing Trades Award 1982, Print K7074 (March 1993).

[35] Carpenter, R & Petersen, B, 2002, Is the Growth of Small Firms Constrained by Internal Finance , The Review of Economics and Statistics, Vol. 84 No. 2 at pp. 298-309.

[36] Exhibit AiG 12, Tab 4 at para 10.

[37] Exhibit AiG 12, Tab 6 at para 19.

[38] Transcript at paras 5763-5772.

[39] It should be noted that the Government party Senators on the Committee stated that while they were in general agreement with the report's findings and recommendations, they would have given more prominence to small business concerns about workplace relations issues. In particular they supported the Government's proposal to exempt small business from the unfair dismissal provisions in the Workplace Relations Act 1996 , see pp. 147-153 of the Senate Small Business Report.

[40] This is the most recent data of this type available. Note: Rows do not add exactly to 100 due to rounding errors.

[41] Bickerdyke, I, Lattimore, R & Madge, A, December 2000, Business Failure and Change: An Australian Perspective , Productivity Commission Staff Research Paper.

[42] Benson, op. cit., at para 4.4.

[43] In nearly 60 per cent of respondent companies the Metal, Engineering and Associated Industries Award, 1998 - Part I , was the major award. That award contains the standard small business exemption. Only 11.3 per cent of small companies who responded to the survey had a separate redundancy agreement that dealt specifically with severance pay.

[44] Test Case: Redundancy Standard , May 2003, National Institute of Economics and Industry Research, Table 18 at p. 106.

[46] Transcript at paras 5381-5384.

[47] Transcript at paras 1407-1408.

[48] (1984) 8 IR 34 at 64.

[49] (1984) 9 IR 115.

[51] (1985) 10 IR 381.

[54] (1986) 16 IR 76.

[55] (1989) 31 IR 450.

[57] Print L5424 (September 1994).

[58] Print L9065 (February 1995).

[61] Print K7074 at p. 14 (March 1993).

[62] (1989) 21 IR 29.

[63] (1994) 53 IR 419.

[65] (1987) 25 IR 316.

[67] (1985) 65 WAIG 881 at 883.

[68] (1986) 66 WAIG 580 at 585.

[69] Re Foremen (Building Trades) Award 1991 and other awards , (1995) 75 WAIG 2699 at 2705.

[70] [2003] QIRComm 383; (2003) 173 QGIG 1417.

[71] The exemption was part of the initial Queensland TCR determination, see Queensland TCR Case , (1987) 125 QGIG 1119.

[72] [2003] QIRComm 383; (2003) 173 QGIG 1417 at para 100.

[73] Tasmanian Industrial Commission, T.125 of 1985 at p. 15.

[74] Exhibit Commonwealth 7, Appendix 2 at para 140.

[75] See also Articles 2(2), 2(3) and 2(4) of ILO Recommendation 166.

[76] PR002003 ; (2003) 121 IR 367 at para 287.

[77] Exhibit AiG 12, Tab 6 at para 24.

[78] [2002] FCA 497.

[79] See Helm v Hansley Holdings Pty Ltd , [1999] WASCA 71; (1999) 118 IR 126; Brian Rochford v Textile Union , (1998) 47 NSWLR 47; Ryan v Justinprint Australia Pty Ltd , PR921657 (August 2002); Re Cosco Holdings Paper Manufacturing & Converting Award 1999 , (2002) 116 IR 321; and Appeal by Smith and Others , PR940508 (November 2003).

[80] Webber, M & Weller, S, December 2002, Retrenchment and Labour Market Change , at para 75(e).

[81] Print T4991 (December 2000).

[83] PR904631 ; (2001) 107 IR 71.

[84] Print T4991 (December 2000).

[85] Milk Processing and Cheese Manufacturing etc. (Appeal) Case , (1978) 45 SAIR 902.

[86] QCU v QCCI , [2003] QIRComm 383; (2003) 173 QGIG 1417.

[87] (1978) 45 SAIR 902.

[88] (1984) 8 IR 34 at 75.

[89] (1984) 9 IR 115 at 135-136.

[92] PR904631 ; (2001) 107 IR 71.

[94] ILO Convention 156, Workers with Family Responsibilities, 1981.

[95] [2003] QIRComm 383; (2003) 173 QGIG 1417.

[96] Print T4991 at paras 13, 136 and 143 (December 2000).

[98] Transcript at para 5462; See also paras 5470-5471.

[99] Transcript at paras 5456-5457.

[100] Print Q1998 at p. 61; (1998) 79 IR 37 at 87.

[101] Re Victorian Minimum Wage Orders , Print Q5101 at p. 11 (August 1998).

[102] Print J1761 (March 1990).

[103] PR940769 (November 2003).

[104] Ex parte McLean , [1930] HCA 12; (1930) 43 CLR 472 at 484-5.

[106] Thornwaite v Australian Credit Union Ltd , (2002) 116 IR 438.

[107] Scott v Picone , [2002] NSWIRComm 239 at para 52.

[108] Burgess v Mount Thorley Operations Pty Ltd (No 2) , (1999) 100 IR 260.

[109] Burgess v Mount Thorley Operations Pty Ltd , (2002) 115 IR 13.

[110] Exhibit Commonwealth 3, Attachment C