Collapse of the Unions

The Royal Commission into Trade Union Governance and Corruption, which ran for a total of twenty one months throughout 2014 and 2015, at times resembled a political carnival. A headline attraction was the appearance of former PM Julia Gillard, who defended her role in helping to establish an Australian Workers Union slush fund back when she was a solicitor for Slater and Gordon. Current Labor Leader Bill Shorten, spent two days giving testimony on his stewardship of the Australian Workers’ Union, ducking and weaving questions about his knowledge of various payments from companies to his union, and whether or not some workers were in fact, left worse off.

The Australian Council of Trade Unions (ACTU) actively refused to engage, preferring to join with the Australian Labor Party in asserting that the Commission was nothing more than a witch hunt. The unions and Labor attempted to have Royal Commissioner Dyson Heydon disqualify himself for alleged bias—a tactic that bore a striking similarity to the union movement’s approach to the 2001-2003 Cole Royal Commission into the Building and Construction Industry. In December 2015, Labor’s Workplace Relations spokesman, Brendan O’Connor described the Royal Commission’s six volume, multi-thousand worded Final Report as akin to something ‘written by a B-grade sub-editor of a sleazy tabloid’. Yet despite the undeniable spectacle of a two year political high-wire act (with many of the animals either turning on each other or their keepers), the Royal Commission revealed a widespread culture of questionable financial deals and industrial practices involving Australian unions and their employers. In fact, the attitude of the union movement is a classic illustration of how legislated government protection and monopoly rights breeds arrogance, a sense of entitlement and a disregard for the rule of law.

EVIDENCE BEFORE THE COMMISSION

The scale of problems that were identified is particularly significant given the limited scope of the Royal Commission’s Terms of Reference, which were effectively restricted to the conduct of union officials and the operation of so-called ‘relevant entities’ i.e. slush funds. The Royal Commission was also only tasked with examining the conduct of five unions: the Australian Workers’ Union (AWU); Construction, Forestry, Mining and Energy Union (CFMEU); Communications, Electrical and Plumbing Union (CEPU); Health Services Union (HSU); and the Transport Workers Union of Australia (TWU). To that end, it’s no wonder that in its Final Report, the Royal Commission found that:

It would be utterly naïve to think that what has been uncovered is anything other than the small tip of an enormous iceberg.

The Commission heard of the proliferation and lack of oversight and accountability of union related fighting funds, training funds and income protection and redundancy funds—many of which benefited from being referenced in enterprise bargaining agreements. Union-related associations such as the AWU’s ‘Workplace Reform Association’ and ‘Industry 2020’, and the CFMEU’s ‘Building Industry 2000’, were established to raise and spend significant amounts of money—often on internal or external political outcomes—with little or no record keeping. Unions regularly obtained money from companies for industrial peace or for other purposes, with the evidence given to the Commission as diverse as it was alarming.

The Commission heard that the AWU was paid $75,000 over three years by a cleaning company, and given the names of the company’s casual employees to allow the company to avoid paying up to $2 million in penalty rates—and enabling the AWU to artificially boost its membership numbers. The AWU was also paid by a labour hire company for a staffer who ended up working on Bill Shorten’s 2007 election campaign, as well as receiving $4,000 a month by a mushroom farm which was at the time changing the employment arrangements of AWU members. The Maritime Union of Australia and associated entities received $3.2 million from various maritime industry employers to keep industrial peace and curry favour. A glass manufacturer provided $130,000 for a union official to go on a two week tour of Europe, the US and the Middle East—and also provided $480,000 over three years to the AWU for ‘education and training’— at the time the company was negotiating an enterprise agreement. A contractor paid thousands of dollars which was used by a union official and his wife for IVF treatment. A prominent developer paid for over $150,000 worth of work on a union official’s private home. The unhealthy relationship between unions, employer organisations and default superannuation funds were also a feature.

In its Interim Report the Commission highlighted a long running dispute involving a Transport Workers Union (TWU) truck driver who was prevented by the union from choosing his own superannuation fund. The Commission found that between 2006 and 2014, TWUSuper made total payments of over $6.8 million to the TWU for directors’ meeting fees and expenses, superannuation liaison officer expenses, office rental, advertising expenses and sponsorships. Even though TWUSuper paid $93,434 to the TWU towards the cost of a Superannuation Liaison Officer in 2010/11, that officer admitted to doing only 2.5 days of superannuation related work for the whole of that year.

Finally, the Commission also heard evidence of regular payments made to union officials from union funds. One prominent example involved the misuse of National Union of Workers credit cards by three officials from the same family on personal items as diverse as holidays, hairdressers, supermarket shopping, tattoos, and dating websites. Another involved three officials of the Health Services Union (HSU) in what the Commission described as a culture of ‘misappropriation and deceit’ that cost the HSU’s members over $2.7 million.

CFMEU

The CFMEU was singled out for particular scrutiny with its activities attracting its very own chapter in the Commission’s December 2014 Interim Report, and one and a half volumes of the December 2015 Final Report. CFMEU were cited for ongoing and serious intimidation of building inspectors, employers and even other union members throughout Australia over many decades.

The Commission heard evidence that CFMEU officers destroyed documents that had been subpoenaed by the Commission; transferred employer payments for drug and alcohol training into more generic CFMEU accounts; received gift s; engaged in anticompetitive conduct; and even pursued and received the private details of construction industry superannuation fund members as part of an industrial dispute.

In particular, the CFMEU’s black-ban on the delivery of Boral products to Melbourne construction sites—as punishment for the company acting as a supplier to Grocon—led the Commission in its Interim Report to state that:

A legal system which does not provide a swift protection against the type of conduct which Boral alleges it has suffered at the hands of the CFMEU, and which does not have a mechanism for the swift enforcement of court orders is fundamentally defective.

The Commission also stated that the evidence suggested a:

Pervasive and unhealthy culture within the CFMEU [under which] the law is to be deliberately evaded…where it stands in the way of achieving the objectives of particular officials, [and that] the reputations of those who speak out about union wrongdoing become the subject of baseless slurs and vilification.

In the Final Report, the Commission noted that the building and construction industry in particular was riddled with:

Corrupt payments; physical and verbal violence; threats; intimidation; abuse of right of entry permits; secondary boycotts; breaches of fiduciary duty and contempt of court.

The Commission did not argue for the CFMEU’s deregistration—due to the undesirability of punishing ordinary union members for the activities of their leaders, and also given the likelihood that these leaders would simply transfer to a new organisation—it did however recommend consideration of special legislation to disqualify certain CFMEU officials from holding office in a registered organisation for a specified period.

ROYAL COMMISSION RECOMMENDATIONS

The Royal Commission found evidence that ‘widespread misconduct’ had taken place ‘among a wide variety of unions and industries’, and that a ‘sinister picture’ had emerged of unions concerned with ‘self-interest’ rather than the interests of members. It made 79 recommendations to overhaul the regulation of registered organisations and their officials; improve financial accountability; better protect whistle-blowers; crack down on corrupting payments; and better regulate the governance of union funds. The Commission also recommended legislative changes to strengthen competition policy laws—in so far as they relate to workplace relations—and the continuation of a separate building and construction industry regulator, with compulsory investigatory and information gathering powers.

The Institute of Public Affairs’ August 2015 submission was cited on ten occasions in the Law Reform section of the Final Report, particularly our recommendations that a new, independent body was needed to regulate trade unions and employer organisations, and that the duties imposed on unions and employer organisations —as well as penalties for non-compliance— should be equivalent to those that apply to companies under the Corporations Act 2001.

Registered organisation office-bearers are currently not held to the same standards of behaviour as corporations under the Corporations Act, with lesser penalties applying for breaches of duties; lower standards for acting in good faith; the approval of auditors; disclosing conflicts of interest; and no provisions that make dishonest or reckless duty breaches a criminal offence. Importantly, the Royal Commission also identified the longstanding problem of secret payments from employers to unions or their office-bearers, in return for industrial peace or other benefits. To this end, the Commission proposed an outright ban on employers making direct payments to an employee organisation or its officials.

The Commission also strongly recommended the repeal of laws that allow industrial agreements to prescribe an employee’s superannuation fund, noting that:

The need for the tyranny of the majority to prevail has not been established [and that] law should ensure all employees have freedom of choice of superannuation fund.

More than 110 years after the passage of the old Conciliation and Arbitration Act, unions and employer organisations remain enclosed in a protected area of the law, held to lower standards for their behaviour and largely regulated by the conflicted Fair Work Commission. The disregard that some union officebearers have shown for the law (and for the interest of their members) clearly reflects a deep-seated belief that there is one set of laws and standards for unions, and another for everybody else. Given that trade union membership has fallen from 46 per cent of the workforce in 1986 to only 15 per cent of the workforce in 2014, with the percentage of private sector employees who are a member of a union now only 11 per cent, trade unions members are now speaking with their feet.

Unions in particular enjoy significant powers to compel employers to negotiate workplace agreements, directly influence proceedings in the Fair Work Commission, and enter private workplaces for industrial relations or occupational health and safety purposes. Unions are also exempt from paying income tax, have guaranteed representation on industry superannuation fund boards, and through their influence inside the Australian Labor Party, often play a determinative role in selecting candidates for the Australian Parliament. Yet while many unions are multi-million dollar business enterprises that collectively employ thousands of people—and control many hundreds of millions of dollars’ worth of employee funds— their office-bearers are not held to the same standards of behaviour as directors of corporations.

While freedom of association and the right of individuals to join or not to join a union is important, this principle should not be used to justify a second-class system of legal responsibilities and enforcement. The Royal Commission has played an important role in bringing many of these practices to public attention for the first time, identifying the role that some employers have played in encouraging this behaviour— either to buy industrial peace or to gain a potential advantage over competitors—and suggesting viable options for legislative change.