Workers’ redundancy pay at risk as law firm warns GEERS is constitutionally invalid

A law firm has warned that the High Court’s decision on school chaplains may put workers’ redundancy pay at risk along with dozens of other schemes.

SmartCompany understands that, as the law stands, a raft of government schemes, including the National Broadband Network, are also constitutionally invalid.

The High Court found last week that the Commonwealth’s funding of the school chaplaincy program is constitutionally invalid and Clayton Utz insolvency partner David Cowling told SmartCompany the Federal Government’s General Employment Entitlement and Redundancy Scheme may suffer from the same problems as the now-failed school chaplaincy funding program.

GEERS was established by the Howard government and effectively operates as a lender of last resort to liquidators to allow them to make redundancy payments to employees of collapsed companies.

It has been used in recent administrations, including failed construction company Hastie and telecommunications company Commander Communications.

Cowling called on the government to “urgently” make a public statement about the effect of the chaplaincy decision on GEERS and to outline how it will fill the gap until legislation can be put through Parliament.

He says there is “every chance in the world” workers’ payments will be affected. However, firstly, the scheme would have to be challenged and so the government must “quickly move to cut any challenges off at the pass”.

“The current position is that [the Federal Government] has to fix it because it is not just GEERS, there will be a number of schemes that will be affected,” says Cowling.

“In the short term, the government will probably continue to pay money under GEERS, and could conceivably continue to do so until someone takes the scheme to the High Court.”

But Cowling warns it would be best if the government did not wait for a High Court challenge to GEERS.

“When a company goes under, there is often a knock ’em down, drag ’em out fight between the various creditors, who are anxious to get their hands on whatever money is left in the company,” Cowling says.

“In that situation, the constitutionality of GEERS would make a tempting target for a creditor.

“Knocking out GEERS could potentially mean the removal of the Commonwealth from the list of company creditors – and therefore more money for the other creditors.

“If that happened, there would be a lot of pressure on the government to shut GEERS down completely. This would have a devastating effect on retrenched workers and their families.”

Cowling says this “Armageddon scenario” should be avoided if at all possible, and the best way to do that is to put GEERS on a firm statutory footing as soon as possible.

He also warns finding a constitutional basis for the GEERS legislation and maybe even modifying the scheme to fit the constitution will take time.

“The delay it causes would be disastrous for unemployed workers if the government left it until the High Court forced its hand,” says Cowling.

“That in itself is another reason to get moving now.”

SmartCompany contacted the Attorney General’s office, but no reply was received prior to publication.