Protecting employee entitlements: corporate governance and industrial democracy in Australia.

Abstract

The protection of employee entitlements has been an issue of public policy debate following several major corporate failures including HIH and Ansett. While protection remains paramount on the public policy agenda and in the campaigns of trade unions, we argue that there is an equally

important, yet neglected issue associated with employee entitlements. Employees are involuntary lenders of capital to their employing organisations. They do not receive interest on their loans and importantly they are invariably denied information, monitoring and 'voice' rights within their organisations. In this article we argue that these rights should be granted to reduce risk to entitlements and in exchange for employer access to this capital.

Introduction

Australia has a social welfare model that provides for universal benefits for those not in employment--for example, age pensions, unemployment payments and disability payments. Unlike those of many OECD countries, such state welfare provisions are funded out of general revenue. No designated social security contribution is directly linked to employment. Instead, individuals self-fund a whole range of different types of benefits that are linked to work (Jefferson and Preston 2003). It is these provisions, or employee entitlements, that we wish to examine. In particular, the article considers three themes. First, mechanisms designed to protect these entitlements; second, the linkage between entitlements and corporate governance; and, third, the case we contend that accrued entitlements provide for enhanced industrial democracy.

Employee entitlements are benefits accrued through continuity of employment. They include, holiday leave, long service leave, wages (when paid in arrears) and sick leave. Many workers' entitlements can accumulate into a considerable sum after lengthy continuous service with the one organization. For employers, these entitlements are contingent liabilities which are typically paid from current funds as and when the employee exercises their right to the entitlement. Hence, entitlement funds are typically accessed by employers for business operations rather than being quarantined for the express purpose of meeting employment obligations. Consequently, where an organisation enters into liquidation there is the possibility that the accrued entitlements of employees will be lost, since they have a rank ordering below other secured creditors. In theoretical terms, this is an agency problem where management are not discouraged from externalising the costs resulting from using (and possibly) losing employee entitlements. Commercial advantage is derived from placing employment entitlements at risk, but there is no corresponding return to employees in consideration of this risk as there would be for bank loans and other debt instruments.