Australian employee entitlements in the event of insolvency: Is an insurance scheme an effective protective measure?

Abstract

In 2001, the Howard Government established the General Employee Entitlements and Redundancy Scheme, funded by taxpayers to provide a limited level of protection for employee entitlements in the event of corporate insolvency. The effectiveness of the scheme has been questioned as it involved taxpayers bailing out insolvent companies, and because government support has the potential to discourage employers from being fully accountable for employee entitlements. Government subsidising of employee entitlements may encourage misconduct or possibly lead to illegal activities by directors and corporate officers. A system where taxpayers bear the main cost of corporate failure is arguably inequitable. In 2012, the General Employee Entitlements and Redundancy Scheme was replaced by the Fair Entitlements Guarantee Act 2012 (Cth), also funded by the taxpayer, prompting the same concerns. This paper explores the potential for a joint employer and federal government-funded insurance scheme to provide an alternative solution for protecting employee entitlements when corporations collapse. An insurance scheme is proposed as a protective measure for employee entitlements. Such a scheme could provide sustainable and effective protective measures for employee entitlements.