Legal Updates

On 19 March 2014, the Social Services Minister Kevin Andrews took a step towards abolishing the Australian Charities and Not-for-profits Commission (ACNC) by introducing the Australian Charities and Not-for-profits Commission (Repeal) (No. 1) Bill 2014 (the Repeal Bill). This is the first of two bills that would implement the Government’s election commitment to abolish the ACNC.The Repeal Bill would repeal the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the ACNC Act), thereby abolishing the ACNC. However, the Repeal Bill would not take effect until a second bill, the Australian Charities and Not-for-profits Commission (Repeal) (No. 2) Bill 2014 (the Second Bill) is also enacted. The Second Bill will detail the replacement arrangements for the ACNC, and is expected to be introduced in the Winter 2014 sittings of Parliament.The Repeal Bill includes provisions that would:1. Abolish the ACNC by repealing the ACNC Act.2. Allow the Minister for Social Services to appoint (by legislative instrument) a successor agency for the ACNC. The successor agency must be an "agency" under the Financial Management and Accountability Act 1997 (Cth).The Government has previously indicated that it would return the responsibility for determining an organisation's charitable status to the Australian Tax Office (ATO). The ATO is a prescribed agency under that legislation.3. Transfer the records held by the ACNC, and any investigations by the Ombudsman into the decisions of the ACNC, to the successor agency.Minister Andrews has previously indicated that the Government would replace the ACNC with a National Centre for Excellence (NCE), which could be based on the United States' Charity Navigator. He has said that the NCE would promote collaborative education, training and development, and that it would ultimately be owned by the NFP sector itself.4. Protect the information that has been disclosed to the ACNC by registered charities and other not-for-profit organisations.5. Require the chief executive of the successor agency to prepare and submit a final report about the ACNC's operations during its final reporting period (which is anticipated to be the 2013-14 financial year).The Explanatory Memorandum to the Repeal Bill indicates that the Government will, before introducing the Second Bill, undertake consultation about the replacement arrangements for the ACNC, consider the potential impacts of those arrangements on the NFP sector, and provide strategies for addressing the impacts identified during the consultation.What does this mean for your organisation?For today, no change.In the future:

• The responsibility for determining an organisation's charitable status will likely return to the ATO. The ATO will continue to determine whether an organisation is entitled to access Commonwealth tax concessions and continues to comply with the applicable qualifying conditions.
• For charities that are companies limited by guarantee, the governance and reporting obligations previously undertaken by the ACNC will be returned to the Australian Securities and Investments Commission (ASIC).
• The ACNC's governance standards, disclosure and compliance requirements are unlikely to continue to be mandatory, but could become best practice under the NCE.

We will keep you updated on developments in relation to the abolition of the ACNC and impacts to the not-for-profit sector. You can also follow the progress of the Repeal Bill via the parliamentary bills page.If you would like further information on how these changes could impact on your organisation, please contact Dr Joanne Redburn or Steven Hunwicks.Please note that the Repeal Bill (and the Government's broader 2014 Autumn Repeal Day announcements) does not impact on the Charities Act 2013 (Cth) which commenced on 1 January 2014 and prescribes a statutory definition for "charity" and "charitable purpose".UPDATE: On 27 March 2014 the Repeal Bill was referred to the Senate Economics Legislation Committee. The Committee's report is due to the House on 16 June 2014.

On 12 March 2014 the Treasury published the exposure draft legislation, draft regulations and explanatory materials for restating and centralising the special conditions for tax concession entities.The Treasury has stated that these measures would:

• re-state the "in Australia" special conditions for income tax exempt entities, ensuring that they generally must be operated principally in Australia and for the broad benefit of the Australian community (with some exceptions);
• centralise and simplify the other special conditions entities must meet to be income tax exempt, such as complying with all the substantive requirements in their governing rules; and
• codify the 'in Australia' special conditions for deductible gift recipients ensuring that they must generally operate solely in Australia, and pursue their purposes solely in Australia (with some exceptions, such as overseas aid funds, some environmental organisations, some touring arts organisations and medical research institutes).

The previous Government announced in its 2009-10 budget that it would make changes to the special conditions for tax concession entities. It later introduced the Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012, however the Bill did not proceed. In Dec 2013, the current Government announced that it would go forward with the measures and incorporate changes to address concerns raised by the not-for-profit sector about the 2012 Bill.The consultation materials are available on the Treasury website. The closing date for submissions on the Exposure Draft is Monday, 7 April 2014.

The Office of the Fair Work Ombudsman (FWO) has announced that penalties totalling $41,580 have been imposed on the operators of a respite and care facility in Sydney, for deliberately underpaying two disability support workers a total of $84,450. This comes on the back of a Western Australian home-care services organisation having to back-pay foster carers more than $6 million, under a Court-Enforceable Undertaking with the Fair Work Ombudsman in December 2019, after self-disclosing that it underpaid 124 current and former employees.

Complaint referred to the Federal Circuit Court

In the recently determined matter, the Federal Circuit Courtfined Lovely Care Pty Ltd $36,000 and its director, secretary and shareholder$5,580 for her involvement in Lovely Care’s underpayment of the workers.

The employees were recent migrants to Australia at the time they were underpaid and were regarded as vulnerable workers under the 2017 vulnerable workers amendments to the Fair Work Act 2009 (Cth) (FWA). The staff members were paid flat rates of $200 to $312 for shifts of at least 15 hours. The payments were insufficient to cover the employee’s minimum hourly rates, casual loadings and applicable allowances under the relevant Award.

The employees lodged complaints with the FWO, leading to an investigation which identified that one employee was underpaid $54,115 and the other was underpaid $30,335. The FWO commenced legal proceeding in 2013 against the organisation and the Director, alleging both breached the FWA.

The FWO reported that shortly before a trial was due tocommence in November 2015, the employer admitted all the alleged contraventionsand rectified the underpayments with interest, but the Director deniedinvolvement in the contraventions. The parties agreed that the Director wasultimately responsible for Lovely Care’s decisions in relation to the terms andconditions of the employees’ employment.

Court finding

The question considered by the Federal Circuit Court was whetherthe Director could be held personally liable as an accessory for Lovely Care’sadmitted contraventions. The Court considered that the “essential facts” in thecase were:

• the Employees’ casual employment with LovelyCare during the periods alleged;
• the hours that the Employees worked;
• the ordinary time rates, casual loadings andsleepover allowances the Employees should have been paid;
• Lovely Care’s failure to pay the Employees theirfull ordinary time entitlements;
• Lovely Care’s failure to pay the Employees acasual loading; and
• in the relevant period, Lovely Care’s failure topay the Employees a sleepover allowance for the nights they slept at thecottage.

The Court found that although the Director swore that shewas not responsible for payroll, rosters or paperwork, it was apparent that sheknew the hours which employees worked and what they were paid for their work.Her evidence was that although she did not process the pays, throughout theemployee’s employment she was the one who processed all the timesheets for payrollpurposes. The Court further found that all relevant times, the Director “knew:

• the hours the Employees worked; and
• what the Employees were being paid for thatwork;
• so at the material times she knew the essentialfacts which constituted the contraventions, in the sense that she knew thefacts which showed that the Employees were in fact:
• being underpaid ordinary time rates;
• not being paid casual loadings; and
• not being paid sleepover allowances.”

The Court found that it was clear that the Director’s “involvementin payments to the staff, being the person ultimately responsible for theorganisation’s decisions in relation to payments made to the Employees,demonstrated that she was an intentional participant in the contraventions.”

After the decision was released, the Fair Work Ombudsmanmade a statement to the media:

“Migrant workers are some of the most vulnerable to underpayments in the community as they often have a limited understanding of workplace laws. Unfortunately, some employers take advantage of this by paying them unlawfully low rates. This judgement should serve as a warning to employers who would exploit migrant workers that they will get caught and face significant consequences for their actions.”

Conclusion

The Fair Work Ombudsman has demonstrated that they willpursue matters to the full extent of the law where they have identified that employeeshave been underpaid and employers have failed to comply with their obligations,whether that failure is intentional or a lack of understanding of theiremployment obligations.

It is crucial that directors and managers in the disabilityand aged care sector are aware of and comply with their obligations under theirrelevant awards. A failure to do so could result in individuals being found tobe personally liable and have penalties personally awarded against them by theCourt.

If you are unsure of your organisation’s obligations to employees under the FWA, the relevant modern award or a workplace agreement, we can assist you to understand your obligations and assess the risks to your organisation.

ot-For Profit organisations must prepare for changes to the Commonwealth Government Privacy Act 1988, set to take effect on 12 March 2014. 

There would be few NFP organisations that would comply with the new laws and they may face penalties of up to $1.7 million if changes are not made in time.For many NFP organisations, the lengthy period of transition has resulted in many management committees/ boards and senior management leaders puttin them to the back of their minds.  However, now is the time for action to avoid penalties for non compliance. 

The Privacy Commissioner has been very clear in his message – he will not be taking a soft approach to enforcing these laws. To avoid being made a public example of, organisations should review current practices as soon as possible. 

The changes include the replacement of the existing National Privacy Principles with new Australian Privacy Principles and expanded powers for the Australian Information Commissioner.  

The new Australian Privacy Principles will include rules regarding the collection, use and storage of personal information. 

For example, NFP organisations will now need to state whether they are likely to disclose personal information overseas and if so, the relevant countries. This may be particularly relevant for NFP organisations that use cloud computing to store data or NFP organisations that store data on servers located overseas. 

There will also be new rules around how organisations deal with unsolicited personal information and for direct marketing. 

How can NFP Lawyers help you to prepare for the changes:- Undertake a privacy assessment- Review and update existing privacy policies and the forms and consents that NFP organisation’s use in conjunction with their policy- Review the NFP organisation’s practices in relation to the collection of personal information, marketing practices, data hosting and website privacy statements - Conduct a privacy audit to identify gaps between current operations and the new privacy requirementsIf you would like further information regarding the privacy changes, please contact Joanne.

For many not for profit organisations (NFPs) the later half of the calendar year brings a flurry of activity in preparing for the annual general meeting (AGM). The purpose of an AGM is to give members a report on the NFP’s activities and finances for the previous year, to allow time for members to ask questions, and often to elect members of the governing body for the coming year or next term. These Guidelines set out the legal requirements that a NFP company limited by guarantee must comply with in holding its AGM.

It is critical to understand that although indemnity clauses are commonplace in commercial agreements such as event or hiring agreements, a NFP’s insurance (including any professional indemnity, public liability or products liability) is not likely to cover the liability under the indemnity. The reason being is that most insurance policies specifically exclude cover for any liability assumed by way of an agreement only (which is the case with most indemnities).Accordingly, if the NFP’s insurance does not cover the indemnity the NFP would be required to pay that liability “from its own pocket”.As a simplistic example only – if someone were severely injured during an event and the courts determined that the NFP was responsible to the extent of 50% of the injury and the event management organisation (the “Event Manager”) was responsible for the balance:

• the NFP’s insurance company is expected to cover the 50% for which the NFP was held responsible; however

• regarding Event Manager’s proportion, the Event Manager (or its insurer if it had claimed the matter on its insurance policy) would then seek to recover that liability from the NFP under its indemnity;

• the NFP’s insurance company would not cover that liability under the indemnity, the NFP would need to cover that liability personally.

If the NFP must pay the liability “from its own pocket” this will directly affect the organisations or persons it was established to assist and, worse case scenario, the NFP may need to be wound up.So, by agreeing to an indemnity you have significantly increased the risk to your NFP and its stakeholders.

How can you best manage an indemnity to reduce the risk to your NFP?

When negotiating indemnities, you may consider one or more of the following strategies:

1. omit the indemnity clause – eliminate the risk;
2. omit the indemnity clause but offer principal’s liability insurance for the particular event/ agreement –you will need to consider the costs of obtaining principal liability insurance
3. limit the indemnity:
4. require the indemnity to be subject to a liability cap – as a general guide negotiate up to an overall liability cap of 100% of the contract price plus the proceeds of insurance policies.
5. require the indemnity to only extend to the loss or damage within the control of the NFP, and only apply to loss or damage caused by the NFP
6. ensure the indemnity provides for a proportional reduction in liability
7. place an obligation on the principal to mitigate any loss or damage

Above all, check your NFP’s insurance policy.  You must ensure that any indemnity provisions which are agreed to in contracts are covered by the insurances in place and do not invalidate policies of insurance.  For this reason, it is advisable that any negotiations and agreement of indemnity provisions involve your NFP’s insurance broker and are made subject to acceptable insurance cover being obtained.If you need assistance in reviewing or negotiating the indemnity provisions under a contract you are considering, NFP Lawyers are happy to assist.  Please contact Dr Joanne Redburn on 07 3160 0010

The Statutory Definition of Charity Bill passed through the Senate which means the Not for Profit sector now has a single statute which clearly defines what is and isn’t charity.Senator Ursula Stephens said the Bill would allow for better use of time and less red tape for the sector.“The consequent savings in time, energy, and other resources will be enormous,” she said.“The flow on reductions in red tape, duplication and compliance costs will translate into better services for the community.”A Statutory definition of charity was recommended by an independent inquiry 12 years ago, with resounding support from the Not for Profit sector. The Charities Bill 2013 has taken two years to develop and has been the subject of extensive consultation.The new Charities legislation will:

• Expand the current ‘four heads’ of charity to 12, explicitly codifying some important charitable purposes in their own right such as  ‘promoting or protecting human rights’;
• Integrate the 2010 High Court of Australia decision on Aid/Watch v Tax Commissioner;
• Resolve a number of anomalies which stymied particular charities.

The Statutory Definition of Charity will come into effect on January 1, 2014.

Governance standards for charities registered with the Australian Charities and Not-for-profits Commission (ACNC), commenced operation 1 July 2013.

What are the standards?

Standard 1: Purposes and not-for-profit nature of a registered entity

Charities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this and provide information about their purpose to the public.The most common steps your charity can take to meet this standard are to:

• have clauses in your governing documents setting out your charitable purpose and not-for-profit nature
• run your organisation as a charity (by following its purpose and being a not-for-profit)
• provide your governing documents to the ACNC to be uploaded on the ACNC Register.

Standard 2: Accountability to members

Charities that have members must take reasonable steps to be accountable to their members and provide their members adequate opportunity to raise concerns about how the charity is governed.The most common steps your charity can take to meet this standard are to:

• organise a meeting at least annually with your members (such as an annual general meeting) with opportunities to ask questions and vote on resolutions
• give information to members on the charity’s activities and finances
• have clear processes for appointing responsible persons. This can include setting out the process in your governing documents.

Charities should keep records of their members and keep this list updated.

Standard 3: Compliance with Australian laws

Charities must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty of 60 penalty units (currently $10 200) or more.There are some simple steps your charity can take to reduce the risk of breaching this standard. In most cases, this relates to common sense and good practice, such as being familiar with the main areas of regulation relating to your charity, having some basic financial controls, and having a process to ensure your charity meets its legal obligations. The extent and type of processes and controls that are reasonable for each charity will vary depending on their situation (size, activities and so on).

Standard 4: Suitability of responsible persons

Charities must check that their responsible persons (such as board or committee members or trustees – called ‘responsible entities’ under the ACNC Act) are not disqualified from managing a corporation under the Corporations Act 2001 (Cth) (Corporations Act) or disqualified from being a responsible person of a registered charity by the ACNC Commissioner. Charities must take reasonable steps to remove any responsible person who does not meet these requirements.Your charity meets the first part of this standard if, before it appoints a responsible person, it:

• searches the ASIC Disqualified Persons Register
• searches the ACNC Register of Disqualified Persons
• requires all its responsible persons to sign a declaration relating to disqualifying offences.

You should also take these three steps for existing responsible persons.

Standard 5: Duties of responsible persons

Charities must take reasonable steps to make sure that responsible persons understand and carry out the duties set out in this standard.The most common steps your charity can take to meet this standard are to:

• bring these duties to the attention of responsible persons such as outlining their duties in their letter of appointment
• provide information to responsible persons on their duties to refresh their knowledge
• encourage responsible persons to attend, prepare for, and participate at meetings
• have processes in place to manage conflicts of interests
• if it comes to your attention that a responsible person may not be carrying out their duties, take reasonable action.

The proposed introduction of a statutory definition of charity has been deferred for another six months.The Federal Government has announced, in the Federal Budget, a later start date for the 2011‑12 Budget measure Not‑for‑profit sector reforms — introducing a statutory definition of 'charity'.This measure will now take effect from 1 January 2014, rather than 1 July 2013 as originally announced.In April the Federal Government released the exposure draft legislation for a statutory definition of 'charity' in Australia preserving the common law definition of charity, including the presumption of public benefit for certain charitable purposes.The Budget Paper No.2 is available at http://www.budget.gov.au/2013-14/content/bp2/html/bp2_revenue-10.htm)

The Government announced in the 2011-12 Budget that it would introduce a statutory definition of charity, applicable across all Commonwealth laws.In 2011, the Government released a Paper on the definition of charity as part of a consultation process to provide interested parties with an opportunity to comment on the proposed statutory definition of charity.The Government has considered the submissions and has developed draft legislation which gives effect to the statutory definition.Interested parties are invited to comment on the draft legislation and explanatory material.Submissions close Friday 3, May 2013Further information may be obtained at:http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2013/A-statutory-definition-of-charity