Legal and regulatory update for aged care boards and managers – directors’ duties and employment law

By Alison Choy Flannigan

The aged care sector is under significant stress following the Royal Commission into Aged Care Quality and Safety, COVID-19, regulatory reforms, workforce shortages and issues with procuring supplies of essential equipment such as personal protective equipment at higher cost because of supply chain issues.

The StewartBrown September 2021 Aged Care Financial Performance Survey incorporates detailed financial and supporting data from 1,198 aged care homes (97,080 beds/places) and 56,223 home care packages across Australia. The quarterly survey is the largest benchmark in the aged care sector and provides invaluable insight into the trends and drivers of financial performance at the sector level and at the aged care home or programme level.

The Survey for the three-month period ending September 2021 continues to highlight the declining financial sustainability of the sector, with residential aged care becoming a major focal point of consternation. The average operating results for residential aged care homes in all geographic sectors was an operating loss of $7.30 per bed per day despite the additional Basic Daily Fee supplement of $10 per bed day. Occupancy remains a major concern and the combination of negative factors has eroded essential investment from new and existing providers.

Nationally on average as at September 2021, 44% of residential aged care homes made an operating loss.

The Health Services Union and the Australian Nursing and Midwifery Federation have brought a case in front of the Fair Work Commission (FWC). That case is still in progress.

The union is seeking pay rises of 25% for more than 200,000 workers, arguing pay rates in aged care don’t meet the Fair Work Act’s requirement for a ‘safety net of fair minimum wages’.

Aged care providers also want a pay rise for their workers, but haven’t specified how much.

Industry commentators are stating that there will need to be a significant increase in the workforce to meet the minimum staffing and care hours under the proposed aged care reforms.

With our borders being closed approved providers have been restricted during COVID-19 from recruiting staff from overseas and nurses coming from overseas require registration in Australia.

The combination of all of these factors will put a sector already in crisis under additional strain and consolidation is most likely to be the natural consequence.

Aged care legislative reforms

A new Act

On 1 March 2021, the Government announced that work had begun on a new consumer-focused aged care Act.

The new Act is planned to come into effect 1 July 2023, subject to parliamentary processes. It provides a basis for reforms and cultural change with a focus on responding to the needs of senior Australians.

Legislative Amendments

On 1 July 2021 the Aged Care and Other Legislation Amendment (Royal Commission Response No. 1) Act 2021 (Cth) (the Act) came into effect. The Act implemented the first set of urgent recommendations by the Royal Commission.

The Act includes amendments to:

• give stronger controls over the use of restrictive practices, such as chemical and physical restraints, to ensure they are a last resort;
• conduct assurance reviews of home care providers to ensure funding is used to deliver services to senior Australians; and
• abolish the requirement for the Aged Care Financing Authority (ACFA) and create a new advisory body for aged care financing issues.

The Aged Care and Other Legislation Amendment (Royal Commission Response No. 2) Bill 2021 (Cth) (the Bill) was introduced into Parliament on 1 September 2021.

The Bill includes provisions to:

• move to the new Australian National Aged Care Classification (AN-ACC) funding model for residential aged care;
• allow for nationally consistent screening processes for aged care workers and a national screening database;
• introduce an enforceable code of conduct for workers and key personnel of approved aged care providers;
• extend the Serious Incident Response Scheme (SIRS) to home care and flexible care delivered in a home or community setting, including the introduction of responsibilities for home care providers to manage and prevent incidents;
• strengthen provider governance, including by placing new reporting requirements on providers and requiring clinical expertise on their governing bodies;
• improve information sharing between regulators across the aged care, disability and veterans’ affairs sectors;
• provide increased financial and prudential oversight over the use of residential accommodation deposits and bonds;
• expand the functions of a renamed Independent Health and Aged Care Pricing Authority to provide pricing advice to the Government on aged care and general health care matters; and
• revise the strengthened arrangements on the use of restrictive practices to address unexpected outcomes in relation to the interaction between state and territory guardianship and consent laws.

However, this second piece of legislation been delayed due to the new Labor Government and may be subject to change.

We recommend that approved providers continue to plan for the changes (including assisting with the Department’s shadow assessments for AN-ACC) given the Labor Government aged care policies mentioned below, however, be prepared to pivot as necessary.

Labor Government’s aged care policies

The Albanese Labor Government has pledged to introduce several new measures and reforms to the aged care system, including:

• registered nurses on site 24/7: under a Labor Government, every aged care facility will be required to have a registered, qualified nurse on site, 24 hours a day, 7 days a week.
• more carers with more time to care: Labor will raise the standard of aged care across the board – by ensuring there are more carers, who have more time to care. Labor will mandate that every Australian living in aged care receives an average of 215 minutes of care per day, as recommended by the Royal Commission.
• a pay rise for aged care workers: Labor will back a real pay rise for aged care workers. Labor will support workers’ calls for better pay at the Fair Work Commission.
• better food for residents: Labor will ensure that there is better food for residents of aged care homes. A Labor Government will work with the sector to develop and implement mandatory nutrition standards for aged care homes to ensure every resident gets good food.
• dollars going to care: Labor will make residential care providers report – in public and in detail – what they are spending money on. Additionally, Labor will give the Aged Care Safety Commissioner new powers to ensure there is accountability and integrity.

The Labor Government’s aged care policies (without detail) are available on the ALP website.

Employment law considerations

The key employment law considerations include:

• restructuring the workforce;
• compounding the risks of overworked staff; and
• staff shortages and new minimum requirements.

The Australian Government accepted a number of the Royal Commission’s recommendations in its Final Report, including the minimum staff time standard for residential care.

From 1 October 2023, it is mandatory for approved providers to:

• engage registered nurses, enrolled nurses, and personal care workers for at least 200 minutes per resident per day for the average resident;
• ensure that at least 40 minutes of this staff time is provided by a registered nurse; and
• ensure that at least one registered nurse is required on site per residential aged care facility for the morning and afternoon shifts, being 16 hours per day.

Over 2021 to 2022, total care time only grew by 1.9%, to 178 minutes per day. An increase of 12.4% of care time provided by care providers will be required by October 2023 to meet these initial targets.

The Australian Government identified that only 5% of surveyed homes had staffing levels exceeding the three of the incoming 2023 ratios and only 3% exceeded the thresholds promised by Labor for 2024.

Additionally, home care packages fell by 32% over the last five years, down to 33 minutes of care per day.

What duties apply?

For profit organisations owe duties under the:

• Corporations Act 2001 (Cth); and
• common law.

On the other hand, not-for profit organisations owe duties under the:

• Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Australian Charities and Not-for-profits Commission Regulation 2013 (Cth);
• ACNC Governance Standard 5: Duties of Responsible People; and
• common law

However, it should be noted that:

• some provisions of the Corporations Act 2001 (Cth) may still apply. For example, criminal offences; and
• higher duties under common law and equity still apply.

Common law duties which apply to for-profit and NFP

At common law, directors owe a duty to act with care, skill and diligence.

A director is in a fiduciary relationship with the company, which is a relationship of trust and confidence.

These duties include a duty to:

• act in good faith in the best interests of the company;
• act for proper corporate purposes;
• give adequate consideration to matters for decision and to keep discretions unfettered; and
• to avoid conflicts of interest.

There is also a duty to ensure that the company remains solvent.

All directors and officers have an obligation to ensure that the company/association remains solvent and able to pay its debts when due.

Aged Care Act reforms – subject to review

A new code of conduct	The Bill provides the authority for a Code of Conduct to be established in legislation and to apply to all workers and key personnel of approved providers of aged care. The Bill also supports the development of an agreed and enforceable code of conduct for the care and support sector.
Expanding the Serious Incident Response Scheme (SIRS) to homecare	The Bill extends the SIRS to in-home aged care services, including flexible care delivered in a home and community setting. The Bill also introduces new responsibilities for in-home care providers to manage and prevent incidents, and includes protections for whistle-blowers in this setting.
Improved provider governance	The Bill introduces new governance responsibilities for approved providers regarding membership of their governing bodies, the establishment of new advisory bodies and measures to improve leadership and culture. It includes new reporting requirements to assist customers and families to understand the operations of providers.
Greater prudential requirements relating to residential accommodation deposits and bonds	The Bill implements a component of phase 2 of the financial and prudential monitoring, compliance and intervention framework for the aged care sector. Phase 1 was implemented on 1 July 2021, phase 2 will be implemented from 1 July 2022 and phase 3 from 1 July 2023.

Directors and officers of approved providers should:

• familiarise themselves of their legal obligations and duties;
• be aware of the proposed aged care regulatory reforms – including any future changes made by the new Labor Government;
• consider the likely impact of the aged care reforms on their business; and
• implement appropriate strategies, including:
  • scenario and contingency planning;
  • budgetary and cash flow projections in consultation with their financial advisors;
  • update their systems for proposed aged care pricing arrangements;
  • the introduction of software to record compliance with the new requirements concerning RN staffing and care contact hours; and
  • obtain employment law advice on managing a flexible workforce going forward.