docs.employment.gov.au · web viewthe fw act should be amended to ensure that, if industrial action...

[email protected] 96750305, 0438405527

17 February, 2012

The Secretary,Fair Work Act Review,[email protected]

Dear Secretary,

Please find attached a submission from the HR Nicholls Society to the Review of the Fair Work Act.

Our submission, in three parts, does not constitute support for the Fair Work Act. The Society believes the Act as a whole should be abolished.

Given the limited terms of reference of the Review and the short time frame in which it is to be conducted, the Society has nethertheless decided to contribute to it to highlight the serious problems that the FWA has created.

As mentioned above our submission falls into three parts.

Part A looks at some (but by no means all) of the technical and legal aspects of the operation of the FWA principally relating to the ability to take protected industrial action; permitted matters; and, the application of long service leave.

Part B examines the economic impact of the FWA and examines, among other issues, the decline in productivity; the increase in real unit labour costs; and, increased industrial activity.

Part C discusses ways the Act could be improved short of its abolition.

These three parts are the works of experts in industrial law, the labour market and the economy.

It is clear from our submission that the Act is failing employers, employees – especially women and the poor -and is woeful to the Australian economy.

[Word version of submission. Original format and page numbers may be seen on pdf version submitted to FWA Review]

mailto:[email protected]

mailto:[email protected]

The Society requests a public meeting with the three members of the Review Panel to discuss its submission.

We await confirmation of that meeting.

Yours sincerely,

A Bisits,President HR Nicholls Society.


Part A of submission of HR Nicholls Society to FWA review

Submission to Fair Work Act

Review Panel

by

HR Nicholls Society

17 February 2012

Summary Of Recommendations 2

Overview 3

HR Nicholls Society 3

Enterprise Bargaining – Content 4

Enterprise Bargaining – Industrial Action 7

National Employment Standards – Consistency 8

Conclusion 9


Summary Of Recommendations

1. The Fair Work Act 2009 be amended to ensure that “permitted matters” in enterprise agreements (or related side Deeds or Memorandums of Understanding) are prohibited from including or encompassing any:

(a) restrictions on the engagement of independent contractors and requirements relating to the conditions of their engagement; and

(b) restrictions on the engagement of labour hire workers, and requirements relating to the conditions of their engagement, imposed on an entity or person for whom the labour hire worker performs work under a contract with a labour hire agency.

2. The Fair Work Act 2009 be amended to ensure that, if industrial action is to be sanctioned and legitimised (as protected), such industrial action only occur after Fair Work Australia is satisfied as to one of the matters set out in s 230(2)(a) to (d) of the Act.

3. The Fair Work Act 2009 (and related legislative provisions) be amended to make all transitional instruments, in terms of their interaction with the National Employment Standards, consistent with the approach taken in relation to long service leave entitlements for NAPSAs under the National Employment Standards.


Overview

1. This submission is made by the HR Nicholls Society (the Society)1 to the Review of the Fair Work Act 2009 (the FW Act).

2. In highlighting that the FW Act is not operating as intended, this submission focuses upon enterprise-level collective bargaining in terms of content and industrial action.2

3. This submission also makes the point that the blanket removal (on 1 January 2010) of long service leave entitlements under former Notional Agreements Preserving State Awards (NAPSAs), pursuant to commencement of the National Employment Standards (NES), should be replicated for all other NES entitlements.3

4. The terms of the Review do not call for submissions as to the repeal of the FW Act and its associated legislation. The contents of this submission should therefore not be read as encompassing all of the concerns to which the Society and its members hold in relation to the FW Act. In other words, from the perspective of the Society and its members, only the total repeal of the FW Act and its associated legislation would allay such concerns.

HR Nicholls Society

5. The aims of the Society are to:

(a) promote discussion about the operation of industrial relations in Australia, including the system of determining wages and other conditions of employment; and

(b) support the reform of Australian industrial relations with the aim of promoting the rule of law in respect of employers and employee organisations alike, the right of individuals to freely contract for the supply and engagement of their labour by mutual agreement, and the necessity for

1 HR Nicholls Society website: http://www.hrnicholls.com.au/index.php 2 Note s 3(f) of the FW Act3 Note s 3(b) of the FW Act


http://www.hrnicholls.com.au/index.php

labour relations to be conducted in such a way as to promote economic development in Australia.

6. The Society is named after Henry Richard Nicholls who, in 1911, was the editor of the Hobart "Mercury". Nicholls published an editorial in that paper in which he roundly criticised Henry Bournes Higgins, then a High Court judge and President of the Commonwealth Court of Conciliation and Arbitration. Higgins had trenchantly attacked a barrister, H E Starke QC, who was appearing before him, and Nicholls, in his turn, took Higgins to task for behaving in a politically partisan and unjudicial manner. H B Higgins was outraged by this editorial and persuaded the Attorney General to have Nicholls charged with contempt of Court. The case was duly heard and Nicholls was acquitted unanimously by a full bench of the High Court. The Court judgement was delivered by Sir Samuel Griffith, CJ, and is a damning indictment of Higgins' behaviour.4

Enterprise Bargaining – Content

7. Section 172 of the FW Act, coupled with the non-replication of “prohibited content” previously specified in Part 8, Divisions 7.1 and 7.2 of the Workplace Relations Act Regulations 2006,5 represents a significant expansion of permitted matters that may be included in enterprise agreements. It also represents a significant expansion of permitted matters for which protected industrial action may be taken in support of such claims.

8. The effect of s 172, in terms of enterprise bargaining outcomes, is profoundly detrimental and backward, including in the areas of productivity, fairness, competition and pattern bargaining. It defies common sense to assert otherwise, or to require any form of empirical “evidence” to support such a conclusion.

9. Further, it is not to the point that the concept of “prohibited content” did not form part of the Industrial Relations Act 1988 (as amended by the 1993 Reform Act) or the (repealed) Workplace Relations Act 1996 (prior to 27 March 2006). The FW Act has deliberately removed “prohibited content” in circumstances where such restrictions previously did exist. Section 172 of the FW Act therefore must be considered by reference (solely) to its removal (or

4 R v Nicholls (1911) 12 CLR 280; 17 ALR 309; [1911] HCA 22. http://www.austlii.edu.au/au/cases/cth/HCA/1911/22.html. As Ray Evans states: “Higgins was a nut; a lonely, confused and tragic figure, who was, through Alfred Deakin's patronage and political manoeuvring, put in a position where he could seek to impose his Platonic vision of an Australian labour market controlled in great detail by a wise guardian - himself.” (http://www.hrnicholls.com.au/copeman/copeman2010/evans-acceptance.php) 5 By reference to s356 of the (repealed) Workplace Relations Act 1996.


http://www.hrnicholls.com.au/copeman/copeman2010/evans-acceptance.php

http://www.austlii.edu.au/au/cases/cth/HCA/1911/22.html

repeal) of prohibited content, not for its historical consistency to former industrial or workplace relations legislation enacted up to 20 years ago. Whatever might be argued (by some) to have “worked” or existed back ‘then’ in terms of permitted matters, is not worth consideration now.

10. Cases such as Asurco Contracting Pty Ltd v Construction, Mining and Energy Union (2009) 197 IR 365 (Asurco) and Re ADJ Contracting Pty Ltd Enterprise Agreement 2010-2014 [2011] FWAFB 6684 (ADJ Contracting) highlight the types of ‘standard provisions’6 that unions can, and/or now do, seek to be included in enterprise agreements. Such provisions (under the banners of “job security” and “consultation”) restrict, hinder,7 discourage and/or effectively prohibit the use of contractors and other external labour (labour hire) by a company to whom such a term in an enterprise agreement applies. These provisions use directive language towards a company in terms of its use of suppliers, and encourage the roll-out of industry wide pattern enterprise agreements in the same terms. To this end, they run contrary to basic ‘enterprise’ bargaining principles such as:

(a) determining matters affecting employers and employees at the workplace level;

(b) developing relationships between employers and employees at the workplace level; and

(c) the making of agreements as to wages and conditions at the workplace level, specifically suited to the particular enterprise.

11. These restrictive provisions are also contrary to the basic tenants of simple ‘bargaining’, as that term might normally be understood. Requiring contractors and labour hire providers to be engaged on terms “no less favourable”8 than the terms set out in a particular enterprise agreement (applying to the company signatory to a particular enterprise agreement) effectively ensures that genuine bargaining will not occur for enterprise agreements sought to be made by those third party contractors and labour hire providers, or that any bargaining that does occur (achieving a less favourable outcome)9 will not be observed when work is performed for a company signatory to an enterprise agreement containing the types of restrictive provisions set out in Asurco and ADJ Contracting.

6 ADJ Contracting at [15]7 As to the term “hinder”, see the comments of Mason CJ in Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32, especially at 45-468 Whatever that might mean.9 Again, whatever that might mean.


12. In ADJ Contracting, various arguments were advanced before Fair Work Australia as to why compliance with so-called job security provisions might lead to liability to penalty for breaches of the Competition and Consumer Act 2010 (the CC Act). The Tribunal effectively avoided making any determination (or properly engaging on the issue) by firstly, refusing to make an express finding that an enterprise agreement was an “arrangement or understanding” for the purposes of s 45E of the CC Act,10 and secondly, highlighting a lack of evidence as to lawfulness.11

13. As to the first issue, the Tribunal did, however (seemingly as a back-stop in a case a court subsequently did find that such restrictive and anti-competitive clauses do breach s 45E of the CC Act) point out that it “should not be taken to have decided [that] an enterprise agreement could never be an arrangement or understanding for the purposes of s 45E of the CC Act.”12

14. As to the second issue, it seems extraordinary that if such a term of an enterprise agreement might be said to possibly be an arrangement or understanding for the purposes of s 45E of the CC Act, evidence would necessarily be required for the purposes of an ‘agreement approval’ hearing (especially noting the much repeated mantra of “but this arrangement is by consent”).13 Indeed, if unknown third parties (such as contractors and labour hire providers) may not yet even know about the clause, but will be directly affected by it one way or another,14 what evidence can reasonably be called?

15. The issues identified in the foregoing paragraphs warrant specific limitations being placed upon “permitted matters” in enterprise agreements, notwithstanding that such standard provisions as to so-called job security can be said to be “matters pertaining”.15 For good order, side Deeds and

10 ADJ Contracting at [40]11 ADJ Contracting at [49]12 ADJ Contracting at [40]13 Issues such as ‘consent’, whilst clearly a requirement of the approval process at large, are no trump card when one is considering and analysing a restrictive anti-competitive enterprise agreement clause, which on its face limits and/or prohibits the use of contractors and labour hire providers unless they deliver equal terms and conditions to the pattern enterprise agreement. The fact that the ‘management’ of a company have ‘consented’ to an enterprise agreement, negotiated on an industry wide pattern bargaining basis between, for example, an employer organisation like NECA Victoria, and a union like the ETU, should immediately ring alarm bells. The consent of weak and/or unprincipled management to bad pattern bargaining outcomes directly negates against any notion that the concept of “consent” is in any way important to a determination of the likely and practical effect of such a clause upon third parties.14 It is no answer to make the point that such third parties will not have the enterprise agreement “apply” to them. These third parties will clearly caught by the enterprise agreement if they want to perform services for the company that it does apply to. Hence the restrictive nature of these clauses. Hence their anti-competitive and unproductive outcomes.15 Albeit in the context of federal awards, see Re Moore; Exparte Federated Miscellaneous Workers' Union of Australia (1978) 140 CLR 470; Reg. v. Commonwealth Industrial Court Judges; Ex parte Cocks


Memorandums of Understanding must also be caught. In this regard, the FW Act must be amended to ensure that “permitted matters” in enterprise agreements (or related side Deeds or Memorandums of Understanding) are prohibited from including or encompassing any:

(a) restrictions on the engagement of independent contractors and requirements relating to the conditions of their engagement; and

(b) restrictions on the engagement of labour hire workers, and requirements relating to the conditions of their engagement, imposed on an entity or person for whom the labour hire worker performs work under a contract with a labour hire agency.16

Enterprise Bargaining – Industrial Action

16. In JJ Richards & Sons Pty Ltd and Transport Workers’ Union of Australia [2010] FWAFB 993 (JJR), Fair Work Australia determined that the Tribunal could grant an application for protected industrial action before bargaining had even commenced.

17. The reasoning (of the 2/1 majority) in JJR essentially sought to make the concept of ‘bargaining’ under Part 2-4 of the FW Act subservient to the so-called “right to strike” under Part 3-3 of the FW Act. Apparently, “genuinely trying to reach agreement” under Part 3-3 of the FW Act should be the focus (from the union’s perspective), not the clear words of s 230(2) of the FW Act.

18. Whether the decision in JJR is right or wrong from a legal perspective, the position is bad and needs immediate fixing – if only because it runs totally contrary to the intention of parliament as described in the Explanatory Memorandum.17

19. The FW Act should be amended to ensure that, if industrial action is to be sanctioned and legitimised (as protected), such industrial action only occur

(1968) 121 CLR 313. The dividing line for “permitted matters” appears between (a) a blanket prohibition on contractors (not permitted) and (b) selective restrictions upon their engagement (permitted, although, essentially still achieving the same ends as the blanket prohibition).16 This might be done via an amendment to the definition of “objectionable term” under s 12 of the FW Act or an expansion of the concept of “unlawful term” under s 194 of the FW Act. 17 See Explanatory Memorandum to Fair Work Bill 2008 at paragraphs R283, 648, 651, 696, 697, 948, 975-977, 1630 and 1708. It is noted that the Review Panel need not be caught up by legal principles, such as when it is permissible to resort to extrinsic materials (like explanatory memorandum).


after Fair Work Australia is satisfied as to one of the matters set out in s 230(2)(a) to (d) of the Act.

National Employment Standards – Consistency

20. The NES provisions apply to all national system employees, regardless of their industry, occupation or income and, with some exceptions, are enforceable under the FW Act as civil remedy provisions.

21. Part 2-2, Division 9 of the FW Act deals with NES long service leave entitlements. Modern awards are prohibited from containing provisions as to long service leave (s 155).

22. The NES failed to preserve long service leave entitlements under NAPSAs.18

Indeed, from 1 January 2010, provisions under NAPSAs as to long service leave were lost by those employees formerly bound by those NAPSAs. Such long service leave entitlements, if not preserved in an instrument specified in s 113(2) of the FW Act, are now governed only by applicable State long service leave legislation.19

23. This position in relation to NAPSAs was expressly recognised by the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the Transitional Act) in relation to Division 2B State Awards,20 but in any event, unions made very few applications for preservation.21

24. Moving away from long service leave, the Transitional Act sets out various ways in which terms and conditions in transitional instruments (including NAPSAs) are to be preserved, and the manner in which the NES interacts with those preserved terms. Some of these transitional arrangements have also found their way into transitional provisions in lengthy Schedules to modern awards. All of these transitional provisions and arrangements are highly

18 This appears to be an intentional decision by the Labour Government, otherwise, they could have just listed NAPSAs in s 113(2) of the FW Act. They have not.19 See Armacell Australia Pty Ltd and Others [2010] FWAFB 9985 at [24] to [26]; Stewart (2011) “Stewart’s Guide to Employment Law (Third Edition)”, p. 220, paragraph/item 11.36. By reference to s 113(3) of the Act, the term “award” is not defined in s 12 of the Act or Schedule 2, Item 2 of the Transitional Act. The term “award” is not inclusive of a NAPSA. One must therefore trace the term “award” all the way back to the (repealed) Workplace Relations Act 1996, as in force prior to 27 March 2006, at s 4(1) (cf. Schedule 2, Items 3 and 4 of the Transitional Act; s 4 of the (repealed, 1 July 2009) Workplace Relations Act 1996; and Schedule 4, Item 4 of the Workplace Relations Amendment (Work Choices) Act 2005)20 See Item 30, Schedule 3A of the Transitional Act21 See Award Modernisation – Division 2B State Awards, Decision [2010] FWAFB 9774


prescriptive, technical and complex. They have caused, and continue to cause, significant confusion and excessive compliance costs.

25. It is recommended that the FW Act (and related legislative provisions, including the Transitional Act) be amended to make all transitional instruments, in terms of their interaction with the NES, consistent with the approach taken in relation to long service leave entitlements for NAPSAs under the NES.

Conclusion

26. The recommendations set out in this submission, whilst not resolving the problems created by the large and cumbersome FW Act (including its related legislation), at least go some way to restoring basic freedoms in the workplace, and tearing down a few of the complexities and costs associated with compliance.

27. Importantly, this Review should not be seen as an opportunity to simply compare current problems and concerns with the FW Act to legislative provisions in place under the Industrial Relations Act 1988 or the (repealed) Workplace Relations Act 1996 (prior to 27 March 2006), and then dismiss them. Historical legislative comparisons, when being used to justify backward re-regulation such as has occurred with the FW Act, are humbug and most unhelpful.

***


Part B of submission of HR Nicholls Society to FWA review


The Fair Work Act (2009): A Review of the Evidence

1. Introduction

The Fair Work Act [FWA] (2009), which was passed by Parliament on 20 March 2009, and which received Royal Assent on April 7 2009, is one of the most important pieces of economic legislation in Australia, covering a large number of employers and employees.

Although the FWA has never been subjected to a detailed rigorous economic examination - let alone a cost-benefit analysis – both are required as a matter of urgency.

Such an analysis would ideally begin with an assessment of the broad evidence on the performance of the Australian labour market under the Act. This report undertakes such an assessment, studying the empirical evidence on labour market conditions and economic performance in Australia since the introduction of the FWA in mid 2009.

The analysis compares outcomes in the period between late 1996 and mid-2009 on the one hand [when the Workplace Relations Act (1996) and its direct successors were in place] and between mid-2009 to the present on the other [the period over which the FWA (2009) has operated].

The report examines a broad range of labour market data and economic indicators.22 The analysis shows that since the FWA was introduced:

Australia’s overall growth rate of total factor productivity (TFP) has fallen;

TFP growth in the majority (75 per cent) of Australian industry sectors has declined;

As a result, real unit labour costs (RULCs) have risen, in contrast to the significant decline in RULCs during the pre FWA period;

The growth rate of average real wages has declined;

Employment growth for female workers and part-time workers has slowed.

The growth rate of the employment to population ratio has declined;

The youth unemployment rate has remained persistently high, and is currently around the same level as it was at the height of the Global Financial Crisis;

The pre FWA reduction in days lost per 1000 workers due to industrial disputes has begun to reverse itself;

Workers’ perceptions of job security are below the level one would have expected to observe had there been no changes to Australia’s industrial relations laws in 2009; and

Workers’ perceptions of their ability to find a new job if they became unemployed are below the level one would have expected to observe had there been no changes to Australia’s industrial relations laws in 2009.

The main findings of the report are summarised in Table 1 below.

22 Data referred to in the paper is current as at 14 February 2011.


Table 1: Labour Market Indicators in Australia since the Introduction of the FWA

Indicator Direction of Change Since FWA

Productivity Growth

Real Unit Labour Costs

Real Wage Growth

Growth in Employment/Population Ratio

Youth Unemployment

Female and Part Time Employment Growth

Growth Rate of Days Lost due to Industrial Disputes

Perceptions of Job Security

Perceptions of Ease of Finding a New Job

On the basis of the available evidence, there is very little data one could point to which would support the proposition that the FWA has resulted in improved labour market outcomes or economic conditions more generally.

The report is structured as follows. Section 2 examines the evidence on aggregate productivity and real unit labour costs under the FWA. Section 3 studies the behaviour of average real wages before and after the FWA, whilst Section 4 looks at employment outcomes. Section 5 investigates two additional pieces of evidence: industrial disputes and job security, with a particular focus on unfair dismissals. Section 6 concludes.

2. Has the Fair Work Act Promoted Productivity Growth?A key test of the effectiveness of labour market regulations and institutions is whether they promote productivity growth and higher living standards, or whether they impede economic progress. This section examines the extent to which the Fair Work Act has achieved the Government’s objective of promoting productivity growth.

2.1. Measuring Productivity Productivity is defined as the amount of output produced per unit of inputs. There are two commonly used ways of measuring of productivity:


Total Factor Productivity (TFP, also known as Multi-factor Productivity or MFP): The amount of output produced per unit of a combination of inputs

Labour Productivity: The amount of output produced per unit of labour input;

Labour productivity depends on TFP and the size of capital stock (machinery and equipment) per worker. A higher per worker capital stock means that each worker has more machinery to work with, and hence can produce more output with a given amount of labour input. A higher level of TFP means that even taking into account these capital-deepening effects, workers can produce more than they otherwise would have, due to factors that are discussed further below.

The remainder of this section focuses on the evidence regarding the FWA and TFP growth rates.

2.2. How Labour Market Regulations Affect Total Factor ProductivityIt is important to note that higher productivity goes hand in hand with higher real wages. Indeed, in the long run, the only way that higher real wages can be sustained without unemployment rising is for labour productivity to rise.

In general, higher TFP levels and growth rates can come about as a result of improvements in technology, economic spillovers across the economy, or improved methods of organising production. Changes in institutions – the ‘rules of the game’, which include the industrial relations laws – are important determinants of how technology is used, how firms interact and the ability (or otherwise) of firms to plan, invest, innovate and grow.

For the purposes of the analysis of industrial relations laws, it is the third class of factors that is the most significant, as well as the interactions between this driver and the other two determinants of TFP growth.

Labour market institutions and regulations affect the ability of business managers to organise and manage their workforces in an effective, flexible fashion, and therefore directly affect TFP levels and growth rates. Reduced labour market flexibility (within firms, across firms, and between sectors) means that better ways of organising and managing production may not be implemented, or may face significant delays. Moreover, the greater the risk of conflict, and the lower is flexibility in the workplace, the greater the risk involved in innovating – as the gains from innovating may be snatched away from shareholders through industrial disputes, whilst any losses would be largely borne by shareholders. As a result, reduced labour market flexibility may impede the ability of businesses to reorganise production, expand (or, where necessary, contract) production, or to innovate with the development of new product lines.

As the Productivity Commission has recently noted: “Firm organisation, management practices and work arrangements also affect productivity. For example, lean production techniques can bring productivity improvements through complete and continuous review of production systems, supply arrangements, inventory management, quality assurance, team-based work and so on. Organisational structure is also increasingly seen as vital to maintaining the


flexibility needed to deal with rapid changes and ambiguities in modern market conditions.” 23

The Commission has also noted the importance of the interaction between labour market regulation and other determinants of productivity growth:

“Flexibility to alter work arrangements plays an essential role. Reforms to industrial relations arrangements since the late 1980s have enabled firms to be more innovative than was previously possible (a recent illustration of which has been the preservation of jobs by shortening of hours worked during the current slowdown). ….

While industrial relations regulation addresses a legitimate concern for workers’ basic rights based on community norms, it is important to preserve the ability of organisations to engage effectively with employees to change work arrangements in response to commercial imperatives. As the economy changes, different firms and industries will come under divergent pressures in a way not amenable to enforcement of common employment conditions, as the recent debate about the special circumstances of the hospitality sector illustrates. Flexibility in employment arrangements can yield significant benefits for employees as well as their employers.” 24

In summary, productivity levels and growth will tend to be poor if labour markets are inappropriately regulated or overregulated, as bad management practices, old organisational structures and unprofitable business methods get “locked in”, and innovation is impeded.

2.3. The Evidence on Productivity Growth2.3.1. Aggregate Productivity Growth

A comparison of overall productivity growth rates before and after the FWA reveals that the Act appears to have little positive effect on productivity growth rates. Indeed, the evidence on TFP growth - summarised in Figure 1 below- suggests that if anything, the Act has had a negative effect on the growth rate of TFP.

Figure 1: Average TFP Growth in Australia, Market Industries, Pre and Post FWA

23 Productivity Commission (2009), page 9. 24 Productivity Commission (2009), page 43.


0.5%

-0.4%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

1996-97 to 2008-09 2008-09 to 2010-11

Perc

ent

Period

Source: Australian Bureau of Statistics, Cat. No. 5260.0.55.002 Experimental Estimates of Industry Multifactor Productivity, Australia: Detailed Productivity Estimates.

2.3.2. Real Unit Labour Costs

Rising real unit labour costs – the average costs of the labour required to produce one unit of output - are the flipside of declining productivity growth. Higher real unit labour costs tend to discourage employers from hiring workers.

If productivity levels decline (as they have been in many Australian industries), then more inputs are required to produce a unit of output. Hence, with declining productivity levels, real unit labour costs can rise even if real wages remain constant. If labour productivity growth falls behind real wage growth, then real unit labour costs will also increase.

As Figure 2 below shows, since the FWA was introduced, real unit labour costs have risen. This is in stark contrast to the falls in real unit labour costs that occurred before the FWA was introduced.

Figure 2: Average Annualised Growth in Non-Farm Real Unit Labour Costs, Pre and Post FWA


-0.62%

0.22%

-0.7%

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

Dec 1996 to June 2009 Jun 2009 to Sep 2011

Perc

ent

Period

Source: Australian Bureau of Statistics, Cat. No. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Table 38, Trend data.

2.3.3. Productivity Growth by Industry Sector

One important concern with aggregate data such as that shown in Figure 1 is that the overall productivity picture may be disproportionately affected by only a handful of poorly-performing sectors (for example, mining). However, this has not been the case under the FWA. Table 2 below shows that the slowdown in aggregate productivity growth has not just been due to productivity slowdown in the mining sector. Of the 16 sectors for which TFP is measured by the ABS, 75 per cent have experienced declined in TFP growth since the introduction of the FWA.


Table 2: Average TFP Growth in Australian Industries, Pre and Post FWA. Industry Average TFP

Growth, 1996-97 to 2008-09

Average TFP Growth, 2008-09 to 2010-11

Difference

A Agriculture, Forestry and Fishing 3.00% 3.84% 0.84%B Mining -2.51% -7.08% -4.57%C Manufacturing 0.00% 1.18% 1.18%D Electricity, Gas, Water and Waste Services -2.96% -4.01% -1.05%E Construction 1.45% 1.09% -0.36%F Wholesale Trade 0.75% -0.68% -1.43%G Retail Trade 0.96% 1.12% 0.16%H Accommodation and Food Services 0.90% -3.02% -3.92%I Transport, Postal and Warehousing 0.47% 1.54% 1.07%J Information, Media and Telecommunications 0.63% 0.21% -0.42%K Financial and Insurance Services 3.36% 0.35% -3.01%L Rental, Hiring and Real Estate Services -4.10% -4.23% -0.13%M Professional, Scientific and Technical Services 0.81% 2.74% 1.93%N Administrative and Support Services 0.76% -4.45% -5.21%R Arts and Recreation Services 0.10% 0.06% -0.04%S Other Services -0.65% -3.95% -3.31%Source: Australian Bureau of Statistics, Cat. No. 5260.0.55.002 Experimental Estimates of Industry Multifactor Productivity, Australia: Detailed Productivity Estimates.

2.3.4. Summary of Evidence on Productivity Growth

Overall, it is clear that the evidence does not lend support to the proposition that the FWA has promoted productivity growth. This is true even in industries where average productivity growth has increased after the FWA was implemented. Of the four industries that have experienced higher average annual growth in TFP since the FWA was introduced [Manufacturing and Retail Trade, Transport Postal and Warehousing, and Professional Scientific and Technical Services], two have gone backwards in the past 12 months. Both manufacturing and retail trade have experienced significant productivity slowdowns over the last year, with TFP declining by 0.41 per cent in manufacturing, and 1.8 per cent in retail trade.

3. Has the FWA Promoted Real Wage Growth? Real wage increases drive increases in incomes and standards of living. As discussed above, real wage increases are only sustainable if they are accompanied by productivity gains.

A standard way of measuring real wages growth is to examine average weekly ordinary time earnings (AWOTE, which is a nominal measure of average wages) and adjust for changes in the Consumer Price Index (CPI).

As Figure 3 below shows, during the period between December 1996 and June 2009, real wages using this measure rose by 24.71 per cent – an average annual rate of increase 1.78 per cent. Moreover, during this pre-FWA period, real wages increased in every industry sector in Australia.


In contrast, since the FWA was introduced in July 2009, average real wages have grown at an annual rate of 1.69 per cent. In other words, the introduction of the FWA has been accompanied by a decline in the growth rate of average real wages.

Figure 3: Annualised Average Real Wage Growth, Pre and Post FWA

1.78%1.69%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%


Perc

ent

Period

Source: Australian Bureau of Statistics, Cat. No. 6302.0 Average Weekly Earnings, Australia and Cat. No. 6401.0 Consumer Price Index, Australia.

Moreover, since the introduction of the FWA, average real wages in a number of key sectors have gone backwards. Table 3 below shows, for example, that since June 2009, average real wages have fallen in both manufacturing and retail trade.

Table 3: Annualised Average Real Wage Growth, Selected Industry Sectors, Pre and Post FWA

Average Annual Real Wage Growth

SectorNov 1996 to August 2009 August 2009 to August

2011Retail Trade 1.42% -0.17%Manufacturing 2.00% -0.60%Other Services 1.53% -1.12%Administrative and Support Services

2.09% -3.05%

Rental, Hiring and Real Estate Services

2.80% -4.93%

Source: Australian Bureau of Statistics, Cat. No. 6302.0 Average Weekly Earnings, Australia, and Cat. No. 6401.0 Consumer Price Index, Australia.


On the other hand, public sector employees appear to have benefitted from the introduction of the FWA. As Figure 4 below shows, since the FWA was implemented, public sector wages have grown faster than private sector wages. Figure 4: Labour Price Index by Sector, Pre and Post FWA

80

85

90

95

100

105

110

115La

bour

Pric

e In

dex

Quarter

Public Sector Pre FWAPrivate Sector Pre FWAPublic Sector Post FWAPrivate Sector Post FWA

FWA Act commences on July 1 2009

Source: Australian Bureau of Statistics, Cat. No. 6345.0 Labour Price Index, Australia,

4. Has the FWA Promoted Employment Growth? Along with real wage growth, employment growth is a key indicator of the overall health of labour market and the appropriateness of its regulations. There is little evidence that the FWA has promoted employment growth relative to earlier arrangements. Figure 5 below, for example, shows that average annualised employment growth has been lower since June 2009 than in the pre FWA period. Indeed, in net terms, no jobs have were created in Australia during the 12 months to December 2011.25

Figure 5: Annualised Average Growth Rate of Employment, Pre and Post FWA

25 It may be objected that the effects of the GFC skew these results. This is not the case. A comparison of the 18 month period before the introduction of the FWA in June 2009 - a period which also includes the GFC - with the post FWA period produces similar results to Figure 5. Average annualised employment growth in the 18 months prior to the introduction of the FWA was 1.85 per cent, still slightly higher than the average annualised employment growth of 1.84 per cent in the 18 months following the introduction of the FWA.


2.14%

1.84%

0.0%

1.0%

2.0%

3.0%

Dec 1996 to June 2009 Jun 2009 to Sep 2011Period

Perc

ent

Source: Australian Bureau of Statistics, Cat. No. 6202.0 Labour Force, AustraliaAnother key labour market indicator is the employment to population ratio. This depends on labour market outcomes, as well as the willingness of individuals to enter the workforce (i.e. the participation rate). As Figure 6 below shows, the growth rate of the employment to population ratio has slowed markedly since the introduction of the FWA. Figure 6: Annualised Average Growth Rate of the Employment to Population Ratio, Pre and Post FWA

0.49%

0.11%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%


Perc

ent

Period

Source: Australian Bureau of Statistics, Cat. No. 6202.0 Labour Force, AustraliaThe relatively poor employment performance since mid 2009 has been driven by a reduction in the growth rate of employment of female workers, as well as a reduction in the growth rate of part time employment (with the incidence falling more heavily on female workers).


The data in Figure 7 below illustrates this point. These are workers for which flexible workplace arrangements are particularly important. The rise unemployment in both categories makes it difficult to conclude that the FWA has resulted in greater flexibility. Indeed, the opposite seems to be true. Figure 7: Annualised Average Growth Rate of the Stock of Unemployed Workers, Selected Categories, Pre and Post FWA

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Female unemployedlooking for part-time

work

Total unemployedlooking for part-time

work

Total femaleunemployed

Category

Perc

ent

Pre FWAPost FWA

Source: Australian Bureau of Statistics, Cat. No. 6202.0 Labour Force, AustraliaEvidence from the labour market for younger workers also supports this conclusion. Figure 8 below shows that the unemployment rate for 15-19 year olds has not dropped below 15 per cent since mid 2009, and is currently approaching the same level it was at the height of the GFC.

Figure 8: Australia’s Youth Unemployment Rate, Pre and Post FWA


0

5

10

15

20

25

Dec-

1996

Dec-

1997

Dec-

1998

Dec-

1999

Dec-

2000

Dec-

2001

Dec-

2002

Dec-

2003

Dec-

2004

Dec-

2005

Dec-

2006

Dec-

2007

Dec-

2008

Dec-

2009

Dec-

2010

Dec-

2011

Month

Perc

ent

Pre FWA

Post FWA

Source: Australian Bureau of Statistics, Cat. No. 6202.0 Labour Force, Australia

5. The FWA and Other Labour Market IndicatorsIn addition to productivity, real wages and employment, there are a range of other indicators which illustrate labour market performance. This section reviews the evidence on these indicators. 5.1. Industrial DisputesThere is little evidence to suggest that the FWA has reduced the incidence of industrial disputes since its introduction. In addition to the ample anecdotal evidence (which suggests that industrial disputes are becoming more frequent), a key indicator is the number of working days lost due to industrial action, adjusted for growth in the labour force. Between 1996 and 2009, the number of working days per 1000 lost through strikes declined considerably – at an average annual rate of nearly 15 per cent per year. Although the number of working days lost due to industrial disputes has remained relatively low since mid 2009, there has been a marked pickup in days lost due to industrial disputes over this period. The data, summarised in Figure 9 below, shows that the number of working days lost due to industrial disputes has grown at an average rate of nearly 10 per cent since mid 2009.

Figure 9: Average Annual Growth Rate of Working Days Lost (per 1000 employees) Due to Industrial Disputes, Pre and Post FWA


-14.73%

9.34%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1996-97 to 2008-09 2008-09 to 2010-11

Perc

ent

Period

Source: Australian Bureau of Statistics, Cat. No. 6321.0.55.001 Industrial Disputes, Australia.

5.2. Job Security and Unfair DismissalsOne important provision of the FWA is the extension of protection from unfair dismissal to all award-covered employees with more than six months’ continuous service with an employer. The FWA also extended the provisions to small businesses (employing fewer than 15 full-time equivalents), with a qualifying period of 12 months continuous service. Unfair dismissal provisions are effectively a tax on dismissing workers. The additional costs that are involved mean that firms become more reluctant to hire workers, and as a result, the need for dismissing workers also falls. Additional costs are incurred even where unfair dismissal cases are settled before going to court. A consistent finding in the empirical literature is that firing costs reduce employment.26 Freyens and Oslington (2007), for example, conduct a survey of small and medium sized firms in Australia regarding the costs of unfair dismissal proceedings. Their estimates are reported in Table 4 below, and have been updated to 2011 dollars. It is worth noting that FWA data indicates that in 2011, 13,448 unfair dismissal applications were lodged with Fair Work Australia.27 The vast majority of these were either finalised prior to conciliation, or settled at conciliation. If we apply the Freyens and Oslington average cost figure (expressed in 2011 dollars) of $15,880.86 per dismissal, we arrive at an aggregate cost of $213.57 million - a non-trivial economic cost. As discussed above, these costs will tend to reduce employment and create other economic costs, even if they are not actually incurred, as firms respond to the incentives that are created by the regulations that are in place. These effects flow on to productivity as well. Freyens and Oslington argue that the employment effects of unfair dismissal costs are modest. However, Hopenhayn and Rogerson (1993) investigate this issue using a general equilibrium model of the job reallocation

26 For a summary of the literature, see Cahuc and Zylberberg (2004), page 748-750. 27 See http://www.fwa.gov.au/index.cfm?pagename=aboutquarterlyreports


http://www.fwa.gov.au/index.cfm?pagename=aboutquarterlyreports

process, which is calibrated to US firm data. They find that a tax on job destruction at the firm level equal to 1 year's wages reduces employment by roughly 2.5 percent. Table 4: Estimates of Average Dismissal CostsCategory Average Cost

(2004 dollars)Fraction of

Annual WageEquivalent Average Cost in 2011 dollars

Uncontested Dismissals $3,044 10.30% $3,771.36Conciliated and Settled Dismissals

$12,818 27.80% $15,880.86

Dismissals going to Arbitration

$14,705 35.70% $18,218.76

Source: Freyens and Oslington (2007). This estimate produces some interesting results when applied to Australia. As at December 2011, total employment in Australia was 11.421 million. Applying the Freyen and Oslington average dismissal cost number and the Hopenhayn and Rogerson estimate, we arrive at an estimate of an employment cost of unfair dismissal laws of 79,376 jobs.28 In addition to the costs of unfair dismissal laws, there is little evidence to support the proposition that the 2009 changes have made Australian workers feel more secure in employment. Statistical analysis of data from the Roy Morgan employment survey, which is shown in Figure 10 below, suggests that perceptions of job security are currently lower than what one would have expected had Australia’s industrial relations system not changed in 2009.29 As discussed above, one important effect of unfair dismissal laws is that they are likely to make firms less willing to hire workers. The Morgan survey data seems to suggest that this is exactly what has happened under the FWA - worker perceptions of their ability to find a new job quickly if they were to find themselves unemployed have worsened markedly since 2009, after increasing steadily over the 1996 to 2009 period (Figure 11). Figure 10: Worker Perceptions of Job Security, Pre and Post FWA

28 The calculation is as follows. Freyens and Oslington estimate that the average cost of dismissals which are conciliated or settled is 27.8 per cent of annual wages. Hopenhayn and Rogerson estimate that a dismissal cost equivalent to 1 year of annual wages reduces employment by 2.5 per cent. Multiplying these two numbers by the total number employed as at December 2011 gives the resulting estimate of 79,376 jobs. 29 Figures 10 and 11 build a simple forecasting model based on a regression of the pre FWA data on a constant and a linear time trend. In both cases, the linear time trend is positive and statistically significant at the 5 per cent level.


Job Security Trend = 75+0.39*Time

68

70

72

74

76

78

80

82

84

Jul ‘9

7

Nov ‘9

7

Nov ‘9

8

Nov ‘9

9

Dec ‘0

0

Dec ‘0

1

Dec ‘0

2

Dec ‘0

3

Dec ’0

4

Nov ‘0

5

Nov ‘0

6

Oct ‘07

Nov ‘0

8

Jun ‘

09

Nov ‘0

9

Nov ‘1

0

Nov ‘1

1

Feb ‘1

2

Date

Perc

ent

Pre FWA

Post FWA

Linear Trend (Pre FWA)

Source: Roy Morgan Research, Finding No. 4745, Feb 9 2012. http://www.roymorgan.com/news/polls/2012/4745/ Figure 11: Worker Perceptions of Ability to Find a New Job Quickly, Pre and Post FWA

Trend = 55.7+ 0.71*Time

40

45

50

55

60

65

70

75

Jul ‘9

7

Nov ‘9

7

Nov ‘9

8

Nov ‘9

9

Dec ‘0

0

Dec ‘0

1

Dec ‘0

2

Dec ‘0

3

Dec ‘0

4

Nov ‘0

5

Nov ‘0

6

Oct ‘07

Nov ‘0

8

Jun ‘

09

Nov ‘0

9

Nov ‘1

0

Nov ‘1

1

Feb '1

2

Date

Perc

ent

Pre FWA

Post FWA

Linear Trend (Pre FWA)

Source: Roy Morgan Research, Finding No. 4745, Feb 9 2012. http://www.roymorgan.com/news/polls/2012/4745/

6. ConclusionThis report has examined a range of labour market data and economic indicators during the period in which the FWA has been in force, as well as before its operation. The analysis suggests that there is little evidence to support the proposition that the FWA has improved the performance of Australia’s labour market. Productivity growth, real wages growth and employment growth have all slowed since the FWA came into effect in June 2009. By reducing labour market flexibility, the FWA has imposed significant costs on Australian businesses and workers, with no obvious gains in job security, employment growth, productivity improvements or real wage increases.


http://www.roymorgan.com/news/polls/2012/4745/

http://www.roymorgan.com/news/polls/2012/4745/

ReferencesCahuc, P. and Zylberberg, A. (2004) Labor Economics, Cambridge, MA: MIT Press. Freyens, B. and Oslington, P. (2007) “Dismissal Costs and Their Impact on Employment: Evidence from Australian Small and Medium Enterprises,” Economic Record, 83 (260): 1-15. Hopenhayn, H. and Rogerson, R. (1993) “Job Turnover and Policy Evaluation: A General Equilibrium Analysis,” Journal of Political Economy, 101(5): 915-938. Productivity Commission (2009) Australia’s Productivity Performance, Submission to the House of Representatives Standing Committee on Economics, Canberra, September.


Part C of submission of HR Nicholls Society to FWA review


Academic and Consultancy Enterprises LtdABN 71 256 187 246

Box 3140Broadway Shopping Centre

NedlandsWA 6009

February 2012

Review of Fair Work Act commissioned by H. R. Nichols Society This submission addresses four of the areas identified by the Minister for review. The primary focus is the philosophical underpinnings of the legislation and consequential

outcomes. The four areas are:1. Creation of a clear and stable framework of rights and obligations

which is simple and straight forward to understand.

2. The emphasis on enterprise-level collective bargaining underpinned by simple good-faith bargaining obligations and related powers of Fair Work Australia.

3. The promotion of fairness and representation at work.

4. Effective procedures to resolve grievances and disputes

……..

1. Creation of a clear and stable framework of rights and obligations which is simple and straight forward to understand.

1.1In our view the Act fails on this ground for a number of reasons:

The Act has an omnibus quality which militates against simplicity, clarity and stability in relation to rights and obligations.

The omnibus nature of the Act makes it unnecessarily complicated as instanced by:

o its length - over 600 pages and over 840 sections;o its structure - 6 chapters, 24 parts, 25 divisions and 22 sub-

divisions;o the need for over 40 pages of explanations and definitions in

the introductory chapter;o multiple further explanations in other parts of the Act.

Simplicity and a clear understanding are not assisted by the many objectives of the Act, some of which are in conflict with each other.


o The seven objects in Ch. 1, Part 1-1 are, in practice, 16 separate objectives.

o In addition a number of sub-sections include further objectives, for example:

‘wage objective’ (5 objectives); ‘enterprise agreement objective’ (2); ‘modern award objective’ (8); rights and responsibilities (4); right of entry (3); ‘low paid objective’ (4); freedom of association objective (4).

Chapters, parts, divisions and sub-divisions are incomplete as the result of Chapter 6 dealing with ‘miscellaneous matters that relate to other Chapters’.

The Act provides for a range of processes and potential outcomes which are not always mutually compatible.

There is a tension between the encouragement of enterprise bargaining and the co-existence of modern awards.

It is not always clear as to which ‘instrument’ (modern award, enterprise modern award, and enterprise determination or enterprise agreement) should apply.

There is no clear distinction between bargaining rights (‘interest disputes’) and agreement rights (‘rights disputes’). There is the capacity to convert the later into the former by resort to arbitration (called ‘determination’ in the Act).

The capacity for awards/agreements to be varied by determination during they currency creates an unstable framework of rights and obligations.

There is an uneasy relationship between the promotion of enterprise collective bargaining and the capacity of FWA to ‘determine’ matters.

The capacity for matters in dispute to be determined leads to a soft bargaining regime in which parties have less incentive to bargaining to conclusion in favour of third party intervention. In the view of some writers it leads to a ‘narcotic’ effect in which parties become


increasingly reliant on third parties. Other also consider that it has a ‘chilling effect on bargaining.

Unions have the capacity to intervene when they have minority membership or, in some cases, no membership at an enterprise.

Multiple-union representation persists, as do multi-award and multi-agreement workplaces.

Civil remedies are available in relation to some rights but in other cases are constrained by FWA’s capacity to intervene. This can lead to the ‘regulatory capture’ problem discussed below.

1.2 In our view a clear, simple and stable framework of rights and obligations would be better achieved by:o Subsuming parts of the Act into relevant ‘mainstream’ legislation.

These parts include:o parental leave (ss. 70-79,743-757);o transfer of business (ss. 307-320);o equal remuneration (ss. 302-306, 724, 581);o anti-discrimination (ss.153,161,195,218);o adoption-related leave (ss. 70-79);o maternity leave (ss.80);o right of entry (ss.478-504, 507-520);o OHS (ss. 494-499);o compliance and enforcement (ss. 537-572).

o Breaking the Act into a number of discrete and complementary Acts. Examples of such legislation include:

o Minimum Conditions of Employment Act, including: The National Minimum Wage (preferably expressed

as an hourly rate); Other National Employment Standards; School-based apprentices and trainees; Infirm, etc. workers; The National Labour Relations Commission; The National Award (see below).

o Collective Bargaining Act dealing with the making and variation of enterprise agreements, including but not limited to representation;


application; good faith bargaining; implied National Minimum Standard provisions; wages, hours and other conditions; flexibility arrangements; dispute settlement procedures.

o Annual and Other Leave Act, including Annual leave; Personal/Carer’s Leave ; Compassionate Leave; Community Service Leave; Public Holidays.

o Termination of Employment Act, including unfair dismissal; redundancy provisions; specific industry redundancy schemes.

o We note that there is already separate legislation relating to: Superannuation: Sex and Age discrimination; Workers’ Compensation; Long Service Leave (mining industry); Equal Employment Opportunity; Equal Opportunity for Women in the Workplace; Occupational Health and Safety; Safety and Rehabilitation; Registered Organisations; Parental Leave.

Making clearer the relationships between National Employment Standards, awards and agreements.

Reducing the central role of awards and placing greater focus on enterprise level agreements.

1.3We favour the use of more neutral language than the politically charged language of recent Acts (‘Fair Work’, ‘Work Choice’ etc.). We have used such neutral language in this submission.


2. The emphasis on enterprise-level collective bargaining underpinned by simple good-faith bargaining obligations and related powers of Fair Work Australia.

2.1 In our view the emphasis in the Act is not on collective good faith bargaining but rather on award-making/determination. This is exemplified by:

The pervasiveness of awards, including a ‘catch-all’ miscellaneous award ‘expressed to cover employees who are not covered by any other modern award’.

The all-embracing scope of awards.

The award basis for any enterprise agreements. Agreements eithero replicate award conditions, oro incorporate them with some variations, oro treat the awards as the floor in any enterprise bargaining.

2.2 The recognised features of collective bargaining include: a distinction between interest disputes (concerned with the

making of agreements) and rights disputes (those concerned with the application and enforcement of rights and obligations arising from the agreement);

employers and their employees negotiating conditions of employment unconstrained by external parties

negotiating outcomes being shaped by prevailing economic conditions and the legitimate use of duress by either party;

negotiated outcomes being the property of the parties leading to rights and obligations enforceable in civil law;

State intervention in a limited number of national interest

disputes.

If these criteria are applied to the Australian system, then it falls short of a genuine collective bargaining system, and certainly not one in which collective bargaining holds centre stage. 2.3 A number of factors give rise to the above conclusion:

The system provides for a three-tiered system of employment conditions:o the national safety net; o ‘modern’ awards;o enterprise agreements or arbitrated ‘workplace

determinations’.


Three of the instruments (national safety net, awards and workplace determinations) are under the direct control of FWA.

The three instruments above are important determinants of enterprise bargaining outcomes.

The three instruments can result in an enterprise being a multi-award/agreement workplace.

The negotiating of enterprise bargaining takes place within an award environment and in the shadows of FWA.

The tribunal’s capacity to convert ‘enterprise instruments’ into enterprise awards or modern enterprise awards thereby reducing the parties’ capacity to negotiate their own settlements.

FWA’s capacity to intervene by way of ‘bargaining related workplace determinations’ and ‘industrial action related workplace determinations’.

The capacity for awards to operate to the exclusion of agreements since only one instrument can apply to an employee at any one time.

The application of workplace determinations as if they were enterprise agreements, suggesting an inability to discriminate between the essential distinction between agreements and determinations.

FWA’s authority to displace enterprise bargaining and agreement making by determining (and varying) ‘modern enterprise awards with terms and conditions tailored to reflect employment arrangements that have been tailored in relation to the relevant enterprise’.

The purported application of enterprise agreements in areas that should be the reserve of minimum standards. This is particularly so of so-called low-pay bargaining which, in effect, is a form of arbitration.


The all-inclusive nature of awards and their capacity to standardise most employment conditions for a particular occupation or industry. There are a number of consequences:

o There is a reduction in the capacity to tailor enterprise-based agreements.

o Agreements are consigned to a form of over-award bargaining.

o Where agreements vary award conditions usually they can only do so by improving on award conditions rather than by providing conditions more in tune with enterprise requirements.

o Typically agreements either restate award conditions or merely vary some conditions.

o Agreements are not de novo instruments tailored to the needs of the enterprises in question.

o A range of matters that would optimise outcomes if they were tailored to particular enterprises are instead determined on a more general award basis, including:

job classifications; incentive systems; bonuses; types of employment; overtime rates; penalty rates; annualised wage arrangements; allowances; flexibility terms; hours of work.

Awards have ‘first occupancy rights’ and can so displace agreements in many occupations, industries and enterprises.

Awards have the effect of applying a de facto system of pattern bargaining, despite the intent of the Act to remove pattern bargaining in enterprise bargaining.


FWA has the capacity to intervene in the agreement-making process in a number of ways, thereby reducing the parties’ ownership of the agreement. Such intervention can include:

o determining agreement coverage and non-coverage;o approval or non-approval of agreements;o approval or non-approval of agreement variations;o authorisation of wage deductions;o adjudicating in ‘equivalence’ matters;o imposing ‘undertakings’;o making orders concerning the inclusion or exclusion of

particular contents in agreements;o making ‘bargaining orders’ or ‘scope’ orders concerning

bargaining;o having capacity to ‘deal with a dispute about the

agreement’;o making ‘bargaining determinations’;o making ‘dispute determinations’;o converting ‘enterprise instruments’ into awards.

2.3 In our view, a genuine system of enterprise-based collective bargaining would be best achieved by: Separate legislation providing for minimum conditions of

employment that apply to all national system employers and employees. Such legislation would include, inter alia:

o the national minimum wage, determined annually by the Labour Relations Commission;

o other national standards, determined either by legislative fiat or the Commission as prescribed by the Act;

o conditions applying to non-standard forms of employment such as school-based trainees, casual works, itinerant workers and infirm workers;

o the National Award encompassing the National Employment Standards. This award would subsume and replace the ‘Miscellaneous Award’ (MA000104).

The abandonment of awards (other than the National Award) with any NES ancillary and supplementary matters being the result of enterprise collective bargaining.

A Collective Bargaining Act based on the principles of:


o the incorporation of all National Minimum Standards;

o the sanctity of such standards subject to a no-

disadvantage test as agreed to by the parties;

o in the absence of any party agreeing on the no-

disadvantage test the prescribed standards to remain in

force;

o single unit bargaining, including single unit employee

representation;

o the right to collective representation;

o freedom of choice in respect of bargaining

representatives;

o the requirement for good faith bargaining on both

employer and employee reprsentatives;

o prohibition of secondary boycotts;

o the sanctity of agreements during their currency subject to the capacity to adjust for changes in National Minimum Standards by way of escalator clauses in the agreements or similar means;

o the right of the parties to use duress in the renegotiation

of the agreement;

o proprietorial rights in respect of the agreement to the exclusion of external parties;

o a limited, private arbitration role for the Labour Relations Commission in collective bargaining;

o a more instrumental role for the Commission in ‘national interest industries’ (see below);


o dispute settlement procedures to assist in resolving disputes concerning the interpretation/application of the agreement. Any arbitration in such procedures to be private arbitration;

o agreements becoming legal documents when signed by the parties;

o a copy of any signed agreement being centrally filed;

o the enforcement of agreement rights and obligations through civil courts without the filtering of such rights by the Commission.

2.4 The use of economic duress is a natural part of collective bargaining in those societies in which it is the main instrument for determining employment conditions. If Australia is to have a genuine system of collective bargaining it needs to reassess the conflict paradigm that has accompanied the legacy of arbitration.

The arbitration system was introduced over 100 years ago as an alternative to the ‘barbarous expedient’ of strikes and lockouts. This has led to the ‘alternative’ paradigm, one in which arbitration is considered an alternative to strikes and lockouts.

A corollary of this paradigm is that arbitration should not co-exist with strikes or lockouts.

This notion of an alternative paradigm has led to a lack of differentiation regarding where industrial conflict takes place and its potential repercussive effects on society. A strike in a chewing factory invokes the same public censor and tribunal intervention as one in a ‘national interest industry’. Such an industry is one in which a major dispute might have serious social and economic effects.

In practice, while arbitration has affected the Australian strike profile, it has not removed strike action. This has called into question the ‘alternative’ paradigm but without causing authorities to seek a different approach or paradigm.

The incidence of arbitration coupled with (rather than instead of) industrial conflict has become compounded by tribunal judgements holding that arbitration decisions are not final, and


hence bargaining is legitimate following an arbitrated ‘settlement’.

A basic concept in Australia has been that award determinations provide minimum and not maximum standards. To deny unions the right to seek over-award conditions is to treat the award conditions as maxima.

Thus, the ‘alternate’ paradigm is predicated upon contradictory premises. If, failing a settlement by the parties, the tribunal is empowered to make a final determination then that determination should be enforced in law. If, however, the award is not final, the system envisages that further collective bargaining can take place (including by using the coercive powers of bargaining).

In the past two decades, as politicians from both sides of politics have sought to change the centralised arbitral system to one of more flexible enterprise outcomes, there has not been any significant paradigm change regarding the use of economic duress. Thus, the system expects genuine and good faith bargaining to take place, but places restrictions on the capacity of parties to enforce their bargaining power through duress.

The outcome is usually an arbitrated (and temporary) ‘settlement’ with little ownership by the negotiating parties.

Both employer and unions have sought tribunal intervention when it has suited them. One result has been a ‘soft’ bargaining regime since the parties are not required to bargain to finality.

Indeed in the Australian context, and for reasons already alluded to, there can be an inversion of the role of bargaining and arbitration. Instead of arbitration following bargaining, it can often precede it.

The advent of ‘protected’ action is an important step in the development of genuine bargaining. However, while protected action is highly circumscribed it will not lead to the development or acceptance of a new paradigm concerning strikes and lockouts.


Save for national interest industries , our view is that the capacity for any labour relations commission to intervene in the negotiations of agreements by terminating ‘protected action’ is neither warranted nor beneficial to good outcomes that reflect enterprise conditions (either favourably or otherwise for employees).

2.6 We suggest that agreements should: Be the primary instrument for determining employment

conditions above the determined National Employment Standards.

Require bargaining to commence at least two weeks before the termination of any current agreement.

Provide for an automatic period of eight weeks following the termination of the agreement during which economic duress is permissible.

Provide for the Commission, at the request of at least one party, to seek to facilitate a settlement through mediation.

Provide for the Commission to determine the matters in dispute only by way of private arbitration (that is, with the consent of the parties who give an undertaking to abide by the determination).

Provide for mediation and private arbitration by a person or persons other than the Commission.

Provide that, save for escalator clauses relating to the variation of National Employment Standards, the agreement cannot be varied during its lifetime.

Provide for the use of civil remedies in instances where parties do not abide by the agreement conditions (in the case of employee-initiated cases, including access to legal aid).

2.7 Most collective bargaining regimes while more tolerant or accepting of strikes and lockouts as a part of agreement making, nevertheless are aware that some industries are of national importance and restrictions should be placed on strikes and lockouts which are likely to have a major impact on society and/or the economy. We would suggest a similar approach in Australia shaped by the following considerations:


Contrary to the present (implicit) situation, only a small and select number of industries ought to be considered as ‘national interest industries’.

While most of the bargaining procedures and conditions suggested above would apply to these select industries, subject to a minimum period of two weeks the period during which economic duress can be used would be reduced.

The Commission would seek a resolution of outstanding issues following the permissible period of economic duress (a) if one of the parties requested Commission intervention, or (b) if the Minister requested such intervention.

The Commission would seek a resolution through mediation but in the event of an impasse would be authorised to determine outstanding matters.

The Commission’s determinations would be final and enforceable.

Parties could seek civil remedies for any breach of the agreement, including determined matters.

3. The promotion of fairness and representation at work

3.1 A collective bargaining regime, by definition, involves collective representation on the part of employees.

As in most industrialised societies, collective representation in Australia has been by way of unions, anachronistically still referred to as ‘trade’ unions.

This creates difficulties in situations in which, for whatever reason, unions represent only a small portion of the workforce.

This is the Australian situation. The last union survey (August 2010) suggested that only 14% of the private sector and 41% of the public sector were unionised. Thus the majority of workers, and the vast majority of private sector workers, do not belong to a union.


The Act (s176) provides that an employer covered by the agreement is a bargaining representative for the agreement. In relation to employee representation the section provides:

‘(b) an employee organisation is a bargaining representative of an employee who will be covered by the agreement if:(i) the employee is a member of the organisation; and(ii) in the case where the agreement is a multi-enterprise agreement in relation to which a low-paid authorisation is in operation – the organisation applied for the authorisation;Unless the employee has appointed another person under (c) as his or her bargaining representative for the agreement, or has revoked the status of the organisation as his or her bargaining representative for the agreement …. or(c) the person is a bargaining representative of an employee who will be covered by the agreement if the employee appoints, in writing, the person as his or her bargaining representative to the agreement.’

The section further provides that: ‘Despite subsections (1) and (2), an employee organisation cannot be a bargaining representative of an employee unless the organisation is entitled to represent the industrial interests of the employee in relation to the work that will be performed under the agreement’.

These provisions are not problem-free in the promotion of genuine enterprise collective bargaining:

o the Act is predicated on unions being the major instrument of employee representation despite low levels of unionisation;

o the provision for multi-organisation representation reduces the capacity for single unit bargaining;

o union membership/representation is predicated upon registration provisions that can deny choice to employees (see below);

o the capacity for individuals to represent themselves (in the enterprise agreement) is a contradiction of the term ‘collective’ bargaining.

The provisions of the Act, together with the provisions of the Fair Work Australia (Registered Organisations) Act 2009, continue to perpetuate problems concerning voluntary membership and representation:


o The registration provisions, with their demarcation of areas of union coverage, leave an employee with only one choice – to belong to the union he/she must belong to, or not to be a union member.

o The above can reduce union representation where individuals believe the union they must belong to has different interests and priorities to their own, or have different ideologies.

o In areas of (illegal) closed shops (e.g. stevedoring) unions not only have sole representative rights but also a capacity to deny employment to others in the industry.

o The most recent union survey suggests 1.4 million employees who had previously belonged to a union no longer do so. Most of these had been union members in the previous five years.

o Though the reasons union defection are manifold, we suggest that the lack of real choice of organisation is a factor. This is not to suggest multiple union coverage of particular occupations. It is to suggest a need for the capacity of employees to form unions more relevant to their own employment.

o The ‘conveniently belong’ provisions attached to union registration (currently s. 9 (2)) make it all but impossible for new unions, representing new areas of industrial undertakings, to come into being.

o Instead, the contest between existing unions to ‘cover the field’ results in employees being treated as little more than commodities to be allocated on the basis of convenience to the existing organisations and system.

o In effect, new employment areas are subsumed into existing organisations which employees may consider irrelevant to their employment.

o The union movement will become fossilised if new unions, relevant to the needs of new employment areas,


are prevented from coming into being. This will be to the detriment of collective bargaining.

o In addition, the consolidation of unions in recent years, though it may have some benefits in terms of efficiency, has resulted in more bureaucratic unions with reduced plant-level ownership.

o There are only 38 interstate federally registered unions to which national system employees seeking union membership must belong.

o Over half of these federally registered unions (18) enrol employees in a particular occupation (e.g. aircraft engineers, maritime officers, flight attendants, pilots, writers, nurses, musicians etc.).

o A further 11 unions are industry-based unions (e.g. education, electrical trades, finance, retail etc.).

o Seven unions are conglomerate unions. These have usually resulted from a number of unions merging on the basis of ideology rather than industry affinity.

o Conglomerate unions enrol in a variety of industries and occupations as instanced by some of their names: AMWU (registered as the ‘Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union’); the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union; and the Construction, Forestry, Mining and Energy Union).

o Conglomerate unions cater for a large proportion of union members.

o If the intent of ‘convenient belong’ regulations is to prevent demarcation disputes, this has not been achieved as instanced by the recent protracted West Gate dispute. It will be noted that two of the conglomerate unions named above seek to cover ‘Energy’.


o There are two registered enterprise based unions.

o Many occupations and industries are not represented. In the absence of new organisations being able to come into being, union coverage must become even more stretched and divorced from employees’ enterprises.

The above array of union structures is not an ideal one for enterprise bargaining. All but two unions recruit members from more than one employer or industry and, particularly in the case of conglomerate unions, may have little understanding (or possibly interest) of particular enterprise undertakings .

Unions that straddle industries and employers are more likely to be concerned with standardisation and uniformity, in effect pattern bargaining.

Fairer enterprise representation could be better achieved by enterprise registered unions but the onerous registration requirements may discourage such registration. We note that only one enterprise organisation has sought registration since 2009 and that this matter is not yet concluded.

3.2 In our view fairer collective representation would be achieved by:

o A serious overhaul of the registration provisions for unions, in particular the capacity of existing unions to shut out new unions.

o The easier accreditation of enterprise unions or representative groups. The requirements for accreditation, in our view, should be no more onerous than the incorporation of associations such as social clubs. As with other associations they would be governed by the relevant Department of Consumer Affairs (or equivalent) rather than FWA.

o Single bargaining units determined by the employees of the enterprise(s) concerned by way of a vote.

o Those seeking representation rights could include unions, enterprise associations, a representative bargaining group, or an amalgam of all or some of these.


Only one of these would be elected to represent the workforce in question.

o If necessary, the Australian Electoral Commission would conduct the ballot.

o The representative organisation would have responsibility for bargaining as well as the ongoing processing of the agreement until the next bargaining phase when an election could again take place.

o Conduct by other parties designed to frustrate single representation could result in civil remedies.

o Employers would be required by the Act to engage in good faith bargaining.

o The employee representative entity would be required by the Act to engage in good faith bargaining.

4. Effective procedures to resolve grievances and disputes

For many years national industrial relations legislation has sought to provide for effective procedures to resolve disputes and grievances. The current Act is no exception and, as with previous legislation, provides a model framework for dispute resolution.

The application of such dispute settlement procedures, in the award area at least, is hampered by an industrial relations system which since 1914 has treated awards as not final but rather as providing for minimum standards thus allowing for over award negotiations.

As a result, there is a blurring of the distinction between interest and rights disputes since awards could be varied during their currency. In effect, these awards do not have a definite period of operation.

Until recently there has also been reluctance by employers to resort to civil remedies. The avenue of redress for breaches of awards (in some cases mandated by legislation) was through the Commission.


Unlike courts of law, the Commission is an active party in the industrial relations system. It is expected to be independent of the other parties but is subject to ‘regulatory capture’.

The regulatory capture thesis suggests that regulatory agencies established to regulate the relationship between parties in the public interest end up being ‘captured’. Over time they come to advance the interests of those regulated rather than the interests of the public.

An example of the above would be an Egg Board that prevents new entrants into the industry and thus helps push up the price of eggs.

There is evidence of the Commission lending support to the regulatory capture thesis in the past and seeking to ‘settle disputes’ irrespective of the merits of the claims advanced by other affected parties. Perhaps the example par excellence continues to be the Laidley dispute.

To the extent that the capture thesis operates, restricting parties’ direct access to the civil court can reduce their rights in law. The Commission can be more concerned with ‘fixing the problem’ then allowing the parties to exercise their rights.

The exercise of such rights in law can provide a deterrent from similar conduct in the future; the ‘fix it approach’ can encourage similar future conduct.

For this reason we believe that the Commission should not have a role in the administration of rights disputes (i.e. over the interpretation and application of awards/agreements) other than by way of mediation and private (voluntary) arbitration.

We also are of the view that the Commission’s role over interest disputes (the making of awards/agreements) should be constrained.

As noted, we are of the view that the use of duress during the making of agreements (subject to the caveats we have suggested) should be permissible and that such duress is more likely to result in outcomes that better reflect prevailing economic forces than third party adjudication.


The use of ‘determinations’ in the making of awards and agreements reduces the role of economic forces and the parties’ ownership of the contract. This can reduce their concern for the obligations imposed by the contract.

The legislative imperative for grievance settlement procedures in awards and agreements is to be supported. However, such procedures are ineffective if unsolicited third party intervention remains possible. In such cases the parties can bypass dispute settlement procedures in favour of tribunal determinations.

Typically award provisions provide that FWA can make a final settlement. The standard wording in awards is ‘ Where the matter in dispute remains unresolved, Fair Work Austria may exercise any method of dispute resolution permitted by the Act that it considers appropriate to ensure settlement of the dispute’ ( e.g. General Retail Industry Award (s. 9.4), Building and Construction General On-Site Award (s. 9.4) and Miscellaneous Award (s. 9.4)).

Since awards underpin enterprise agreements the above provisions usually also apply to relevant enterprise agreements.

In summary, we would recommend a system which: Clearly differentiated between interest and rights disputes.

Does not allow for the conversion of rights disputes into

interest disputes.

Reduces the role of third parties in collective bargaining.

Provides for dispute settlement procedures.

Removes compulsory arbitration from dispute settlement other than in national interest industries.

Allows free access to civil remedies for breaches of

agreements.

Professor D. H. PlowmanACE Consultant


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