Industrial relations law reform – What value should be given to stability?

This article ¹ is principally about past reform of the industrial relations system, whether further reform is needed and whether the way in which industrial relations policy is formulated is capable of producing a durable system which serves our long-term economic and social objectives.

It is suggested that Australia needs a stable and therefore predictable industrial relations framework which serves our long-term goals and enables business, both here and overseas, and other stakeholders to make strategic decisions with some confidence that the key elements of the system will not change. Industrial relations policy makers emphasize the need for change. They rarely advocate stability in our industrial relations system. Stability is important from an economic and social viewpoint, but is not always given a high value by union and industry representatives or by political advisers. After two decades of change, a great deal of which has been beneficial, further change is unlikely to lead to a net benefit for our economy unless there is an improved policy formulation process in which stability is a principal objective. This is not to suggest that other considerations such as improving productivity and efficiency and providing more secure and better paid employment are not important in policy formulation – clearly they are. But, as argued later, change involves significant costs. Those costs should be taken into account when assessing proposals for reform. Priority should be given to changes which are likely to be enduring. In this context, a broadly based inquiry into the industrial relations system which gives a high priority to stability in the system has the potential to result in sound policy proposals.

Twenty years of reform

Over the last 20 years, we have seen successive waves of reform. There were major legislative changes in 1993, 1996, 2005 and 2009. There have been many other less ambitious changes and unsuccessful attempts by Governments to get bills through an unsympathetic Senate.

What are the reasons for this ongoing restlessness about the industrial relations system? There are a number of them, but the underlying issue is the extent to which the system should limit the freedom of action of employers and of employees and their representatives – the trade unions. The importance of award and agreement wages and conditions both for employees, so far as living standards are concerned, and for employers, so far as labour costs are concerned, are central considerations but by no means the only ones. What rights should trade unions have and what should the boundaries of collective action be? What protection should the system provide to employers who are pursuing their legitimate business or other objectives and how should these rights be reconciled with the workplace rights of employees? These are all important matters. The way in which they are dealt with can influence the health of our society through the effect on economic growth, employment, incomes and the quality of working life.

The significant developments in industrial regulation can be identified by looking at the principal effects of the four major reform Acts.

The 1993 Act moved the system away from centralised fixation of wages and conditions and set it on a path towards bargaining over wages and conditions at the single enterprise level above a safety net of minimum wages and conditions set by awards. The Act was important for at least two other reasons: first, because it introduced the concept of protected industrial action and second, gave dismissed employees a right to claim remedies for unfair dismissal. ²

The 1996 Act limited the number of matters that could be included in awards, reinforced the minimum character of award conditions and established a program for simplification of award content. The options for bargaining and individual agreement making were extended, in particular by the introduction of Australian Workplace Agreements. ³

In 2005, the industrial dispute power was discarded and the corporations power became the main basis for industrial regulation at the federal level. Corporations which had previously been covered by State awards and agreements were taken into the federal system for the first time. Award conditions other than minimum wages were frozen. New forms of direct regulation of conditions were introduced and arrangements relating to bargaining, industrial action and individual agreements were also altered significantly. ⁴

The Fair Work Act 2009 extended the use of the corporations power and entrenched a system of enterprise bargaining based on minimum conditions in legislated National Employment Standards on the one hand and modern awards on the other, covering eventually almost the whole of the private sector. The scope for compulsory arbitration was extended in some areas, and some existing workplace rights were re-enacted and some new workplace rights created.

It is not practical to detail all of the legislative changes over this period. There are four overriding developments or trends which provide a useful basis for analysis. They are the use of the corporations power, the rise of individual remedies and processes, the changed role and importance of registered organisations and the reduction in access to compulsory arbitration.

The use of the corporations power

The use of the corporations power underpinned the most significant change in the industrial relations system since Federation. It has enabled the creation of a national workplace relations system and removed jurisdictional obstacles to the operation of that system. Technical arguments about jurisdiction, which were often a prelude to proceedings in the Australian Industrial Relations Commission, have reduced in number and in some areas disappeared entirely. Arcane debates about the existence of an industrial dispute are a thing of the past.

We now have a national system for employers and employees in the private sector, except for employees in the non-corporate sector in Western Australia, involving minimum standards contained in a set of around 120 modernised awards and the National Employment Standards. These changes have eliminated inconsistency based on State boundaries and reduced inequality in basic wages and conditions of employment.

Awards as we know deal with minimum wages, hours of work, overtime and penalty rates and a number of other matters. Necessarily, there are various transitional arrangements designed to cushion the impact of the rationalisation of a wide range of sometimes inconsistent provisions in a multiplicity of federal and State awards. Subject to those arrangements, which will conclude on 1 July 2014, the award system is fairer, more efficient and far simpler to administer. There are significant associated savings in time and resources.

The National Employment Standards (NES) constitute the other main component of the safety net for employees. They deal with various forms of leave, public holidays, and a number of other matters. The NES are legislated directly by the Parliament and are in the Fair Work Act itself. This method of standard-setting has a number of implications. Debate about some minimum standards, and some other matters traditionally dealt with by awards but now in legislation, has become highly politicised. There have been recent examples in relation to right of entry and parental leave in the private sector. Altering legislated standards is usually quite difficult, arguably more difficult than making and justifying an application to an industrial tribunal in the context of a test case. The ability to change legislated standards will depend on political dominance, or at least the achievement of political compromise. This contrasts with the arbitral model in which standards are altered based on a balancing of interests.

Finally, the legislation is now far more prescriptive generally. Although the tendency towards a more prescriptive approach predates the use of the corporations power, the use of that power has certainly coincided with a further significant increase in prescription. The functions the Commission can carry out and the powers it can exercise are narrowly defined and hedged around with conditions, criteria and other limitations.

Individual remedies

The development of individual remedies and processes in the federal system is almost old news. Although union members had always been protected against discriminatory behaviour by employers, there were very few other individual rights. The federal system was only open to employees through membership of registered organisations and even the ability to enforce awards required union membership. The trend towards formal recognition and protection of individual rights probably started with the development of anti-discrimination law, but really got underway in the industrial relations system 20 years ago when remedies for unfair and unlawful termination of employment were introduced. Since then we have seen an increasing emphasis on individual rights, including the protection of workplace rights through creation of the general protections jurisdiction. The most recent development is the introduction of anti-bullying remedies on 1 January 2014.

Statutory individual contracts were available between 1997 and 2009. At the present time they are not, but modern awards and enterprise agreements provide for some individual arrangements through individual flexibility agreements.

Finally, enterprise bargaining, once thought to be the preserve of unions, is open to individual employees, regardless of whether they have a union affiliation, through that peculiarly Australian invention – the non-union collective agreement. An employer can put forward an agreement for the approval of the workforce, subject to the observance of good faith bargaining obligations. If a majority of the voting employees accepts the terms proposed, an agreement is made. Under current arrangements relevant unions can become covered by the agreement, even though they may not have been directly involved in its making, which brings me to the next matter: the role of registered organisations.

The role of registered organisations

Registered organisations are no longer dominant participants in the industrial relations system. While organisations still enjoy privileges under the Act⁵ in relation to awards and agreements and have significant representative rights, they do not have the near monopoly over representation and access to the Commission or to the system generally that they once had. In most cases registered organisations were accepted as the representatives of employees, although individuals could appear in proceedings, and often did so in National Wage hearings and similar cases. Individual employees now usually have direct access to the Commission and the industrial relations system. For example, employees can take action to enforce the NES and the terms of awards and agreements, regardless of union membership.

Another important change is that the modern award system is not legally dependent on registered organisations. Modern awards were created and are maintained principally because of obligations placed on the Commission itself. The Commission is obliged to conduct periodic reviews of modern awards conditions. No application is required – and any interested person or body, including but not limited to registered organisations, can be heard in relation to the review. Though they play a very important role in maintaining and improving minimum conditions in modern awards, registered organisations are not named in the awards. Organisations may apply to vary awards between reviews, but so can individual employees. Whatever objections might still be taken by some employers to the role of organisations, monopoly rights of representation, access and enforcement are largely things of the past.

The reduction in compulsory arbitration

A controversial issue since the inception of our industrial relations system has been the nature of the compulsory powers to be exercised by the Commission and its ancestor bodies. In talking about compulsory arbitration I am not including the many situations in which the Commission exercises a power of private arbitration by agreement between the parties. After reaching a kind of peak towards the end of the last century, the Commission's powers of compulsory arbitration were significantly reduced by the 1993 and 1996 Acts. The main area for compulsory arbitration was the power to make and vary awards containing minimum wages and a limited number of conditions. Apart from that the Commission could only arbitrate where enterprise bargaining was unsuccessful and protected industrial action was threatening the public interest in specified ways. The position was virtually unchanged until the 2009 Act, when the power to make a workplace determination was extended to cover low-paid employees in certain circumstances and to situations in which a negotiating party is in serious breach of a good faith bargaining order. There have been recent, unsuccessful, proposals to give the Commission powers of compulsory arbitration in two additional situations: to arbitrate the terms and conditions to apply to greenfields sites where the employer and the relevant unions are unable to agree and to settle so-called intractable disputes.

It is worth observing in passing that since 1996 the range of matters which can be included in awards has been a fertile field for policy legislation – contracting in 1996 and 2005 and then expanding again in 2009.

Although I have been referring to the reduction in compulsory arbitration, it should be remembered that until relatively recently conciliation was also compulsory in relation to industrial disputes. Parties were obliged by the legislation to notify the Commission if they became aware of an industrial dispute. The Commission could call the parties together and had powers to compel attendance at a conciliation conference. Many industrial disputes were resolved in this way, without the need for arbitration. While the Fair Work Commission (FWC) still has the power to compel attendance, it is subject to limitations.

Is there a need for further reform?

Is there a need for further reform? At one level the answer to that question must be yes. Society is always changing, and to be effective the legal framework must also change and keep up to date. The liberalisation of labour market regulation in the early to mid-1990s is a good example of the Government of the day responding to changing domestic and international economic conditions. However, it might also be said that after four major reform Acts in the last 20 years, further change should be approached with some caution. There are good reasons to be cautious. Let me suggest some.

First, reform has a cost. There are significant transaction costs associated with changes (and attempted changes) in labour legislation. There is the cost of consultation at many levels: for example, the internal deliberations of various representative bodies, Governments, community organisations and special advocacy groups. Lobbying, including representations to Government and Opposition parties, is not cheap. There can be public relations and advertising costs of various kinds. Then the cost of the Parliamentary process itself, including legislative drafting, the production of the associated Parliamentary materials and sitting time, needs to be considered. Should laws be changed there are usually significant implementation costs. In recent memory very large amounts of money have been spent on changing staffing and other public service arrangements in response to legislative change. There are other implementation costs related to compliance, including public information campaigns and industry education. Employers can incur staff training, legal and other consultant costs. Not all costs are measurable in financial terms. For example, significant amounts of management time can be directed to dealing with legislative proposals.

Apart from costs of this kind there are some other reasons to be cautious about further attempts at reform. When legislative change is proposed all of the steps along the way, from policy formulation, drafting, public debate and so on through to implementation in some cases and abandonment in others, can be a distraction which displaces more productive activities.

Most of the issues which are debated are not new and there can be an ebb and flow of regulation which has a repetitive element. Changes in the way unfair dismissal laws apply to small businesses provide an example of this pendulum effect. Since 1996 there have been changes on a regular basis, swinging from one side to another, and there is no guarantee that the current provisions will not be altered when a Government gets the opportunity. The history of right of entry is another example. In proceedings in the first Pastoral Industry Award as long ago as 1906, Justice O'Connor dealt with a claim for accommodation in connection with right of entry for union officials to remote pastoral properties – a claim which has echoes in the recent amendments to the Fair Work Act. Policy debates about the priority to be given to individual contracts on the one hand and collective agreements or awards on the other did not start with the introduction of Australian Workplace Agreements (AWAs) in 1996 or the individual contract disputes of the early 1990s, but pre-date Federation. Penalty rates are another issue which comes to a head on a regular basis then subsides. The list goes on. While the importance of these issues cannot be disputed, the achievement of enduring solutions does not seem to be a priority.

The policy formulation process

It seems legitimate to ask whether our policy formulation process serves our economic and social objectives as well as it might. One aim of policy is to improve economic and social conditions, yet it seems that when it comes to the industrial relations system, the debate is generally narrow and politicised and, to some degree, simplistic as well. The result is that a reform bill pops up whenever the numbers in Parliament are favourable and sometimes when they are not. The creation of a durable system, reducing the frequency of change and permitting the users of the system to reap the benefits of a stable legislative regime, does not seem to be a policy objective.

But if it is accepted that greater stability is a desirable goal, what are the obstacles to achieving it? There are a number of factors. I mention some which appear to me to be important.

The first one is the alignment of the major political parties with the major interests in industrial relations. While this is not unexpected, it can be an impediment to good policy. Governments tend to be the patron of one side or the other and to give the perception of favouritism on important policy issues. The peak bodies are drawn into the workings of Government, depending on which Government it is, and their representatives may even have worked in Government policy roles or may be potential candidates for seats in Parliament. Politics is always an element in policy debates, but it seems to play a disproportionate role in relation to workplace relations policy.

A second factor is that many opinion leaders, because conflict between employer and employee interests is inevitable, find it difficult to function without an adversarial mindset. The unions/employers/Government, depending on the alignment of the body in question, are hostile forces that must be engaged in combat. If you are an officer of an organisation you may well be judged on how well you fight. Of course there are legitimate areas of disagreement, and resolution can be very difficult. But a predisposition not to agree is a major obstacle on policy issues, just as it is on disputes about wages and conditions.

A third and related factor is that the process for policy formulation is, with some exceptions, based on policy differentiation. At the political level, it is seen as important to provide an alternative to current arrangements to attract the support of those voters who are dissatisfied with them. Office holders in many representative organisations tend to demonise opposing industrial interests. One of the by-products of this environment is a widespread almost systemic distortion and magnification of the potential disadvantages of proposals advanced by policy opponents. Exaggeration and misrepresentation are not uncommon. To give an example, there was a case in 2011 involving the Transport Workers' Union (TWU) and a company called J J Richards & Sons Pty Ltd. ⁶ It concerned a union that wished to negotiate an enterprise agreement and an employer who would not agree to bargain. The TWU wished to take protected industrial action to encourage the employer to agree to bargain. When the Commission and the Federal Court upheld the TWU's right to take protected action in those circumstances, the decision was widely described by its critics as the ‘strike first negotiate later’ decision. This description carries the implication that the TWU preferred to strike rather than to negotiate. That implication is plainly inaccurate as it was clear that the TWU wished to commence bargaining, but the employer did not. The error has been widely adopted. This kind of thing is not new, nor is it confined to one side. The point is that when sloppy use of language, sloganeering and political point-scoring infect the policy formulation process they obscure the issues, deepen divisions and ultimately affect the quality of outcomes.

Examples of real cooperation in industrial relations policy are relatively few. Employers and unions have been able to reach a common position in relation to matters such as discrimination, workers with disability and some training issues. The recent amendments dealing with bullying are also in this category. Perhaps the intensive Government-sponsored consultation process in relation to the drafting of the Fair Work Bill in 2008 should also be mentioned. Participants generally appreciated the opportunity to have direct input, and it is likely that the process resulted in a number of contested issues being resolved when they otherwise would not have been.

Is there a way forward?

I have suggested that further reform should be approached with some caution and that there are significant obstacles to the development of policies which will lead to a more stable system in the long term. Are there improvements which can be made in the policy-making process which might lead to better outcomes? In particular, is there an approach to policy formulation which can provide greater long-term stability?

There are some deep-seated differences in the positions of the major interests, but many of the fundamental elements of the system are widely accepted. Policy differences tend to be at the margins or to be based on special pleading. There are some proposals for radical reform it is true, but extreme positions seldom provide a sound basis for change. Policy cannot be based on the views of the outliers at either end of the spectrum.

There is a realistic chance of identifying significant common ground if parties adopt the objective of a more stable workplace and industrial relations system. While complete agreement cannot be achieved, attempting to narrow the areas of difference would be a good start. It will take strong leadership from employers and unions, and Government, to shrug off the dispute culture and the political influences – which are both deeply ingrained.

A broadly based inquiry has the potential to result in sound policy proposals. The prospects of it doing so would be enhanced if there were some consensus about the terms of reference and who is to conduct it. The terms should be broad enough to encompass agreed economic and social objectives such as growth, inflation, productivity, employment and income levels. The recent Review of the Fair Work Act was limited in scope and was not embraced by some of the major interests, who tended to pick and choose the recommendations that suited them, rejecting the rest. ⁷ It would be desirable that the composition of the inquiry and the terms of reference, as far as possible, be negotiated or at least the subject of consultation with the major interests.

The Australian economy has proved to be extremely resilient over the last 20 years and robust enough to protect us from a number of external crises. A commonly asked question is how long can it last? Others can give a better assessment than I, but there is no doubt that the nature of our industrial relations system has the potential to affect economic performance and therefore living standards. There are signs that, increasingly, economic conditions are likely to provide an incentive for representative bodies on both sides to work more constructively to increase national prosperity. The stability of industrial relations regulation is an important element from that point of view. It might be better to make a start in the common pursuit of a more stable system now rather than wait for a significant negative shift in economic fortunes.