Battlelines Drawn for Workplace Relations Review

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Initial submissions to the Productivity Commission’s review of the workplace relations framework have already drawn battlelines for the fight over Australia’s future workplace relations environment.

While (as in previous reviews) employers and their collective organisations tend to focus on the end of the mining boom, stagnant multifactor productivity, high unemployment and reduced demand for businesses, unions focus on acknowledgement of protracted increases in labour productivity, the stagnant employee share of total factor income, long hours, high levels of casual work and low levels of industrial action.

Competitiveness Concern

The biggest concern for employer groups was Australia’s performance in the World Economic Forum’s latest global competitive index – it has fallen to 22nd place in 2014-2015 from 15th place in 2009-2010. Australia’s drop in rank in the Labor Efficiency Pillar of the index that were comparable over that time period is depicted in the graph below.

Australia's competitiveness on Labor indicators

The general consensus among employer groups is that something needs to be done to address this slide or risk Australia’s living standards. A survey of Directors conducted by the Australian Institute of Company Directors and King & Wood Mallesons highlighted industrial relations laws and issues, including union influence, as one of the top five regulatory challenges in 2015 for the organisations of which they were a Director.

Egan Associates believes it is important to improve Australia’s competitiveness but also believes that the workplace relations system must maintain an overriding principle of fairness in the context of the contemporary world economy.

A summarised version of the arguments revealed by submissions to the Productivity Commission’s review are outlined in the sections below:

Safety Net and the Minimum Wage

Although unions and employee groups don’t see eye to eye on everything, there is general acceptance that regulations need to specify a safety net to ensure workers are not exploited. Both unions and employers also appear agreed on the need for a minimum wage. How high this minimum should be is more contentious.

Employer views
  • Increases should be modest in the current economic environment as it places stress on businesses that face other headwinds.
  • Increases in labour productivity should be considered when making the decision.
  • A genuine safety net should not require multiple levels of minimum wage.
Union views
  • Wage inequality has been growing and the labour share of total factor income has been falling.
  • A safety net should not be contingent on productivity.
  • Low minimum wages impact women disproportionately and the gender pay gap has been growing.

This year’s minimum wage determination process is currently underway. Egan Associates will be publishing an article on the submissions later this week.

System Complexity

There is general recognition (with exceptions) that the current system is complex, both for employers and employees and their representatives.

Employer views
  • Simplification of the workplace relations system is urgent. With overlapping awards, standards and agreements, it is difficult to understand exactly what employees are entitled to. In some cases awards even contradict the Fair Work Act.
  • Small businesses in particular are finding it difficult to know which awards their employees fit into, given their employees must generally  have a wide set of skills even in their small ecosystem.
Union views
  • The award consolidation that has already occurred (from over 1000 awards to 122) has led to businesses struggling with the adoption of new streamlined awards.
  • The current industry-specific awards exist for a reason and have been reviewed on multiple occasions. Their alteration would only have a detrimental effect.

Small businesses may approve of the Business Council of Australia’s submission, which lays out a path to a simpler workplace relations framework. Its suggested framework has three tiers — safety net provisions (including the minimum wage order and awards), employment agreements (for matters pertaining to the employment relationship) and business and management decisions (not subject to negotiation).

The minimum wage order would include national rates for casual, overtime, penalties and shift work. The awards would contain only 10 minimum standard clauses, for example hours of work, maximum hours per week and meal breaks. A process should be started to consolidate 122 awards into a single award per industry.  Any non minimum standards should be dealt with in employment agreements. Ideally, in time, there would be one standard award.

Similar simplification has also been championed by the Australian Chamber of Commerce and Industry which would like awards to only handle rates of pay with conditions to be set in employment agreements as well as the Australian Industry Group, which believes awards should be abolished in favour of expanded National Employment Standards. Alternatively, it believes all matters handled within the NES should be removed from awards, such that the latter is only comprised of matters that must be set on an industry specific level.

The BCA and other industry groups may encounter resistance to their simplification plans: the CPSU (Community and Public Sector Union) writes in its submission that the government’s attempts to remove clauses from employee agreements that are covered elsewhere have been particularly contentious for employees “because having conditions, rights and entitlements enshrined in their enterprise agreements is important to workers”.

Acknowledging both business’ desire for and union concerns about simplification, Egan Associates would note that there are a number of variables that need to be considered when determining appropriate pay for an employee including the type of work, the sector or industry, working environment and location (regional, remote, urban, offshore).

Bargaining

There is some agreement around increasing access to arbitration where bargaining is not progressing. There are multiple points of contention.

Employer views
  • Protected bargaining should be limited to matters pertaining to the direct employment relationship
  • Sunset provision for expired enterprise agreements after which agreement falls back on award
  • Tighter majority support requirements
  • Ban pattern bargaining
  • Make it easier for employers to make greenfields agreements: not mandate union involvement and also have a deadline after which the process passes to arbitration
  • No industrial action before the commencement of bargaining and none if the claims are excessive.
  • Voluntary bargaining instead of mandatory collective bargaining.
  • Restrict the availability of industrial action, including the exclusion of bogus safety disputes
Union views
  • More relaxed majority support requirements
  • Pattern bargaining is useful for small business that don’t have the resources for negotiations
  • Avenues of arbitration where employer delays the start of bargaining
  • Matters that can be included in agreements should be expanded to include anything the employer is willing to put in
  • Employers should be forced to come to greenfields bargaining in good faith
  • Good faith bargaining should be expanded from its current process focus to be a genuine intention to conclude an agreement
  • Decrease the degree of prescription around industrial action — it is currently excessive and is inconsistent with Australia’s international obligatons

Individual versus collective agreements

Employer views
  • Employers should have the flexibility to enter into individual agreements or collective agreements without union participation, as long as these were subject to minimum standards.
  • Since mandatory bargaining was introduced, Australia’s competitiveness has reduced, as noted above.
Union views
  • Individual agreements are only suitable for certain types of employee. For the rest of them the power imbalance between employers and employees is too large.
  • Common law is not adequate as a safety net.

Penalty rates

Employer views
  • Reduce allowances and special rates because:
    1. Penalty rates deter employment and result in the closure of business over key periods
    2. Rates are no longer relevant in a 24/7 economy with a lower number of Church observers
    3. Rates restrict the ability of employers to hire employees at the times most needed — tourism and clubs associations focused on this in their submissions
  • Penalty rates should be the result of bargaining, not awards — employees can decide how much working unsociable hours are worth to them.
  • At the least, penalty rates should be reviewed on an award by award basis to best fit the needs of the industries concerned.
Union views
  • Penalty rates are a necessity not a luxury — research from the University of SA was quoted revealing that those relying on penalty rates are likely to be single parents, women or households with income of less than $30,000.
  • ANU’s Centre of Epidemiology and Population Health published research stating that unsociable and long hours have adverse consequences including low levels or poor quality of sleep, physical or psychological disorders and poor eating habits.  Employees have trouble organising shared meals and physical activity with others, which protect health.
  • Workers won’t be able to turn down unsociable work in the current unemployment environment — there simply aren’t other jobs to move into
  • Individual agreements that traded away penalty rates under Work Choices led to insufficient payments to compensate for lost entitlements.

Productivity

Employer views
  • Productivity terms should be mandatory in enterprise agreements
  • Increasing productivity is the best path to higher wages, especially given falling terms of trade. In an AI Group CEO Business Prospects survey, only 8% of businesses reported an increase productivity for 2014. Of those with increases, 18% were due to restructuring, 13% due to increased capital investment, 11% due to higher demand and 9% due to increased staff skills and capabilities.
  • Productivity increases are often opposed by unions when they are expected to have an adverse effect on number of employees or employee hours.
Union views
  • It is often capital productivity and not labour productivity that is the problem in businesses.
  • Changes to productivity via employment agreements is overshadowed by other factors such as currency fluctuations, taxation policy and the head office investment strategies of global producers.
  • Too often productivity is about removing staff and reducing conditions and not real drivers in productivity such as investment in skills and systems.
  • Rising work intensity increases the risk of anxiety and depression.

Individual Flexibility agreements

Employer views
  • Provide non-monetary benefits with appropriate weight when considering whether agreements meet the Better Off Overall Test (BOOT) (legislation currently before parliament will implement this)
  • These agreements require resources to negotiate so they should need mutual agreement to terminate
  • They should be able to be a condition of employment
Union views
  • The award system has inherent flexibility, it doesn’t need individual agreements, which are divisive by their nature.
  • These agreements should not be able to be a condition of employment as the vast  majority of employees don’t have the power to determine agreements that are beneficial to them.
  • Allowing the BOOT to take account of on-monetary compensation would lead to uncertainty, exploitation and undermine the safety net.

Unfair dismissal

Employer views
  • Introduce penalties or costs for vexatious claims — FWC statistics were quoted stating that almost 90% of applications leading to a decision are dismissed.
  • Introduce further defences for employers (eg having a valid reason for dismissal)
  • Introduce higher filing costs
  • Reinstate a small business exemption
Union views
  • Additional filing costs or penalties could deter genuine claims — for every claim an employer believes is vexatious, there is an employee who believes their claim is right
  • Make the process more efficient and less legal — a formal arbitration hearing to settle with FWC could be beneficial

Adverse action

Employers were displeased by the reverse onus of proof for adverse actions. They want this repealed and a potential cap for penalties introduced. This may be contentious for unions, but does not seem to be a major line of defence in submissions.

Contractors versus permanent employees

Employer views
  • The casualisation of the workforce is overstated.
  • Contracting used to enable payment of work by results to stabilise costs as well as increase productivity and work quality.
  • The current definition of contractors and employees  is adequate and the prevalence of sham contracting is being overstated.
Union views
  • Casualisation is increasing to worrying levels and is higher than reported. According to ANU research, casual work leads to increased risk of health and mental problems.
  • Employers use contracting to avoid provision of annual leave, sick leave, long service leave, super contributions etc.
  • Definitions of contractor and employee should be clearer and there should be better enforcement for sham contracting.