Issues Paper Summary for the Workplace Relations Review

The Productivity Commission has released a 100-plus page document (split into five issues papers) canvassing the matters it plans to cover in its review of the workplace relations system.

At Egan Associates we understand our clients are time poor, so we’ve put together a summary of key issues raised in the papers.

Issues Paper One – The Inquiry in Context

Employers have expressed concerns with the current workplace relations system, stating that it:

  • Lacks flexibility, as there are problems hiring and firing contractors and despite award consolidation there is still a highly regulated set of base wages for many occupations and industries,
  • Leads to high negotiated wage rates and excessively short-term greenfield agreements that may threaten the viability of large long-term investments (eg LNG),
  • Does not encourage productivity, as this is not a central feature of enterprise agreements,
  • Encourages overly adversarial relationships between management and employees,
  • Allows strikes over matters outside the employment relationship,
  • Imposes high penalty rates for work outside the five-day working cycle,
  • Has costly and slow unfair dismissal laws,
  • Allows copycat agreements across many enterprises, notwithstanding variations in the circumstances of the enterprises concerned,
  • Remains fragmented across jurisdictions, with a panoply of laws, awards and institutions,
  • Does not match international best practice – the system has led to a relatively inefficient labour market with poor trust between employees; lower wage flexibility; higher hiring, firing and redundancy costs; and wages that are inadequately linked to enterprise productivity, and
  • Has not kept pace with changes of the modern economy including a different mix of workers – one illustrative graph from the document is below:
  • Australia's skill mix is shifting

Unions and other commentators have also noted concerns with the system, notably that it:

  • Lacks a safety net for workers not classified as employees, such as outworkers and contractors (with sham contracting a key concern),
  • Offers inadequate protections in relation to temporary overseas workers,
  • Is too narrow in its general protections,
  • Unreasonably limits the scope of bargaining though its definition of permitted matters,
  • Too narrowly provides rights to request flexible working arrangements,
  • Does not confer sufficient arbitral powers to the Fair Work Ombudsman (FWO) and the Fair Work Commission (FWC), and
  • Impedes collective action with insufficient protection of right of entry.

Issues Paper 2 – Safety Nets

Minimum wage

Concerns include:

  • The ratio of the minimum wage to median full-time adult earnings has significantly fallen over the period from 2004 to 2012, shown in the Commission’s figure below:
  • Minimum to Median wages

  • Only around 30% of all adult minimum wage earners were in the poorest 20% of working households.
  • Many minimum wage earners are young and they use the minimum wage as a stepping stone, providing concerns about how high it is.
  • Minimum wages may affect employment and the numbers of hours worked, although evidence around this is mixed and depends on the nature of the employee and the current level of the wage.
  • Increases in the minimum wage affect far more employees than those on the minimum wage as other agreements use it as a benchmark.
  • The minimum wage may affect the incentive to skill workers.

The Commission has asked for submissions on:

  • How effective is the minimum wage in meeting its rationale? How will the role and effects of the minimum wage change?
  • What is the best way to compare minimum wages across currencies where countries have different productivity levels?
  • What are the impacts of minimum wages on employment as a whole and broken into groups? How robust is the available evidence?
  • What is the best process for setting a minimum wage?
  • What is the minimum wage’s effect on the skilling of employees?
  • How does the minimum wage affect other wages in the wage system?
  • Should the minimum wage vary across region, state etc? What effects would variation have?
  • Are their grounds for in-work benefits? (eg subsidies for childcare, earned income tax credit and wage subsidy to employer). What would they look like?

National employment standards

The Commission will not undertake a holistic analysis unless submissions present solid grounds for review.

Awards

Concerns include:

  • The tax and transfer system, minimum wage and NES already provide safety nets, such that the awards may not be necessary.
  • The determination process for awards is long and complex and awards can be confusing.

The Commission wishes to consult on:

  • What is the role of awards in the system? What are the impacts of award arrangements?
  • Should there be further award consolidation and simplification?
  • Should the system rely on the other safety nets rather than awards?
  • What changes should be made to processes for determination?

A figure from the document illustrates the prevalence of award agreements:

Prevalence of Award Agreements

Penalty rates

The Commission sees two outcomes on this controversial issue:

  1. An acceptance that penalty rates are an inherent element of any regulatory structure necessary to protect employee interests – in this case the focus will be assessing methodologies and benchmarks for determining appropriate rates.
  2. A decision that setting such rates is not part of an essential structure and should be a choice for enterprises and their employees – any premiums are to be market determined and will therefore vary depending on the business.

The Commission asks:

  • Which would be the better model?
  • What are the limitations on being able to bargain given flexible rates?
  • What is the effect of penalty rates on – incomes, profitability, prices, sales, opening hours, choice of employment type, rostering, hours worked, hiring, unemployment?
  • How does working on weekends or holidays affect employees and the community?
  • What are the experiences of other countries, eg NZ?

Issues paper 3 – The Bargaining Framework

General concerns and matters for discussion include:

  • Greenfields arrangements – There are concerns with pattern bargaining where templates are used for new sites.
  • Labour hire arrangements – Who is the most appropriate party to be negotiating with the employee, the agency or the company where the employee is conducting the work?
  • What should be “permitted matters” for inclusion in enterprise agreements?
  • Better off over all test – is it appropriate or does it prevent working arrangements of mutual benefit? Should it be met for every employee or the employees as a whole?
  • Productivity – will the government’s proposed legislation to mandate the discussion of productivity improvements as part of the bargaining process lead to box ticking clauses or improvements? Can the Fair Work Commission judge whether specific clauses will achieve productivity achievements? Is the legislation required, given there should be enough inherent incentive on both sides to increase productivity?
  • Individual flexibility arrangements – what are the benefits and the costs? Why do 90% of employers have no such arrangements? What is covered under the current arrangements? Should there be restrictions on what parties can trade off?
  • No extra claims provisions – are there concerns with how these currently operate?
  • Secret ballot requirements for employee protected action – Are they appropriate?
  • Conciliation and arbitration – Do changes need to be made to the Fair Work Commission’s conciliation and arbitration powers (currently only available in four circumstances)?
  • Industrial action – Should there be changes to what is defined as protected action? Are there suggestions for graduated options for action?
  • Aborted strikes – What is their prevalence and how do they affect businesses?
  • Bargaining culture – Does the current system engender adversarial bargaining cultures?

Issues paper 4:  Protections

Unfair dismissal

There are concerns that current processes for dismissal are excessive and costly, such that employers may:

  • Be reluctant to hire people with a higher perceived risk of underperformance,
  • Feel pressed into paying ‘go away’ money rather than undergo the dismissal process,
  • Hire less people, offer less full-time work, or lower wages (especially where there are exceptions to unfair dismissal provisions based on headcounts or work type), and
  • Re-categorise terminations to avoid unfair dismissal proceedings.

The Commission asks:

  • Do the processes achieve their purpose, and if not what should be changed?
  • Are the FWC’s tests for what is unfair appropriate?
  • What are the impacts on employees of unfair dismissal?
  • What are the sources of procedural costs and can these costs be reduced?
  • What is the real prevalence of ‘go away’ money?
  • What are the main grounds for people to claim unfair dismissal?

Anti bullying

The Commission asks what are the utilisation rates, impacts, disadvantages, advantages, and consequences of the anti-bullying provisions and where do they overlap with other legislation?

Issue paper 5 – Other issues

Performance of the Workplace relations institutions

The Commission asks:

  • How are the FWC and FWO performing?
  • Should there be changes to their functions, responsibility or jurisdiction?
  • What are the compliance costs faced by parties in the workplace relations system and how significant are they? (Dollars and time?)
  • What parts of the system are the main sources of such costs?

Competition law

Currently the ACCC can’t take action against anti-competitive conduct by employees and their representatives relating to wage claims or other benefits.

The Commission asks whether there are grounds for widening the capacity of the Competition Act to address misuse of market power exerted through collective bargaining by employees and employer groups – what would the changes be, what would be the effect of the changes on the workplace relations system, and how would they be applied in practice?

There are currently restrictions around secondary boycotts – where union officials and/or employees act in concert to hinder or prevent a customer or supplier from providing their services to another business (eg in the case of Boral) – however, there have been claims that enforcement of this provision are ineffectual.

The Commission asks whether there are regulatory barriers to enforcement and whether the provisions need to be changed.

Alternative forms of employment

The Commission asks:

  • How does the workplace relations system affect the public service and its employees? What needs to be different for them?
  • Does the system apply well for independent contractors and labour hire, or does it impede an efficient mix of independent contractors and ongoing workers? (Concerns include sham contracting and terms in bargaining agreements introduced by unions that seek to regulate terms and conditions to be observed by contractors and labour hire agencies.)
  • How well does the system work for sponsored foreign workers?

Other issues

The Productivity Commission will also consider:

  • The adequacy of right of entry laws,
  • Laws around transfer of business where workers must receive the same pay and conditions from the new owner if the job was largely a continuation of the old one (Concerns include where public sector companies go private and employee conditions lead to entirely new teams being hired.),
  • Whether there should be national standardisation of long service leave, what the costs would be and how disparities would be resolved, and
  • The impact of national labour standards on Australia’s workplace relations system.

To end the summary, one last figure from the document illustrates business perceptions of the relative efficiency of Australia’s current labour market:

Business perceptions of labour market efficiency

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