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WorkChoices - not so good: Fair Work Australia - frightening!

By Des Moore - posted Wednesday, 10 October 2007


I agree with the Opposition that WorkChoices should be torn up but not for the reasons it advances. And even though the Opposition claims it would have better legislation, their proposal is even further away from a fair, flexible and simple system.

Whichever party is returned, there is now no hope in the foreseeable future of moving to a deregulated labour market in which, subject mainly to observing normal legislated or common law contractual requirements, the terms of employment agreements are basically settled between employers and employees.

The opponents of a freer labour market have largely ignored the potential for both economic and social benefits and two major structural changes. The move to a market economy enables individuals generally to make their own employment decisions without fear of being exploited by employers. And the establishment of an extensive social security system helps those judged unable to obtain employment or otherwise disadvantaged, which should allow industrial legislation, and interpretations by tribunals and courts, to abandon any social justice role.

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True, there has been some reduction in labour market regulation in recent years including under WorkChoices since March 2006. That has undoubtedly contributed to the fall in unemployment from 5.0 per cent to 4.3 per cent (in June) and increase in employment of over 360,000, (or about 3.7 per cent). The easing of the unfair dismissals regulation, the increased resort to individual agreements, the bar on the further exercise of compulsory arbitration, and the continued limitations on industrial disputation have helped, as has the establishment of the Australian Building Construction Commission in countering union restrictive practices in the construction industry.

Collective bargaining, bargaining in good faith and bargaining powers generally

In introducing the stronger safety net bill, Minister Hockey asserted that its rationale included “employers cannot coerce existing employees into modifying or removing protected award conditions”. Labor has extensive proposals designed to limit the bargaining role of individuals and employers and to promote collective bargaining, with employers required to do so in certain circumstances.

Yet employees are already protected under the common law and ordinary contract and criminal legislation. Also, as Australia now has more than 800,000 businesses competing with each other and operating with workforces totaling over 10 million, no valid argument can be mounted that, without prescriptive regulations, employers as a group would force wages down or impose “unfair” conditions on their employees. Moreover, any attempt to “exploit” workers exposes businesses to serious risk of loss of staff and difficulty in operating a business.

Individual employees also have bargaining power. They can readily quit jobs and well over a million do so voluntarily each year. During the period of reduced regulation in recent years, average hours of work and industrial disputation fell while real wages increased, which scarcely suggests employees bargaining powers would weaken in a deregulated labour market.

A less regulated labour market would cause some employees to experience reduced compensation and/or working conditions. But any substantive reductions would need to be assessed against the circumstances in which they were obtained. It is quite likely that many awards now being used in the fair compensation test were out of line with market conditions, particularly in industries employing relatively low skilled workers.

Past experience also suggests that some awards have reflected the provision of wages and/or conditions made by tribunals in circumstances where claims by unions were based on the actual or threatened use of industrial power that unions were allowed to exercise but should not have been. The outcome of the waterfront dispute illustrated vividly the existence then of extensive unwarranted protection of union power of an unfair nature and a similar situation obviously existed in the construction industry before the ABCC was established.

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Labor’s support for collective bargaining, leading to its policy of abolishing AWAs, includes the policy statement that “all bargaining participants will be obliged to bargain in good faith”. There is no such requirement in the WorkChoices legislation and Labor’s policy effectively means employers seeking an employment agreement or a change in an existing one would have to involve unions if requested.

In practice, any enforcement of collective bargaining could involve a lengthy process imposing costs on employers and making it difficult for them to avoid agreeing to the “reasonable” going rate. Employers could effectively be forced to concede that rate as the costs of paying the condition would be cheaper in the short run than continuing to bargain in good faith. Over time there would be a loss of productivity.

There would also be a risk of returning to the situation in which rogue unions under the supposed protective regulatory system have been allowed to exercise quasi-monopoly powers to the detriment of employers and fellow workers. Labor’s establishment of extensive regulatory arrangements, supervised by new appointees to the new Fair Work Australia, would almost certainly increase union power in practice.

By contrast, although (regrettably) WorkChoices retains the award system and operates what amounts to an industrial police force to enforce the detailed regulation of employer-employee relations, it contains no obligation to bargain in good faith, leaves it completely open to employers and employees to decide whether to bargain on a union or non-union basis, and allows individual agreements that meet fewer conditions and have protection from industrial action.

The institutional framework

The acceptance of the imbalance of bargaining power argument has inevitably led both major parties to establishing or proposing special authorities or tribunals to administer the supposedly protective legislation. The Coalition has in effect created industrial police and quasi-judicial forces and Labor’s Fair Work Australia would take over those forces and the roles undertaken by the institutions established by the Coalition.

This has significant implications for the operation of the award system. Hitherto, awards were often not fully enforced and the unions (the primary enforcers) tended to use any award breach they found more as a bargaining weapon in negotiating workplace agreements or in regard to other “deals”. This limited application of awards was particularly important for small businesses in the service industries, which operated more in a de facto deregulated labour market. Now, however, the Coalition has established well-funded bodies to ensure awards and other regulations are enforced and that will continue if Labor takes over.

This is the first time that this has happened in Australian industrial relations. Importantly, the much stricter enforcement of awards would likely lead to reductions in employment and the cessation of small businesses.

The minimum wage and fairness

The Coalition’s policy of continuing to set, and to prevent any reduction in, minimum wages is among the worst features of the WorkChoices legislation. Moreover, the “guidelines” given to the Fair Pay Commission virtually ensure Australia’s minimum will continue close to the highest among OECD countries relative to the average wage.

Labor’s policy of determining an annual minimum wage is cause for similar if not greater concern. The FWA would apparently have wider minimum wage responsibilities, including an annual updating of minimum wage rates for all awards under an award system that would be more extensive. The difficulty of obtaining employment for those outside the job market would likely increase.

The minimum wage system misuses the wage system as a vehicle of social welfare policy and applies it unfairly. While households with incomes in the bottom quintile receive only a small proportion of their income from wages (about 10 per cent), many of those receiving the minimum wage live in households that have high incomes with no need for an income supplement. With over 100,000 separately regulated minimum wage points, the whole minimum wage system (sic) is little short of farcical.

ABS surveys show that about 1.7 million Australians want work or more of it. But as many are relatively unskilled, their capacity to obtain jobs is importantly dependent on employers being able to offer a wage commensurate with their lower productivity. A minimum over $27,000 a year, or close to 60 per cent of the median wage, necessarily prevents a significant proportion of lesser skilled being offered employment.

Unfair dismissals and individual agreements (AWAs)

WorkChoices allows both individual and collective agreements by direct negotiations between employers and employees. Although this is an important in-principle recognition of the right of employers and employees to negotiate the terms of employment, that principle has been heavily qualified by the introduction of the fair compensation test. Beyond that, all agreements must also comply with mandatory legislated minimum standards. In fact, they apply universally to all employment contracts in Australia, and are unable to be varied or altered even by agreement.

The inclusion of these conditions represents a major change compared with the situation already existing in practice in the labour market.

Labor’s plan would go much further, with “guaranteed” minimum conditions extended to ten and, under its “modern, simple industry awards”, a further ten minimum employment standards could be compulsorily arbitrated. Moreover, such conditions/standards would apply to all individual employment contracts under common law (except for employees “historically award free, such as managerial employees”). Labor would also effectively remove the exemption of small businesses from unfair dismissal claims.

Industrial disputes

Under the Workplace Relations Act 1996 (WRA 96) industrial action may be taken during the negotiation of a collective agreement but not during the operation of that agreement. Moreover, unions are not able to take industrial action in respect of employees on AWAs. Although the application of the WRA 96 provisions by the AIRC frequently caused costly settlement delays to employers, amendments in 2006 remove the discretion previously available to the Commission in processing industrial action and termination of agreement cases.

Labor’s plan indicates it would also legislate to forbid industrial action during the life of an agreement and action in support of an industry wide agreement (the so-called pattern bargaining), as well as requiring a secret ballot to initiate allowable industrial action. How this would work out in practice would depend importantly on the detail of the legislation and the discretion given to Fair Work Australia, which “will have the power to end industrial action and determine a settlement”. As with some other elements in Labor’s plan, this seems to establish a de facto form of compulsory arbitration.

Even more concerning though is Labor’s plan to allow union bargaining demands over “any matter”, paving the way for strikes over any subject matter contemplated by union officials without even a connection being required to wages and conditions of employment.

Labor has agreed, however, to retaining the outlawing of secondary boycotts as part of the Trade Practices Act rather than the legislation governing workplace relations.

Conclusion

Whichever party is elected the outcome on workplace relations will be retrograde because it will maintain unwarranted restrictions and further reduce the capacity of employees and employers to themselves determine the major components of employment agreements. The effects on employment are likely to be adverse, particularly when the economy slows.

However, from the information available, Labor’s policies are truly frightening. The possible return to power of the AIRC for the transitional period to 2010 and the passing to that body of the review of the award system (which I have discussed in the Spring edition of Policy), would itself create considerable uncertainty assuming the Senate passed the necessary legislation.

If the Senate then approves legislation to authorise the FWA to start operating from January 2010 that would likely further add to uncertainty by establishing an environment conducive to a major increase in the exercise of union power and to inflationary wage increases. That would occur in circumstances where the FWA would likely have the most extensive set of regulations ever stipulated in legislation giving it, in turn, by far the most extensive ever interpretive and decision-making role. Moreover, with the backing of many millions of budgetary dollars, these regulations and decisions would likely be strictly enforced by an arm of the FWA that would inherit an industrial police force.

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This is an edited version of an address given at the Industrial Relations Society of Victoria, Annual Convention 2007: “A World at Work: Challenges and Opportunities for Workplaces” on September 28, 2007.



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About the Author

Des Moore is Director, Institute for Private Enterprise and a former Deputy Secretary, Treasury. He authored Schooling Victorians, 1992, Institute of Public Affairs as part of the Project Victoria series which contributed to the educational and other reforms instituted by the Kennett Government. The views are his own.

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