Workplace Relations Framework

• A workplace relations (WR) framework must recognise two enduring features of labour markets.
  • Labour is not just an ordinary input. There are ethical and community norms about the way in which a country treats its employees.
  • Without regulation and an ability to act collectively, many employees are likely to have much less bargaining power than employers, with adverse outcomes for their wages and conditions. Equally, poorly-designed regulation can risk bestowing too much power on organised labour in their dealings with individual employers.
• The challenge for a WR framework is to develop a coherent system that provides balanced bargaining power between the parties, that encourages employment, and that enhances economic efficiency. It is easy to both over and under regulate.
• The bulk of relationships between employees and employers are harmonious. The adversarial relationships between the parties that sometimes surface can often reflect poor relationship management, rather than flaws in the WR framework.
• Contrary to perceptions, Australia's labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervaded historical arrangements have now abated. Strike activity is low, wages are responsive to the economic cycle and there are multiple forms of employment arrangements that offer employees and employers flexible options for working.
• Set against that background, Australia's WR system is not dysfunctional - it needs repair not replacement. Nevertheless, several major deficiencies need addressing.
• While the Fair Work Commission (FWC) undertakes many of its functions well, the legalistic approach it adopts for award determination gives too much weight to history, precedent and judgments on the merits of cases put to it by partisan interest groups. This calls for a change in institutions and in practices. The wage regulation function of the FWC should be separated from it. The existing FWC would concentrate on its tribunal and administrative functions. A new body, the Workplace Standards Commission (WSC), would be dedicated to determining minimum wages and award regulation.
  • The WSC would use different types of expertise, and apply a clear analytical framework supported by evidence it collected.
• The appointment process for FWC members can lead to inconsistencies in some of its decisions, a problem that a new 'fit for purpose' governance model involving all Australian jurisdictions could resolve. The same processes would apply to the WSC.
• The Fair Work Act 2009 (Cth) and sometimes the FWC can give too much weight to procedure and too little to substance, leading to unnecessary compliance costs and poor outcomes. For example:
  • some minor procedural defects in enterprise bargaining can require an employer to begin the agreement-making process again.
  • an employee may engage in serious misconduct but may receive considerable compensation under unfair dismissal provisions due to procedural lapses by an employer.
• These problems can be easily remedied without removing employee protections.
• Minimum wages are justified, and the view that existing levels are highly prejudicial to employment is not well founded. However, significant minimum wage increases pose a risk for employment, especially for more disadvantaged job seekers and in weakening labour markets.
• Complementary policies that provide in-work benefits - such as wage subsidies or an earned income tax credit - might support higher incomes for lower paid employees, while not damaging employment. However, there are challenges in developing effective policies of this kind.
• Awards are an Australian idiosyncrasy with some undesirable inconsistencies and rigidities, but they are an important safety net and a useful benchmark for many employers. The WSC should address specified troublesome hotspots on a thematic basis.
• Penalty rates have a legitimate role in compensating employees for working long hours or at asocial times. However, Sunday penalty rates for hospitality, entertainment, retailing, restaurants and cafes are inconsistent across similar work, anachronistic in the context of changing consumer preferences, and frustrate the job aspirations of the unemployed and those who are only available for work on Sunday. Rates should be aligned with those on Saturday, creating a weekend rate for each of the relevant industries.
• Enterprise bargaining generally works well, although it is often ill-suited to smaller enterprises. However:
  • while the better off overall test is cosmetically similar to a no-disadvantage test (NDT), in practice, the NDT makes agreement-making less costly and more efficient. A NDT with guidelines about the use of the test should be used for all enterprise agreements and individual arrangements.
  • bargaining arrangements for greenfields agreements pose risks for large capital-intensive projects with urgent timelines. A limited menu of bargaining options would address the worst deficiencies, while taking account of the different nature of greenfields projects.
• Individual flexibility arrangements have many possible advantages, but their take-up is relatively low. In part, this reflects ignorance of their existence. But there are perceptions (sometimes not well based) of defects, which also constrain their use. These should be resolved by providing information on their use, extending the termination period of the arrangements, and by moving to the NDT.
• There is scope for a new form of employment arrangement, the 'enterprise contract', which would provide for variations to awards suited to the circumstances of individual enterprises. This would offer many of the advantages of enterprise agreements, without the complexities, making them particularly suited to smaller businesses. Any risks to employees would be assuaged through a comprehensive set of protections, including a clear written statement to employees of the implications of award variations, a no-disadvantage requirement, the right to revert to the award or to initiate enterprise bargaining, and continued coverage by the National Employment Standards and employee protections.
• Strike activity in Australia is at low levels, but debilitating processes and problematic new forms of action should be fixed:
  • overly complex processes for secret ballots should be simplified
  • aborted strikes and brief stoppages are sometimes ingeniously used as bargaining leverage by employees, but a few modest remedies can address this without affecting the legitimate use of industrial action
  • employers should be given more graduated options for retaliatory industrial action other than locking out its workforce.
• It is too easy under the current test for an employer to escape prosecution for sham contracting. Recalibrating the test from one of 'recklessness' to 'reasonableness' is justified.
• Migrant workers are more vulnerable to exploitation than are other employees, and this is especially true for illegally working migrants. This requires a package of measures that encourage migrants to report exploitation and support for the Fair Work Ombudsman to detect and pursue exploitative employers.

Chapter 1 presents relevant background information and definitions, the broad framework applied in this inquiry, and the basis for government involvement in WR.

The major aspects of the Australian labour market are then outlined in chapter 2.

The remaining chapters are organised principally around several central policy themes:

The performance and structure of the two key institutions of the WR system (the FWC and the FWO) are integral to its effective functioning (chapter 3). Given the exceptional degree to which regulation is vested in these institutions, any response to the terms of reference must give substantial attention to how they are performing and whether they remain fit for purpose.

Following on from the institutions are the mechanisms used to apply the standards in workplaces. As in many other counties, Australia places regulated floors on the wages and conditions of employees. The adult minimum wage is the pre-eminent policy tool and is directly managed by the FWC (chapter 4), but its effects extend to wage floors for younger people, and some have suggested variants on the minimum wage, such as by region or state (chapter 5).

There are potential complementarities between the minimum wage and other tax/transfer policies, such as earned income tax credits (chapter 6).

A feature of Australia's WR framework is the hundreds of additional minimum wages for people with given sets of skills or in particular industries - 'awards' (chapter 7), which pose some significant policy challenges (chapter 8).

Two particular features of awards are sometimes highlighted - penalty rates and loadings for different working time arrangements. Penalty rates for long hours, night and evening work involve health and welfare issues (chapter 9).

These issues are quite distinct from the more controversial issues surrounding weekend penalty rates (chapters 10 to 15). All of these rates are set under regulatory responsibilities ceded to the FWC.

A central component of any WR system is the basic levels of protection it provides for employees, such as its fundamental standards (the National Employment Standards (NES) - chapter 16), the avoidance of unfair dismissals of employees (chapter 17), a set of wider protections against adverse action (chapter 18), and measures that aim to discourage and remedy workplace bullying (chapter 19). All of these, except for the NES, are also primarily powers managed by the institutions.

While a significant part of Australia's WR system involves regulated protections and minimum standards, another critical part concerns the rules about how parties can arrange employment contracts on their own terms. There are diverse ways in which these contracts may be formed. Some are at the enterprise level, usually involving bargaining between an employer and representatives of its employees (chapter 20).

In new 'greenfields' enterprises without any employees (for example, a proposed construction project), negotiations are carried out between employers and unions (chapter 21).

Particularly among smaller businesses, employment contracts often involve an individual reaching an arrangement with an employer (chapter 22).

The Productivity Commission has floated the idea of a new type of arrangement - the enterprise contract - which lies between these two arrangements (chapter 23).

Bargaining in the public sector involves some special issues (chapter 24).

Industrial disputes are a feature of the bargaining process. The Australian system provides a window between the expiry of an old enterprise agreement and the formation of a new one. In this period, employers and employees (collectively) can lawfully engage in industrial disputes to encourage settlement and to gain leverage.

This is not a free for all contest between parties - there are strict rules about the nature and form of engagement (chapter 27).

Employee representatives  also have the right to enter workplaces to conduct discussions with employees and inspect suspected breaches of workplace laws (chapter 28).

Discussions about the WR system often tend to ignore particular subgroups of the employed. For example, contractors - who are not employees - play an important role as a source of labour, but there can be complex interactions between them and the WR system (chapter 25).

Similarly, certain kinds of migrant workers are subject to the risk of exploitation (chapter 29).

Labour markets are always in motion, and inevitably (and mostly desirably), people have to sometimes move between jobs. One aspect of that dynamic process, largely confined to large businesses, is the arrangements that come into play when a business changes hands ('transfer of business' - chapter 26).

Australia is a signatory to various international conventions, the implications of which are addressed in chapter 30.

Much of a WR system concerns the desirability of ensuring that there is some balance of power between the contracting parties. In some cases, the arrangements that deal with the potential for excessive market power in labour relations is not part of the FW Act, but rather embedded in competition policy more generally (chapter 31).

The FW Act is an understandably complex piece of legislation (around 900 pages in length) and is accompanied by other important regulations (most particularly the stipulations in the 122 Awards). Inevitably, this complexity is accompanied by some compliance costs - and these do not only relate to employers (chapter 32).

This inquiry has recommended a range of policy reforms and considered their impacts (chapter 33) and implementation (chapter 27).

There are also 10 appendices of supporting material - mainly of a statistical or analytical nature - and several technical appendices relating to minimum wage modelling and an earned income tax credit.