Supplementary Submission on ACTU Submission to the Review of the Fair Work Act
by Des Moore, Member of HR Nicholls Society Board.
Introduction
The ACTU submission to the Review of the Fair Work Act contains no overall conclusion
but includes conclusions on individual aspects - the possible economic effects, the safety net
of wages and conditions, collective bargaining conducted in good faith, enabling
representation at work, resolving grievances and disputes, protection against unfair treatment
(incl unfair dismissals), the institutional framework and the impact on women workers. While
the ACTU approves these, several are regarded as inadequate and Appendix 1 (pages 57-58)
outlines the “more significant policy reforms... if the Act is to fully meet its objectives of
providing fair and enforceable workplace rights, and a collective bargaining system that
addresses the reality of business structures in the twenty-first century.” Appendix 2 (pages
59-66) lists Technical Issues that also seek specific increases to correct “technical problems”
in the regulatory framework under the Act.
The general approach taken in the submission is reflected in the following comment – “The
expansion of management prerogative by the Howard Government in relation to termination
of employment, individual contracts and restrictions on bargaining were the radical point of
departure from the evolution of modern industrial relations regime”.
General Commentary
This submission is made on behalf of the HR Nicholls Society. Except in regard to possible
economic effects, no attempt is made in this commentary to respond to the ACTU’s
conclusions on the adequacy or otherwise of individual aspects of the FWA. Rather, the
submission constitutes a critique of the ACTU’s underlying rationale for a system of detailed
regulation of relations between employers and employees and its assertion of the trend in
regulation.
In that regard, the ACTU is incorrect in concluding that the expansion of “management
prerogative” under the Howard Government was a radical departure from the trend in
workplace relations, particularly in regard to collective bargaining. It is clear that such an
expansion developed under the Hawke/Keating governments and Prime Minister Keating is
on record as claiming the introduction of enterprise bargaining. The Industrial Relations
Reform Act of 1993 even provided for the negotiation of enterprise agreements in nonunionised workplaces. The 1995 Australian Workplace Industrial Relations Survey (referred
to in the ACTU submission) noted that individual contracts had also become “an established
part of the wage determination system”, involving about 10 per cent of employees. Before the
changes made in the Workplace Relations Act 1996 came into effect in 1998, further
enterprise and individual agreements came into force.
The WRA changes in 1996 under the Howard Government (ie before the so-called Work
Choices legislation) included allowing enforceable individual employment agreements in lieu
of awards, subject to a no-disadvantage test; the restriction of awards to 20 allowable matters;
and the restriction of industrial action. Importantly, the secondary boycott provisions were
restored to the Trade Practices Act, a restoration maintained under the present government. In
its 1998 Economic Survey of Australia the OECD assessed the WRA 96 changes as “a
significant advance in industrial relations arrangements” but with qualifications and added
that “further reforms are likely to be required to achieve the best results”.
The main improvements later under the Howard government included the easing of the unfair
dismissals regulation and the bar on any further exercise of compulsory arbitration. The
separate establishment of the ABCC to counter union restrictive practices in the construction
industry also markedly improved the functioning of that industry’s labour market. Overall, it
can justifiably be claimed that these measures contributed to an increased demand for labour
being met through increased supplies but without inducing inflationary wage pressures.
By contrast, the Fair Work Australia legislation operating since July 2009 has imposed a
major increase in the regulation of relations between employers and employees and in the
capacity of unions to become involved in such relationships despite the fact that less than 15
per cent of private sector employees have union membership and 90 per cent of businesses
have no employees with union members. Where they have members unions have a right to
represent them but should not be allowed to involve themselves beyond that.
The reality is that these additional new regulatory and accompanying quasi-judicial
supervisory arrangements run against the winds of change that were occurring and they are
totally unsuited to modern society and the current structure of businesses. Indeed they operate
against the interests of average workers. The ACTU has completely failed to recognise that
Australia has a very large number of businesses subject to legislative and administrative
arrangements that enforce competition. By contrast, the ability and encouragement given
under FWA to collective bargaining actually creates a quasi monopoly situation favouring
unions.
The use of the term “management prerogative” also reflects a failure by the ACTU to
recognise the role and contribution of businesses. This involves more than management,
important as that is. The owners of businesses and/their boards make entrepreneurial
decisions that involve the contribution of capital that is exposed to risk and to the benefit or
loss of both contributors and workers. As such, it should be in the interests of workers to
contribute to the efficient operation of businesses not simply to make claims about workers
rights.
Economic Effects
The ACTU submission includes considerable analysis (23 pages) of developments in the
labour market and argues that the regulation under the FWA is “entirely consistent with
strong economic performance.” But the performance of the labour market leaves much to be
desired by comparison with what happened under the Howard Government.
During the period of that government unemployment was reduced from 8% in 1996-97 to
around 4%, and the participation rate increased from 73% to around 76%. OECD
international comparisons show the establishment under the Howard government of an
employment/working age population ratio considerably higher than countries with similar
political systems. Further, the OECD Employment Outlook for 2011 shows that, between
1994 and 2007, Australia’s employment/population ratio increased from 66.0% to 72.9% but
has since fallen back slightly to 72.4% in 2010. There was also a strong increase in average
real wages. While these developments reflected a range of influences and policies, it is
difficult to deny that the reduced level of labour market regulation helped improve the
flexibility of employment arrangements and hence the demand for labour. In short, contrary
to the ACTU submission the labour market operated under Howard as a help to workers and
their wages.
Under the Labor government, after the November 2007 election, and despite stimulatory
measures to counter the GFC, there has since the Fair Work Australia regime commenced in
July 2009 been no improvement in the participation rate, the initial recovery in employment
growth has stopped and the unemployment rate has not returned to its earlier low but has
become stuck around 5.0 -5.5 percent. The upward trend in the employment/working age
population has stopped and the growth rate of average real wages has declined. As with the
improvements under the Howard government, these developments reflect a range of
influences and policies and it is obviously too early to say that they “prove” that the Fair
Work regime has not worked as well as the regulatory arrangements operating under the
Howard government. Nonetheless there is a clear implication that the Fair Work
arrangements have not. Judging by the reactions of business leaders and associations there
seems no doubt.
There is also an implication that the Fair Work arrangements have inhibited the growth in
productivity. The ACTU submission correctly points out that productivity is not simply a
function of workplace relations and has varied over time. But output per employee is
adversely affected when unions succeed, as they have done in the past, in preventing
dismissals of inefficient workers, introducing absenteeism as a norm, staging false OH and S
stoppages and using other such devices to exercise their power under the legislation. This is
what is able to happen under the FWA.
It should be noted that recent research published in an IMF working paper[1] concludes that
the enhancement of “labor market flexibility should reduce unemployment” and that
“artificial restrictions on individual employment contracts should also be avoided”. This of
course runs counter to the ACTU submission.
Bargaining Power
The clear implication of the ACTU submission is that workers’ rights can only be maintained
or improved under a regulated system that enforces bargaining between employers and
employees. However this rationale has no sound basis.
There is no imbalance of bargaining power between employers and workers requiring
protection of workers “rights” and prevention of exploitation by employers. Australia has
more than 800,000 employing businesses operating with a workforce of well over 11 million
and those businesses compete actively with each other in the labour market. Potential
competition for labour also exists from the large number of owner-run businesses that are
would-be employers. Employers as a group cannot force wages down or impose “unfair”
conditions on employees as a group.
[1]
Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects
by Lorenzo E. Bernal-Verdugo, Davide Furceri, and Dominique Guillaume, IMF Working Paper 12/64, 2012.
Nor can extensive regulation ensure a “fair go” for workers: what constitutes fairness cannot
be legislated and is in the eye of the beholder. Arguably, the setting of awards by regulators
who have only a limited knowledge of working conditions are unfair to low skilled workers.
This is particularly true in the case of minimum wages.
Nowadays individuals generally have the capacity to make their own employment decisions.
In the year ended February 2010, for example, about 2.2 million ceased jobs and nearly 60
per cent did so voluntarily. They did not need a regulatory apparatus such as supported by the
ACTU to help them decide to change jobs
What about those who cannot get a job? It is the function of our extensive social security and
education systems to provide a protective bulwark for those at the bottom end of the social
spectrum. The ACTU’s objective of obtaining “fair and enforceable workers rights” in the
labour market runs against the interests of those at the bottom unless the rights sought
recognise the lower work capacities of the lesser skilled, which is nowhere recognised in the
submission.
Possible Alternative Arrangements
While the ACTU submission does not consider possible alternative arrangements, it is
pertinent to point out that a workable alternative to the industrial tribunal/ highly regulatory
approach would be to establish a body with functions similar to those given to the Advisory
Conciliation and Arbitration Service (ACAS) in the UK. That body is widely used in
voluntary mediations/conciliations, has established itself as impartial as between employers
and employees and provides extensive advisory services to both employers and employees at
a low cost.
ACAS was formed in 1975 to take over the industrial relations functions previously carried
out from within the Department of Employment at the height of the collectivist approach to
labour relations. It has performed four main activities. The most public of its roles is its
conciliation involvement in industrial disputes. But it has also helped in organising
arbitrations and, as individual rather than collective conciliation has grown, it has played an
increasingly important role in individual conciliation. But its most extensive activity by far is
its advisory work.
Conclusion
The ACTU submission is based on a totally false rationale and its approach involves an
unwarranted infringement of personal freedom. The legislation should be totally scrapped at
the earliest opportunity and the interests of employers and employees protected either through
normal legal and administrative processes applying to contractual arrangements or by the
establishment of a body similar to ACAS
Des Moore is Director, Institute for Private Enterprise and a member of the board of the HR
Nicholls Society. He has undertaken extensive analysis of workplace relations, including a
1998 report to the Labor Ministers Council, articles in the journal of the Economic Society of
Queensland and the Australian Bulletin of Labour, and presentations at HR Nicholls Society
conferences.