Workplace Relations: The Urgent Need For Change

Australia has a 21st century workforce labouring under a 19^th century industrial relations system, writes Brett Hogan.    

Better health, housing, communications, education and transport options allow more people to make more decisions for themselves, helping to break down the notion of ‘class’. Defining a person by where they live, or what they or their parents do for work, is increasingly a relic of a bygone age.

So why do the laws governing how we work remain trapped in a 19th century ‘organised capital versus organised labour’ mindset?

With only limited exceptions, the ongoing theme of industrial relations legislation—from the Conciliation and Arbitration Act of 1904 to the Fair Work Act of 2009—has been regulating the power relationship between government and its tribunals, employer organisations and trade unions, rather than making it easier to get people into work.

Unsurprisingly, the industrial relations policy debate in Australia tends to be about the rights and privileges of unions, employer organisations, institutions and even governments, rather than the rights and expectations of people. What about debate on whether or not an employee prefers a non-union agreement or a direct relationship with their boss?

Deals on pay and conditions are done behind closed doors, overseen by the flawed Fair Work Commission, and the deals apply to whole industries, irrespective of the ability of a particular business to afford them.

All of these decisions are largely exempt from competition law and protected by the symbiotic relationship between organised labour and the political class.  

EVERYTHING IS CHANGING

The current foundations of the industrial relations system were put in place when Australia was a small economy protected by a fixed exchange rate and a restrictive immigration policy, inside a domestic market insulated by tariffs, trading largely with countries of the British Empire. None of these factors bear any resemblance to the reality on the ground in the 21st century.

The Australian economy is now more diverse, outward looking and services-based.

Employers have to keep on top of currency movements, borrowing costs, increased utility costs, land charges, tax rises and changes in markets both here and overseas.

Wages are paid by individual businesses to individual employees—they are not paid by whole industries to groups of workers. From a business point of view, they have to be able to pay employees based on conditions in that business.

Similarly, from an employee’s perspective, eight hour days and five day working weeks in the same workplace for 40 years is no longer the reality for most people. Many of today’s careers are a mix of full-time, part-time and casual employment, often interspersed with life events such as study, travelling, parenthood, or of course unemployment.

In his August 2016 IPA research essay, Your Right To Work, Stephen Sasse noted that female workforce participation had increased from 44 per cent in 1980 to 60 per cent today, while manufacturing sector employment had dropped from 16 per cent of the workforce in 1985 to 8 per cent. Also, the self-employed now represent 17 per cent of the workforce and 18 per cent of employment engagements are less than 12 months in duration. Almost 10 per cent of the workforce is also classified as an independent contractor.

The institutions that have formed the bedrock of the current system are also under significant pressure.

Union membership has fallen from 46 per cent of the workforce in 1986 to only 15 per cent of the workforce in 2014—only 11 per cent for private sector employees.

Amalgamations have broken the historic connection between unions and vocations, along with workplaces and members, with many unions now resembling the big businesses from whom they claim to protect their members. Anecdotal evidence suggests that membership of employer organisations is also under considerable pressure.

Better-educated people who change jobs or industries are more likely to be an employer or independent contractor themselves, or if they are an employee, to have the confidence to talk to their employer about working conditions.

Even the Productivity Commission’s otherwise uninspiring November 2015 report into Australia’s Workplace Relations Framework found that ‘an improved workplace relations framework must involve decision making that is not unnecessary beholden to precedent, excessive process, or to dated labour market structures’.

A good example of the complexity of the current system and its inability to adapt to change, even when the major players agree, can be found in the current saga involving the status of enterprise agreements between shop assistants in the Shop, Distributive and Allied Employees Association (SDA) and major companies such as Coles and McDonalds, showing how Australia’s three competing and contradictory sets of minimum standards are slowly strangling the nation’s workplace relations system.

In 2015, SDA members signed off on a new Enterprise Bargaining Agreement with Coles, which reduced some employee penalty rates in exchange for a higher base rate of pay. Over 90 per cent of employees voted for the change, which was subsequently ratified by the Fair Work Commission.

However, in May this year, the Commission changed its mind following an appeal initiated by just one of Coles’ 77,000 employees, together with a union that wasn’t even a party to the agreement.

In essence, the appeal successfully argued that because some employees predominantly work shifts that attract penalty rates, those employees would not be better off, thus contravening the Fair Work Act’s Better Off Overall Test. Unsurprisingly, Coles decided to walk away, and the union is in damage control.

These developments mirror a similarly structured SDA agreement with McDonalds—an agreement with 97 per cent employee support— which has been criticised for paying employees a base rate of $20 per hour, despite this being some 50 per cent higher than the German minimum wage of €8.5 per hour and almost three times the Australian unemployment benefit pay of $6.94 per hour.

Australia’s three workplace safety nets are increasingly tripping over each other as they all seek to impose their own form of ‘protection’ for workers.

The annual minimum wage decision feeds into a complicated and cascading set of minimum rates and applies to employees and businesses throughout the country. The current adult rate of $17.70 an hour, or $672.70 for a standard 38 hour adult working week, is one of the world’s highest.

Australia has 122 industrial awards, some of which prescribe pay and conditions in excruciating detail and govern workers over whole industries. The Cotton Ginning and the Cemetery Industry awards apply to this very day.

A set of 10 National Employment Standards, which started in the Howard era and were expanded under the Rudd/ Gillard governments, also cover all employees on matters including annual leave, personal leave, redundancy pay, and maximum hours of work.

Is it really surprising that a particular workplace agreement might not be able to tick every box on every piece of paper and leave every worker on every shift better off?

It’s ironic that the Rudd Government’s inability to countenance any lowering of conditions when it consolidated 1500 state and federal awards into these 122 so-called ‘modern awards’ has made them so uncompetitive in the marketplace that unions, employers and even the Fair Work Commission have been prepared to leave them behind.

Australia’s workplace relations system is finding it increasingly difficult to reconcile its 19th century approach to institutions and regulation in a modern 21st century economy.  

WHAT SHOULD GOVERNMENT DO?

Industrial relations and employment law is actually about people, and their ability to earn an income, support a family and take greater responsibility for their own lives.

As Arthur Brooks of the American Enterprise Institute has argued: ‘There is nothing more important to someone’s self-esteem than feeling like they are of value to others, and there is no better way to achieve that than through paid employment’.

The goal of employment law should be to provide opportunities to help get unemployed people back into work, be flexible enough to encourage people to stay, and responsive to changing circumstances in businesses and the wider economy.

Australia needs a legal framework that recognises the differences that exist between people, workplaces, forms, hours and locations of work, while putting the interests of people before the interests of institutions.

The effective exemption of unions and employer organisations from competition law is an area in need of reform, along with the prescription of uniform wages and conditions regardless of the ability of a business to pay, and the blurred lines between participant, regulator and legislator.

Automatic annual increases on centrally mandated, world’s highest minimum wages—imposed over the whole economy—are not the most effective way to help people get and keep a job, or help struggling employers compete in the global marketplace.

The Turnbull government needs to urgently address some of the major problems with the current Fair Work Act, including encouraging greater agreement flexibility and narrowing the scope for lawful industrial action and union right-of-entry laws, along with allowing employees to take home more of their own pay.

A long term vision for reform would have to include removing the distinction between employment and independent contracting, institutional renewal by abolishing the Fair Work Commission while strengthening the Fair Work Ombudsman, and consolidating existing workplace safety nets by abolishing the award system and removing the ‘social component’ from the minimum wage paid by employers.

As a first step, the award system needs to be put out of its misery and abolished once and for all. Centralised and prescriptive sets of pay and conditions that apply to whole industries make as much sense in the 21st century as state government regulation of the bread industry.

A single, legislated set of National Employment Standards could easily replace awards and the minimum wage system, removing much of the work of the Fair Work Commission.

Legislation that exempts unions and employer organisations from the heat of competition laws should be repealed and individual workplace agreements should once more be encouraged and better protected under the law.

A workplace relations system that prioritises precedent and institutions ahead of all else is one that is ripe for reform.

Unfortunately, there doesn’t appear to be much ambition on the part of the Turnbull Government to set out an agenda for wholesale change. In April 2016, Federal Employment Minister Michaelia Cash said the Turnbull government had no intention to ‘swing the pendulum to the right’ on industrial relations.

To say that this is disappointing would be an understatement. The system clearly needs a radical overhaul.