The Impact of Work Choices—Some Preliminary Observations

Australian Labour Law Association’s Third Biennial Conference
Brisbane, Friday 22 September 2006

Justice Giudice, President
Australian Industrial Relations Commission

[1] Under the new legislative arrangements, which commenced to operate in March 2006, the AIRC’s role has been significantly altered. First, its arbitral role has been further reduced. In particular, the Commission is no longer responsible for fixing minimum wages – that function having been given to the Australian Fair Pay Commission. Secondly, the Commission’s dispute resolution function has been limited, for the most part, to cases in which the parties jointly agree that the Commission should be called on to assist. Even in those cases the Commission has no power to make binding orders. Thirdly, while the Commission retains the jurisdiction to grant remedies in relation to termination of employment disputes, the jurisdiction is further limited. In particular, the Commission can only grant a remedy in claims based on harsh, unjust or unreasonable termination of employment if the employer employed more than 100 employees and genuine operational reasons played no operative part in the decision to terminate the employment.

[2] The Commission has ongoing responsibility in relation to the control of unprotected industrial action and, in particular, has the added function of arranging for the conduct of ballots in relation to proposed industrial action.

[3] Many of you will be well aware of the details of these changes, and it would serve no purpose to go through those details here. But I would like to fill out the nature of the changes a little and then make some comments about the implications of them.

[4] In a number of respects, the legislation builds upon policy directions which first emerged in our industrial laws some years ago. The move towards enterprise bargaining was initiated by the AIRC in the late 1980’s and early 1990’s before being given statutory recognition in 1993. The shift to enterprise level negotiations and away from centrally determined wages and conditions gained momentum thereafter and was given further impetus by the 1996 Act which reduced the allowable content of awards and clarified the minimum safety net role of award wages and conditions, at the same time giving individual agreements equal status with collective agreements. Work Choices makes further significant reductions in the content of awards, and awards cease to be the safety net for bargaining. The Australian Fair Pay and Conditions Standard – minimum pay and classification scales and casual loadings, maximum ordinary hours of work, annual leave, personal/carer’s leave and parental leave – now constitute the minimum requirements for workplace agreements, whether individual or collective. While those 5 conditions are to a large extent based on the standards contained in awards, in the future the Commission will have no role in their fixation or adjustment. While minimum rates will be set by the AFPC, the other 4 conditions are fixed directly by the Parliament in the Act itself. In many respects, individual bargaining is given precedence over collective bargaining. Employers may offer individual workplace agreements to employees who are not employed on one at the time. An employer may alter the dynamics of collective bargaining by offering individual workplace agreements during the course of collective negotiations. No collective agreement can contain a term prohibiting the making of individual agreements and individual agreements can be made during the life of a collective agreement. In those circumstances, individual agreements can provide more generous conditions than those contained in the collective agreement or inferior conditions, provided they comply with the AFPCS. These provisions limit the binding nature of collective agreements and give primacy to individual agreements.

[5] Another feature of Work Choices is that it is a national system based on the use of the power of the Commonwealth Parliament to legislate in relation to trading, financial and foreign corporations as well as a number of other heads of Commonwealth power, but not s.51(xxxv). The new system binds constitutional corporations generally, employers of flight crew officers, maritime employees and waterside workers, the Commonwealth and Commonwealth authorities and Territory employers. The Act has extended operation in relation to Victorian employees. The legislation sweeps up state awards and agreements, insofar as they apply to Federal system employers and employees, and makes those awards and agreements federal instruments. To ensure the objectives of the legislation are achieved, state industrial tribunals are deprived of jurisdiction in relation to federal system employers and employees. Subject to the High Court decision, the Australian Commission has no powers of compulsory conciliation and arbitration in relation to most disputes occurring within the new national system and State Commissions have no powers at all in relation to any national system disputes – even where the dispute is confined within the boundaries of one State. The effect of the legislation on other state industrial laws purports to be very extensive. It remains to be seen what scope remains for the exercise of state powers in relation to employers other than constitutional corporations, leaving aside the unique situation in Victoria arising from the State Government’s referral of powers to the Commonwealth.

[6] Another aspect of the bargaining scheme is the proscription of various subjects for bargaining – so-called prohibited content. Historically, the subject matter for bargaining has been limited primarily by reference to the matters pertaining to the relations between employers and employees. There is now a substantial list of prohibited content. (WR regulations Ch.2, Part 8, Division 7.1).

[7] Prohibited content cannot be included in a certified agreement. Protected industrial action cannot be taken in support of claims for prohibited content. It is a contravention of the Act to seek the inclusion of prohibited content in a workplace agreement in the course of negotiations. Some matters which can constitute prohibited content are deduction of union subscriptions from pay, leave to attend trade union training, paid union meetings, restrictions relating to independent contractors and a number of other matters.

[8] Because of the scope of the legislation and its sheer bulk there are very many interesting new issues and one could spend a lot longer than the time allocated for this entire conference in discussing them. Let me select a small number of themes which seem to me to be worthy of consideration.

[9] The first concerns the overall effect of the changes on employment and productivity. The creation of the AFPC, whatever else it was designed to achieve, was directly related to the Government’s view that the AIRC and other industrial tribunals had not given sufficient recognition in their decisions to the effect of safety net increases on employment. The Minister for Employment and Workplace Relations said in 2004 that the legislation would require more weight to be given to the needs of the unemployed in safety net decisions. (Hon. K Andrews “Where to From Here”, Industrial Relations Society of Australia Conference, Melbourne, 22 October 2004).

[10] Whether the Government’s objective will be realised remains to be seen. The AFPC is an independent body with statutory objects to guide its deliberations and it apparently will have the benefit of a broad range of research, advice and views. Its first decision will be keenly awaited, not only because of its significance for those directly affected but also because of its economic and political implications. The linkages between increases in minimum wages, productivity, employment and, incidentally, enterprise bargaining, are obviously complex. In a number of safety net decisions the AIRC has implored the parties to jointly sponsor research into such issues with very limited response. With the benefit of specially commissioned research, the AFPC should be in a position to shed new light on contested matters such as the impact of minimum wage adjustments on employment. The method of assessment of prevailing economic conditions, in particular: levels of growth, inflation and unemployment, will also be significant. Will the AFPC adopt official forecasts or will it produce its own forecasts?

[11] There will be many other issues, for example should all minimum wages be adjusted for Federal system employees or should the adjustment be limited to classifications below a certain level. The limitation of minimum wages adjustments by reference to the level of the wage is a long-standing policy objective of the Government and some key employer associations. In dealing with that issue the AFPC may give consideration to what role, if any, minimum wage relativities play in productivity and employment and whether there is any other reason, consistent with the criteria the AFPC is to apply, for preserving or adjusting pay relativities.

[12] As a purpose-designed body for the fixation and adjust of minimum wages in Australia the AFPC is in a unique position. Its reasons for its decision will be as interesting as, perhaps more interesting than, the result. Whatever conclusions it reaches about economic issues, and on the principles to be applied, it is likely that its decision will set the scene for wage fixation for the foreseeable future.

[13] Moving from minimum wage fixation to bargaining, the number of bargaining periods initiated since 27 March is well down on the number initiated in the same period last year and the official figures on industrial action suggest that industrial action has declined even further from the record low levels of last year. On the other hand, the rate of individual agreement-making is strong with around 41,000 AWA’s lodged in the June quarter compared with around 700 collective agreements. (OEA) Collective agreements made before 27 March tend to run for two to three years and the agreement cycle differs from industry to industry. No doubt stronger trends will emerge after a year or so. It is too early to draw conclusions about the content of workplace agreements, in particular the extent to which award provisions, which are not one of the five conditions constituting the AFPCS, such as penalty rates, are incorporated into individual and collective workplace agreements. The effect of the new agreement-making process on employment and productivity may take even longer to assess and because of the range of factors involved, a truly objective assessment will not be easy. I shall come back to this later in looking at the Commission’s role more directly.

[14] The second theme I want to address concerns the implications of the increased level of direct regulation by the Parliament of workplace relations entitlements and processes. Many of the obligations upon employers in the Act and Regulations apply regardless of award coverage and so are binding in relation to all of the relevant employees. Federal system employers may incur obligations in relation to employees who were not previously covered by the award system, including the conditions making up the AFPCS and some record keeping obligations. The constituents of the AFPCS, apart from minimum wages and casual loadings, are also set by direct legislation. The content of awards and the subject matters for bargaining are regulated to a greater degree than before. Leaving aside the limitations on bargaining, most of these changes have a deregulatory thrust. The changes in relation to awards reduce the effect of past awards by reducing the number of allowable award matters and limiting the legal effect of conditions which are now part of the AFPCS. The legislation contains a range of legal rights in relation to matters which had previously been part of the Commission’s award-making functions or regulated by the parties themselves through enterprise bargaining. The legislation also establishes a range of what are termed civil remedy provisions, which regulate bargaining and industrial action.

[15] What are the implications of this increase in direct regulation by the Parliament? There are at least three. The first is that there will be a shift towards the Courts – the Federal Court in particular – and away from the Commission in relation to industrial and workplace relations disputes and issues. This shift will be given impetus by two additional factors: the extension of the federal system to cover many employers and employees previously covered by state industrial systems – thus creating a whole new class of beneficiaries of federal legislation and awards – and the further limitations on the Commission’s powers of compulsory intervention in industrial disputes. The reduction in the AIRC’s role in providing a forum for the resolution of workplace problems and disputes is likely to lead parties to seek other methods of resolving disputes. Work Choices certainly gives primacy to common law and statutory rights and provides for dispute resolution based on the enforcement of those rights through the judicial system. This effect is a natural consequence of the changes and has been explicitly recognised by the Government which is in the process of appointing, or has appointed, four new Federal Court judges and six new Federal Magistrates to deal with the caseload arising from Work Choices. But litigation, as those attending this conference are particularly aware, is usually expensive and often very expensive. The Government has recognised this in the establishment of the Office of Workplace Services within the Department of Employment and Workplace Relations. Presumably the intention is to create a low-cost method of enforcement of statutory and award rights as an alternative to legal proceedings. In many cases the Commission itself will continue to fulfil an important ADR role with the potential to avoid litigation in the courts.

[16] The second likely effect of the increase in direct regulation by the Parliament is that, to the extent that direct regulation is a substitute for Commission decision-making, the process of change will be a political process rather than an arbitral one. That will have implications for all parties in workplace relations. Assuming the unresolved High Court challenge is unsuccessful, sweeping changes in workplace relations will be possible from Government to Government. Equally, change may be very slow, depending upon economic conditions and the notorious challenges posed by a hostile Senate. Regardless of what happens, it is clear that changes to employment conditions are now, more than ever before, matters for the Commonwealth Parliament and those who seek to change those conditions must necessarily engage in a political exercise to do so. I do not say this is a good thing or a bad thing, but it is a different thing.

[17] The third effect of the increase in direct regulation is related to the second. Political parties, and to some extent individual politicians perhaps, are responsible in a direct way for a large number of workplace relations entitlements and processes. In relation to working conditions, there is the potential for political parties to “bid” for the electoral support of affected groups in a way not seen before in the Federal sphere. There has already been some of this activity in the exchanges surrounding the passage of Work Choices and it is likely to be a continuing feature of political debates. The political content will not be confined to conditions of employment. As we have seen recently, the bargaining process is a matter for debate. One can predict that the list of allowable award matters, no less than the list of prohibited content, will also attract a lot of attention – although perhaps in more general terms.

[18] Before leaving this question of directly legislated entitlements and processes, an interesting question is what impact Work Choices will have on the amount of regulation overall. In the short term the degree of regulation overall will be greater. Whether that remains the case is difficult to say. The answer depends on developments and on the perspective from which you view the workplace relations system. When the award rationalisation and simplification processes have concluded there will be fewer awards and the principle content will be less. The awards should have a much wider scope and there should be greater consistency between employers in relation to basic statutory and award entitlements. On the other hand, there will be a requirement that award terms of various kinds be preserved. It will also be necessary to maintain a set of transitional awards for employers and employees covered by Federal awards at 27 March 2006, but who are not part of the Work Choices system. The experience of federal system employers and their employees will vary depending upon such factors as the nature of the workplace relations model the employer adopts and the time at which employment commenced.

[19] Finally what are the implications of Work Choices for the Australian Industrial Relations Commission? The first observation is that the independence of the Commission from the Executive Government is now as important as, or perhaps more important than, it has ever been. Workplace relations policy is a controversial topic and it is crucial that the Commission is, and is seen to be, detached from the controversy. So the Commission, as you would expect, focuses very much on carrying its statutory charter into effect.

[20] We have responded to the changes in a number of ways. We have conducted private user briefings in all capital cities explaining the Commission’s role. These briefings dealt with the Commission’s main functions, dispute resolution, industrial action applications, termination of employment cases and awards. The briefings were well attended and we remain open to the idea of providing further briefings for organisations or groups. This is a departure for the Commission – traditionally members are reticent to talk about the operation of legislation in too much detail other than in decisions, for obvious reasons. But the range of new provisions justified a departure from the traditional approach. We have also attempted to make information about Work Choices more accessible to Commission users through a telephone and web-based inquiry service, and additional materials, which are available in hard copy and on the website. The advent of a national system has also required a significant effort on the part of the Australian Industrial Registry in putting together the various state awards and agreements which become federal instruments to the extent that they bind federal system employers. A data base has also been established to preserve the pre-reform awards and transitional awards separately, approximately doubling the previous number of awards to be maintained. This distinction will be critical as the award rationalisation and simplification processes get underway.

[21] The Commission’s dispute resolution functions have altered, as you all know. In particular it is now explicit that the Commission, with very few exceptions, has no power to compel parties to participate in a dispute resolution process; the parties must agree to do so, either in advance or at the time a dispute arises and parties have an obligation to try to resolve problems at the workplace first. The dispute resolution process can only be conducted in relation to matters specified in the Act, must be conducted in private and any material is confidential. Because of the confidentiality requirements, dispute resolution matters under the new provisions do not appear in public law lists and the proceedings are closed. Importantly, in dispute resolution proceedings the Commission does not have any independent statutory powers or functions but only those given to it by the parties’ agreement. The parties can confer a power of arbitration on the Commission, but it is subject to the limitation that the Commission cannot arbitrate in relation to collective bargaining disputes. Previous powers to suspend or terminate bargaining periods as a method of providing relief from industrial action have been strengthened. The Commission’s power to terminate a bargaining period on the grounds that industrial action is or may threaten to endanger the life, the personal safety or health, or the welfare of the population or part of it, or cause significant danger to the Australian economy or an important part of it and to impose a determination on the parties remains (Part 9 Division 8). The Commission may also be required to make a determination in a collective bargaining dispute if the Minister for Workplace Relations has terminated a bargaining period for the same reasons. (Part 9 Division 7)

[22] Since 27 March there has been relative calm industrially. The number of disputes is low, although most of those which have arisen have received widespread media attention. There has been a corresponding reduction in the number of disputes coming before the Commission. Bargaining period initiations are well down as are applications for orders in relation to industrial action.

[23] Industrial activity is related to agreement expiry dates. We know that many agreements were concluded in the early part of this year, including anecdotally many agreements which were renegotiated ahead of the nominal expiry date. About 1200 applications for certification were lodged in the week preceding 27 March. In addition it seems that a large number of expired agreements have not been renewed although they may have been renegotiated on an informal basis. There may be other reasons contributing to the decline in bargaining and industrial action under the Act – which could be economic, political, strategic, legal or logistical. I shall not speculate on those. But it is worth remembering, looking at the wider context, that the decline in industrial action has been a trend now for more than a decade and it is not confined to this country. It is a phenomenon which has been observed throughout the developed economies since the early 1990s and has coincided with, perhaps been contributed to by, strong non-inflationary growth in production and incomes. During that period, incidentally, Australia has been one of the best performing economies in the world, certainly one of the most resilient. There is no doubt that the tightening of the restrictions on protected industrial action and the subject matter for bargaining, including the new regime of penalties, will reduce industrial action even further. One challenge for employers will be to minimise the potential for employee dissatisfaction to be expressed in ways other than industrial action but which might be equally damaging. Good human resources policies and practices are critical, whatever the legislative framework.

[24] In relation to industrial dispute resolution, the challenge for the Commission is to meet the expectations of the parties, to be the premier provider of industrial dispute resolution services in Australia, and to contribute to effective workplace relations policy and practice. The Commission is ready to, and will I am sure, meet this challenge and continue to contribute strongly to Australia’s economic and social well-being within the legislative framework provided. Some years ago I was asked to deliver a paper on the topic “The AIRC – Surfing the Waves of Reform.” It provided an opportunity to explore in a summary way the vast array of changes which the Commission and its predecessors have adapted to over the last hundred years. That analysis shows that the Commission has proven to be an extremely resilient and flexible institution. Despite the proportion of the most recent wave, not a tsunami but quite big, the Commission has adjusted and will continue to make a significant positive contribution in the role the Parliament has given it.