Industrial Relations Society of Australia

"The National Perspective"

Justice Giudice

President

Australian Industrial Relations Commission

21 September 2001

[1] No doubt the Convention Committee are hopeful that this address might produce observations which could be described as outspoken or at least mildly controversial on some contemporary industrial relations issues. On most of those issues I will say very little. Views on contemporary issues might be unexceptional when expressed by most other members of the industrial relations community. But the same views might attract undue controversy when expressed by one who from time to time is required to interpret our industrial laws, to apply those laws, to make value judgments on the conduct of parties to industrial disputes and to assess the merits of the various cases which come before the Commission. Nevertheless, within the boundaries dictated by my office, I shall attempt to give some insights which might assist your consideration of the topic "Regulation/Deregulation: Turning Back the Tide" viewed from the national perspective.

[2] There was recently a special sitting of the Commission in Sydney to mark the Centenary of Federation. It was held 100 years to the day after the introduction of the first Conciliation and Arbitration Bill into the Commonwealth Parliament. It is a measure of the contemporary importance of the Bill that it received its first reading in June 1901, only a month after the inaugural Parliament sat for the first time. On the evening before our recent ceremonial sitting there was a dinner attended by most members, a number of members of State industrial authorities and also a number of retired Commission members. Some days afterwards I received a very welcome surprise when a former member of the Commission who had attended the dinner sent to me an original printed monograph of an address given by Justice Henry Bournes Higgins in Melbourne in 19261. That is just a little over 75 years ago. It was not disclosed precisely how this monograph came into the possession of my correspondent, but he had taken good care of it and I was delighted to be able to put it into the Commission archive.

[3] Higgins had served for 14 years as President of the national industrial dispute resolution body, the Court of Conciliation and Arbitration. That was between 1907 and 1921. He was not, as is sometimes thought, the first President of the Court but the second. The address was delivered almost five years after his resignation from the Court. A central proposition contained in the speech was that the Court had been very effective in carrying out its statutory role of preventing and settling industrial disputes extending beyond the limits of any one State. Perhaps to be expected. The claim was said to be evidenced by the fact that the incidence of industrial disputes within the Court's jurisdiction was very low. The statistical material which Higgins used to support this claim was rather striking as is the richness of the account he gives of the early history of the Arbitration court. The following passage, which is not too lengthy, is worth reading to you:

[4] I think you will agree that this a fascinating account of industrial disputation in the first twenty years of the `new province for law and order." It also struck me what a modernist Higgins really was. He was using key performance indicators. He was comparing the performance of the State and Federal industrial systems by reference to the number of strikes experienced in each jurisdiction. The fewer the strikes the better the performance. This idea has some potential. What need have we in the industrial jurisdiction for measurement of processing time, court usage or other performance indicators? Why not measure performance by analysing downtime within the jurisdiction. Strike and lockout statistics for each jurisdiction could be released on a monthly or more frequent basis together with a performance ladder. "Oh," one might casually remark after reading the latest statistics, "I see Tasmania is still on top." The statistics could be further disaggregated to give the performance of each member of the relevant Commission. It would only be a matter of time before a salary cap and national draft were adopted so that Tribunal members could transfer from jurisdiction to jurisdiction to even up the competition.

[5] But there was more. Higgins continued, a paragraph or so later:

[6] Leaving aside the gratuitous political references, familiar though they might be, Higgins, it can be seen, having embraced KPI's, moved on immediately to international benchmarking. Measurement of downtime on an international basis against world's best practice. I think, however, that it is a concept of limited utility in Australia these days for reasons which I shall come to shortly.

[7] On a more relevant note, Higgins' remarks show a deep concern for the effectiveness of the industrial system in protecting the public from the effects of strikes. A fundamental objective of the Conciliation and Arbitration Act of 1904 was the creation of a system of dispute resolution which would protect the population from interruptions in the supply of goods and services. It is not surprising therefore that the success of the system was in large part assessed by reference to how well it protected citizens from the effects of industrial disputation. It is for that reason that Higgins argued, as we see in these passages, that the public was less likely to be inconvenienced by the effects of industrial disputes in the areas over which the Court had jurisdiction than in the areas over which it did not have jurisdiction.

[8] It is of some interest that the indicator which Higgins used to measure the effectiveness of the Court of Conciliation and Arbitration in 1926 could not be used to measure the effectiveness of the Industrial Relations Commission in 2001. There are a number of reasons for this. The most obvious is that industrial action is now regarded as legitimate. Industrial action, in the form of strikes and lockouts, although not actively encouraged, is permitted when undertaken in connection with bargaining at the level of the enterprise. Since 1993 our Federal legislation has provided for a right to strike in those circumstances, subject to the observance of the prescribed procedures. This was a very important change in legislative policy. It changed the balance between the interests of the direct parties to industrial disputes and the interests of those who might be indirectly affected by industrial disputes - the public.

[9] The creation of a right to strike carries with it the implication that some degree of disruption to the supply of goods and services to the public is acceptable. This can be contrasted with the position which prevailed for the first 90 years of our national system. The assumption underlying the legislation of 1904 was that strikes and lockouts should not be permitted and that the processes of conciliation and if necessary arbitration should replace the use of economic power in industrial contests. All industrial action was inimical to the interests of society as a whole. That assumption is reflected in Higgins' speech. But the assumption has changed. Parties are now permitted to use their economic power within the limits set by the Act. This has implications for the public, who are vulnerable to disturbance and disruption from industrial disputes, and for the parties to industrial disputes.

[10] This change seems to have been accepted at least by the general public. There are few if any indications that the public feels it has lost a valuable protection. Calls for the Commission to intervene in disputes, even very large ones, to protect the public, have not been frequent. The Commonwealth Government is empowered to make an application to the Commission to terminate a bargaining period where industrial action being taken to support or advance claims is threatening the public interest in ways specified in the legislation, but such applications are rarely if ever made. Although the Commission's power to impose a settlement on the disputants by arbitration is now limited, the power has been exercised fairly regularly in the limited circumstances where that is permitted by the Act. Leaving aside the special area of arbitration of disputes involving paid rates awards, the Commission has intervened fairly quickly where the threat to the welfare of the population is clear, for example where the supply of health or other essential services is disrupted or where the economic considerations are compelling. Overall the number of cases of arbitral intervention is small when compared with the total number of disputes or even with the number of disputes in which industrial action is taken. If other businesses and the general public are being adversely affected by such contests they almost never seek the Commission's assistance.

[11] But when one turns to the parties directly affected by protected industrial action, the position is not so clear cut. The most serious disputes often arise because the parties are content to slug it out, sometimes with Court proceedings in the background, in the time-honoured way, until one side or the other capitulates to economic or other pressures. On the other hand there are cases in which the employer has insufficient resources to withstand protected action and capitulation is rapid and total. The same can be true where the number of employees is small and pay is low and the employer is able to impose changes in employment relatively easily. It can be observed that these results are the natural and intended consequence of inequality of bargaining power in a decentralised bargaining system.

[12] It is of more than passing interest that the introduction of protected industrial action in Australia coincided with a significant decline in industrial disputation. Levels of strike activity in recent years are the lowest for decades. This is supported by anecdotal observations about the industrial climate and is consistent with the significant structural adjustment which has occurred in many of our traditional industries, the growth of employment in new industries and the rather rapid decline in union membership. It is likely therefore that the effect of industrial disputation on the public has been correspondingly small both in historical and absolute terms.

[13] The OECD has recently commented on the frequency of strikes and lock outs as a measure of the functioning of the Australian industrial relations system.2 It noted that at the end of the last century the Australian strike rate was much lower than a decade earlier and almost one tenth of the rate around 1980. Over that period strike rates in other OECD countries also trended down sharply. Whilst Australia's strike rate remains above the OECD average the rate of decline in Australia's strike rate is greater than the OECD average although less than Italy, New Zealand and the United Kingdom. This information and quite a deal more is to be found in the OECD's publication entitled "Innovations in Labour Market Policies: The Australian Way" a book with a number of interesting features, not the least of them being a cover photograph of a surfboard rider atop a very large wave. A rather ambiguous comment on Australia's labour market policies.

[14] Along with the decline in the incidence of industrial action in many of the OECD countries there has also been a decline in the level of union membership.3 Whether there is a causal relationship between these two declines is difficult for me to say, although there is obviously some kind of relationship. In Australia trade union membership as a proportion of employees dropped from 48% in 1980 to 26% in 1999. Although the OECD has not published comprehensive comparative data later than 1994, similar declines occurred in many although not all of the developed economies. Sweden and Spain defied the trend, recording an increase in union density, and Norway and Canada have remained relatively stable. It may be of interest to compare what has happened in Australia with the trend in the United States. Between 1980 and 1999 union membership in the US dropped from 22% of the workforce to around 14% of the workforce - a drop of about 36%.4 In Australia for the same period the reduction was about 46%, but from a much higher base.

[15] Leaving aside the issues of industrial action and union membership it is important to recognize that for the most part the legislative changes of the 1990's have been tested in a relatively unchallenging climate. Australia has experienced almost a decade of benign economic conditions. Since the recession of the early 1990's the economy has been performing well with strong non-inflationary growth, increases in real incomes and a gradual reduction in unemployment. If one matter only had to be identified as cause for concern and renewed effort it is the level of unemployment. The causes of unemployment and what steps can be taken to alleviate it are not matters for me to comment upon. But I do think it is most unfortunate that a relatively high level of unemployment now seems to be accepted as an inevitability. Aggregate figures mask the fact that there are geographical areas and socio-economic groups with very high unemployment levels. Sustained periods of high unemployment are debilitating for the individuals involved and erode the morale of the community. After nearly a decade of growth we have not been able to get the official unemployment rate below about 61/2%. And that is on, I am led to believe, a fairly generous measure of what constitutes being employed.

[16] But to return to the issue, and speaking generally, for so long as the level of industrial action remains low it is likely that support for the Commission's limited arbitral role and the current statutory recognition of industrial action will continue. It remains to be seen whether the degree of protection which the legislation now affords the public and the parties from the effects of industrial action will prove to be adequate in the future.

[17] The relative importance accorded to the avoidance of disruption in the supply of goods and services to the public is not the only feature of the current legislation which distinguishes it from the legislation with which Justice Higgins was familiar in the early part of the last century. For example, there are new areas of jurisdiction concerning enterprise agreements. Access to procedures for the certification of enterprise agreements is no longer the exclusive preserve of the trade unions. The Commission also deals with many actions based on individual statutory rights in relation to termination of employment and other matters. In addition union preference has been abolished.

[18] Whilst the legislative changes of the last decade are sometimes viewed as destructive of our traditional system, from another perspective those changes are a reversion to the basic structure of the industrial system which operated between 1904 and 1928. There are certainly a number of important similarities between the Federal system in its original form and the system which we have now. Firstly, the exercise of the Court's powers was confined for the most part to the fixation of minimum wages and conditions. It was permissible to bargain for over-award rates and conditions and such bargains were generally not the concern of the Court. In relation to claims at award level, arbitration was only available if a resolution could not be achieved by conciliation. Conciliation was thus, as it is now, the cornerstone of the system. The importance of conciliation was recognized by legislative amendments in 1926. Those amendments provided, among other things, for the appointment of conciliation commissioners. The sole function of the commissioners, at that time, was to attempt to resolve industrial disputes by conciliation. In 1930 the Act was amended to give the conciliators power to arbitrate where conciliation failed.

[19] Prior to 1928 the Court was empowered to certify agreements reached by the parties without regard to the public interest. Accordingly there were no restrictions on the agreements that could be certified even if the possible flow-on effects to other employers and industries, if the Court gave its approval to the agreement, were considered to be economically irresponsible. In 1928, however, the Act was amended to require the Court, before making an award or certifying an agreement, to consider the probable economic effect of the award or agreement in relation to the community in general and the probable economic effect on the industry or industries concerned. That provision in its later forms was the principal mechanism by which the Commission was able to implement the centralized system of wage fixation for most of the 1970's and 1980's.

[20] Of course economic conditions have altered very much in the last 75 years. The most important changes include the reduction in trade barriers and other forms of protection and the deregulation of financial markets. There have been parallel developments in the regulation of the labour market. A very significant change was the dismantling of the wage-fixing regime in which all award increases were derived from a decision made centrally and in which increases from other sources, whether award or over award, were kept to a minimum. Under current circumstances the only centrally derived increases in rates are safety net increases. Those increases are received by about a quarter of the workforce. The other three quarters are covered by agreements, whether formalized under the Act or not, of a collective or individual kind which yield benefits above the safety net. These changes, together with the emphasis our legislation now gives to enterprise rather than industry bargaining, has altered wage determination in fundamental ways. Through a range of different types of agreement, subject to observance of the award safety net, parties are, generally speaking, free to make their own arrangements. Last year the Commission certified around 7,000 agreements, compared with around 1500 in 1992/93. While the Commission checks that agreements have been reached through a fair process, that they do not reduce award conditions and that they are not discriminatory, the possible economic effects of the agreements are not relevant in the certification process.

[21] The importance of the Commission's conciliation role has been given renewed emphasis in recent years in conjunction with the development of enterprise bargaining. More time than ever is being spent attempting to assist parties who invoke the Commission's aid to resolve their differences. Commission time spent on this work varies from dispute to dispute. Weeks can be spent just on one dispute or on a series of related disputes. At the other end of the scale, sometimes all that is needed is the establishment of an agenda or a timetable and the parties are content to negotiate to finality without any Commission involvement. There are, as all practitioners know, a broad range of possibilities in between.

[22] Along with the development of formal agreement-making has come an increased demand for the Commission to deal with disputes which arise during the course of an agreement. Most agreements contain a procedure for resolving disputes which arise during the course of the agreement and many of these procedures give the Commission a significant role exercising what the High Court has recently described as private arbitration functions. Parties are invoking the Commission's assistance in this way with increasing frequency and the number of applications of that type has increased rapidly in the last three years.

[23] By and large there is political consensus about the essential features of the system. There is disagreement about the composition of the safety net and the level at which various elements of it should be set and about the place of individual agreements. There is also some disagreement about the breadth of power which should be available to the Commission to intervene in enterprise bargaining disputes. There does not seem to be, and I am only an observer in this, any call from the mainstream of politics for radical change to the essential ingredients of the existing system. While the traditional function of dispute prevention and settlement remains the most important Commission activity, the focus in recent years is much more on conciliation and agreement-making than on arbitration. The implications of this change have been significant for many of the parties, as indeed they have been for Commission members. The Commission is an important resource in the bargaining process and plays a major role in the resolution of disputes both large and small. Anyone who doubts that proposition should be condemned to spend a week working with a Commissioner in the coal industry panel, to take one example.

[24] Might I make some short observations following from this brief attempt to put the industrial system into an historical context. There are two things which stand out. The first is that whilst the primary purpose for which the national dispute-settling tribunal was established - the provision of a forum for the resolution of industrial disputes by conciliation and arbitration - is still valid, in 2001 the community does not view the protection of the public from the effects of industrial disputes in the same way as it did in 1904. The protection of the public from disruption to their everyday lives is now a qualified objective. The system now gives more recognition to the right of disputing parties to exert economic pressure on each other, provided the effect upon society as a whole is kept within certain bounds. Along with that recognition there is an acceptance that the law of the marketplace requires that those with low bargaining power, whether employers or employees, will fare worse under a deregulated system than those in a position to exert economic leverage. The second observation, and one I shall not dwell on, is that the Commission, over the last 96 years, in its various manifestations, has coped with numerous changes in the breadth of its powers and in the nature of its functions and has proven to be a very resilient, adaptable and socially useful institution.

1 "Industrial Arbitration" An Address delivered by Mr Justice Higgins in the Chapter House of St Paul's Cathedral, Melbourne, on the 22nd of March 1926

2 Innovations in Labour Market Policies - The Australian Way, OECD 2001 at pp.255-256

3 op.cit. at pp.251-252

4 U S Department of Labour, Bureau of Labour Statistics