A New Year Prediction

14th January 2016

If I were bold enough to make a New Year prediction, then I suggest 2016 will emerge as the year that defines how Australian employment relationships will be governed for the next generation. The case for flexibility, agility, and risk taking face formidable reactionary cries for fairness, caution and security, the classic battle lines that have defined Australian political and economic debate for over 100 years. There are very few voices heard advocating a middle course. Once the debate has settled, I suspect the resultant framework, for better or worse, will rule our workplaces for at least the next decade.

I premise my foolish prediction on ‘reform fatigue,’ the idea that eventually everyone gets tired of the debate and either one view prevails or a compromise solution is accepted and becomes the status quo until a crisis requires a change to something different. So, before that fatigue sets in let’s start the year with a bit of enthusiasm and analyse the case for reform. There are four reports that provide a useful analytical framework for the ensuing debate as they address social, legal, economic and political themes critical to a rational consideration of the issues.

Competition Policy Review Final Report, Professor Harper et al March 2015
Towards Responsible Government, The Report of the National Commission of Audit Phase One, February 2014
The Workplace Relations Framework, Productivity Commission Inquiry Report, No. 76 30 November 2015
The Royal Commission into Union Governance and Corruption Final Report, 28 December 2015

Competition policy is the forgotten piece of the puzzle

The Australian government spent most of 2015 equivocating on the recommendations of Professor Ian Harper’s analysis of the state of Australian business competition. The most controversial of the recommendations concerned predatory behaviour of large business toward smaller competitors and suppliers. The Report recommended changes to the law to prohibit large businesses with substantial market share “… engaging in conduct if the conduct has the purpose, effect or likely effect of substantially lessening competition in that or any other market.” In relation to employment regulation the Review Panel endorsed the general principle espoused by the Productivity Commission that: “In part, industrial law may be separated from competition law because it has ethical and social dimensions at its heart, to a greater extent potentially than the business-to-business aspects of competition law. In addition, labour markets have some characteristics different from goods markets …”

However, Professor Harper did take aim at anti-competitive provisions in awards and enterprise agreements such as limitations on the use of labour contractors, and the provision of financial and other services (superannuation), an issue also addressed in the Royal Commission into trade union corruption and governance.
In particular, the Review Panel recommended that sections 45E and 45EA of the Competition and Consumer Act 2010 (dealing with contracts restricting trade) should be amended so that they expressly apply to awards and industrial agreements, except to the extent that the awards and industrial agreements deal with the remuneration, conditions of employment, hours of work or working conditions of employees. The Review Panel believed that such an amendment would preserve the integrity of the current exception for employment arrangements, while protecting the trading freedom of employers outside the scope of that exception.
In order for this to occur effectively, the Australian Consumer and Competition Commission (ACCC) should be given the right to intervene in proceedings before the Fair Work Commission, which seems a pretty sensible recommendation.

Does anyone remember the Commission of Audit?

One of the first actions of the Abbott government in 2013 was to commission an audit of the Commonwealth’s finances inviting the Commission panel to provide advice and recommendations on what should be done to ensure that spending is placed on a sustainable long‐term footing. The Phase One Report published in February 2014 provides an interesting analysis of the relationship between unemployment benefits and the minimum wage, grappling with the age old problem of the need to provide a reasonable standard of living for the unemployed whilst ensuring there is sufficient incentive and opportunity to participate in paid employment.

Highlighting the comparatively high minimum wage in Australia, the Commission recommended slowing the growth in the minimum wage for a period of 10 years (approximately 1.5 per cent per year) until it reaches a benchmark of 44 per cent of National Average Weekly Earnings (NAWE). Under this arrangement the minimum wage would continue to grow over time in nominal terms but at a slower rate than under current arrangements. After ten years the minimum wage would be indexed in line with growth in NAWE further enabling a degree of variation across the nation to take into account regional differences in the labour market and variations in the cost of living.

The Commission noted the wide differences in wage rates between States that distorted incentives and opportunities for long term unemployed. For example, whist the minimum wage is around 45 per cent of the Australian Capital Territory AWE it is around 65 per cent of AWE in Tasmania. Consequently, the relative cost of employing a person on a minimum wage is greater in Tasmania.

Royal Commission into union governance and corruption

The Royal Commission into Trade Union Governance and Corruption published its Final Report on 31 December 2015. The Report includes 76 recommendations to amend laws regulating the manner in which registered organisations are managed covering themes such as the regulation of union financial arrangements, union officials responsibility to disclose personal interests, outlawing corrupting benefits (“kickbacks”), regulation of related entities (‘slush funds’), prohibiting anti-competitive terms in enterprise agreements, reinforcing the ban on secondary boycotts, re-establishing the investigative powers of the Building and Construction Commission, and introducing regular training for right of entry permit holders.

The Report takes a generally conservative approach to reform of union structure focussing on aligning statutory duties of union officers with corporations law, significantly increasing penalties for breach and relies on specialist regulatory authorities and external financial auditing to monitor compliance. Outside of the requirement to appoint a financial compliance officer the Commissioner has not recommended any significant changes to the corporate form or structure of registered organisations. An obvious area of reform that has been ignored is opening the sector to competition. I could register a company and commence trading tomorrow, but I can’t establish a new union to offer a better service to the eighty-five per cent of the workforce currently unwilling or unable to join current unions.

Nevertheless, the Report provides some very useful recommendations for reform. Importantly, the Commissioner recommends transferring all regulatory functions of the General Manager of the Fair Work Commission and the Fair Work Commission insofar as they apply to registered organisations under the Fair Work Registered Organisations Act 2009, to a new Registered Organisations Commission. The new regulatory body would exercise additional powers to oversee the financial and general management of unions and registered employer associations.

Productivity is a dirty word

In the spring 2015 edition of Employee Relations NEWS I reported on the broad-ranging assessment of Australia’s workplace relations’ framework, conducted by the Productivity Commission, considering current laws, institutions and practices and recommendations on how the framework can be improved to enhance the welfare of Australians.

The Final Report published on 30 November and released by the Australian government on 21 December 2015 confirmed much of the analysis and recommendations contained in the draft report. There are over 60 recommendations spread over two volumes covering topics such as the modern awards, minimum wage fixation, the role of the Fair Work Commission, general protections, enterprise bargaining, unfair dismissals, weekend penalty rates, and the relationship between employment regulation and competition policy. The following observations in the Report set the tone of the report:

“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 encourage employment, and that enhances economic efficiency. It is easy to both over and under regulate.”

Essentially, the Productivity Commission does not believe that Australia’s workplace relations system is dysfunctional — it just needs repair not replacement. Nevertheless, It did recognise that some major deficiencies in the regulatory framework need addressing. One of the more useful recommendation of the Report concerns transferring the powers currently exercised by the Fair Work Commission to determine minimum wages to a new authority, the Workplace Standards Commission with responsibility for reviewing and varying the national minimum wage and modern awards (including the making of equal remuneration orders).

The Productivity Commission was critical of the overly legalistic reliance on past decisions to determine minimum wages and conditions. The proposed new authority would perform its task in a manner that should not just involve impartially hearing evidence from parties, but also seeking out and engaging with parties that do not typically make submissions, and proactively undertaking data collection and systematic, high-quality empirical research as a key basis for decisions.

Observations on reform

Notwithstanding my criticisms, there is a consistency in the analysis and with some exceptions, the reforms recommended by the reports that is encouraging. The recommendations mainly focus on improvements to the institutional framework designed to make the system work better. Even the analysis on weekend penalty rates and minimum wages are predicated on the opportunities for employment and economic growth. The reports do not recommend wholesale reductions in wages and conditions accepting the need to transition the reforms.

The principle that employment relationships and the labour market are fundamentally different from product and service markets is shared by the reports. Consequently, specialist regulatory arrangements are either endorsed or recommended. Notwithstanding the differences to trade and commerce, the authors recognise the interrelationship and importance of economic forces on employment and income. Concepts of fairness and employment security are not divorced from productivity and economic growth.

Finally, each report reinforces the fundamental importance of open and fair competition in trade and commerce and honesty and integrity in employment arrangements. It is self-evident that regulators must be ever vigilant to prevent and respond to, anti-competitive, dishonest and corrupt conduct, especially where there is institutional failure, as witnessed by the Royal Commission into Trade Union Governance and Corruption.

Consequently, the lesson that I take from these reports is that the law should be changed if it is ignored, inadequate or exploited. Institutions such as unions are no different to public companies. If they can be improved then do so. The Fair Work Commission, and the Building and Construction Commission, are no different to the Australian Competition and Consumer Commission. None of these institutions are sacrosanct. They are merely means to an end, and should change if it is in the public interest to do so.

It just takes a bit of intelligence, patience, and determination to place the public interest ahead of vested interests. Wishing you all the best for 2016!