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Democratic deficit at work

5 Sep 2006
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The Ajax dispute and the Amcor closures highlight a lack of consultation in the workplace, writes Anthony Forsyth

TWO major developments in Australian business this week - the crisis in the car manufacturing industry, triggered by supply firm Ajax Fastener’s parent company entering into administration, and Amcor’s restructuring announcement with the loss of 200 jobs - have focused attention on the vulnerable position of Australian workers in corporate insolvencies and restructures.

Employees at Ajax had to occupy the factory to ensure that their interests were considered in the round-the-clock negotiations over the company’s future between the administrators, the major car companies and other businesses in the supply chain. Why did the workers have to take such extreme measures? Because workplace and company laws in Australia provide them with very few rights to be informed and heard when companies face insolvency, or restructure their operations through closures, relocations or retrenchments.

Some consultation rights were provided to workers under award “TCR clauses” following the landmark Termination, Change and Redundancy Case in 1984. But the Howard government’s 1996 and 2005 legislative changes put an end to that. Employers have some legal obligations to consult with unions about mass redundancies, but the Work Choices amendments have significantly narrowed these provisions. Further, the Industrial Relations Commission has been removed as a forum for resolving these types of disputes.

Under the corporate law framework, employees are treated as unsecured creditors with minimal opportunity to influence the outcome of administration processes. The General Employees Entitlements and Redundancy Scheme, or GEERS, offers only limited protection of employment entitlements (although the federal government’s announcement on Tuesday of a doubling in the maximum amount of redundancy pay that will be funded under GEERS, to sixteen weeks’ pay, is a welcome development).

In contrast, the industrial relations systems of many European countries ensure that workers’ democratic rights of participation in decision making do not stop at the factory gate or the office door. In Germany, these rights are reflected in the legal provisions for information, consultation and negotiation over business restructuring issues through “works councils”:

• German law requires companies with more than 20 employees to disclose to the works council proposals for “substantial alterations” to the business, for example reduced production, transfers, closures, mergers of business units, changes to technology or production processes, or redundancies - anything that could entail “substantial prejudice” to the employees.

• Management and the works council then have to negotiate a “reconciliation agreement” about the proposals, dealing with the extent and timing of the changes or whether they should occur at all.

• If changes to the business are to proceed, then a “social plan” must be implemented - this could cover financial compensation for affected employees, longer notice periods before dismissal, or retraining programs.

• Where agreements cannot be reached, conciliation procedures apply, or ultimately, the Labour Court can make a ruling (although this is rarely required).

• In larger German companies (over 100 employees), employees also have the right to regular provision of financial information about the business through the “finance committee” of the works council - including quarterly progress reports, and an explanation of the annual balance sheet.

The European Community’s Information and Consultation Directive also provides employees with information and consultation rights in respect of proposed business restructures, although these are not as extensive as those operating under German law. Most importantly from an Australian perspective, the United Kingdom has recently implemented this EC directive.

For those who might argue that the continental European “social partnership” approach is too alien to Australian workplace culture, the UK experience suggests otherwise. Like Australia, the UK has not traditionally adopted formalised mechanisms for worker participation in firm decision making. But business interests, unions and employees alike have embraced the concept of partnership in recent years in the UK - recognising its potential for delivering productivity gains for the enterprise, and job security and other benefits for employees.

The German, EC or UK laws do not provide all the answers, and they would need to be modified to suit Australian circumstances. One option might be to adopt something like the German provisions for negotiation of a “social plan” when restructures are proposed or insolvency threatens the viability of a business. In the latter case, employees could have the right to negotiate (through their union, or a works council in non-unionised workplaces) with the company’s administrators. Related companies could be compelled to be drawn into these negotiations, overcoming the common problem of the “corporate veil” as a barrier to accessing funds to meet workers’ entitlements.

These overseas laws at least provide a starting point for a much-needed debate, in light of Work Choices’ stripping away of the rights of Australian workers, about what a framework for restoring those rights should look like. At the core of that framework should be a recognition of the democratic rights of employees to participate in making decisions that so fundamentally affect their interests.

Anthony Forsyth is senior lecturer and director of the Corporate Law and Accountability Research Group, Department of Business Law & Taxation, Monash University, and an associate of the Australian Institute of Employment Rights. This article first appeared in The Age.

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2006
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