Workplace relations framework: inquiry report

21 Dec 2015

The report is a broad ranging assessment of Australia's workplace relations (WR) framework, considering current laws, institutions and practices. It uses an economywide approach, looking at possible reforms that, where merited, are likely to enhance the welfare of Australians as a whole.

This report was sent to Government on 30 November 2015 and publicly released on 21 December 2015.

Key points

  • 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 encourages employment, and that enhances economic efficiency. It is easy to both over and under regulate.
  • The bulk of relationships between employees and employers are harmonious. The adversarial relationships between the parties that sometimes surface can often reflect poor relationship management, rather than flaws in the WR framework.
  • Contrary to perceptions, Australia's labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervaded historical arrangements have now abated. Strike activity is low, wages are responsive to the economic cycle and there are multiple forms of employment arrangements that offer employees and employers flexible options for working.
  • Set against that background, Australia's WR system is not dysfunctional - it needs repair not replacement. Nevertheless, several major deficiencies need addressing.
  • While the Fair Work Commission (FWC) undertakes many of its functions well, the legalistic approach it adopts for award determination gives too much weight to history, precedent and judgments on the merits of cases put to it by partisan interest groups. This calls for a change in institutions and in practices. The wage regulation function of the FWC should be separated from it. The existing FWC would concentrate on its tribunal and administrative functions. A new body, the Workplace Standards Commission (WSC), would be dedicated to determining minimum wages and award regulation.
    • The WSC would use different types of expertise, and apply a clear analytical framework supported by evidence it collected.
  • The appointment process for FWC members can lead to inconsistencies in some of its decisions, a problem that a new 'fit for purpose' governance model involving all Australian jurisdictions could resolve. The same processes would apply to the WSC.
  • The Fair Work Act 2009 (Cth) and sometimes the FWC can give too much weight to procedure and too little to substance, leading to unnecessary compliance costs and poor outcomes. For example:
    • some minor procedural defects in enterprise bargaining can require an employer to begin the agreement-making process again.
    • an employee may engage in serious misconduct but may receive considerable compensation under unfair dismissal provisions due to procedural lapses by an employer.
  • These problems can be easily remedied without removing employee protections.
  • Minimum wages are justified, and the view that existing levels are highly prejudicial to employment is not well founded. However, significant minimum wage increases pose a risk for employment, especially for more disadvantaged job seekers and in weakening labour markets.
  • Complementary policies that provide in-work benefits - such as wage subsidies or an earned income tax credit - might support higher incomes for lower paid employees, while not damaging employment. However, there are challenges in developing effective policies of this kind.
  • Awards are an Australian idiosyncrasy with some undesirable inconsistencies and rigidities, but they are an important safety net and a useful benchmark for many employers. The WSC should address specified troublesome hotspots on a thematic basis.
  • Penalty rates have a legitimate role in compensating employees for working long hours or at asocial times. However, Sunday penalty rates for hospitality, entertainment, retailing, restaurants and cafes are inconsistent across similar work, anachronistic in the context of changing consumer preferences, and frustrate the job aspirations of the unemployed and those who are only available for work on Sunday. Rates should be aligned with those on Saturday, creating a weekend rate for each of the relevant industries.
  • Enterprise bargaining generally works well, although it is often ill-suited to smaller enterprises. However:
    • while the better off overall test is cosmetically similar to a no-disadvantage test (NDT), in practice, the NDT makes agreement-making less costly and more efficient. A NDT with guidelines about the use of the test should be used for all enterprise agreements and individual arrangements.
    • bargaining arrangements for greenfields agreements pose risks for large capital-intensive projects with urgent timelines. A limited menu of bargaining options would address the worst deficiencies, while taking account of the different nature of greenfields projects.
  • Individual flexibility arrangements have many possible advantages, but their take-up is relatively low. In part, this reflects ignorance of their existence. But there are perceptions (sometimes not well based) of defects, which also constrain their use. These should be resolved by providing information on their use, extending the termination period of the arrangements, and by moving to the NDT.
  • There is scope for a new form of employment arrangement, the 'enterprise contract', which would provide for variations to awards suited to the circumstances of individual enterprises. This would offer many of the advantages of enterprise agreements, without the complexities, making them particularly suited to smaller businesses. Any risks to employees would be assuaged through a comprehensive set of protections, including a clear written statement to employees of the implications of award variations, a no-disadvantage requirement, the right to revert to the award or to initiate enterprise bargaining, and continued coverage by the National Employment Standards and employee protections.
  • Strike activity in Australia is at low levels, but debilitating processes and problematic new forms of action should be fixed:
    • overly complex processes for secret ballots should be simplified
    • aborted strikes and brief stoppages are sometimes ingeniously used as bargaining leverage by employees, but a few modest remedies can address this without affecting the legitimate use of industrial action
    • employers should be given more graduated options for retaliatory industrial action other than locking out its workforce.
  • It is too easy under the current test for an employer to escape prosecution for sham contracting. Recalibrating the test from one of 'recklessness' to 'reasonableness' is justified.
  • Migrant workers are more vulnerable to exploitation than are other employees, and this is especially true for illegally working migrants. This requires a package of measures that encourage migrants to report exploitation and support for the Fair Work Ombudsman to detect and pursue exploitative employers.
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