The bargaining challenges facing employers - What can the Productivity Commission do to help?

By: By John Tuck (Partner) & Anthony Forsyth (Consultant)

Submitted by Firm:
Corrs Chambers Westgarth
Firm Contacts:
John Tuck
Article Type:
Legal Article

Initial submissions to the Productivity Commission (PC) Review of Australia’s workplace relations system closed recently.

In their submissions several major employers, and employer bodies including Australian Industry Group (Ai Group), have called for a complete overhaul of the enterprise bargaining provisions of the Fair Work Act 2009 (Cth) (FW Act).

But how far will employers get with their preference for a more voluntarist bargaining framework coming out of the PC Review? And more importantly, even if the PC recommends significant changes, will the Abbott Government want to fight the next election on IR issues?

Scope of the PC’s focus on bargaining

Issues Paper 3, released by the PC in January, indicates a willingness to embark on an extensive reconsideration of bargaining under the FW Act – including rights to take protected industrial action. The PC will address questions such as:

  • What are the best arrangements for greenfields agreements, to balance the goals of viability/efficiency of major projects and appropriate bargaining power for employee representatives?
  • Are new restrictions on pattern bargaining needed, and on the range of matters which can be included in enterprise agreements?
  • Why are there not sufficient commercial incentives for parties to ensure productivity outcomes from enterprise bargaining? What further drivers are required?
  • Are the current provisions for good faith bargaining, protected industrial action ballots, and conciliation/arbitration in the bargaining sphere working effectively?
  • Should employers have access to other forms of protected action beyond lockouts? Should union tactics, such as aborted strikes, be subject to greater restrictions?
  • Is there room for a greater role for common law contracts and other forms of individual agreements, sitting outside enterprise agreements?

The PC will consider these issues in the context of an “overarching concern” as to “the extent to which bargaining arrangements allow employees and employers to genuinely craft arrangements suited to them”. This language is similar to that adopted by the Howard Government to make the case for its deregulatory IR reforms from 1996 through to Work Choices in 2005.

Examples of the difficulties employers face under the FW Act

ANZ’s recent experience illustrates some of the challenges faced by large, national employers in bargaining under the current legislative framework. After five months of negotiations with the Finance Sector Union, ANZ put a proposed deal to a vote of employees in mid-February. With the union opposing the bank’s proposed agreement, it was voted down by a majority of employees.

The proposal included wage increases of 3.75%-5.25% over two years – although ANZ indicated that if the agreement was rejected, there would only be one wage increase of 3%-4.5%. The bank is also trying to bring ordinary working hours on weekday evenings and weekend afternoons into line with its major competitors. The new agreement for ANZ is therefore as much about implementing necessary workplace change, as it is a mechanism for setting future employment conditions. If these changes are business critical what mechanisms should exist to break the deadlock? 

ANZ’s is a fairly typical story, with many protracted bargaining disputes involving the additional element of the threat – or reality – of protected industrial action. This is reflected in recent reports of difficult agreement negotiations at employers including Esso Australia and state-owned power distributors in NSW.

What kind of bargaining system do employers want?

We focus here on two of the many employer submissions to the PC Review:

AiGroup argues for a return to the pre-FW Act, voluntary bargaining system – without the strictures imposed by majority employee support determinations, bargaining orders and other opportunities for FWC intervention.

  • A major concern for the employer body is the way that companies are locked in to the current agreement as the starting point for negotiating the next deal. In this way: “unproductive and costly enterprise agreement provisions negotiated in more profitable times” are simply rolled over, “but which now leave [businesses] uncompetitive”.
  • Among other recommendations, AiGroup suggests that agreements include a mandatory “productivity term” which would enable employers to implement workplace changes required to ensure efficient and productive management of the enterprise.

BlueScope’s submission takes a more innovative approach, premised on the “direct engagement” HRM model of the 1990s. The steel producer argues for a dual collective system of bargaining, in which employers could opt out of the Fair Work Commission Bargaining Stream (a modified form of the current FW Act provisions) in favour of a Direct Engagement Stream (DES).

  • In the DES, collective agreements between employers and employees would be made by common law deed poll.
  • The agreements created, called Direct Employment Compacts, would be underpinned by a fair treatment process for employee grievances; periodic salary reviews; employee involvement in productivity improvement; and a “no less favourable overall” test referable to the relevant award and the NES.
  • No industrial action rights would apply in the making of Direct Employment Compacts.
  • These agreements would only be enforceable through the civil law jurisdiction of the courts.

Will employers get what they want?

The PC’s issues papers, and recent comments by Chair Peter Harris at Senate Estimates, indicate that the Commission will focus closely on whether various aspects of the FW Act are meeting their intended purposes – or whether a better way of doing things can be found. 

This could mean that the PC will be open to more than simply returning to the pre-FW Act bargaining model, as advocated by AiGroup, and will want to explore more radical options such as those put forward by BlueScope.

It is fairly clear, however, that the Abbott Government would be unlikely to risk its electoral prospects on changes to the FW Act along the lines of the BlueScope proposal.

The Government has already ruled out any changes to the minimum wage and penalty rates - regardless of what the PC recommends. Allowing employers and employees to opt out of the statutory collective bargaining system would probably also be a bridge too far.

With an eye to the next federal election, the Government can be expected to commit only to moderate changes to the FW Act bargaining provisions.

In our view, these should include measures to provide quicker access to a circuit-breaker in protracted agreement negotiations (e.g. arbitration); and/or easier termination of current agreements, particularly where these present obstacles to workplace flexibility.