And the award goes to…

The Productivity Commission’s (PC) draft report into Australia’s workplace relations framework does not look set to make major changes to the country’s idiosyncratic system of award wages, much to the chagrin of business.

The old saying goes that a good compromise is one that leaves all parties equally unhappy.

And by that yardstick the PC would appear to be on track – with unions preparing to protest planned cuts to Sunday penalty rates, and growing frustration among employer groups over minimal changes to the country’s complex wage awards system.

The commission’s highly-anticipated, 1000-page draft report into the workplace relations framework was released in August and received a lukewarm response all round. But this muted reception crystalised into more strident criticism from employer groups, who had hoped to see the review tackle Australia’s system of 122 awards.

The Business Council of Australia, which initially welcomed the draft, has been outspoken in calling for greater change. In late August BCA chief executive Jennifer Westacott issued a call to action in a strongly-worded speech at Sydney University1. Westacott said the PC had put awards in the too-hard basket and urged a re-think before the final report, due in November.

“To tell companies … to work around an overly complex, conflict-driven system is simply not a modern, forward-looking proposition,” she said.

The BCA advocates narrowing and eventually doing away with awards – which set out pay rates across 122 different work areas – in favour of economy-wide rates for casual, overtime, penalty and shift work.

The commission’s draft report acknowledged Australia’s award system was idiosyncratic but said it was necessary to set benchmarks against which the relative fairness of enterprise bargains and individual contracts could be measured.

BCA’s Ms Westacott also criticised the enterprise bargaining system, which she said resulted in some agreements restricting a manager’s ability to mobilise their people.

In a nod to these concerns, the draft report states: “There are grounds for changes to the Fair Work Act to limit the capacity of (workplace) agreements to regulate the use of contractors and labour hire.” 2

But on the whole, the commission’s draft report concluded only minor, rather than major, changes were needed to a workplace relations framework which it concluded was functioning well.

The PC expressed surprise more small businesses were not using individual flexibility arrangements which allow an employee and employer to negotiate bespoke terms and conditions. It concluded many had not heard of them.3

Perhaps of most interest to SMEs is that the PC recognised constraints on small businesses negotiating individual and collective agreements and has floated the idea of a new type of employment contract – the enterprise contract – which could offer more flexibility.

The proposed enterprise contract would sit somewhere between individual flexibility arrangements (which, while versatile, were costly for small enterprise to strike with each staff member) and enterprise bargains (which could be daunting).

The enterprise contract, as proposed in the draft report, would allow employers to vary an award for entire classes of employees (level 1 retail employees, for example) without having to negotiate with each party individually, or to form an enterprise agreement.4

The enterprise contract could be drawn up without input from employees and could be offered to new employees as a condition of employment, with existing employees having the choice of retaining existing conditions or adopting the new contract.

The commission held a series of public hearings around the country in September and was seeking more input from stakeholders on this proposal before delivering its final report, slated for the end of November.

Draft report key findings

  • Australia’s workplace relations system was not dysfunctional but there was room for improvement. The system needed renovation, not a knockdown and rebuild.
  • By global standards, Australia’s labour market was good, with multiple forms of employment agreements providing flexibility and low levels of industrial activity. Nevertheless, the system could be tweaked to stop manipulations, such as aborted or brief stoppages designed to cause administrative headaches for employers. Similarly, unfair dismissal laws needed refining so procedural errors alone did not result in sacked employees being reinstated or compensated.
  • The nature of work had changed, with about a third of Australia’s workforce working a Saturday or Sunday each week. Penalty rates were needed to compensate for working unsociable hours, but they should also reflect changing norms and consumer demand.
  • The Fair Work Commission could be too legalistic in its approach to determining awards – weighing the opposing arguments of lobbyists, rather than collecting its own data. History and precedence was given too much weight. Similarly, the Fair Work Act and the FWC could sometimes put procedure above substance, to the detriment of common sense.
  • Partisan appointment processes for FWC members could lead to inconsistent decisions. A formalised process was needed.
  • So-called greenfields agreements, struck between unions and new enterprise before any employees have been hired, were becoming more common and problematic. The current system could give unions undue power to stall large capital-intensive projects with sensitive timelines. The PC proposed three options if negotiations were not finalised within three months:
    1. Keep negotiating.
    2. Request the FWC arbitrate between the last offers of both union and employers.
    3. Submit the employer’s offer for FWC approval with a 12-month expiry, at which point the business would have hired employees and they can take charge of normal enterprise bargaining.

Key draft recommendations:

    • Sunday penalty rates – that are not part of overtime or shift work – should be set at Saturday rates for the hospitality, entertainment, retail, restaurants and café industries (it is recommended this be done with 12 months’ notice of introduction).
    • The Fair Work Act 2009 should be amended to replace the BOOT (Better Off Overall Test) with a simpler no-disadvantage test for enterprise and individual agreements.
    • An information kit should be prepared and distributed to small businesses to increase awareness of individual flexibility arrangements for staff.
    • An independent panel (established by state and federal authorities) should select a shortlist of candidates for appointment to the FWC. The final appointment would then be made by the federal Employment Minister. The positions of president, vice president, deputy president and commissioner should be five-year terms with the possibility of reappointment after performance reviews.
    • A minimum standards division should be established as part of the FWC to specifically handle minimum wage and modern award reviews.

1 – Kingsley Laffer Memorial Lecture, Sydney University Wednesday August 13, 2015
2 – Workplace Relations Framework, Productivity Commission Draft Report, Australian Productivity Commission, August, 2015, p 34.
3 – Workplace Relations Framework, Productivity Commission Draft Report, Productivity Commission, August, 2015. Page 36.
4 – Workplace Relations Framework, Productivity Commission Draft Report, Productivity Commission, August, 2015. Page 37.

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