A Matter of Choice

Agreements without Unions

Russell Allen

On a previous occasion I spoke to the H. R. Nicholls Society about that important freedom that should be available to everyone in a modern society, namely the freedom of association. My paper this afternoon concerns another important freedom, the freedom to choose whether to enter an employment contract and, more particularly, the freedom to reach agreement as to the terms and conditions of that employment contract.

Most countries do not fetter the ability of an employer and employee to establish their own terms and conditions of employment, although many countries provide that certain minimum standards must be maintained.

On the other hand, Australia has developed its own unique system of compulsory arbitration which has placed significant limits on the freedom of individuals to reach agreement with their employer as to their terms and conditions of employment.

All Australian industrial relations systems have established a system of legally binding awards providing for wages and conditions of employment. The parties to these awards are a union or unions on the one hand and an employer, group of employers or an employer association on the other hand. These awards, in turn, establish standards from which the employer cannot depart even where the employee agrees, and any attempt to "contract out" of the terms of these awards is an offence. To change the terms of these awards requires the consent of the union even where the employee is not a member of that union or where the employee agrees to the change. Finally, if the union consents to such a change, this needs to be approved by an industrial tribunal, which would normally take into account in the making of its decision a most vague and uncertain criteria, namely "the public interest".

In short, our industrial legislation has traditionally denied an employee or group of employees the right to reach an agreement with their employer, except for over-award benefits that do not infringe the award, because the union is the party to the award.

Fortunately our industrial legislation is changing to give a greater emphasis to the views of employees and to permit, agreements without unions, which is my topic for this paper.

The problems associated with unions as parties to awards have been the source of frustration for many years. These problems are not new and not simply products of so called "new right" agendas or theories about improving the competitiveness of enterprises. Rather these problems have surfaced quite routinely as businesses have fought for survival in difficult and changing economic times.

My first encounter with this problem arose when I was a young lawyer in the early 1970s faced with the dilemma of how to assist a small company to survive. The company had little scope to increase its prices, and a union was demanding significant wage increases in line with the high level of wage increases prevalent at this time. Many of you will recall the period leading up to the introduction of wage indexation in 1975 when there were leap frogging wage increases and a wage round fuelled by the metal industry agreeing to a $24 wage increase. In May 1974 the Federated Miscellaneous Workers' Union of Australia sought a flow-on of that wage round plus an improvement in other conditions of employment from this company, known as Telegene Pty Ltd, which had its own federally registered agreement.

Telegene operated a business which provided the service of cleaning telephones in commercial premises. It was a marginal business and employed a predominantly female workforce to carry out this service. From past experience the Company knew that if it lifted the price of its service it would lose customers, leaving it with no alternative than to lay off staff. Therefore the survival of the business in the short term depended on the Company limiting labour cost increases and stabilising its prices during a time of high inflation.

The first conference with the Union revealed little sympathy for the Company's position. As far as the Union was concerned the Company's wage rates were low, compared with other areas covered by the Union and the Company should be required to pay the same level of increase as the community generally. Telegene's financial position and the fact that any labour cost increases were likely to lead to loss of jobs were not of concern to the Union, which maintained the position that community wage levels must be imposed on the Company. The Union shop stewards employed by Telegene were uncomfortable with the Union's approach because of the potential job losses, however, their views were ignored in the interests of the Union's wider membership. The claim was therefore referred for arbitration.

Perhaps I was naive in those days but I was appalled at the attitude taken by the Union. They ignored the views of their members and shop stewards even though the jobs of some of their members would be lost and the future employment of all their members could be jeopardised.

At that time the Australian Conciliation and Arbitration Commission was routinely varying awards to put in place the $24 increase. The only hope the Company had was to plead "incapacity to pay" and also argue that due regard should be given to the views of its employees. In the proceedings before the late Commissioner Allsop the Company laid open its financial records for scrutiny and called evidence from its employees that they were happy with a package of wages and conditions offered by the Company. Telegene succeeded and Commissioner Allsop made the following observations:

It appears that this dispute is not one that has arisen at the union membership level and been taken up by the union on the members behalf. It seems that the union considered the wage rate being paid unreasonable and likely to have a depressing effect on wage rates generally and acted to correct this situation.

I am satisfied from the submissions and evidence placed before me that the majority of the union members are satisfied with the wages being paid and would certainly rather continue in employment at the proposed rates than have their employment terminated due to the company closing down or partially closing down its business.

I am also satisfied that the company is at present, in a most unhealthy financial position and could not pay higher wages than it is offering without going further into debt and indeed in its present condition it seems unlikely that it could borrow money to meet a higher wage bill.

In these circumstances, I feel that there is no alternative to allowing the company to pay the wages it proposes and leave it to the employees to decide whether or not they will continue in the company's employment at those wage rates." (165 CAR 748)

These types of proceedings before industrial tribunals are relatively unique. Rarely have businesses been prepared to tackle these types of cases before industrial commissions because of the range of risks involved and the uncertainty as to outcome. Telegene was lucky, it had its own federal agreement rather than coverage by an industry award and, to that extent, controlled its own destiny. Other companies have not been so fortunate. To seek to be different, particularly if it involves lower labour costs, has in the past led to vigorous opposition not only from unions, but also from competitors who hide behind the veil of an employer association to oppose a competitor obtaining the advantage of lower labour costs.

Many of the prominent industrial struggles discussed by this Society in previous conferences have involved situations where individual companies have been fighting for survival and have had a large measure of agreement with their employees. The Mudginberri dispute in the Northern Territory in 1985 arose from attempts by the Australasian Meat Industry Employees Union to force a tally system on that abattoir in circumstances where the abattoir's employees were quite happy with their existing contracts.

The Dollar Sweets dispute arose in July of the same year as a result of a claim by the Confectioners Union for a 36 hour week. Dollar Sweets could not afford this reduction in working hours which was also in breach of Commission principles. Strike action was directed by the Union, and the Company responded with an offer of over-award pay for a 38 hour week for employees who wanted it. Nearly half the employees accepted and the remainder continued strike action supporting the 36 hour week. The Company advertised and filled the places of the strikers and from then onwards a continuous picket was mounted against the Dollar Sweets factory.

Both Dollar Sweets and Mudginberri became very visible disputes where the real courts were used to deal with unacceptable industrial action and where the real courts awarded damages against the unions concerned. Both those cases also involved circumstances where the employees were happy with their terms and conditions of employment, and yet the unions chose to try and force their will, even though that action could have jeopardised the jobs of those employees.

While these cases are known as landmark cases in the area of civil litigation against unions, they also highlight the need to give employees a greater say in their terms and conditions of employment. They demonstrate the problems associated with unions having monopoly rights as parties to awards and agreements of industrial tribunals. They are classic examples of why these monopoly rights should be taken away, for those unions simply were acting quite irresponsibly. What they demonstrate is the need to legislate to give employees the ability to make legally enforceable agreements without unions.

The first legislative response to this need occurred in Queensland. In April 1987 the Minister for Employment, Small Business and Industrial Affairs in Queensland introduced a Bill to make provision for Voluntary Employment Agreements (VEA) in the Industrial Conciliation and Arbitration Act (Queensland) 1961. This legislation provided for an alternative to the award system, whilst leaving that system substantially intact. Importantly it permitted agreements (the VEA's) to be registered between an employer and employees where not less than 60% of those employees supported the agreement in a secret ballot. The union movement vigorously opposed the legislation because it attempted to by-pass them and it had the potential to force agreements on employees who did not consent. Ultimately the legislation was short-lived, with the Labor Government obtaining power and repealing the legislation in 1990. In its short period of operation it did not attract a large measure of support, with analysts suggesting that only about a quarter of one per cent of employees in the State may have come under the VEAs.

However, the existence of the legislation itself, and the ability to use it, influenced the ability of employers to obtain flexible award provisions which they sought through changes to awards in the main stream industrial system, rather than by resorting to agreements without unions. Because, if those agreements without unions had not been possible, the unions would not have agreed to the award changes.

John Niland considered the prospect of individual agreements in his Green Paper on Industrial Relations in New South Wales in February 1989. He observed:

The virtue of the individual agreement, it may be argued, is the ultimate scope for flexibility and the ability of employers to reward particularly strong effort. Certainly in some areas, such as segments of the computing industry, individual agreements are common and seem to operate without disruptive effect. In mainstream areas, however, where work relations are built on strong inter-group relations, individual agreements would be unnecessarily divisive.

(Transforming Industrial Relations in New South Wales---A Green Paper prepared by John Niland---Volume 1 p.37)

Niland considered the Queensland VEA legislation and concluded:

Against this background there would probably be little enthusiasm in New South Wales for voluntary agreements between an employer and an individual employee, or even a small proportion of employees, in a class or category. (p.39)

Niland saw collective agreements as a more attractive proposition with ... greater capacity to preserve and promote industrial relations stability, while giving scope for flexibility and self-determination. (p.39)

Finally, Niland recommended legislation to introduce two types of collective agreements with enterprise focus which would have the capacity to displace awards. Importantly, in recommendation 42 he recommended that these agreements may or may not be negotiated with a registered trade union involved. Legislation reflecting this recommendation was subsequently passed by the New South Wales Parliament, providing for collective enterprise agreements without unions where 65% of employees agree.

By 1987 the Federal Commission had recognised the importance of promoting the restructuring of enterprises and the improvement in efficiency. In the March 1987 National Wage Case decision the Commission, for the first time, required unions and employers to change work practices and make genuine changes designed to improve efficiency and enhance productivity in a manner consistent with the needs and requirements of the industry or enterprise concerned. The Full Bench emphasised that change must be focused primarily at the enterprise level. For the first time employers were required to look within, and to negotiate changes within, their business before their award was varied to grant a wage increase. Naturally this put pressure on the employees and the unions to change their ways.

Many employers did not take this decision seriously and agreed to superficial changes that only paid lip service to the requirements. However, some employers did take it seriously for they needed to improve their efficiency to survive. One such employer was Castle Bacon Pty Ltd, a small goods company and a large employer in the town of Castlemaine in country Victoria, at a time when that industry was facing an exodus from Victoria because of the terms of the Federal Meat Industry Award applying in that State. To be efficient and remain based in Castlemaine, award changes were necessary.

In July 1987 negotiations commenced with the local union delegate about measures to improve efficiency and access the 4% wage increase. The discussions with the delegate and consultation with the employees were productive and a series of award changes were proposed which would allow the Company to increase productivity, roster some public holidays through the year, and increase the scope for more casual employment over the Christmas period.

The Union which was the loser at Mudginberri, the Meatworkers Union, rejected the concept of award changes being "given away" and proposed a softer arrangement similar to that negotiated with another smallgoods company.

The Company decided to continue to deal with its employees, and 460 employees or nearly 90% of its workforce, signed a document agreeing to the change. Applications to vary the award were filed on the strength of this document. In the proceedings before Commissioner Caesar in November 1987, employee representatives, nominated by the workers, gave evidence that they voluntarily signed the document and had not been subject to any duress. But the Commissioner listened to the Union and placed little or no reliance on the employees' agreement. The Commissioner granted the 4% increase to employees, but did not vary the award in the manner agreed between the Company and the employees.

Castle Bacon appealed successfully and the Full Bench decided that it was:

... satisfied that the great majority of employees recorded in writing their genuine support for the proposed changes in their conditions of employment. (Print H4810, p.8)

... the changes proposed by Castle's application are appropriate to an exercise under the restructuring and efficiency principle. (Print H4810, p.9)

The Award variations were allowed. The Commission was prepared to recognise and endorse an agreement between management and employees. Sadly, by the time this decision was made in October 1988, a period of more than a year had expired and the efficiency changes were a year behind. The Castle Bacon case demonstrated the need to remove the legislative obstacles to voluntary work agreements.

Legislative changes in the Federal Industrial Relations Act 1988 failed to address this need. Those changes enabled the making of certified agreements permitting parties to "opt out" of the award stream, however, the Commission could still constrain the parties by rejecting agreements on "public interest" grounds and the parties to agreements were limited to unions and employers.

The inadequacies of the Federal legislation again received national prominence prior to Christmas 1990. The SPC cannery in Victoria's Goulburn Valley was faced with closure, with the banks demanding a return to profitability if they were to continue to fund the debt---ridden company. The loss of the cannery, in an area with unemployment levels well beyond national levels, would have caused enormous damage, not only to local business but also to the growers who relied on the cannery to buy their produce.

With nowhere else to go, SPC's management went to the workers at the end of 1990 with a suggestion to save the company. Management and SPC shop stewards needed to find labour cost savings of $2.5 million to keep the banks on side. They came up with a plan. However, their plan included the removal of 17½% leave loadings, the loss of rostered days off and single time payment for weekend work. Each of these changes was not allowed under the industry award.

On 5 December 1990 SPC proudly announced "that its workers had voluntarily accepted a series of pay cuts and extra working shifts in a last ditch $2.5 million bid to save their company and their jobs." Within hours the union movement had declared the deal illegal. The Liberal Opposition recognised the political value of the SPC issue and used it to demonstrate the need for a more deregulated labour market.

SPC was certainly naive in its approach, but there was no doubt that what may have been wrong under industrial law, was the right thing for the company and its workers. The Managing Director of SPC, Jeff Tracy, put it in these terms:

... we felt, because all the unions had agreed to it, how could there be a problem as such?

There was a problem, for "the union" he was referring to was the shop stewards his company employed, not the union officials who had the authority to commit the party to the award.

In an exercise in damage control the Federal Government intervened. The Federal Minister for Industrial Relations, Senator Peter Cook, quickly called a meeting with the Company and restructured the deal in a more politically and industrially acceptable way. In January 1991 the Industrial Relations Commission put the seal on this deal in a manner which avoided the undermining of the basic award conditions that the SPC workers had been prepared to forego.

Again the SPC dispute had very visibly demonstrated the importance of industrial relations change initiated at the workplace level. While the outcome was seen as a "win-win" because the company achieved its cut in labour costs and the union the protection of its award benefits, the SPC case was a sign that these types of issues were not going to go away, and legislative reform was essential. The need for agreements without unions was even more apparent.

Major business groups were already promoting legislative changes designed to deregulate the labour market by permitting agreements without unions. Their views were reflected in Liberal and Coalition industrial policies that were being developed at State and Federal levels.

The Business Council of Australia had sponsored an independent study on industrial relations by Professor Fred Hilmer. This led to his book New Games---New Rules---Work in Competitive Enterprises. In its chapter entitled "Better Ways of Working Together" he put forward changes designed to encourage common purpose as a means of developing stronger, more competitive enterprises. He suggested:

There should be few limits on what parties might agree provided certain minimum conditions of employment are respected. As long as the agreement is freely entered into so that there is no exploitation on either side - no sweatshops and no union blackmail - it should be up to the parties to use their ingenuity to improve their respective positions. People could agree on a wide range of matters in ways that suit them, such as the term of the agreement; one year, two years or even longer, with formulae for increases in remuneration during the period of the agreement. They could agree on methods of dispute settlement; whether and when through a third party and if so, who, and under what conditions, as well as how the agreement is to be varied and renegotiated. They need also agree on the kinds of working arrangements, including premium rates, hours, flexibility and a range of other matters limited only by the imagination of the parties.

In some enterprises, people may not want to make agreements, but may prefer to stay in the existing system and be regulated by awards. In a sense they are then agreeing to be regulated, and it would be appropriate to maintain the award system for this purpose, though perhaps on a 'user pays' basis.

Many of these concepts became embodied in Coalition policies. Upon its election to Government in 1992, the Victorian Government introduced the most far reaching reform of our industrial systems with its Employee Relations Act 1992. Part of those reforms included provisions permitting individual employees to enter employment agreements with their employers. That legislation has caused enormous controversy, with unions seeking an escape to the federal system to attempt to undermine the ability of employers to reach agreements without unions.

However, as that struggle continues there has emerged the recognition of the right of employees to be heard before the Federal Industrial Commission. In a recent decision of the High Court, the refusal of a Senior Deputy President to allow employees to be represented separately has led to the suspension of those proceedings until the Commission has heard from the employees. This decision has implications for non-union members as well as union members who may not support a position taken by a union, such as occurred in Telegene, Mudginberri, Dollar Sweets and Castle Bacon.

Western Australia legislated last year to permit agreements without unions. South Australian reform along these lines is currently before their Parliament.

Federally there have also been changes, although they are disappointing and do not go far enough.

In the lead up to the Federal Election last year and following it, the Labour Government was widely criticised by business and the media for adopting an industrial relations policy which did not permit enterprise bargaining in the non-union workplace. Once elected, the Government shifted ground and the new Minister for Industrial Relations, Laurie Brereton, made a firm promise that the legislative package introducing the new charter for industrial relations announced by the Prime Minister in August 1992, would now include provisions permitting enterprise bargaining in the non-union sector. The trade union movement reacted predictably, with some unions even threatening to discontinue support for the ALP if the changes were made.

The Industrial Relations Reform Act is the product of the negotiations that then occurred between the Accord partners. For the unions and the ACTU, changes that seemed to have the potential to undermine the union movement were massaged into a reform package which empowered unions more than ever before. I wonder whether the complaints by the unions were no more than crocodile tears, designed to distract business from the magnitude and impact of the changes the Government was making. The reforms have further consolidated the role of unions in enterprise bargaining.

Under the new Federal system you cannot negotiate with your employees and successfully have that outcome reflected without union involvement. As a starting point for the new Enterprise Flexibility Agreements, you have to have a base award, and that means a prima facie position for a union because they retain their monopoly right as the party to the award. You must give the union prior notification of any discussions about an Enterprise Flexibility Agreement. You must give them a reasonable opportunity to take part. The Union is required to be given notice of the application for approval of the Enterprise Flexibility Agreement, and the union has the right to be heard at the hearing before the Commission. And then the tests you are required to satisfy to obtain approval are far more stringent than those for a certified agreement negotiated directly with a union.

All these requirements will put off a large number of employers, particularly those whose workforce is not in a union. The ACTU and the Federal Government did a great job to sterilise the potential for agreements without unions federally. They made the price of union involvement and the potential for unions to enrol new members. As the President of the ACTU, Martin Ferguson, commented recently in relation to these new provisions:

In a couple of years time, all the talk about the declining union membership and the issue of whether there will be a role for unions in the future, will be behind us.

Jenni George of the ACTU was even more direct. When recently interviewed about the potential impact of the new enterprise bargains in the non-union workplace, she remarked that those agreements would pave the way for proper agreements directly negotiated by the unions concerned. Clearly she sees the potential for these Enterprise Flexibility Agreements to provide opportunity and sign posts showing the way to future areas of membership.

Some employers, such as Optus, have announced their intention to attempt to use these new provisions. Optus says that these new provisions are culturally attractive because they permit Optus to build on the already significant communication links that Optus has with its staff. Predictably the union involved, the Communication Workers Union, is scornful of the Optus decision. The Secretary of the Union, Paul Wilson, is reported to have said that the decision of Optus was in line with its philosophy of not allowing any outside interference, such as a union, in the workplace. (The Age, 12 April 1994, p.5.) If Optus is successful, many employers will be encouraged to follow. We can only wait and see if this legislation achieves its public aims or fails because of the Union's own agendas.

Interestingly, Optus looks at "agreements without unions" as a basis for building on its relationship with its staff with efficiency resulting from that relationship. This demonstrates the new dimension that is available with agreements without unions, an objective far beyond seeking an agreement with employees to save a business or save jobs.

It is this dimension that is being explored by some of the workplace agreements being registered in Western Australia. The Workplace Agreements Act 1993 (WA) permits a simple form of individual workplace agreement between an employer and employee. There is nothing like the complexity of the Federal approach. Subject to ensuring that minimum standards are met, an employer and employee are free to agree to the conditions they work under. Some companies are using these agreements to bring all their employees into their staff, and to use the flexibility of staff arrangements to build a better and more efficient corporation, with considerable emphasis placed on common goals and trust.

Even one of the most unionised corporations in the Pilbara in Western Australia has successfully used this approach.

When I last addressed this Society in November 1992, I delivered a paper entitled "The End of the Closed Shop". That paper dealt with the union membership dispute that affected Hamersley Iron in June 1992, which resulted in one of the most successful Supreme Court injunctions against unions ever granted by an Australian Court. During that dispute, for the first time ever, a small group of employees at Tom Price were prepared to cross a picket line to go to work because they were totally disenchanted with their unions. The injunction prevented the unions and their officials from taking any action to influence the decision of a Hamersley employee in relation to union membership. Those who crossed the picket line and any other employee could choose to leave the union and the union could do nothing to stop them. The flow started.

The standing of the unions was at an all time low, and clearly those who crossed the picket line were the tip of the iceberg. Hamersley's management recognised that there was an opportunity to nurture this attitude and get closer to its employees. The first step was to protect those who had crossed the picket line, the so called "scabs" which Hamersley renamed "the independents". Hamersley went to great lengths to reduce harassment both in the workplace and in the relatively closed Pilbara community. Employees who harassed other workers were dismissed, and Hamersley successfully defended every claim to reinstate those workers. Hamersley withdrew from anything other than formal contact with the unions. Hamersley played by the book and accepted no nonsense. Demarcation between the work of staff and award employees ended, and a union application to stop staff doing wages work was dismissed by the Industrial Commission.

At the same time Hamersley did not financially penalise its employees. An enterprise based increase that was being negotiated prior to the June strike was passed onto employees. However, this was a company initiative, not an agreement with the unions. The Industrial Commission granted the increase in the unique circumstances then prevailing; the unions even did Hamersley a favour by initially opposing the wage increase before the Commission.

Hamersley nurtured its relationship with its employees and commenced the process of changing its management style from command and control to more of a consensus approach. It decided to reduce its workforce, and used the opportunity to encourage those who were unlikely to fit in with the new culture of the company to take a voluntary separation package. Seeing the writing on the wall, many of those with the wrong attitude left. Despite a 20% reduction in workforce across wages and staff, production levels were maintained.

In the meantime, the union movement appeared powerless and ineffectual. They could not win in the Commission and could not muster any support for strike action or even convince many employees to attend union meetings. Meetings were cancelled by the unions because they feared a small turnout. Hamersley continued to focus on its relationship, and overhauled all its human resource systems to ensure they were fair and encouraged the right culture. Team concepts were introduced, and trust and commitment to Hamersley's vision developed.

With the election of the Coalition Government in February 1993 came the prospect of legislative change to allow individual contracts with employees. Hamersley planned a program which would be implemented as soon as the legislation came into force. Its management believed that its employees were now ready for the change. A month before the legislation was effective, each employee received a letter inviting them to attend an interview with his or her manager. At these interviews the employee was given details of an offer to join the staff of Hamersley, an offer to be consummated by the signing of an individual workplace agreement. Employees were encouraged to take their time to decide and to include their family in the process. A deadline for acceptances of 17 December 1993 was given, a couple of weeks after the legislation became effective. Acceptances were initially slow but became a flood on the last day. Around 90% accepted. All employees were given the opportunity to back out if they wanted to in the following weeks. None did.

The staff offer gave employees increased financial reward, improved security and benefits such as CRA's excellent staff superannuation scheme. It gave Hamersley a revitalised workforce with renewed enthusiasm to build Hamersley. Despite a union scare campaign, Hamersley was successful. All the agreements were registered, with the Acting Commissioner of Workplace Agreements making several visits to the Pilbara to ensure there was no duress and that the employees knew what they were doing.

Hamersley, as part of the CRA Group, is now being targeted by the union movement. The ACTU has had special meetings to limit the spread of CRA's individual contracts. Their job will be difficult because the employees want the change.

Western Australia's new legislation provides the opportunity for employers and their employees to innovate and experiment. Employees are protected by minimum standards and by a registration process to ensure that agreements are fairly entered into and "sign or resign" does not occur. Unions can have a role where they are wanted, and the challenge to the unions is to increase their relevance and their responsiveness to their members wishes.

The right to choose agreements without unions is a necessary freedom for all who work in this country. We will not flourish as a nation without them.