Public Interest or Vested Interest

Current Labor Market Reform in New South Wales

David Russell, Q.C.

'I fully appreciate that Australia's industrial relations record has been a bone of contention with some of the people and companies in this nation with whom we deal.

And while sometimes the problems may have been exaggerated, frankly, I fully accept that Australia's industrial relations record fell well short of what was desirable....

The challenge now is to further develop the process whereby enterprises can deal directly with their workforce, as occurs in Japan.'


[The Hon P J Keating MP---Speech to Nomura Securities Ltd., Tokyo, November 1989]

Whilst at first glance the Treasurer's endorsement of the concept of enterprise-based industrial relations might appear to recognise a consensus as to the future development of the Australian industrial relations system, the reality, as we all know, is very different.

In the context of the current election campaign, the dispute between the parties is between the Accord Mark VI supported by the ALP and the Coalition's policy of permitting employers and employees who choose to do so to negotiate voluntary agreements on wages and conditions of employment at enterprise level, either individually or through a union (or unions) of their choice.[1]

As the Coalition is now finding out, its proposals---as with any proposals for change of the labor market---are being attacked as lacking clarity both as to specific operation and ultimate outcome in terms of wage levels. This makes a consideration of the attempts to date to establish enterprise bargaining procedures in Australia one of great contemporary relevance.

Until recently, the only attempt was that of the former Queensland Government to establish opting out procedures under Part VIA of the Industrial Conciliation and Arbitration Act. That took two forms, the earlier involving a review of the enterprise level agreement by the State Industrial Commission before it came into force to determine whether or not it complied with the law and was not harsh or unconscionable or against the public interest; and the later dispensing with that requirement and substituting instead the right of a party to apply to the Commission for relief against the agreement on similar grounds.

The new Queensland Government has indicated that these provisions are to be repealed. If that occurs in the forthcoming session of the Parliamentary sitting, the provisions will have been in effect for slightly over two years.

The other attempt which has been made to give legal form to the concept of enterprise agreements in a state context is that of the New South Wales Government in the Industrial Arbitration (Enterprise Bargaining) Amendment Bill 1989. This Bill has yet to be enacted. The New South Wales Government, lacking the untrammelled power of its Queensland counterpart to legislate by reason of the composition of the State's Legislative Council, has been advised that the Bill in its present form would be unlikely to pass. As a result, possible amendments have been mooted which would result in a system apparently closer to the first Queensland version than the second being made in order to ensure that the Bill is enacted.

For present purposes I will treat the Bill as currently before the New South Wales Parliament as having been enacted, although in comparing and contrasting its provisions with those of the Queensland legislation, I will touch on the consequences which might be expected to flow from its amendment in the manner foreshadowed.

In addition to the provisions of State legislation enabling enterprise bargaining, it may be that enterprise level bargaining is possible under the Commonwealth Industrial Relations Act 1988. In proceedings brought in the Industrial Relations Commission by the Transport Workers Union for an award 'roping in' Mini Movers Pty Ltd (which had concluded a voluntary employment agreement under Queensland law) to the federal system, thereby overriding that voluntary employment agreement, the Commission observed that the agreement there in question was not unlike one which might have been made under section 115 of the Commonwealth Act, although the absence of a registered organisation as a party to the agreement will usually be an impediment to the use of this section.

In one sense however what was said was accurate; a state of affairs could readily be brought into existence under which the Commission would have jurisdiction to certify an enterprise based agreement. But the predilections of the parties who would normally be before the Commission make the use of that section for that purpose likely to be unusual: indeed under Part VI of the Queensland Act and sections 11 and 13 of the New South Wales Industrial Arbitration Act,a similar jurisdiction exists in the arbitral authorities of those States. The Queensland legislation did not incorporate these provisions into the enterprise bargaining provisions: the New South Wales legislation will.

In order to appreciate the legal issues raised by enterprise bargaining to the extent that that operates alongside an award based system of labor relations, it is necessary to outline the basic legal principles involved in this area. These are:

• At general law employers and employees are free to enter into agreements for the provision of services for reward. Such contracts will contain terms which are either expressly agreed to by the parties or will be implied by law from the circumstances of the employment, and to the extent necessary to give commercial efficacy to the agreement they will be enforced in the same way as other contracts.
• Each such agreement creates personal rights as between the employer and the employee concerned. It creates no rights as between employees one with another.
• Notwithstanding the agreement which has been made between the parties, if there is a relevant award of an industrial tribunal (or certified agreement having the effect of an award) in operation which would confer more advantageous conditions on the employee, the employee is entitled to the benefit of the conditions so prescribed.
• Where there are more than one of such instruments which are capable of application (for example, a state industrial agreement and an award) arising from either State or Federal legislation, the conflict between the two will be resolved in accordance with rules laid down by legislature under whose law the conflict arises. The conflict having been resolved, the instrument which prevails to that extent will override any inconsistent private agreement between the parties.
• Where instruments relating to the employment exist under both State and Commonwealth law, the Commonwealth law prevails to the extent of any inconsistency.

In addition to the applicable legal principles, the structure of enterprise-based agreements is effected by the historical development of the arbitration system on the basis of craft demarcations. The practical consequence in the context of enterprise bargaining is that it will be rare in any enterprise of substantial size that only one award will be potentially applicable.

It is against this background that the issues that have to be addressed in any legislative move to permit enterprise bargaining are determined. That background no doubt explains the substantial similarity of the New South Wales and Queensland models. The fundamental issues which arise from existing award structures are those of:

• coverage;
• parties;
• minimum conditions; and
• term.

Legal Structure

The existence of award coverage for the vast majority of the workforce produces the result that an enterprise-based agreement if it provides conditions which are in any respect less than those prescribed in the applicable award will be ineffective unless the agreement has force which overrides the award. Both the Queensland and New South Wales legislation deal with this issue by providing that such an agreement is enforceable as an award[2] and prevails to the extent of any inconsistency with it.[3] Since one characteristic of an award is that it can be varied by the arbitral tribunal which pronounced it, the legislation of both states provides that an arbitral tribunal does not have the jurisdiction to vary an enterprise agreement, although in each case it is provided that the parties may by consent confer such jurisdiction on the relevant tribunal.[4]

One consequence of this legal structure is that in entering into an enterprise agreement the parties are doing very much more than entering into a simple contract with one another with the consequences which would normally attend upon that. Non-compliance with an award has criminal as well as civil consequences[5] and, as will be seen, a third person can become bound by an enterprise agreement although not having entered into the agreement in the manner which would be required in the case of an ordinary civil contract.

These differences also produce the result that obligations equivalent to award type obligations exist in relation to the agreement itself. For example, it is required to be published to employees.[6] Because an award has the force of law, an enterprise agreement in effect varies the law otherwise applicable to the parties. This has led to requirements as to the form and registration of enterprise agreements. Both the New South Wales and Queensland Acts require such agreements to be in writing[7] and to be registered on pain of being ineffective in default of registration.[8]

Each jurisdiction, however, imposes limitations on access to the registered document, presumably out of a concern that the fact of the agreement being a matter of public record may lead to industrial victimisation of parties thereto.[9]

Parties, Coverage and Enterprise Unions

Neither the New South Wales nor the Queensland Act provides for individual contracting out of awards. The agreements which may be entered into are collective. There can be no doubt that this is a fundamental principle and it is perhaps a criticism of both the Queensland and New South Wales enterprise bargaining models that the necessity for such agreements being collective rather than individual has been taken for granted rather than considered in any depth. The New South Wales Government's Green Paper discussed the matter thus.[10]

'A critical concern is whether an agreement with an employer is collective, in the sense that all or some large proportion of employees are covered, or whether individual agreements are struck between the employer and particular employees. 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 significant disruptive effect. In mainstream areas, however, where work relations are built on strong intergroup relations, individual agreements would be unnecessarily divisive. Perhaps this is why there have been very few instances in New South Wales where management in mainstream contexts has taken up the option, through over-award arrangements, to fashion individual agreements.'

This analysis may be viewed as an uncritical acceptance of the ethos of the present system, since it is the present emphasis on a collective approach to industrial relations issues which would make the contrary approach 'disruptive'. Why it might be argued, should the preferences of employees in 'mainstream areas' prevail over those engaged in sunrise industries, whose productivity and industrial relations record is infinitely preferable. Even if the preferences of the latter are not to be mandated for all, there is a strong argument for making them an available option.

The shift to enterprise focus is perhaps more defensible if analysed in terms of establishment of equality of bargaining power. One on one negotiations may be thought unfairly balanced in favour of the employer; there is an appearance of symmetry in collective agreements between an employer and all his employees. Once the parties extend beyond the enterprise the symmetry on any view disappears because employers have proven incapable of effective collective action whereas unions have proven most effective at it.

At a state level the collective nature of the process can be defended on the basis that it reduces the prospect of Federal Award intrusion, since it offends the underlying logic of the industrial relations system less than would individual contracts. It was this consideration more than any other which shaped the Queensland approach to enterprise-based employment agreements.

The mechanics created by the two jurisdictions differ as to how the collective principle is to apply in the context of the negotiating process. Both jurisdictions provide that a registered union with coverage in respect of the callings in the enterprise or membership in the enterprise may sign the agreement on behalf of employees. Both also provide that a mechanism whereby the employees in an enterprise can notwithstanding the wishes of their established union become bound by such an agreement.

Sections 13P to 13V of the New South Wales Act provide for the establishment of industrial associations comprised of employees of the enterprise. These can be formed if 65% of employees of the enterprise who would be bound by the agreement vote in favour of forming the association.[11] There is a requirement for a secret ballot to be conducted by an independent person to determine the support. Once the association is formed, it must be registered, although there is a 7 day 'cooling off' period.

This entity once formed has all the powers and privileges of a trade union including the right to negotiate an enterprise agreement subject to limitations as to the proceedings before the state arbitral authority in which it can appear. However the continued existence of the association is dependent upon the registration of an enterprise agreement[12].

The Queensland Act, on the other hand, permits the formation of an association of employees without such a ballot.[13] However, any agreement which it signs is subjected to ballot procedures which are for all practical purposes identical to those prescribed under the New South Wales legislation in relation to approval of an enterprise employee association.[14] The continued existence of the association is dependent upon the subsistence of a voluntary employment agreement, although registration does not lapse unless there is an absence of a voluntary employment agreement applying to the association for 6 months or more.[15] There is, however, no requirement that employee associations exist in order for an agreement to be made or to have effect. Indeed the possibility of formation of such associations only arose in the second version of the legislation. Interestingly, it was this aspect of the legislation which employer organisation representatives on the panel advising the government anticipated would provide the greatest union hostility.

The New South Wales legislation also contains provisions which effectively allow employees to change the union coverage which would otherwise apply to their enterprise. If at a ballot of employees initiated either by a union representing at least 50% of the persons employed at the enterprise or a prescribed number of employees (usually 5%) it is determined by a 65% majority that a single registered union shall represent the employees, that decision changes the coverage to that extent. In such a case, any necessary alterations to the union rules to afford coverage will be made.[16]

Under the Queensland legislation, to the extent that coverage can be altered by variations to the award, a similar result would occur. But the New South Wales legislation is broader in the sense that it comprehends also the grant of coverage to unions whose rules do not, absent the agreement, permit them to represent the employees involved.

Once made, the agreement binds not only those who are parties but employees of the enterprise in the craft or calling to which the agreement relates,[17] even if they voted against its adoption (in the Queensland case) or the formation of the enterprise association which negotiated it (in the New South Wales case).

Also bound are all persons who thereafter become employees, who at a point of engagement are required to be provided with particulars of it.[18]

Although the legislation in each case provides that the term of an agreement may be from 1 to 3 years, it also provides that once the 3 year term expires, the agreement continues in effect until positive action is taken to terminate it by one party giving notice to the other.[19]

Minimum Conditions

Each of the legislative schemes provides that there are limitations on the powers of the parties to depart from the terms of the otherwise applicable award. In New South Wales, these are a guaranteed weekly rate based on a 40 hour working week (which may be averaged over 12 weeks) with a scale prescribed for junior employees, hourly rates for part time and casual employees, sick leave, redundancy payments, public holidays or long service leave.[20] The Queensland minimum conditions include hourly rates of pay equal to the hourly rates payable under the applicable State awards, annual leave (although 50% may be cashed in), statutory holidays, sick pay, and superannuation fund entitlements.[21]

The inclusion of these provisions necessarily involves a departure from the operation of a pure market. The New South Wales system, by having a fixed minimum wage amount applicable to all employment, departs less than the Queensland model.

It may be doubted whether these provisions serve a real industrial purpose, as opposed to providing a political underpinning for the scheme by providing its proponents with an immediate answer to the suggestion that the result of its implementation will be gross levels of exploitation of employees by employers. It may well be that once the concept becomes more familiar in Australia, there will be less need for provisions such as these which inevitably are complex and restrict the methods of remuneration that may be adopted in such agreements (because it will be necessary to always be capable of ascertaining whether or not the agreement complies with the prescribed minima). In all probability such provisions provide little effective security since at least in the short term, there will be far more employment not regulated by such agreements than is regulated by them, with the marketplace consequence that employers who depart excessively from overall community standards will be unlikely to secure the services of competent employees.

Supervision by Arbitral Authorities

The original Queensland model conferred jurisdiction on the State Industrial Commission to declare an agreement void if in its opinion the agreement was against the public interest or harsh and unconscionable.[22] This determination was to be made in the context that an agreement was required to be approved by the Commission before it could be registered.

A number of consequences followed from such a provision. Given that the Commission has as its primary role the determination of fair (as it sees them) employment conditions, there is an inevitable tendency to regard provisions of an agreement which are less favourable to an employee (in any respect) as unfair. The question of trade-offs in the context of an individual enterprise is necessarily a difficult one for the Commission.

Second---and in my experience this proved to be the greater difficulty in practice---the Commission tended to see its task as analysing the worst situation for which an agreement could provide rather than the conduct of the parties which would actually occur under it. This necessarily meant that an agreement was tested not by reference to the intention of the parties but by hypothetical situations placed before the Commission before the agreement was even in effect.

Coupled with what were initially thought to be the rights of unions who might be affected by the agreement to appear in such proceedings (it being later determined that the legislation conferred no such right) the testing of such agreements 'at the margins' resulted in a major logjam and tended to defeat the provisions designed to afford some confidentiality to the making of agreements.

These provisions have been criticised in Papers given to this Society previously and it is perhaps relevant to note the basis upon which they were thought to be necessary given that the existence of prescribed minimum conditions might in the ordinary course of events have been thought adequate to prevent exploitation of employees.

Over 70% of the employment in Queensland is regulated by State awards. Employers and most unions have generally found this to be preferable to operating under Federal awards. Reasons given include the convenience of the availability of the Industrial Magistrates Courts for award enforcement (rather than Federal Court), ease of access to the Commission (since it normally sits in Brisbane but can make arrangements to sit elsewhere if required) and the status of personnel in industrial organisations.

As previously mentioned, one of the legally effective techniques available against voluntary employment agreements is to have the parties thereto 'roped in' to a Federal award.

One of the bases upon which the Commonwealth Commission is entitled not to proceed in relation to a dispute is to dismiss it where in its view the dispute is being dealt with or is proper to be dealt with by a state industrial authority or proceedings are not necessary or desirable in the public interest.[23]

The view is certainly open---and indeed supported by observations made by the Industrial Relations Commission in the Mini Movers' case---that the involvement of the State Industrial Commission in the process attracted to the greatest extent possible the defences which might be raised to Federal award intrusion.

When the State Government was asked to amend the legislation due to the difficulties which the vetting process was perceived to be creating, many of those who made submissions to the Government argued for all involvement of the Commission to be terminated. The Government opted for a modified version of vetting which enabled the Commission to exercise the jurisdiction to declare an agreement or a provision thereof void, the vetting process taking place after registration and only upon the application of a party to the agreement or an industrial inspector.[24] This, it was considered, would not appreciably diminish the availability of any defence against Federal award intrusion whilst obviating the practical difficulties created by the former regime.

If, as has been reported, it is the intention of the New South Wales Government to amend its legislation so as to confer some form of supervisory jurisdiction over enterprise agreements upon its state arbitral authorities, the Queensland experience provides a very strong basis for argument that the supervisory jurisdiction should be exercised as at present under the Queensland legislation and not in the manner which originally obtained, i.e. it should be a jurisdiction to avoid an agreement already registered and it should be exercisable only at the instance of a party bound by the agreement.

Conclusions

For practical purposes the model established by the New South Wales legislation differs from its Queensland counterpart in three respects only: the enhanced ability to vary union coverage of employees in an enterprise, the fixing of the guaranteed minimum pay by reference to a general rate rather than one fixed by the award which would otherwise be applicable to a particular employee, and the lack of a supervisory jurisdiction for the state arbitral tribunal (a difference which is now in doubt).

As such, it may be expected that the New South Wales model will attract similar criticisms to those directed at the Queensland model: from the standpoint of those favouring maximum pro-deregulation, that it is excessively bureaucratic, open to sabotage by unions, and by reason of the various 'safeguards' included in it, inapt by reason of inflexibility to deliver the advantages which one might normally expect to flow from enterprise level bargaining.

The intellectual and economic rationale of these criticisms is not difficult to understand, particularly when the response from opponents of the system could hardly be stronger if all of the safeguards and bureaucratic procedures which have been included had been omitted.

From that standpoint, it is perhaps less easy to see why the opponents of enterprise bargaining on either model oppose it as strongly as they obviously do. Gross exploitation of employees is a practical impossibility both for the reasons which the economists who support deregulation of the labor market advance in its favour and because of the safeguards previously referred to. If an arbitral tribunal retains a residual supervisory jurisdiction (as in Queensland) then it is difficult to conceive how such an agreement could lead to exploitation no matter how ill-intentioned the employer.

Whilst there is in a formal sense a capacity for enterprise agreements to operate to the detriment of unions (as opposed to their members) by reason of the resolution of demarcation issues and the avoidance of preference clauses, it is doubtful whether an enterprise which could meet the conditions applicable to such an agreement by reason of the support required in the workforce would be heavily unionised and unless it were there would be no loss flowing to a union.

In this sense it is paradoxical that those who seek to reduce union power regard these proposals as not particularly effective, whilst those who seek to maintain it regard them as extremely damaging.

It should be apparent from what I have said that in my view the effective freedom of action of the States to create an effective framework of enterprise bargaining is greatly limited by the existence of the Federal system.

In the Federal context these limitations do not exist, as a State award cannot override Federal law. But there would be a greatly increased scope for the operation of State awards if the existing Federal system were wound back and nothing put in its place. As a result many of the lessons to be learned in a State context have no relevance to the introduction of enterprise bargaining at national level, whilst the State experience provides no guide to what will be the most difficult Federal issue, namely how, given the constitutional limitations upon Commonwealth powers, can any deregulation it effects not be counteracted by existing or future State regulation?

If the limitation on the freedom of action of the states which have been incorporated into each of the legislative schemes so far advanced reflect reality rather than an excess of caution, the question can no doubt be asked by those who favour a greater injection of freedom to contract whether such limited measures are worthwhile.

Which of the views is right will obviously be a matter for debate here. One possible synthesis accepts the view of those who argue that enterprise agreements as currently proposed represent only a small step but recognises also that power if it is to be retained must be defended at its outer extremities rather than at the centre. A society whose workforce regards the taking of decisions which affect their own lives as par for the course would be a very different society from that which we know today. And, as the experience of Eastern Europe has shown, a taste of freedom tends to whet the appetite for more rather than to slake it.

References:

1. Liberal-National Economic Action Plan p.13.

2. NSW s 13C(1), Qld s 94 K.

3. NSW s 13C(2), Qld s 94 B(2).

4. NSW s 13C(3), Qld s 94 L(4).

5. NSW s 93(1), Qld s 113 (1).

6. NSW s 13F, Qld s 94 (F)(6).

7. NSW s 13F, Qld s 94 E(3).

8. NSW s 131(3), Qld s 94F (1).

9. NSW s 13M, Qld s 94R.

10. Transforming Industrial Relations in New South Wales, p.37 para 3.3

11. NSW s 13R.

12. NSW s 13V.

13. Qld s 94T.

14. Qld s 94F.

15. Qld s 94T(7).

16. NSW s 13W, 13X.

17. NSW s 13J, Qld s 941.

18. NSW S 13p(2), Qld s 94Q.

19. NSW 13G, Qld s 94J.

20. NSW ss 13K, 13L.

21. Qld ss 94G, 94H.

22. Qld former s 94D.

23. Industrial Relations Act s 114(1)(g)(ii) and (iii).

24. Qld s 94L.