Public Interest or Vested Interest

Enterprise Agreements---Myths vs Reality in Queensland

Keith Stenhouse

From 1949 to 1972 our capital stock per unit of labour in Australia grew at an annual rate of 3%. However, since 1972; there has been a drastic decline in that growth and productivity measure to 1.2%---a more than 50% reduction. And I will stay with that low figure fully aware of the curious spate of OECD and BIE figures on the eve of an election---not unlike a manager about to be terminated producing a substantial profit for the first time in years. I have been involved in industry for some 40 years---quite long enough to make an assessment for myself.

The other important thing to note is the nature of the economic advice given to Ministers by bureaucrats and to other leaders by their advisors. It is essentially Keynesian or Galbraithian (the same thing) and it theorises that high levels of government spending, high levels of welfare programs and high levels of regulation of the private sector, especially in the labour market, are good for the people and essential to an economy.

Well, that is a myth as we now well know from our dismal national economic performance. In fact, it seems to me that the mythology of contemporary industrial relations policies is made of mythematics, mythinformation, and mything ingredients.

Voluntary Employment Agreements

The realities are that as far as the labour market is concerned, the best outcome is achieved for all when those in the enterprise, labour and management, arrive at a deal for mutual success with very little government intervention. Our Queensland experience, limited as it is, has clearly shown those realities, as I will show.

The enterprise agreements which firmed up the labour-management bargain were also in the public interest. Nothing is more in the public interest than thriving competitive and profitable enterprises, with contented employees, in an economy where most production is from thousands of private sector enterprises.

However, there are huge forces of vested interest, which are not concerned at all about the public interest, which have moved to ensure that enterprise agreements do not become established in the Queensland economy. After all, a huge industry of industrial officers, industry associations, advocates and administrators has complete career dependence on industrial discontent. I will demonstrate that too in the cases that I will now deal with in detail.

The Government has never released the figures, but it is estimated that up to 70 voluntary employment agreements were finalised between labour and management and lodged for registration. About 40 were actually registered: Graeme Haycroft's consultancy VEAQ lodged 35 of which only 12 were registered. The Industrial Register obligingly slowed down the processing before the State Election in December and has since been contacting companies with agreements awaiting registration with a 'do you really want to proceed' type of inquiry 'in view of the imminent legislation to rescind the Voluntary Employment Act'.

This is what the Queensland Minister for Industrial Relations actually said.

'.... I and my Government believe they are against the public interest .... What they have also done in some cases, particularly where there is a high labour content when companies are tendering---they are now discovering that VEA's make the playing field very uneven.

.... It's become unfair competition where one company has VEA's and one doesn't. It makes it possible for one company to tender lower because they have an unfair advantage in terms of labour costs'

What he was really saying was that it is against the public interest for labour and management to agree on work restructuring in their enterprise for higher productivity, higher take home pay, higher profits, and lower prices for the products and services to customers ---including his own government, one of the State's largest consumers.

Now, turning to history.

Just after the 1985 SEQEB dispute, the Queensland Government set up a committee to draft new legislation to allow voluntary employment agreements. By August 1985 it was circulated in draft form. As a result of various pressures and criticisms it went into the 'too hard' basket and did not surface again until 1987. The legislation proposed voluntary employment agreements based on an award varied by mutual agreement between management and labour. If a secret ballot of employees was in favour then the agreement was simply to be registered. No approval of the Arbitration Commission was necessary.

Now that really stirred the Industrial Relations Club. Careers were in jeopardy, career paths were disappearing---after all industrial relations has provided careers in quasi-judicial appointments and even a path to Prime Minister.

The employer associations led by the Queensland Confederation of Industry grouped quickly and convinced the Minister for Industrial Relations that certain minimum conditions should apply in respect of:

i. The award wage.

ii. Sick pay provisions.

iii. Annual Leave provisions (although 50% could be cashed up).

iv. Redundancy and termination provisions.

v. Penalty rates on public holidays.

vi. Long Service Leave provisions.

vii. Loadings for casuals (19%).

Thus leaving for variation only overtime rates, working hours and working days.

However, the real master-stroke of the Queensland Confederation of Industry was to convince the Minister that each VEA should be 'run by the Arbitration Commission, sort of a formality' before registration, with a provision for the Commission to veto the agreement if it was not in the 'public interest' (which was undefined). That was passed into law and thus the Industrial Relations Club was still in business with a matter for endless contest and debate.

Mini-Movers

Enter the Mini-Movers episode. Mini-Movers are a small taxi-truck firm specialising in furniture removals. Mini-Movers decided to step away from the then conventional way of using sub-contract truck drivers by buying their own trucks, employing drivers and giving them specialised training. They operated for several years by using drivers paying on an hourly basis about 30% above the award. With VEA legislation available, Mini-Movers' management and employees sat down with a local industrial advocate and drafted a VEA which was 'run by the Commission' with all parties present. To the astonishment of all, the Commission rejected it as 'being against the public interest'.

So it was modified, submitted again and rejected and eventually emasculated to only one variation of an award condition. The variation made the VEA provision almost identical to the corresponding Federal awards so this time the Commissioner had no grounds for rejection and VEA 2/88 was approved to the chagrin and extreme annoyance of the vested interests in unions and Industrial Relations Club.

The Trades and Labour Council under the leadership of one Dempsey, the failed architect of the SEQEB dispute, formed an anti-VEA committee which embarked on a savage media campaign against Mini-Movers to bring them under a Federal award (which has a provision for casual drivers almost identical with the VEA). These moves failed.

Meanwhile, the Metway and Power Brewery VEA's had been born.

Metway

Metway Bank is the result of the transformation of one of Queensland's most successful building societies (The Metropolitan Building Society) into a Bank.

The management of the building society had long worked quite amicably with the Federated Clerks Union under a State award operating branches in shopping centres including opening during late night and Saturday trading.

With the imminent grant of the bank licence, the Australian Bank Employees Union moved in to collect dues and began negotiation on an interim award. No one asked the employees about who they wanted to represent them in the future bank.

Just hours before the Metway Bank came into being the ABEU reneged on its agreements for interim awards, and the staff approached management with a proposal to conduct their own industrial affairs in future, dealing directly with the management. It was mutually agreed that a VEA would be set up.

The VEA was prepared by two QC's, one representing management and one representing employees, and duly voted upon in a secret ballot conducted by firm Peat Marwick and passed with a majority over 70%. (The TLC of course publicly announced that the ballot was rigged).

The Metway VEA included:

• provisions for a 38 hour week;
• up to a 9.5 hour day for late night opening;
• superannuation (12 months ahead of its time);
• time off in lieu of overtime;
• a part-time employment provision;
• increase in the casual loading to 20%;
• a new salary structure based on job worth and individual performance away from age and years of service.

Under the legislation of the day the VEA still had to be approved by the Arbitration Commission. By this time, the Commission had lost some image on its 'public interest' stances and declared the Metway VEA too hard for them. They referred it to the President of the Commission on a technicality about eligibility of who could put a view opposing a VEA. After a delay of a month or so the President handed down his decision disbarring unions from the VEA approval process and the VEA was approved.

Harassment of Metway has continued with the Union taking various actions in the State Industrial Commission and Court, the Federal Industrial Relations Commission and the High Court. The ABEU were unable to recruit more than 15 out of 800 employees.

Meanwhile Metway prospers. It now has over 120 branches and is regarded locally as having one of the most successful customer service quality management programs, all no doubt a result of contented and committed staff and management.

Power Brewing

Before the advent of Power, there were two major brewers, Castlemaine XXXX and Carlton United Breweries. Employees worked under provisions of the Brewery Workers Award with, most interestingly, their special work conditions including a 35 hour week provided under two unregistered agreements---Castlemaine Perkins Reduced Hours Agreement 1982 and the Customs and Practices Agreement 1986. An unregistered agreement continuity of these conditions was not assured.

Power Brewing decided to work from scratch and formed a consultative committee of employees to see if a new work arrangement could be drafted emphasising skill and productivity and to achieve Power's desire to get the most out of their high-tech plant.

The outcome was a flat management structure and six levels of worker promotion, and all employees multi-skilled ---rather different from the strict demarcations in the relevant award classification system. 97% of the employees indicated in a secret ballot that they would also like a 4 day 40 hour week.

Initially, the plan was to have been an industrial agreement but this had to be abandoned when it became clear that the Federated Liquor Trades Union wasn't interested in anything different from Castlemaine and Carlton, so the VEA path was taken.

The reaction of the FLTU was to threaten employees with being sent to Coventry, and management with boycott on the transport of malt to the plant. Also, despite the fact that the VEA was employee-driven, the Federated Clerks Union moved quickly in an attempt to get a Federal award cover for the clerks in Power Brewing to invalidate the VEA for this segment of the workforce and disrupt the cohesive nature of the enterprise bargain. The unions in concert also attempted to disrupt the marketing campaign for Power Brewing.

Union moves all backfired and public sympathy went out to Power Brewing. Union disruption campaigns, and boycotts on retail selling of the product were ineffective.

A worker in Power Brewing now earns $6,839 per annum more than his counterpart at Castlemaine and does it on a 4 day week.

Power Brewing's commercial result in their first year is legendary. I quote from Brian Hale, an economist, a respected financial journalist and a director of Jarden Morgan Sharebrokers and Financial Planners. In the Sun on 5th March he wrote under the heading 'Powerful Example of Financial Excellence' as follows:

'What a sparkling result from Power Brewing .... The ability to put together a good team, a brilliant product, sound marketing and an efficient factory.

Who dares, wins. Last week's $4.3 million half-year net profit from Powers is the proof.

In a year and a half the company has come from nowhere to be a solid company employing 230 Queenslanders and indirectly creating work for many more, as well as performing well for its shareholders.'

Back to the drawing board

Although the Metway and Power examples had demonstrated the popularity of agreement at the enterprise levels, there were in fact only a few other minor VEA's drawn up and submitted.

It was apparent that the VEA initiative was faltering badly. The Commission was putting every impediment in the way 'in the public interest', putting employers to considerable expense and delay, and the unions created a major bun-fight each time. Not at all the environment intended and immensely discouraging to managements and labour.

In view of the relevance and importance of VEA's to the Queensland economy, and the potential in the tourism industry, we initiated a review of the legislation in April 1989 as a result of which amendments were legislated which provided that:

1. The Arbitration Commission would no longer approve VEA's in advance. Its role would be limited to handling disputes. Provided that VEA's complied with guidelines registration would be automatic.

2. A VEA could be voided by the Commission, after the fact, on the application of an employee on the production of proof that it was in fact harsh and unconscionable or against the public interest. Hypothetical submissions were out.

3. If the VEA was successfully challenged it would be voided from the date of the Commission's ruling, not retrospectively as was formerly law.

4. VEA's would require the assent of 65% of employees ---increased from 60% in former law.

5. Minors would require parent or guardian consent to be a party. (A provision which turned out later to be a useful impediment to the Industrial Club members in the government administration who construed 21 not 18 to be the age of consent as minor was undefined in the law.)

6. Occupational superannuation could be provided by any one of a number of approved funds in addition to those with union participation.

It was July 1989 before the departmental processes were in place for registering VEA's. Then it was not uncommon for VEA's to be resubmitted two and three times with minor variations to satisfy the Industrial Registrar.

This latest legislation was hard-won over determined moves by the Industrial Relations Club to emasculate it. The usual spectre raised was the prospect of the enterprise being successfully moved to coverage by a Federal award. It was obvious that the loss of the opportunity to debate the 'public interest' aspect on a hypothetical basis before the fact, was perceived as a threat to careers of industry association executives, corporate industrial relation officers and some industrial advocates.

There was extensive lobbying of Ministers and Parliamentarians which was all effectively check-mated and the new legislation was enacted and a concerted drive to introduce VEA's began.

What happened next is instructive---the industrial relations experts found potential profits in VEA's. A VEA prepared by the Queensland Confederation of Industry's industrial relations advisor is a typical product of the industrial relations 'expert'. It is 18 pages in length, written in tormented prose and legalese, and by custom and practice virtually incomprehensible to the average worker or executive. However, experience of the company VEAQ showed that a standard form of VEA could be produced for almost universal use. It was 4 to 6 pages in length and readable.

There are 28 studies in Graeme Haycroft's historical record set down for the H R Nicholls Society. Of those, 20 were unanimously approved by employees in secret ballot. In the others, the employee approval in ballot ranges from 70% to 90%. They included automotive repairers, cafes, sawmills, auto wreckers, general engineering, waterbed manufacturers, earthmoving contractors, fruit and vegetable ripeners, stockfeed manufacturers, retailers, discos and nightclubs, furniture manufacturers. They range in size from 1 to 100 staff and provide a good cross-section of private enterprise of the small to medium size. In some cases the VEA's simply legalised what had been the custom and practice for years.

Superannuation

One of the interesting and most significant aspects of our VEA experience was the superannuation provision.

It is quite possible to get a good occupational superannuation scheme going managed by one of a number of the major established insurance corporations.

Under the awards, superannuation funds with major union influence are practically automatic in application. An examination of the financial and economic implications of this is instructive. For example, in a typical union involved scheme, the employers' 3% contribution is about $10 per week per employee. Generally a life insurance cover around $25,000 is included at a cost of $1 per week. An administration charge of $1 per week is also charged. Thus $8 per week goes into the fund to accumulate and accrue interest.

Typical costs from a private enterprise scheme manager are 50c per week for the life cover and 35c per week for the administration (those are NML charges). Clearly $1.15 per week per employee is being syphoned off by unions and others. Further, the important economic questions arise about the placing of investments of funds and the leverage that this gives unions on the economy. It is also possible for the funds managers to act as investment agents paying say 13% on funds to employees and retaining 2%, from investments earning 15%.

The point is that the amount of money and financial power available especially with creative accounting and abuse, is enormous. There are 5 million workers to be covered by occupational superannuation. This could earn 'profits' of $50 million per annum even at $10 per annum per employee profit.

With an accumulation of investable funds of $2.5 billion in year one, $5 billion the next, $7.5 billion the next, one might consider also who can gain what if even a fraction of a percent is legitimately taken off by a managing union. It can't happen here you say? Read the case of the Teamsters Union Pension Fund in America. It will happen here.

Conclusion

The Queensland experience with enterprise agreements demonstrated quite conclusively that significant productivity gains are possible at the enterprise level by work restructuring on a basis of mutual agreement between management and labour. This showed significant variation possible in work structures from industry to industry, from location to location and between enterprises of different sizes.

Fine tuning of the work structure was beneficial to all. Such fine tuning has not occurred with the highly regulated labour market and it will not be possible for it to occur in Australia until radical changes are legislated which facilitate enterprise agreements.

Vested interests in union bureaucracy, public administration and the Industrial Relations Club will vigorously attempt to retard changes in the status quo.

So, we desperately need changes in the mechanisms of the labour market if we are to improve our international competitiveness and increase exports and generate more self-financing of investment with the best possible access to the markets of the Pacific Rim---South East Asian economic region which is expected in 10 years to equal the EEC in economic size.

We need to compete against others without the dead hand of excessive government regulation and vested interests retarding the exploitation of new production technologies, new materials and new management techniques.

In Sydney I gather that there is a leading politician who would be king, who collects antique clocks. In Brisbane we have a newly appointed political king who collects antique union officials and makes them Ministers. These ignorant relics of the past are now in the process of legislating for the removal of enterprise agreements from the industrial scene and thus suffocating soon after birth one of the most needed and beneficial changes in the labour sector of the Australian economy, and their statements to the press say that they are doing it in the public interest.

I will complete my quotation from Brian Hale in the Sunday Sun article on Powers.

'Given the constant debate about industry restructuring, Australia's chronic balance of payments problems etc., Bernie Power had some interesting comments on the results and the company.

He sees it as an ideal role model for much of what the ACTU has advocated in its Australia Reconstructed document.

If we allow any dispute over voluntary agreements to jeopardise what has been achieved here, we are not worth our beer.

We might as well sell the whole country to foreigners and be done with it.'