The reports from two wide-ranging inquiries, released in late 2015, will be strongly influential in debate over workplace reform – an issue that is sure to be prominent in the lead-up to this year’s federal election.

The Final Report of the Productivity Commission’s Inquiry into the Workplace Relations Framework was released on 21 December,[1] followed by the Royal Commission into Trade Union Governance and Corruption Final Report on 30 December.[2]

The Turnbull Government has already committed to implementing the recommendations of the Trade Unions Royal Commission (TURC), while it is still weighing up its response to the Productivity Commission (PC) report.

2016 is therefore likely to be dominated by discussion of proposals for increased regulation of trade unions, a safer pre-election focus for the Government than the PC’s recommendation to reduce Sunday penalty rates in certain industries.

PC REPORT AND RECOMMENDATIONS

As widely anticipated, the recommendations in the PC’s Final Report were similar to those set out in its Draft Report (released in August 2015).[3]

Overall, the PC takes the view that Australia’s current workplace relations system is not fundamentally flawed (Vol 1, page 4):

The key message of this inquiry is that repair, not replacement, should be the policy imperative. The adapted system needs to give primacy to substance over procedure, rebalance some aspects of the system that have favoured some parties over others, and reform its principal regulator ...

The Commission has outlined a number of proposals for change which it considers would address the perceived shortcomings of the system. The PC’s key proposals are summarised and assessed below.

FAIR WORK COMMISSION

The PC argues that the award-making and wage-setting functions of the Fair Work Commission (FWC) ‘require a different mindset’ from the approach it takes when determining cases as a tribunal (Vol 1, pages 11, 159).

It is therefore recommended that a new, separate institution – the Workplace Standards Commission (WSC) – should be established to review and vary the minimum wage and modern awards (Recommendation 3.1).

Appointees to the WSC would have experience in economics, social sciences and commerce, with some legal experts also appointed to deal with enforcement of awards. The WSC would proactively undertake its own data collection and research, and hear evidence from all stakeholders including consumers and the unemployed (Vol 1, pages 11-12).

The creation of the WSC ‘would allow for more rapid culture change away from the form-over-process legalism observed [in the FWC] and be more consistent with the role of being the largest price-setting entity in the Australian economy’ (Vol 1, page 160).

The FWC would then be left with the rest of its current functions, including determining unfair dismissal, anti-bullying and general protections cases as well as approving enterprise agreements and resolving bargaining disputes.

However, to address concerns about perceived ‘stacking’ of the tribunal, the PC proposes significant changes to the appointment process for new members of the FWC (which would also apply to the WSC) (Recommendations 3.2-3.3):

  • Candidates for appointment would be recommended by an independent expert panel established by the federal, state and territory governments. The Commonwealth Minister for Employment would then select appointees from the expert panel’s shortlist.
  • The panel should avoid nominating candidates with significant involvement in representing employers or employees, or active participation in workplace relations debates, in the previous ten years.
  • Appointments would be a for a maximum period of ten years, or until the appointee reaches the age of 70, whichever occurs sooner.

AWARDS AND PENALTY RATES

The PC considers that modern awards play an important role in setting the floor of minimum wages and conditions for many employees and help create a better functioning labour market. On the other hand, the current awards system carries the legacy of its more than 100 years of history, and therefore does not reflect the current economic environment (Vol 1, pages 330-331, 335).

To address the costs and inflexibilities imposed by awards, the PC suggests that – in addition to the WSC taking over the role of overseeing awards (see above) – award reviews and adjustments should be possible whenever required, rather than being restricted to the current four-yearly review process and annual wage cases (Recommendations 8.1-8.2).

The PC also recommends that the WSC undertake its award functions pursuant to a revised modern awards objective, replacing that currently set out in section 134 of the Fair Work Act 2009 (Cth) (FW Act). The new objective would place emphasis on ‘the overall wellbeing of the community’ rather than the interests of any particular group (Recommendation 8.3).

Significantly, the proposed new modern awards objective would also delete the reference in the current provision to the need to ensure additional remuneration to employees working overtime, weekend, public holidays, or unsocial hours (FW Act, section 134(1)(da)).

This is consistent with one of the PC’s most significant proposals: that the FWC should, in the current award review process, reduce the Sunday penalty rate for permanent employees in the hospitality, entertainment, retail, restaurant and cafe industries to the Saturday rate; and investigate whether penalty rates for casuals in these industries should also be reduced (Recommendation 15.1; see also 15.2).

The issues and arguments around penalty rates are considered in depth in Chapters 9-15 of the PC Report. Its proposal to reduce Sunday penalty rates in cafes, retail and hospitality is based on the view that in these industries ‘social trends and community norms have shifted so that the historically distinctive role of Sundays as a time when people did not shop or engage in other consumer-oriented activities has changed’ (Vol 1, page 26).

The Government, presumably alive to the political risks of the PC’s recommendations, has indicated that it has no plans to change penalty rates and that these should continue to be set by the FWC.[4] However, the Government will consult on this proposal (and all other recommendations from the PC), taking any proposed reforms to this year’s election.

ENTERPRISE BARGAINING

According to the PC, the FW Act bargaining framework enables most enterprise agreements to be made without difficulty and with benefits to all parties – although there are several flaws in the current system which should be addressed as follows (Recommendations 20.1-20.6, 22.1):

  • Giving the FWC greater discretion to overlook minor procedural errors when approving an agreement, as long as employees have not been disadvantaged by these breaches.
  • Amending the rules relating to agreement content, including the prohibition of agreement clauses restricting employers’ ability to utilise contractors, casuals and labour hire staff. Only permitted matters could be included in agreements, which would not include provisions relating to the employer-union relationship.
  • Allowing individual flexibility arrangements (IFAs) under enterprise agreements to facilitate flexibility over the following matters (at least): working time, overtime and penalty rates, allowances and leave loading; and any additional matters agreed between the parties. In addition, IFAs should have a default termination notice period of 13 weeks, and a maximum notice period of one year.
  • Extending the maximum term of enterprise agreements from four to five years, or (for greenfields agreements) the duration of a greenfields project.
  • Replacing the current better off overall test for approval of agreements with a no-disadvantage test (NDT). The new NDT would be focused on ensuring that an agreement does not result in any net disadvantage overall to employees – applied across relevant classes of employees (rather than individuals).
  • Requiring any non-union bargaining representatives to demonstrate support from at least 20 employees or 5% of the workforce (whichever is smaller).

The PC also does not support the introduction of a requirement that the FWC consider, as a condition of agreement approval, efforts made by negotiating parties to improve productivity under the proposed agreement. This proposal forms part of the Government’sFair Work Amendment (Bargaining Processes) Bill 2014, currently before federal Parliament.[5] In the PC’s view, ‘negotiating for productivity gains is inherently a responsibility for employers’ and should be ‘motivated by market forces’ rather than imposed by regulation (Vol 2, page 693; and Finding 20.1).

PROPOSAL FOR ENTERPRISE CONTRACTS

Based on data showing the high concentration of small businesses in sectors where employers are least likely to implement enterprise agreements due to their complexity (Vol 2, pages 751-753), the PC recommends the introduction of a new statutory instrument: the enterprise contract (EC). The arrangements for ECs would be as follows (Recommendations 23.1-23.2):

  • An EC would enable an employer to vary applicable awards for particular classes of employees to suit the operations of the business.
  • ECs could be offered to new employees as a condition of employment, while existing employees could choose whether to adopt an EC (with prohibitions on coercion). However ECs could not be offered where employees are covered by an enterprise agreement.
  • ECs would be subject to the NDT (see above), and could not undercut the minimum wage or National Employment Standards.
  • An employer could choose to have an EC assessed against the NDT prior to it commencing operation; or simply implement the EC and accept full liability if it is subsequently found to have been non-compliant with the NDT.
  • ECs would operate for up to three years, although employees could opt out and return to award coverage after 12 months.
  • The FWC would oversee the system for lodgement and (optional) approval of ECs, while the Fair Work Ombudsman would be responsible for education, compliance and monitoring of ECs.

As with penalty rates, ECs will be a highly contentious proposal if adopted by the Government, especially given that ‘[n]o negotiation or employee ballot would be required for the adoption of an EC, nor would any employee group be involved in its preparation and agreement’ (unless the employer wanted this to occur) (Vol 1, page 41). Unions and the Labor Opposition are likely to argue that ECs amount to a return to Work Choices-style Australian Workplace Agreements (although unlike AWAs, enterprise contracts could not depart from the terms of collective agreements).

GREENFIELDS AGREEMENTS

In November 2015, the Government secured passage of the Fair Work Amendment Act 2015 (Cth).[6] Amongst other things, this measure requires the negotiating parties for a greenfields agreement to observe the good faith bargaining provisions in section 228 of the FW Act; and enables an employer to obtain FWC approval of its proposed agreement (subject to certain procedural requirements), where the parties have been unable to reach agreement after six months of negotiations.

The PC acknowledges that these changes are ‘likely to result in more expedient and balanced greenfields negotiations’ (Vol 2, page 713). However, it also sees merit in further changes, including (Recommendations 21.1-21.2):

  • reducing the negotiating period from six to three months;
  • if the parties have not reached agreement within three months, enabling an employer to ask the FWC to undertake ‘last offer’ arbitration (i.e. choosing between the last offers made by the employer and the union);
  • creating a further option whereby the employer can seek approval of an agreement on terms determined by the employer, but with a maximum nominal life of 12 months;
  • providing for ‘project proponent greenfields agreements’ whereby parties who are engaged as subcontractors on greenfields projects can, subject to certain safeguards, sign up to an existing greenfields agreement when they join the project.

INDUSTRIAL ACTION

The PC recognises that ‘[t]he credible threat of industrial action is an important negotiating tool for parties engaging in enterprise bargaining’ helping as it does ‘to reduce asymmetries in information and bargaining power’ (Vol 2, page 847).

The Commission does not consider that there is ‘a case for sweeping changes’ to existing laws relating to industrial action. Nevertheless, it makes a number of recommendations (27.1-27.8), some of which would significantly simplify the procedural requirements associated with taking protected industrial action, others of which would curtail the capacity of unions to engage in certain forms of industrial behaviour, and yet others of which would strengthen the position of employers in dispute situations.

SIMPLIFYING PROCEDURAL REQUIREMENTS FOR PROTECTED ACTION

The FW Act currently requires that protected action ballot forms must specify all of the kinds of industrial action which may be taken in the event that the ballot is successful. The PC recommends that it should be open to unions to include ‘a single question authorising all forms of protected industrial action without specifying each type of action’, although it would be open to applicants voluntarily to include ballot questions on specific types of action if they so choose.

The PC also recommends that the existing 30-day (extendible to 60-day) ‘use it or lose it’ provision for protected industrial action be removed. Instead, there should be a 120-day limit, after which a new ballot would need to be held, irrespective of whether industrial action had actually occurred during the 120-day period.

CURTAILING INDUSTRIAL BEHAVIOUR

The PC was sympathetic to arguments by business interests to the effect that the criteria for suspending or terminating damaging industrial action should be relaxed.

It accepted, for example, that the FW Act should be amended to make clear that the ‘significant harm concept in sections 423 and 426 of the Act means harm that is ‘important or of consequence’, rather than harm which is ‘exceptional in its character or magnitude when viewed against the sort of harm that might ordinarily be expected to flow from industrial action in a similar context’’.[7]

The PC also responded positively to employer complaints about ‘aborted’ industrial action, and situations where unions take industrial action of short duration, but which causes significant disruption to the employer’s business whilst causing the employees concerned to lose only a small amount of pay. Employers would have greater scope to stand employees down and withhold pay in such circumstances.

Further, the PC recommends that maximum penalties for unlawful action should be increased ‘to a level that allows federal law courts the discretion to impose penalties that can better reflect the high costs that such actions can inflict on employers and the community’.

EMPLOYER INDUSTRIAL ACTION

One of the relatively few changes to the Work Choices provisions concerning industrial action, made by the FW Act, was to limit the permissible range of employer industrial action to lockouts in response to protected industrial action by employees.

The PC recommends that the permissible range of response action should be extended to include instituting limits or bans on overtime; ‘directing employees to only perform a particular subset of their normal work functions and adjusting their wages accordingly’; and reducing hours of work. Employees would, in turn, be permitted to respond to such action by the employer by refusing to perform any work.

TRANSFER OF BUSINESS

The PC notes that the transfer of business (TOB) provisions in Part 2-8 of the FW Act ‘have proven to be a fertile area for disagreement between business and employee interests’ (Vol 2, page 828). The Commission therefore makes a number of recommendations (26.1-26.6) to re-balance these provisions, including that:

  • the FWC should have an express discretion to order that an enterprise agreement is not to transfer from an old to a new employer ‘where that improves the prospects of employees gaining employment with the new employer’;
  • employers should have the capacity to make an offer of employment to a transferring employee conditional upon the FWC making an order that an enterprise agreement which applies to the employee is not to transfer to the new employer;
  • transferring instruments should automatically terminate 12 months after a transfer of business (as had been the case under Work Choices) – however, this change should not apply to transfers between associated entities;
  • where employees of their own initiative seek to transfer to a related entity of the old employer, they should be subject to the terms and conditions provided by the new employer.

UNFAIR DISMISSAL

The PC recommends several changes to current unfair dismissal protections (Recommendations 17.1-17.6), including imposing fees at both the conciliation and arbitration stages of an unfair dismissal claim; and reducing the scope for a finding of unfair dismissal where the employer has a valid reason for dismissal but there was an error in the process leading to dismissal.

GENERAL PROTECTIONS

The PC identified several deficiencies in the operation of the general protections provisions (FW Act, Part 3-1). It suggested that the ability of employees to contest adverse action, on the basis of exercising a workplace right to initiate a complaint or inquiry, be limited to ‘instances bearing a direct and tangible relation to a person’s employment’. The general protections should be further reviewed if the number of claims continue to grow within the next 18 months (Recommendations 18.1-18.5).

TURC FINAL REPORT

After two years of hearings, the Final Report of the Heydon Royal Commission concluded that there has been ‘widespread’ and ‘deep-seated’ misconduct on the part of Australian union officials over the last 23 years – including corruption, financial arrangements favouring the interests of unions over their members, fraudulent payments, and misappropriation of union funds.

The Final Report identified a number of common themes in the way in which certain unions have been run which have contributed to (or reflect) corrupt or illegal practices. These themes include:

  • the propensity for creation of false records and invoices, and the insufficiency or absence of records;
  • the failure of union branch committees of management to deal with the conduct of particular officials;
  • the payment of large sums of money by employers to unions, often in the context of enterprise bargaining; and
  • the false inflation of union membership numbers.

The picture emerging from these themes, it was concluded, is that of unions concerned more with the self-interest of the union and its officials rather than the interests of members.

The Royal Commission referred 93 individuals and organisations to police and other authorities, for investigation of a range of alleged criminal offences and civil breaches. In addition, the Commission made 79 law reform recommendations. Many of these are aimed at lifting standards of financial probity, disclosure and accountability within trade unions; substantially increasing the penalties for serious breaches of these legal requirements; and establishing a specialist agency to oversee and enforce the new regulatory regime, the Registered Organisations Commission (ROC).

The ROC would take over the functions relating to unions and employer organisations currently performed by the General Manager of the FWC, and would have powers modelled on those of the Australian Securities and Investments Commission.

The TURC also found that there had been misconduct on building sites across Australia directed at employers, contractors and government inspectors. This prompted a number of recommendations in the Final Report dealing specifically with the building and construction industry, including that:

  • consideration be given to passing special legislation disqualifying officials of the Construction, Forestry, Mining and Energy Union deemed by Parliament to be ‘not fit and proper persons’ from holding union office for a specified period;
  • the building industry regulator be conferred with compulsory investigatory and information gathering powers, similar to those proposed in the Government’s Building and Construction Industry (Improving Productivity) Bill 2013 (BCIIP Bill);
  • penalties for unlawful coercion and prohibited industrial action be significantly increased;
  • picketing be considered ‘industrial action’ under the FW Act (and therefore subject to the requirements for taking protected industrial action), with specific measures to deal with industrially motivated pickets.

WHERE TO NEXT?

The Government will now engage in a public consultation process on the recommendations of the PC report. According to the Employment Minister:

The Government has said that if there is a good case for fair and sensible changes to the workplace relations framework, these will be clearly outlined and they will be taken to the Australian people, and we will seek a mandate at the next election. That is what we promised, and we intend to keep that promise.[8]

On the other hand, the Government was very quick to confirm that it will introduce legislation when Parliament resumes this week, seeking to implement the TURC’s recommendations.[9]

This legislation will build upon proposals already submitted to (and rejected by) Parliament in three previous registered organisations bills, and the BCIIP Bill which included provisions to re-establish the Australian Building and Construction Commission.[10]

The Government wants the new laws passed by the end of March. Given the likely opposition of Labor and the Greens, there will be considerable pressure on the cross-bench senators to pass the legislation in the wake of the TURC findings. If not, there is some prospect that the Government will call a double dissolution election.

Finally, the Government will also be seeking passage of the Fair Work Amendment (Remaining 2014 Measures) Bill 2015. This Bill includes several proposals which the Government was required to abandon in negotiations to ensure that the Fair Work Amendment Act 2105 (Cth) was passed late last year.[11]