Introduction

The wait is over. On 4 August 2015, the Productivity Commission released its draft report on the Australian workplace relations framework. The draft report recommends a number of sensible changes to the current landscape, although it is likely that some of the recommendations will be controversial. The Australian Government intends to use the Productivity Commission’s report to develop its workplace relations policy to take to the next election.

Productivity Commission

The Productivity Commission (Commission) is the Australian Government’s independent research and advisory body on a range of issues affecting the welfare of Australians. In January 2015 it published five issues papers summarising the scope of its inquiry into the workplace relations framework in Australia and seeking submissions on the issues that it raised. The draft report (Report) sets out the draft recommendations of the Commission.

Overview

The Report states that Australia’s WR system is not “dysfunctional” and it needs “repair not replacement”. However, the Report does identify what it refers to as several “major deficiencies”. While many of the recommendations are likely to be welcomed by businesses, it does contain some controversial proposals. These include the recommendation that Sunday penalty rates be brought into line with Saturday penalties in the hospitality, entertainment, retailing, restaurants and café industries. Another novel proposal is the possibility of the introduction of a new type of agreement, the enterprise contract, which is described as an individual flexibility agreement that applies collectively.

More information about these and other key recommendations are set out below.

The Commission’s draft recommendations

Structure of Fair Work Commission

In order to address some inconsistencies in approach within the Fair Work Commission (FWC), the Report proposes that the FWC should have two distinct divisions – a Minimum Standards Division that would be responsible for wage and award determinations, and a Tribunal Division. The process of appointment of members of the FWC should also be reformed so that an expert appointments panel would be created to provide a merit-based shortlist of candidates for the two divisions. Appointments would be for 5 year periods, with re-appointment being subject to a merit-based performance review.

Public holidays

All awards should include terms that allow employers and employees the right to swap a public holiday to a date other than the one prescribed, so that the option of swapping holidays is available in all workplaces.

The National Employment Standards (NES) should be amended so that employers are not required to pay for leave or additional penalty rates for any newly designated State or Territory public holidays.

Penalty rates

 No recommendations have been made to any changes in regulated minimum penalty rates for overtime, night and shift work. However, the Report recommends that Sunday rates in the hospitality, entertainment, retailing, restaurants and café industries should be brought into line with the Saturday rates. The Report states that those changes would “desirably occur” as part of the current four yearly award review, but with one year’s notice. Weekend penalty rates should be set to encourage greater consistency between the above industries, although a single rate would not be expected.

Unfair dismissal

 A number of “moderate” reforms are recommended in relation to the unfair dismissal jurisdiction. These include:

  1. The Fair Work Act (Act) should be amended so that compensation or reinstatement cannot be awarded for procedural errors only, although financial penalties could be awarded against the employer for serious errors.
  2. The FWC should have more powers to dismiss unmeritorious claims at an early stage on the papers or alternatively a more merit focused conciliation process should be introduced.
  3. Reinstatement should not be the primary remedy of an unfair dismissal claim.

Adverse action

 A number of recommendations have also been made in relation to adverse action claims. These include:

  1. introducing a cap on compensation levels for general protections claims (which are currently uncapped);
  2. amending the Act to:
    1. include a stronger definition of a “complaint”. Currently there is a lot of conflicting case law as to what constitutes a complaint for the purposes of identifying whether someone has the right to protection under the adverse action provisions;
    2. require complaints to have been made in good faith, which the FWC would determine following a preliminary interview with the complainant.
  3. aligning discovery processes with the Federal Court processes;

Enterprise bargaining and Greenfields’ agreements

The Report considers that in relation to enterprise bargaining, the good faith bargaining requirements are working fairly well.  However, it has recommended that there should be a move from the better off overall test (BOOT) to a no-disadvantage test, with more detailed, practical guidelines as to how the test operates.  The Report suggests that that this may provide more flexibility in agreement making, as the BOOT test is often implemented too mechanically. 

The Report recommends that enterprise agreements should be entitled to specify a nominal expiry date of up to 5 years.  In the case of Greenfields’ agreements, it also recommends that it should be able to specify a nominal expiry date that matches the life of a greenfields’ project.  This could potentially exceed 5 years, but only with the approval of the FWC.

The Report discusses some of the difficulties that arise with Greenfields agreements.  It recognises that there are no easy solutions but suggests a “menu approach” with three options.  That is, if an employer and a union have not reached agreement after three months, the employer can:

  1. continue negotiating with the union;
  2. ask the FWC to conduct an arbitration in which it would choose between the last two offers made by the employer and the union.  This would hopefully encourage the parties to make sensible offers. 
  3. submit the employer’s proposed agreement for approval by the FWC without the need for agreement, with a 12 month expiry date.

The Report also recommends that the Act should be amended to state that a non-union party can only act as a bargaining representative if they are supported by a reasonable percentage of employees (the Commission has suggested 5%).

Individual flexibility arrangements

In order to address the limited use of individual flexibility arrangements because of the perceived uncertainty with them, the Report recommends that the Act be amended so that the minimum termination period should be 13 weeks, but with the capacity for employers and employees to agree that the agreement will apply for a minimum one year period.  The Report also recommends that enterprise agreements should not be able to restrict the terms of individual flexibility arrangements.  Further, it recommends that the Fair Work Ombudsman publishes an information package on individual flexibility arrangements and distributes it to employers.  

The new enterprise contract

The Commission has noted that agreement making is rare among small and medium sized businesses. As a result of this and the fact that there is not a significant take-up of individual flexibility arrangements, the Commission is proposing the option of a new type of statutory arrangement, being the “enterprise contract”. This is described by the Commission as a “collective individual flexibility arrangement, but with some further flexibility”. It would allow employers to vary an award for a class or group of employees without having to negotiate individually or to put in place an enterprise agreement. The enterprise contract would operate in the following way:

  1. It could be offered to prospective employees as a condition of employment.
  2. It would not require an employee ballot to be voted on.
  3. No employee groups would have to be involved in the preparation of the contracts unless the employer wanted to involve them.
  4. Current employees would have the choice of whether the enterprise contract would apply to them or whether they wanted to stick with their existing employment contract or award.
  5. It would be lodged with the FWC but would not require approval. Compliance would be tested using the no-disadvantage test, if an employee complained about the contract after it applied to them. If the complaint was upheld, the Fair Work Ombudsman could vary the contract of all other relevant employees.
  6. The employer would have to provide a written form of the contract to employees.
  7. Employees could “exit” the enterprise contract after one year and return to the award.
  8. The enterprise contract would have an expiry date.

The Commission is inviting further submissions and information in order for it to further consider the desirability of such an agreement.

Industrial disputes

While the Commission believes that industrial disputes are not a major problem in Australia’s WR framework, it recognises that there are some shortcomings in the current arrangements and it recommends the following:

  1. Industrial action should not be able to be commenced prior to bargaining commencing in relation to an expired enterprise agreement.
  2. The Act should be amended to give the FWC the discretion to withhold a protected action ballot order for up to 90 days, where it believes that the employees are using withdrawals of protected action as an industrial tactic.
  3. In line with the above, if an employer has prepared a reasonable contingency response to threatened industrial action, then it should be entitled to stand down employees for the duration of that response if the industrial action is aborted. This is intended to reduce the use of threatening and then cancelling industrial action as a “strategic ploy”.
  4. Employers should have the right to pay employees for short duration strikes to circumvent the difficulties faced by employers where employees have engaged in, for example, a one minute stoppage. Alternatively, they should be able to deduct up to 15 minutes pay per person.
  5. The Act should be amended to allow the FWC to suspend or terminate industrial action where it is causing or threatening to cause significant economic harm to the employer or the employees (rather than both parties).
  6. The maximum penalties for unlawful industrial action should be increased.

The Commission is seeking further input as to any ways in which protected action ballots procedures can be simplified.

Awards

In relation to Awards, the Report recommends the removal of the requirement to conduct four yearly reviews of modern awards. It recommends that the Minimum Standards Division of the FWC should review and vary awards as necessary.

Trainees and apprentices

The Report recommends that there should be a separate and comprehensive review of Australia’s apprenticeship and traineeship arrangements.

What happens next?

All interested parties have been asked to provide any comments on the Report in writing by 18 September 2015.  A number of public hearings will be held throughout September.  The final report is to be provided to the Government by the end of November 2015.

The Government has stated that it will use the findings of the final report as its platform for the next election, with the intention that they be implemented in its next term. There are certainly a number of recommendations which, if included in the final report, and ultimately legislated, will provide some clarity and benefit for employers in all industries. Of course, however, given the current political landscape in Australia, there has to be a question as to the extent to which any of the Commission’s ultimate recommendations will see the light of day.

Download the Report.