Key Points:

Few of the recommendations of the Productivity Commission's Draft Report into Australia's Workplace Relations Framework would be of concern to employers generally.

The Productivity Commission has issued its Draft Report into Australia's Workplace Relations Framework and has recommended a range of changes but stopped well short of a radical recasting the workplace relations system that was implemented by the Fair Work Act 2009 (Cth).

On balance the proposed recommendations (which are still subject to consultation, comment and revision before a final report is issued in November 2015) aim to address a range of areas where Australian businesses have raised concerns about the operation of the workplace relations system and its impact on productivity. Some of the key recommendations are discussed below.

Restructure of the Fair Work Commission

The Draft Report recommends that the Fair Work Commission be split into two separate units: the Minimum Standards Division which would have responsibility for minimum wages and modern awards and all other functions of the Commission would remain with the Tribunal Division.

The proposed Minimum Standards Division would be comprised of appointees with experience in economics, social science, commerce or equivalent disciplines and would approach its functions in a way that would give greatest weight to clear analytical evidence, rather than the adversarial submissions of industrial parties.

This recommendation addresses the view, held in some quarters, that the setting of wages and conditions by the Commission's predecessors has been an inexact process based on the adversarial position of unions, employer groups and some larger employers, without significant proper economic or social policy analysis. Commission Members traditionally and largely come from union backgrounds, employer association backgrounds or legal backgrounds and are unlikely to have any significant expertise in economics, social science, commerce or equivalent disciplines, and so are heavily reliant on the information the parties put before them, rather than being able to make their own inquiries.

If this recommendation were accepted and implemented (which would require legislative change) it would be likely to result, in the longer term, in a more fiscally conservative approach to the setting of wages and conditions.

Penalty rates reform

The Draft Report recommends that penalty rates for employees in the cafes, restaurants, entertainment and retail sectors be made consistent across Saturdays and Sundays ‒ at the present Saturday penalty rate of 125% rather than the current Sunday penalty rate of 200%.

If this recommendation was adopted (which would require legislative change) there would be a significant cost benefit to some/most employers in these sectors. This recommendation is already being strongly opposed by unions and will not be supported by the Federal Opposition.

Bargaining processes to focus on substance and flexibility

The Draft Report makes a number of recommendations around bargaining processes that while potential beneficial to employers, are unlikely to significantly change the balance of power in enterprise bargaining (and certainly not in the short term). One particular recommendation ‒ the introduction of a new class of agreement ‒ "the enterprise contract" (which if adopted would give employers, particularly smaller businesses, greater scope to adapt agreements to their business needs without the need to negotiate individually or at an enterprise level and without requiring an employee ballot) ‒ has already been subject to allegations of the revival of WorkChoices and is likely to become a hotly contested political issue ‒ which will make any legislative change difficult to achieve.

Employers may be given boost in industrial disputes

Recommended amendments to industrial action provisions relating to the strategic use of aborted strikes and brief stoppages could provide employers with more cost-effective means of implementing contingency plans in response to notices of industrial action. In addition the Productivity Commission will consider further options for employers as alternatives to the nuclear option of lockouts in response to protected industrial action by employees.

Unfair dismissals and general protections claims to be tightened

Other recommendations would, if implemented, give employers a likely reduction in unfair dismissal and general protections claims and the cost of defending those claims. A recommendation that the Fair Work Commission consider unfair dismissal applications "on the papers" prior to conciliation, or, alternatively, that more merit-focused conciliations be introduced could reduce the number of claims that employers have to defend.

Employers may also benefit if recommendations are adopted that will change the penalty regime for unfair dismissal cases so that compensation is only available to employees when they have been dismissed without reasonable evidence of persistent underperformance or serious misconduct.

The Productivity Commission also recommends that procedural errors by an employer should not result in reinstatement or compensation for a former employee, and that the emphasis on reinstatement as the primary remedy for unfair dismissal should be removed. There is also a recommendation that a cap on compensation that can be awarded in general protections claims be introduced.

Next steps for the Productivity Commission's inquiry

The Draft Report of the Productivity Commission provides employers with some hope that a range of legislative changes may be adopted, at some time in future, that address some of the concerns that are raised by employers about the operation of the Fair Work Act.

Few of the recommendations would be of concern to employers generally and most of the recommendations are likely to be vigorously opposed by the trade union movement and not supported by the Federal Opposition. As such there should not be great confidence that any of these recommendations, which require legislative change, will become law within the term of the present Commonwealth Government.

Submissions on the Draft Report will be received by the Productivity Commission until Friday 18 September 2015.