Chapter 1 - The evolution of workplace agreements
1.1
This is an introductory chapter which describes and
outlines themes and arguments that will be presented more fully in the
following three chapters. It puts the current interest in workplace agreements
in an historical context, recognising that the pace of change has quickened
suddenly in the light of the imminent introduction of the WorkChoices
Bill. As was explained in the Preface, it
has not been possible in this report to avoid anticipating what is likely to
come with the WorkChoices Bill.
1.2
There is considerable commentary on the evolving
process of wage determination over the past dozen years. Most areas of
employment have been affected. Movement away from centralised wage fixing began
with amendments to the Industrial Relations Act in 1993, toward enterprise
bargaining arrangements, a move by the Keating Government which was initially
opposed by sections of the union movement.
1.3
Since then, a diminishing proportion of the workforce
has directly relied on industry-wide awards, which provide a comprehensive set
of wages and conditions per industry, and which provide the current safety net
for lower-paid members of the workforce. These are generally unskilled workers
but also cover part-time and casual workers and immigrant skilled workers with
poor English. Very large numbers of employees indirectly rely on awards, using
them as the base starting point for collective and individual agreements, or,
with respect to specific provisions, as default provisions. Skilled workers,
and certainly those represented by unions, generally enjoy above-award wages
and other benefits of enterprise agreements. However, it remains the case that
the award system continues to underpin the wages and conditions of workers who
have collectively and individually negotiated above-award wages; and acts as an
important safety net for the remaining workforce. Such wage differentials in
the workforce are not exceptional, as they were fifteen years ago, and are a
notable characteristic of the current wages structure.
1.4
The central issue in the debate over industrial
agreements, which is the subject of this report, is the extent to which the
current trend toward wider disparities in wages and conditions can continue.
Traditionally, the award structure has put a substantial floor under wages.
This report deals in part with the consequences of the removal over time of the
award structure, and its replacement by new mechanisms and agreement processes
which many claim will widen the wages gap and create a permanent underclass of
unskilled employees existing barely above poverty levels. There has been much
speculation on the social consequences of such a development. It is feared it
will move Australia
towards the harsher and less egalitarian USA
practice. The spectre of poverty and social alienation that is evident on the
extensive fringes of American society concentrates the minds of many
commentators, who also acknowledge that in many other respects the conditions
and traditions of governance which prevail in the United
States find no mirror in this country.
1.5
Of relevance to this inquiry are the social
consequences of New Zealand's
experience with individual contracts during the 1990s. It has been widely
reported that the Employment Contracts Act of 1991 had disastrous consequences
for workers who had previously relied on industrial awards to provide a safety
net of minimum wages and conditions. The new system of individual contracts
introduced in 1991 was a disaster for jobs, wages and productivity, resulting
in a significant rise in the number of 'working poor'.[1]
1.6
The other side of this argument draws heavily from the
necessity of continuing with the work begun with the 1993 legislation ushering
in enterprise agreements, based largely on the assumption that economic
imperatives make further movement along this path essential. That is, reform
must follow reform in a continuing cycle in the direction of sustaining maximum
productivity. To stand still is to go backwards. Proponents of this line of
argument emphasise its importance at a time when the economy of the country is
subject to unrelenting global competition.
Historical context
1.7
In the last 20 years, Australian wage fixation has
moved incrementally from a centralised model of awarding national wage increases
to match increases in the cost of living, to a much more devolved system, where
wages are primarily set at the workplace level, often based on improvements in
productivity.
1.8
This shift first started to occur in 1987, with the
Commission's introduction of the Restructuring and Efficiency Principle.[2] This was reinforced (albeit at an
industry level) by the Structural Efficiency Principle[3] which accelerated following the
development of the Enterprise Bargaining Principle in 1991.[4]
1.9
From this time, the Commission's decisions and the
Government's legislative action (most significantly through the Industrial Relations Reform Act 1993 and
the Workplace Relations and Other
Legislation Amendment Act 1996) have facilitated this shift in focus from
national and industry level wage fixation to workplace level wage fixation. In
broad terms, by the mid 1990s, there was general acceptance of the principle
that industrial agreements could not be fairly made without regard for the
profitability – and the capacity to pay higher wages – of businesses,
especially in such a diverse economy when not all businesses were profitable at
the same time.
The Workplace Relations Act and
subsequent amendments
1.10
Following the Coalition's election in March 1996, the
Government introduced the Workplace
Relations and Other Legislation Amendment Act 1996, which renamed and
significantly reformed the Industrial
Relations Act 1988. The amendments focused on achieving wage increases
linked to productivity at the workplace level. The new name of the act
reflected this, as did new provisions relating to negotiating and certifying
agreements. The act also introduced a new form of agreement, Australian
Workplace Agreements (AWAs), which could be made between an employer and an
individual employee.
1.11
Two other significant changes were to restrict the
Commission's ability to make awards in relation to matters outside a core of 20
'allowable award matters' set out in section 89A, and the introduction of
provisions requiring the Commission to review and simplify awards to remove all
provisions falling outside these 'allowable award matters' after a transitional
period of 18 months. These provisions achieved what the Commission had decided
it could not do itself under the former legislation; this is, limit the content
of the award safety net to a set of core minimum conditions.[5]
1.12
The simplification of Federal Awards to 20 allowable
matters had the most significant effect of removing restrictions on casual
labour. Although the rise of casual labour from 18.2 per cent of the workforce
in 1988 to 26.6 per cent of the workforce in 2004 is a significant trend, its
effect on workers has been more recently felt.[6]
The committee believes it is a trend which will continue under proposals
contained in the WorkChoices Bill.
1.13
The role of the Commission, and that of its awards, has
developed to reflect the increasing emphasis on setting wages and conditions by
agreement at the workplace. It was inevitable that the scope for arbitration by
the Commission would be reduced in line with these changes, and the Commission
itself had recognised this earlier.[7]
1.14
It is worth noting that the Government did not get
their full proposal through the Senate. In the end, there were 176 Democrat
amendments made to the original legislation.
1.15
Having been successful in having the Workplace
Relations Act passed, with substantial amendments insisted on by the Senate,
the Government thereafter had less success with subsequent amendments to the
act. Many of the amendments the government has sought to make to the act in the
years since 1996 have been thwarted by the Opposition and other parties in the
Senate. While that is true, the extent of Government failure should not be
exaggerated. It is common for the Government to claim that their legislative IR
agenda has been routinely obstructed in the Senate, but up until June 30 2005 the Coalition secured
passage of 18 workplace relations bills through the Senate. Of these, five were
supported by all parties and passed without amendment, including the very
substantial Workplace relations (Registration and Accountability of
Organisations) Bill 2002.
1.16
The first significant amendments proposed after 1996 were
contained in a major bill, the Workplace Relations Legislation Amendment (More
Jobs, Better Pay) Bill 1999. The bill, often
referred to as the MOJO Bill, sought among other things, to reduce the role of
industrial awards, reform the certification of agreements and the making and
approval of AWAs and to clarify rights and responsibilities relating to
industrial action. It also sought to reduce allowable award matters, restrict
union right of entry provisions and review provisions for freedom of
association. This bill lapsed at the end of the 39th Parliament. Following
the failure of MOJO to pass the Senate, this comprehensive amendment bill was
'unpackaged' into separate constituent bills which were reintroduced in
following years. A number of less contentious bills were passed.
1.17
One of these was the Workplace
Relations Amendment (Genuine Bargaining) Act 2002, which specified
factors to be taken into account by the Commission when considering whether a
negotiating party was genuinely trying to reach agreement, and which empowered
the Commission to make orders in relation to new bargaining periods.
1.18
The Workplace
Relations Amendment (Better Bargaining) Bill 2003 proposed to
restrict access to industrial action before the expiration of an agreement,
provide more ready access by employers to cooling-off periods, allow third
party suspensions of industrial action and limit union access to protected and
unprotected industrial action. The bill lapsed at the end of the 40th
Parliament.
1.19
Most recently, the Workplace
Relations Amendment (Simplifying Agreement-making) Bill 2004 sought
to simplify certified agreement-making at the workplace level, reduce the
delays, formality and cost involved in having an agreement certified, and
prevent interference by third parties in agreement-making. It also sought to
provide for the extended operation of certified agreements of up to five years.
The bill lapsed at the end of the 40th Parliament.
1.20
The brief chronology above pertains primarily to
amendments in relation to widening the scope of agreement-making. With its
newly realised Senate majority, the Government has announced its intention to
introduce legislation into the Parliament in late 2005 in its latest attempt to
'simplify' agreements. Announcements from the Government suggest that the bill
will seek to encourage the use of Australian Workplace Agreements (AWAs) at the
expense of collective agreements, and dismantle the award structure over time.
The Australian Industrial Relations Commission (AIRC) will have responsibility
for simplifying awards, regulating industrial action and registered
organisations, and will play a role in relation to termination of employment.
Employers and employees will also be able to use the AIRC to help them resolve
a dispute. The new Australian Fair Pay Commission will set and adjust a single minimum
wage and determine other working conditions within a framework of a reduced
number of allowable matters. These are expected to include annual leave, carer's
leave, parental leave, and maximum ordinary hours of work.
Agreements: their scope and coverage
1.21
This section provides a descriptive summary of the
nature and coverage of enterprise and individual agreements in the context of
the broader employment framework, since the passage in 1996 of the Workplace Relations
Act.
1.22
The act introduced significant changes to the
legislative framework of formalised agreement-making in the federal
jurisdiction. Under the act, there are a number of options for making an
agreement, both formal and informal. Formal options include a certified
agreement (CA), which are most commonly certified by the AIRC under either
section 170LJ (employer and employee organisation), or section 170LK (employer
and a majority of employees). Other options exist for the formation of a CA
pertaining to new businesses and for the settlement of industrial disputes.
1.23
The other type of formal agreement is AWAs, which were
the first non-collective agreement to be recognised by legislation in the federal
jurisdiction. AWAs are made directly between an employer and an employee, and
are approved by the Employment Advocate.[8]
1.24
The Australian Bureau of Statistics collects and
publishes data relating to the scope and coverage of different agreements, as
well as incomes. Registered agreements are statutory instruments and
unregistered agreements are common-law agreements. The ABS records the most
common methods of setting pay for all employees in May 2004 as being registered
collective agreements (38.3 per cent), unregistered individual arrangements
(31.2 per cent) and award only (20.0 per cent). Unregistered collective
agreements (2.6 per cent) and registered individual agreements (2.4 per cent)
were the least common methods of setting pay. The remaining 5.4 per cent of employees
were working proprietors of incorporated businesses.
1.25
The most common methods of setting pay for full-time
employees were collective agreements (41.5 per cent) and registered and
unregistered individual arrangements (38.9 per cent). For part-time employees, collective
agreement (39.7 per cent) and award only (34.3 per cent) were the most common
methods of setting pay.
1.26
The median weekly total earnings for full-time adult
non-managerial employees who had their pay set by awards only were $625.00.
This compares with median weekly total earnings of $904.00 for full-time adult
non-managerial employees who had their pay set by collective agreements and
median weekly total earnings of $814.00 for full-time adult non-managerial
employees who had their pay set by registered and unregistered individual
arrangements.[9] The committee notes that
ABS figures do not differentiate between those agreements, collective or
otherwise, which are in part underpinned by award provisions.
1.27
The following graphic illustrates the use of different
employment arrangements across the income levels.[10]
1.28
The committee does not know how many AWAs are currently
operative. Data relating to AWAs, and to an even larger extent non-AWA
individual agreements, can best be described as estimates. They are individual
agreements and confidential documents, running for differing lengths of time. At
the committee's hearing in Perth, Western Australian Minister, Hon John Kobelke
MLA, also referred to the difficulty in obtaining accurate data on the coverage
of workplace agreements.[11]
1.29
The Office of the Employment Advocate (OEA) has submitted
that AWA approvals have enjoyed an annual growth rate of 29 per cent over the
past three years, and an even higher rate for small to medium businesses. The
OEA also estimated that 'industry penetration' by AWAs stands at 5.4 per cent nationally.[12]
1.30
Professor David
Peetz has taken issue with the OEA's
submission, arguing that:
...[I]t is important not to misinterpret cumulative OEA lodgement
data as providing any measurement of actual coverage, as there is substantial
potential for double and triple counting of AWA employees who leave and are
replaced by AWA employees or who sign replacement AWAs ... The OEA estimate that
5.4 per cent of the Australian population was 'covered' by AWAs in June 2005 is
implausible, given that only 2.4 per cent were covered in May 2004, only 217
000 AWAs (equivalent to about 2.7 per cent of employees) were approved in
2004-05, and many of the workers covered by AWAs in May 2004 ... would have
either left their jobs or been covered by replacement AWAs.[13]
1.31
The ACTU had similar concerns, pointing to a disparity
in the number of AWAs estimated to be in force by the OEA and the ABS of more
than 226 000. This equates to a disparity of 115 per cent.
1.32
Professor Peetz
also pointed to ABS data which makes clear that growth in the number of
employees covered by collective agreements from 2002 to 2004 far exceeded the
likely rise in registered individual contracts.[14]
1.33
One of the main criticisms of the use of the ABS data
to support the view that the coverage of individual agreements is growing
rapidly relates to the way the ABS categorises employees. Professor
Ellem argued:
[T]he way that the Australian Bureau of Statistics count these
figures is not the most helpful way of doing it. When they do their samples,
any one employee is classified into only one category whereas ... a large number
of or most employees in effect have their wages and condition determined by a
combination of instruments. For example, if your wages and conditions are
determined by a federal award and some kind of individual agreement then
modifies some part of that agreement ... [the ABS] would count such a person as
being in the individual agreement-making category only. [Thus] we do not really
know for sure what the make-up of the regulation of the Australian labour
market is at the moment in any sophisticated way.[15]
1.34
Professor Ellem
continued:
I am saying that it is a genuinely difficult problem and there
are legitimate ways of going about it. All that we want to do is to make sure
that we are comparing like with like.[16]
1.35
Professor Ellem's
observations appear to the committee to be well founded. The glossary of the
relevant ABS report discloses that those in the individual arrangement category
include employees who had the main part of their pay set by an individual
contract, registered individual agreement, common-law contract, or an agreement
to receive over-award payments.[17]
1.36
Finally, it was pointed out that figures from Western
Australia are skewed as a result of a change of government.
There is a higher proportion of AWAs in effect in Western
Australia than in any other state. This is partly due
to the prevalence of AWAs in the mining industry, but also because most of the
workers formerly covered by Individual Workplace Agreements went over to AWAs.[18] Nonetheless, it is clear to the
committee that the scope and coverage of AWAs across the country is open to considerable
dispute.
What do AWAs cover?
1.37
The most comprehensive analysis of AWA content was
carried out by the Australian Centre for Industrial Relations Research and
Training (ACIRRT) based on sample AWAs provided by the OEA between 2002-03. Issues
commonly dealt with in AWAs include wages and other remuneration, span and
flexibility of hours, leave provisions, and so-called 'family friendly'
provisions. Of these, the most commonly covered issue is span and flexibility
of hours, which 82 per cent of surveyed AWAs made reference to. Only 15 per
cent of AWAs placed a limit on the number of hours to be worked in any one day,
with 4 per cent of agreements allowing for more than 12 hours per day to be worked.[19]
1.38
Professor Peetz's
submission contended that the span of hours is the predominant issue covered by
AWAs, and he draws on ACIRRT research to argue that AWAs tend to provide for annualised
working hours which are longer than other agreements. These 'annualised hours' can
leave workers at a significant disadvantage because they tend to be paid at
ordinary-time, rather than overtime rates of pay.[20] This results in wages being devalued
over time. This was the general experience in Western
Australia under its previous system of individual
workplace agreements (IWAs). The Western Australian Government submission noted
that while many IWAs included very open-ended hours of work under the guise of
flexibility: '...an analysis of the loaded rates of pay for these workers did not
appear to make up for the increasingly open and flexible hours of work
arrangements'.[21]
1.39
The committee heard evidence from Ms
Janine Freeman,
Assistant Secretary, UnionsWA, that inclusion of annualised working hours in
AWAs raises serious health and safety issues. Ms
Freeman described the effect of annualised
salaries on the ambulance officers who worked at Port Hedland:
They had workplace agreements to annualise their salaries. At
first the salaries looked extremely attractive because they were annualised and
took things into account...When they looked at the hours they were working, the
amount of call-out they had to do and the additional duties that were
considered in the workplace agreement, they found that, if they had been on a
certified agreement, they would have been underpaid. The impact on families in
Port Hedland – in remote and regional areas – was quite harsh and caused a lot
of difficulty.[22]
1.40
The next most common employment condition covered by
AWAs is leave, which was specified in 74 per cent of agreements, followed by
'family friendly' provisions such as parental leave or additional flexibility
when required for family-related contingencies.
1.41
Alarmingly, only 38 per cent of AWAs covered by the
survey made reference to wage rises, and in 41 per cent of AWAs one or more
loadings such as overtime had been 'absorbed' into an overall rate of pay.
1.42
The ACTU drew on data from the Department of Employment
and Workplace Relations (DEWR) to show that even collective agreements are
frequently left wanting in content detail. Only about 29 per cent of employees
covered by certified (collective) agreements are covered by comprehensive agreements.
Comprehensive certified agreements appear most frequently in the construction,
manufacturing, retail trade, and transport and storage industries. However,
with the exception of retail trade, these agreements account for only a small
proportion of employees covered by this type of agreement.[23]
1.43
Hence, for the purpose of this report the committee
assumes that the number of AWAs currently in effect is uncertain, but that
awards and collective agreements still set wages and conditions for the
majority of the workforce.
Characteristics of employment under
AWAs and other individual agreements
1.44
There is a significant proportion of the workforce which
relies solely on awards and informal agreements. Workers operating under
awards, and forms of unregistered agreements, total one quarter of the
workforce, and are primarily those on lower incomes. They include a high
proportion of women, and young and casual workers. As the ACTU argued:
While there has been rapid growth in the number of employees
covered by formal bargaining, awards remain relevant in setting the wages of
one in five employees ... [A]wards [also] remain relevant in underpinning
bargaining for the majority of employees employed under collective agreements.[24]
1.45
The
following table illustrates the coverage of individual agreements among
different industry groups.[25]
1.46
The table shows the preponderance of workers employed
under individual agreements who are occupied in the mining, wholesale trade,
finance, manufacturing, property and business sectors. There is evidence to
suggest that a significant proportion of these workers are not party to an AWA,
but rather are engaged in informal over-award common-law agreements.
1.47
What is also clear from the table is the situation of workers
in the burgeoning hospitality (hotel, cafes and restaurants) sector, who are
more often than not working solely on awards, while those in retail, health and
community and personal services also have a high rate of award adherence. These
industries are among the highest employers of casual and female workers, as
well as being among the lowest paid, particularly for women.[26] Any move toward AWAs which is
facilitated under forthcoming legislation will probably affect these employees as
the award structure gradually winds up.
1.48
It is pertinent to note here that in promoting
individual agreements, employers are resisting collectivism and promoting
workplace flexibility, but on their terms only. As the committee heard from one
authority:
The two biggest changes that have taken place, including in the
services sector but more broadly in manufacturing, are an increase in the
number of employees on 12-hour shifts. There is also an increase in the basic
length of the working day to 12 hours. That does not mean necessarily that
people work 12 hours a day but it means that any time within the 12 hours is
considered ordinary working time. It reduces payments for working unsociable
hours. ...I think that in those sectors in particular the really critical thing
about AWAs compared to any kind of old collective agreement is that what it is
really about is individualising the process of making the agreement itself. It
is about individualising employee representation at work and, I think, in
effect reducing real flexibility for employees and reducing their voice in
relation to their employer when they have a grievance or a concern.[27]
1.49
Evidence such as this puts a basis of academic research
beneath instinctive distrust of workplace arrangements which avoid the scrutiny
imposed by traditional processes of collective bargaining and tribunal
decisions. This is the basis for fears that AWAs will not promote socially or
family-friendly working conditions. Wage justice may be achieved through AWAs,
as experience with mining and high-skill jobs has demonstrated, but even in these
cases the costs to individuals has been high, and is barely sustainable over a
working career.
Pattern bargaining and pattern agreements
1.50
Few industrial relations practices infuriate the
Government more than 'pattern bargaining', whereby union managements across a
state attempt to negotiate an identical enterprise agreement across comparable
industries within a state. The Government claims that this defeats the
rationale for enterprise based agreements based on shared interests of a firm
and its employees. It argues that a firm's level of remuneration should be
based on its capacity to pay, and its capacity to trade productivity increases
with higher wages.
1.51
Peak employer bodies dutifully condemn pattern
bargaining, but evidence to this committee's inquiries over a number of years
from peak body constituents appears to be ambivalent. As wages make up the bulk
of expenditure outlays, any practice which sets predictable wages at the same
level across an industry greatly simplifies cost estimates for firms tendering
for work. Pattern bargaining, especially in the building and construction
industry, saves a great deal of management time and allows contractors to
remain competitive on the basis of work practices, contract management and in
managing the cost of materials. Productivity gains are no less assured under
these conditions than in having to bargain large numbers of individual
agreements.[28]
1.52
The Government's stand against pattern bargaining for
collective agreements in the private sector is in contrast to its own habit of
pattern bargaining for collective agreements in the public sector. Its stand
against pattern bargaining for collective agreements in the private sector is also
juxtaposed to its support of pattern individual agreements in both the private and
public sectors. Anyway, AWAs are mostly not 'bargained' agreements but are
imposed agreements, the only likely exceptions being those for very high income
employees. Nor do AWAs extend across an industry, although the variations may
be slight in areas with skill shortages.
1.53
Some evidence suggests that many employers prefer
awards and statutory collective agreements. They provide a base upon which to
build common-law agreements. They provide a standard of wages and conditions
which is useful. Professor Bradon
Ellem agrees, arguing that, for many
employers, transparent, efficient and equitable occupational health and safety
and workers' compensation schemes are more important.
Conclusion
1.54
The argument about industrial agreement-making is about
the relativities of bargaining power. The Government has taken the view that
the upper hand in bargaining for wages and conditions has generally been held
by employees, backed by their unions and the apparatus of wage-fixing
institutions. Hence the frequent claim of its legislative intentions as
securing 'balance', 'choice' and 'flexibility'. There is an unspoken assumption
in Government circles, and some employer circles, that in many areas of
employment wages are too high. Yet the Government also claims as a justification
for AWAs that wages will increase. Evidence suggests that they will, but only
in highly professional and highly skilled jobs, and in the particular
circumstances of some industries, and as a result of volatility in the labour
market and the long-term trend toward labour shortages in certain sectors.
1.55
The Government's legislative intent since 1996, which
continue with the imminent WorkChoices
Bill, has been to tilt bargaining power toward
employers. It is a policy based on dubious assumptions about the relationship
between employers and employees. The policy rationale is as follows: the
economic is more important than the social; a philosophical objection to
collective agreements (including awards); and an assumption that employment
relations should regulate employees as economic units, who exist primarily for
work. As a corollary to this, employers stand in a naturally ascendant
relationship with employees, and their needs are therefore paramount. The
system of individual contracts proposed by the Government will significantly
enhance managerial prerogatives and diminish the independence and choice
available to employees.
1.56
The reason given for the paramount importance of
employer demands is the need to increase productivity. The flaw in this
argument is that labour costs and hours worked are only two elements in the
productivity equation. It will be argued in chapter 3 that squeezing labour is
far less effective in raising productivity than improved management, technology
and the injection of capital. What evidence we have shows that productivity in
general is highest in firms in which collective, rather than individual,
agreements are the norm, and where the security, and therefore contentment, of
employees is manifested through good work performance.
1.57
As will also be noted, it is not productivity that
concerns businesses as much as profitability. It is true that cutting labour
costs may increase profits in some circumstances, but this can be a blunt
instrument in dealing with market cycles. If labour costs are significantly
reduced, the flow-on effect through the economy will affect consumer demand. As
employer's profit share is already at a record high of 27 per cent of GDP, and
workers' wages share is almost at the lowest on record at 53 per cent of GDP,
this committee agrees with commentators who wonder what the real purpose of
these changes is.[29]
1.58
Perhaps the answer to this question was given by one of
the key witnesses to this inquiry, who reminded the committee, that the focus
of workplace changes proposed now and in the past by the Government is less
concerned with outcomes than with process.[30]
As the committee has observed before in dealing with numerous amendments to the
Workplace Relations Act, the micro-regulation of industrial legislation ensures
that process has become an end in itself; that hoops must be jumped through in
particular order, lest employers be tempted to take a pragmatic view of the
responsibility they have to hold the line with the Government in whatever it is
attempting to achieve.
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