Australia: Draft report of Productivity Commission into Australian workplace relations framework released – back on the reform road - 5 August 2015

Last Updated: 8 September 2015
Article by Andrew Tobin and Shane Entriken

On 4 August 2015 the Productivity Commission released its draft report card on the review of the Australian workplace relations system.

You might recall that the Fair Work Act has been in place for over five years and due to the importance of getting this review right, HopgoodGanim Lawyers engaged with industry and our clients to put forward our own submission (see it here) on the issues important to them.

The clear theme of our submission was the need to simplify a system that seems to become more complex every time it is reviewed.

The Conciliation and Arbitration Act 1904 boasted 92 sections and two schedules totalling 22 pages.

The current Fair Work Act 2009 sports some 800 sections, most with multiple subsections, and five schedules totalling some 988 pages. In addition, there is a need to understand the Fair Work Regulations, transitional legislation, the regulations for the transitional legislation, the Registered Organisations Act, their supporting Regulations, the Building Industry Act and Regulations. To that point let's call it 1628 pages.

So what has happened this time around? Have we bucked the trend? Well let's take a look at the view of the Productivity Commission:

"Despite sometimes significant problems and an assortment of peculiarities, Australia's workplace relations system is not systemically dysfunctional. It needs repair not replacement."

So some minor tweaks are needed; otherwise it's as good as it gets. Why? The report suggests that this finding is based on the philosophy that:

"A workplace relations (WR) framework must recognise two features of labour markets.
  • Labour is not just an ordinary input. There are ethical and community norms about the way in which a country treats its employees.
  • Without regulation, employees are likely to have much less bargaining power than employers, with adverse outcomes for their wages and conditions.
The challenge for a WR framework is to develop a system that provides balanced bargaining power between the parties, that encourages employment, and that enhances economic efficiency. It is easy to over or under regulate."

The report then goes on to provide various recommendations, which in the main increase regulation rather than make the existing system simpler or more efficient. The following key points are noted:

  • Australia's labour market performance and flexibility is relatively good by global standards. Strike activity is low, wages are responsive to economic downturns and there are multiple forms of employment arrangements that offer employees and employers flexible options for working.
  • The Fair Work Act 2009 (Cth) and sometimes the Fair Work Commission can give too much weight to procedure and too little to substance, leading to compliance costs and, in some cases, poor outcomes.
  • Awards are an Australian idiosyncrasy with some undesirable inconsistencies and rigidities, but they are an important safety net and a useful benchmark for many employers. The Fair Work Commission should address specified troublesome hotspots on a thematic basis, rather than completely replace them.
  • Penalty rates have a legitimate role in compensating employees for working long hours or at unsociable times. They should be maintained. However, Sunday penalty rates for cafes, hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates.
  • Enterprise bargaining generally works well, although it is often ill-suited to smaller enterprises. However:
    • the 'better off overall test' used to assess whether an agreement leaves employees better off compared with the award can sometimes be applied mechanically, losing some benefits of flexibility for employees and employers. Switching to a no-disadvantage test with guidelines about the use of the test would encourage win-win options.
    • bargaining arrangements for greenfields agreements pose risks for large capital-intensive projects with urgent timelines. A limited menu of bargaining options would address the worst deficiencies, while taking account of the different nature of greenfields projects.
  • There is scope for a new form of agreement — the 'enterprise contract' — to fill the gap between enterprise agreements and individual arrangements. This would offer many of the advantages of enterprise agreements, without the complexities, making them particularly suitable for smaller businesses. Any risks to employees would be assuaged through a comprehensive set of protections, including the right to revert to the award.

Some will argue that this is an opportunity lost to do a proper clean up. The result will be incremental change at the edges that will generally lead to more complexity, not less, and arguably minimal impact on what occurs now in workplaces.

We will engage with our clients over coming weeks to collect their thoughts and make representations to the Productivity Commission during the public consultation sessions which will be held in Perth on 14 September and Brisbane 21 September 2015. For more information with regards to these sessions please contact Andrew Tobin in Brisbane or Shane Entriken in Perth.

A full copy of the draft report is available here.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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