Productivity Commission releases final report on workplace relations (Part 2) - 25 January 2016

Topic

Recommendations of the Productivity Commission

Enterprise Bargaining

• Discretion to overlook minor procedural defects.  The Fair Work Commission (FWC) should be afforded wider discretion to overlook minor procedural or technical errors when approving an enterprise agreement (EA), if satisfied employees were not likely to have been disadvantaged.  Currently, EAs can (and have been) rejected because of minor procedural breaches which do not unfairly impact on the parties to the EA.
  
  For example, in Peabody Moorvale Pty Ltd v Construction, Forestry, Mining and Energy Union [2014] FWCFB 2042, the Full Bench of the FWC refused to approve an EA, on the basis that the notice of employee representational rights given to employees (a pre-approval requirement for EAs) was stapled to the front of two other documents and was therefore invalid.  Although the notice itself was in the form prescribed by the Fair Work Regulations 2009 (Cth) (Regulations), because it was stapled to two other documents, it was found to contain content other than that prescribed by the Regulations.  Peabody has been followed twice already in 2016.  On 19 January 2016 the FWC refused to approve two EAs for DP World because the notice of employee representational rights was printed on company letterhead.  The result, according to Commissioner Cambridge, was to alter "the character of the document" from a "regulatory form" to something with "the character of an employer's document".
• New 'no disadvantage' test.  The 'better off overall' test invoked when assessing EAs should be replaced by a 'no disadvantage' test. The Report states that a 'no disadvantage' test, which will require the FWC to assess whether each class of employees would be placed at a net disadvantage overall compared with the relevant award, will increase certainty and encourage enterprise bargaining by employers whose current employment arrangements are at or close to the award level.
• Five year nominal expiry date for EAs.  The Fair Work Act 2009 (Cth) (FW Act) should be amended to provide that the nominal expiry date for EAs can be up to five years after the day on which the FWC approves the EA (as opposed to the current maximum of four years). The Report states that a five year duration will reduce the costs of bargaining and enable parties to lock in favourable terms.  
• Non-permitted matters should be excluded from enterprise agreements.  Matters which are currently permitted in an EA are matters pertaining to the relationships between employers-employees and employers-unions, deductions from wages and how the agreement will operate.  Currently, EAs can include terms about non-permitted matters, although such terms are legally unenforceable. The Report states that the inclusion of terms about non-permitted matters creates uncertainty and may lead to increased disputation between the parties.  The Report recommends that before an EA is approved, the FWC should ensure the EA does not contain terms about non-permitted matters. This recommendation, if implemented, may result in increased delays and disputation at the approval stage.
• Permitted matters should not include matters pertaining to the employer–union relationship.  The Report identifies that conflicts of interest may arise if unions prioritise the negotiation of terms that pertain to the employer-union relationship, rather than terms relating to the employee/s the union is representing. The Report recommends reverting to the position under the previous Workplace Relations Act 1996 (Cth) whereby permitted terms were limited to matters pertaining to the employer-employee relationship, however the Report stops short of recommending a legislative definition of "matters pertaining". While the Productivity Commission considered prescribing a list of allowable or unlawful content, it preferred the flexibility of allowing precedent to develop via the case law.  
• Flexibility terms. Flexibility terms in EAs (which deal with the use of individual flexibility arrangements (IFAs)) should be required to deal with all matters listed in the model flexibility term, along with any other matters agreed by the parties, to encourage the use of IFAs. Currently, parties may draft their own flexibility terms in EAs which reduce the scope of matters over which an IFA can be made.^[1]    
• Reducing employee bargaining representatives. A person should only be an employee bargaining representative if:
  • They represent a union with at least one member covered by the proposed EA; or
  • They can demonstrate they were nominated by a prescribed minimum number of employees.  The Report suggests, by way of example, imposing a threshold of the smaller of, 20 employees, or, 5% of employees to be covered by the proposed EA; or
  • The employer agrees to recognise them as a bargaining representative.  

​Currently, a person can be an employee bargaining representative if they are appointed by a single employee.  This can result in there being multiple bargaining representatives, whose interests may not reflect the wider views of the workforce. The Report considers that introducing a threshold for the appointment of bargaining representatives would improve efficiency in the bargaining process.

• Weak case for mandatory productivity discussions. The Federal Government is currently proposing to amend the FW Act to provide that parties must discuss productivity improvements when bargaining for a proposed enterprise agreement.  The Report considers there is not a strong case for imposing legislative requirements to discuss productivity improvements during the bargaining process, or for including mandatory productivity clauses in enterprise agreements.  The Report suggests that it would be more beneficial for parties to reach voluntary agreements which promote productivity, and that this needs to be driven by employers during the negotiation process.   

Greenfields Agreements

• Limits on the negotiation period. A three-month negotiation period for greenfields agreements should be adopted, in order to avoid long delays on the commencement of new projects as a result of prolonged negotiation periods. If an employer and union have not reached agreement after three months, the employer may opt to either:
  • Continue negotiating;
  • Request the FWC to choose between the last offers made by the employer and union ('last-offer arbitration'); or
  • Submit the employer's proposed greenfields agreement to the FWC for approval with a maximum 12 month nominal expiry date (rather than five years or the life of the project to which the agreement relates – potentially more than five years (see below)).  

Last year the Federal Government passed the Fair Work Amendment Act 2015 (Cth), which allows an employer to apply to the FWC for approval of a greenfields agreement where negotiations have lasted at least six months, after initially proposing a period of three months. Given this recent amendment, it is perhaps unlikely that the Federal Government will, any time soon, try to further reduce the negotiation period to three months (particularly for so long as it depends, in the senate, on support from the ALP, the Greens and/or the crossbenchers to pass legislation).

• Project proponent greenfields agreements (PPAs).  The FW Act should be amended to allow for the making of 'project proponent greenfields agreements' by head contractors (the project proponent), which would allow subcontractors joining a project to apply to the FWC to opt-in to the terms of the PPA. PPAs would be subject to the following safeguards:
  • a no disadvantage test for the subcontractor's employees against the relevant award;
  • they could not override a non-expired enterprise agreement already covering the subcontractor's employees;
  • A subcontractor would need to satisfy the FWC, amongst other things, that it was not coerced into entering the PPA.
• Nominal expiry date. The FW Act should be amended to provide that the nominal expiry date for greenfields agreements may match the life of the greenfields project. However, if the life of the greenfields project exceeds five years (the Report's proposed length for EAs), the employer would need to satisfy the FWC that the longer duration was justified.

Transfer of Business

• Exemption from a transferrable instrument as a condition of employment. The FW Act should be amended to clarify that a new employer can make an offer of employment to a transferring employee conditional on the FWC granting an order that the employee's employment arrangement (for example, an enterprise agreement) will not transfer to the new employer.  The Report states that currently there is conflicting case authority regarding whether the FWC has jurisdiction to make an order that an instrument will not cover a transferring employee in these circumstances.   
• 12 month expiry for transferrable instruments. Transferrable instruments should automatically terminate 12 months after the transfer to the new business (excluding transfers between associated entities).  Transferring employees could commence bargaining for a replacement agreement nine months after the transfer, and if agreement cannot be reached by the 12 month expiry date, the relevant award or another enterprise agreement covering the new employer would apply. Currently, transferrable instruments remain in effect until terminated or replaced, meaning that employers can be required to honour higher costs of the transferring instrument for an indefinite period.
• Exemptions for voluntary transfers and transfers to avoid redundancy. A transferring employee's employment should be subject to the terms and conditions provided by their new employer (i.e. there should be no transfer of the employee's employment arrangements) in the following circumstances:
  • Where the employee seeks to transfer to an associated entity of their current employer on their own initiative; or
  • Where a transferring employee is redeployed to an associated entity to avoid being dismissed on account of the redundancy of their position.    

Currently, an employee transferring to an associated entity of their current employer will keep the terms and conditions from their previous employment, unless an exemption is obtained from the FWC. The Report identifies that the cost of an exemption application may deter new employers from agreeing to the transfer.  

A similar amendment was proposed in the Fair Work Act Amendment Bill 2014 but was dropped prior to the passing of the amendments at the end of 2015.

• Ongoing monitoring. Further legislative changes to the transfer of business provisions should be contemplated, if, after ongoing monitoring, they have a negative effect on the economy or if there is an increase in the number of transfers designed to undermine employee protections.

Industrial Disputes

• Simplifying protected action ballot order ('secret ballot') procedures.  Employees are currently required to vote in favour of industrial action in a secret ballot in order to obtain approval from the FWC to engage in protected industrial action. The Report recommends simplifying secret ballot procedures by:
  • Allowing the secret ballot to contain a single question authorising all forms of protected industrial action.  Currently, the secret ballot must include the nature of the proposed industrial action (for example, a work stoppage or overtime ban) and industrial action will only be protected if the action taken reflects the questions asked in the ballot.  The Report states that this has, in the past, lead to unnecessary disputation by employers questioning the validity of employee actions because the proposed action does not match the content of the ballot.
  • Allowing industrial action to be taken within 120 days of the results of the ballot being declared.  Currently, the limit is 30 days, with the possibility of a 30 day extension.  This recommendation aims to avoid unions 'rushing' to take industrial action, and may allow employees to take more graduated forms of industrial action.
• Lowering the threshold to suspend or terminate industrial action. The Report identifies that on some occasions, industrial action can lead to undesirable outcomes, including harm to third parties or excessive harm to one party and that some circumstances warranted the intervention of the FWC.   The Report recommended two ways to lower the threshold for obtaining an order to suspend or terminate industrial action to ensure the correct balance is achieved. 
  
  Firstly, when determining whether to suspend or terminate industrial action on the grounds of significant economic harm or significant harm to a third party, the FWC should interpret 'significant' as 'important or of consequence'.  The Report identifies that applications to suspend or terminate industrial action on the grounds of significant harm in the past have rarely been successful because the FWC had, in recent cases, imposed a high bar by interpreting 'significant' to mean 'exceptional' when compared with the consequences of other industrial action in a similar context.  
  
  Secondly, the Report recommended that in order for the FWC to suspend or terminate industrial action on the grounds of significant economic harm, the FW Act should be amended to provide that the FWC may suspend or terminate industrial action if satisfied either the employer or the employees are suffering significant economic harm.  Currently, the FWC must be satisfied that both the employer and employees are suffering significant economic harm (which is rarely the case).
• Parties should be unable to have own industrial action suspended or terminated.  A party should not be able to apply to the FWC to have its own industrial action suspended or terminated on the grounds of significant economic harm to itself.  This is to avoid parties commencing and terminating industrial action as an industrial tactic (for example, in pursuit of arbitration).
• Industrial action not to be suspended or terminated on grounds of threat to welfare. Currently, the FWC may suspend or terminate industrial action on the grounds that the industrial action threatens to endanger the life, the personal safety or health, or the welfare, of the population.  The Report recommends removing a threat to 'welfare' as grounds for suspending or terminating industrial action, as it is too broad, with recent interpretations extending to include "stress or anxiety".
• Standing down employees if strike aborted.  Where employees cancel planned industrial action and the employer has already put a contingency plan in place, the employer should be able to stand down the relevant employees without pay for the duration of the employer's contingency plan. This is to avoid the use of aborted strikes as an industrial tactic, which has in recent times caused significant cost to employers in contingency arrangements with no cost to employees.
• Strike pay arrangements. Where employees engage in protected industrial action for less than 15 minutes, employers should be able to choose whether to deduct a 15 minute increment from the employees' wages, or pay the employees as normal.  Currently, employers are required to deduct pay in relation to the total period of the industrial action (even if it only lasts 15 minutes), which can impose a significant administrative burden on employers.
• More options for employer response action.  Employers should be able to take other (and more graduated) forms of action in response to protected industrial action (other than just instituting an employee lockout), including:
  • Introducing limits or bans on overtime;
  • Directing employees only to perform some of their duties and adjusting their wages accordingly, with employees being permitted to respond by refusing to perform any work;
  • Reducing hours of work.  

Currently the only clear option for protected industrial action by employers is a lockout in response to employee protected industrial action which can be a disproportionate response to some industrial action undertaken by employees.

• Increase in maximum penalties.  Maximum penalties for unlawful industrial action should be increased to three times the current penalties (which are presently $10,800 (individuals) and $54,000 (corporations)). The Report states that this would enable courts to impose penalties which better reflect the significant costs industrial action can impose on employers.

Right of Entry

• Modifying the threshold for dealing with disputes about frequency of entry.   Currently, the FWC can deal with disputes about the frequency of entry by a permit holder to hold discussions by making any order it considers appropriate.  However, it can only make an order if it is satisfied that the frequency of entry requires an "unreasonable diversion of the occupier's critical resources". The Report recommends removing this requirement because it imposes a high threshold on employers and, more importantly, does not require the FWC to consider, and weigh up, any benefits to employees as a result of the further entries.  
  
  Instead the Report recommends that the FWC should be required, when making an order, to take into account:
  • the cumulative impact on an employer's operations of entries onto the premises;
  • the likely benefit to employees of further entries onto the premises; and
  • the employee representative's reasons for the frequency of entries.  

Similar amendments were proposed in the Fair Work Act Amendment Bill 2014 but were dropped prior to the passing of the amendments at the end of 2015.

Migrant Workers

The Report makes a number of recommendations aimed at reducing the exploitation of vulnerable migrant workers in Australia, including:

• Penalties. The penalties under the FW Act for keeping false or misleading documents should be increased generally to align with similar penalties under the Migration Act 1958 (Cth) (Migration Act).  Currently, the maximum penalties which may be imposed under the FW Act for keeping false records are $3,600 (individuals) and $18,000 (corporations). Conversely, under the Migration Act individuals can be fined up $180,000 and imprisoned for 10 years for providing false and misleading information.  The Report states that the current penalties are not large enough when compared to the potential benefits to employers of underpaying employees.
• Coverage of the FW Act. The FW Act should be amended to provide that the employment contract of a migrant worker is still valid (and the FW Act still applies) despite a migrant worker working in contravention of the Migration Act.  Currently, there is confusion as to whether the FW Act applies in such a situation as there have been some rulings that suggest that there is no valid employment contract formed.  The Report suggests that this recommendation would encourage migrant workers to report exploitation.
• One-way information sharing. The Fair Work Ombudsman (FWO) should not share identifying information with the Department of Immigration and Border Protection (DIBP) about a migrant worker who has contravened employment-related visa conditions, to encourage migrant workers to report exploitation. On the contrary, DIBP should share information with the FWO if it suspects a migrant worker has been underpaid.   
• Improved information.  The central regulators, the DIBP and the FWO, should improve information on their websites about migrant workers' rights, and make the information more accessible.
• Additional resources for the FWO.  The FWO should be provided with additional resources for its enforcement and monitoring activities, against employers underpaying employees, particularly migrant workers.

Competition Policy

• Improved enforcement of secondary boycott prohibitions.  Fair Work Building and Construction (FWBC) should be granted shared jurisdiction with the Australian Competition and Consumer Commission (ACCC) to investigate and enforce the secondary boycott prohibitions in the Competition and Consumer Act 2010 (Cth) in the building and construction industry.  The Report makes this recommendation on the basis that the ACCC (the body currently responsible for the enforcement of secondary boycott prohibitions) has experienced difficulty obtaining sufficient evidence to prosecute secondary boycotts, particularly in the building and construction industry, and because FWBC has powers to compel witnesses to provide evidence.