The Death of Collective Bargaining?

Bargaining

It looks and feels very much as if the economy has returned to recovery mode after this winter’s Delta disruption. The various forecasters differ a bit about the timing of the rebound, but they have in common the view that we are likely to have once again regained the lost ground by the middle of 2022. 

While we may well see a return to aggregate levels of activity, no one is thinking that we just pick up where we left off. In particular, the pandemic has accelerated major changes that, before the pandemic, had already begun to reshape work and workplaces. Despite the acceleration of these processes, we should be wary of thinking that we are near the end of these changes. It is more likely that we’ve let a genie out of the bottle.  

Further, getting back to where we were in, say December 2019, is hardly a stretch ambition. For several years prior, our economy had been beset by low productivity growth, low business investment and low real income growth outside of the mining and finance sectors.   

These outcomes were not unrelated to the fact that enterprise bargaining too was struggling before the pandemic – and it faces even more challenges in being relevant to the changing workplaces of today and the future. 

There is still hope for Australia’s enterprise bargaining system, but action is needed without delay. Otherwise, the system will continue to ‘wither on the vine’. 

Australia needs an enterprise bargaining system that recognises the flexibility that both employers and employees need and drives productivity improvement at the enterprise level.  

Collective bargaining is not dead, but it has certainly declined in importance as a wage setting mechanism since the Fair Work Act was introduced in 2009. This is unfortunate, unnecessary, and undesirable. 

According to the latest Trends in Federal Enterprise Bargaining Report, released by the Attorney-General’s Department in September, there were around 10,000 in-term enterprise agreements covering 1.79 million employees in June 2021. This compares to around 25,000 agreements covering 2.6 million employees in 2010. 

When you consider the size of the workforce increased from around 11 million to around 13 million between 2010 and 2021, the failure of enterprise bargaining under the Fair Work Act is even more obvious. 

These statistics show that something is seriously wrong with Australia’s enterprise bargaining system. Its problems are obvious and widely recognised. Politics is all that is standing in the way of them being fixed: 

The BOOT: Perhaps the most important necessary change is to fix the Better Off Overall Test. The practical and sensible approach that applied in the earlier days of enterprise bargaining under the Industrial Relations Act and the Workplace Relations Act needs to be restored. An experienced Commission member made a judgement about whether the employees would be disadvantaged by the agreement.  

These days the Better Off Overall Test has become largely a spreadsheet exercise which often considers theoretical rosters and patterns of work that the employees covered by the agreement are highly unlikely to work.  

Employer after employer has reported that the Commission’s approach to applying the BOOT has led to enterprise agreement making becoming far too risky and complicated to bother with. No employer wants to have to explain to its employees why the independent Fair Work Commission has insisted on changes to the agreement it has reached in good faith with its employees.  

Requirement to explain the terms of a proposed enterprise agreement: Another key problem relates to the requirement to explain the terms of an enterprise agreement before the approval vote. This has become a ‘minefield’ for employers. Changes need to be made to the Act to clarify the requirements and to ensure that a sensible approach is taken. 

Yes, of course it is appropriate for the employer to ensure that the employees are advised of the key provisions in a proposed enterprise agreement and how those key provisions differ from the relevant award. 

But no, it is not reasonable to expect an employer to understand the implications of the large number of inconsistent Commission decisions on this topic and work out what they need to do to avoid their agreement being deemed invalid. 

Imposing a timeframe for approving enterprise agreements: Consistent with several other provisions in the Fair Work Act that impose timeframes for the Commission to make decisions on particular matters, the Commission should be required to approve enterprise agreements, where practicable, within a specified reasonable period.  

When the approval of an enterprise agreement is delayed, typically wage increases for employees are delayed. Therefore, it is reasonable for a 21-day timeframe to be imposed, with flexibility for circumstances where it is not practicable to approve the agreement within this period. 

IR Omnibus Bill: Last year, it was pleasing to see the Government set up 5 IR Working Groups of employer and union representatives to deal with 5 key IR topics. Ai Group was involved in all five of the working groups and the discussions were very useful in analysing the issues and developing solutions. 

It was particularly disappointing that the legislative reform proposals which flowed from the work of the Enterprise Agreements Working Group fell one vote short of being supported in Parliament. 

The changes proposed in the Bill were modest and sensible and included the changes referred to above. In fact, many of the changes were supported by the unions but only if the changes were limited to agreements reached with unions. This lopsided and unfair approach was never going to fly with most employers and their representatives – and certainly not with Ai Group. 

The enterprise agreement reforms in the Government’s IR Omnibus Bill remain very worthwhile and should be pursued by whoever wins the next election. 

With a few sensible reforms, enterprise agreements can once again play a key role in delivering higher wages to employees and higher productivity for businesses.  

Australia’s enterprise bargaining system served Australia well in the past and it can do so again with some sensible and practical modifications to the relevant provisions in the Fair Work Act.