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The Right to Strike and the Law of Contract

Ray Evans

The claim that a 'right to strike' should be given statutory legitimacy and protection is a claim for extraordinary legal privilege for particular groups of people, in this case employees, and particular organisations, registered trade unions.

The essence of this claim for legal privilege appeared in an article on the Troubleshooters' case, (AFR, 4.IV.91), written by Sue Neal. In it she provided us with some immortal words from the pen of Tom McDonald, National Secretary of the BWIU.

Tom Mcdonald had written what was described as a confidential letter to Bill Kelty, warning that the Troubleshooters issue threatened Australia's entire union movement.

    'It represents the first major breakthrough for the New Right, in its efforts to take the Australian work-force out of the award and arbitration system and into the quagmire of contracting.'

Those marvellous words---'the quagmire of contracting'---cry out for display in large neon lighting. They go to the heart of the debate over the so-called 'right to strike'. In particular they demonstrate the profound contempt of the trade union boss for the ordinary working man and woman.

The conventional wisdom, as distilled by journalists such as Michael Stutchbury of the 'Australian Financial Review' is that the return to Common Law in industrial relations, pioneered by Peter Costello in the Dollar Sweets case, is a return to the world of Charles Dickens, of sweat shops and chimney sweeps, of common law doctrines of master and servant, and that legislative repeal of common law decisions regarding strikes is a necessary part of marching forward into the C21. Built into this conventional wisdom is an idea of progress which regards the C19 as Dickensian, and horrible, peopled by Scrooges and Gradgrinds, subject to the common law, administered by lawyers such as Dodson and Fogg. With the C20 comes some progress. Australia had H B Higgins, who gave us arbitration and conciliation. Now we must move forward into the C21 with the right to strike, and in this way bring in a new Australia with industrial efficiency like the Japanese.

It has been widely noted that the rising generation seem to know no history. A recent example of noteworthy historical ignorance was the ABC announcer on PM (4.IV.91) who, when commenting on the deliberations of the constitutional conference convened to commemorate the centenary of the second constitutional convention of April 1891, held in Sydney, suggested that it was time to have a constitution written by Australians, instead of the one we have, written as it was, by the British. Because of this intellectual vacuum, so starkly characterised by this ABC person, journalists such as Michael Stutchbury, and others, get away with a great deal of nonsense.

The fundamental fact of the C19, which readers of Dickens would never appreciate, is the unprecedented growth, simultaneously, of both population and prosperity which took place in Britain, the British colonies, North America, and to a lesser extent, Western Europe.

During that century the population of Great Britain increased from 11 millions to 37 millions, and per capita income quadrupled. In the history of mankind, that had never happened before.

The causes of the industrial revolution are still the subject of scholarly as well as ideological, disputation. Why did this extraordinary transformation in the Human condition break out in England, Scotland, Wales, and the Netherlands, rather than say, the Northern Plains of India, within the Mogul Empire, or at the Asian centre of the world, Imperial China.

The simple answer is that it was in these Western European peripheral societies, established on small off-shore islands, that private property, and the rule of law, first became established. A further qualification, which applies particularly to C19 Britain, was that the rapid growth of contract, and the decline of regulation, particularly in the labour market, provided the foundation for spectacular economic growth.

For contracts to flourish, there must be a law of contract; there must be courts to decide on disputes; an independent and competent judiciary to man the courts; and the great preponderance of contracts must be satisfactorily concluded without ever going near a court. It goes without saying that in addition to those prerequisites, people must be free to negotiate lawful contracts and to carry them out without interference from the state, or from the church, or from trade unions.

Why do I argue that freedom to contract, particularly in the labour market, was a vital ingredient, arguably the most important factor, of this unprecedented C19 economic growth. The answer is simple enough. A contracting society, in contrast to a regulated society, can use all of the widely dispersed information throughout that society in order to satisfy, as efficiently as possible, the provision of goods and services, the formation of new capital, and the investment of time and money in new ventures. Every element of that infinitely vast galaxy, comprising the multifarious ambitions and hopes of the members of that society (in particular, their hopes to acquire sufficient capital to improve their social standing, or to survive unexpected misfortune), is brought to bear upon the problems of work and investment.

A regulated society, a regulated labour market, can only use an infinitesimally small proportion of the knowledge base within any society. To put it kindly, our labour market regulators are not intellectual giants. Even when they are advised by the learned Treasurer of the H R Nicholls Society, Mr Purvis, their capacity to comprehend, let alone foresee, the infinitely variable detail of many thousands of different workplaces, is inevitably subject to very great constraint. Now that there appears to be a trend to employing married couples as members of arbitral tribunals, that knowledge base, small enough as it is, must be even more tightly constrained than hitherto.

The central planning of the labour market therefore, which is the entire purpose of arbitral tribunals and of centralised wage fixation, is subject to the same fatal flaw of central planning of economies generally.

Economic success is the result of knowing what to do, knowing what to learn, knowing where to invest, knowing when to buy, knowing when to sell. Adam Smith when speaking of the accumulation of capital, summed it up with his usual clarity.

    'The capital of all the individuals of a nation is increased in the same manner as that of a single individual, by their continually accumulating and adding to it whatever they save out of their revenue. It is likely to increase the fastest, therefore, when it is employed in the way that affords the greatest revenue to all the inhabitants of the country, as they will thus be enabled to make the greatest savings.' (Bk II Ch V)

    The overwhelming economic superiority of contract over regulation, and I am using an economic argument, or a utilitarian argument, which assumes the desirability of prosperity as opposed to poverty, arises from the way in which knowledge and information is, inevitably, very widely dispersed. Central planning fails on this crucial point. Central planners, and their defenders, assume perfect knowledge on the part of the Central Planner, and zero transaction costs in carrying out the Central Plan. The consequences of those assumptions are to be found today in the Soviet Union and Eastern Europe.

The great change in Britain which signalled the rapid spread of contracting in the labour market was the repeal of the Artificers Act in 1819. Professor Atiyah, in his important book on the history of the law of contract,[1] tells us

    'The Statute of Artificers (usually called the Statute of Apprentices) was passed in 1563 and remained on the Statute Book until 1819; the Poor Law Act of 1601---which provided for much else besides poor relief---remained largely operative until the C20. Between them, these Acts attempted 'to banish idleness, to advance husbandry and to yield to the hired person, both in times of scarcity and in times of plenty, a convenient proportion of wages'.

    They controlled entry into the class of skilled workmen by providing a compulsory seven years' apprenticeship; they reserved the superior trades for the sons of the better off; they assumed a universal duty to work on all the able-bodied; and empowered justices to require unemployed artificers to work in husbandry; they required permission for a workman to transfer from one employer to another; they severely restricted the freedom of movement of the poor by enabling a person without means to be removed, by order of the justices, to his original parish or last place of settlement; and they empowered justices to fix wage rates for virtually all classes of workmen.'

The repeal of the Statute of Artificers was anything but a revolution. The Statute had been largely ignored for more than a century. The great William Murray, Lord Mansfield, the father of contract law, who presided over the court of Kings Bench from 1756 to 1788, laid down the structure of contract law which provided for the economic explosion of the C19, and which undermined the regulatory inheritance from the Tudors.

In a 1783 judgment against London tailors who organised, and conspired, to jointly raise their prices, Lord Mansfield said,

    'Persons in possession of any articles of trade may sell them at such prices as they individually may please, but if they confederate and agree not to sell them under certain prices, it is conspiracy; so every man may work at what price he pleases, but a combination not to work under certain prices is an indictable offence'.

The statute of Artificers was repealed primarily because groups of workers such as the London tailors sought to use its provisions to obtain what we now call rents. In other words, they sought to limit entry into their trade, or to gain legal immunity from the Mansfield judgment I have just quoted.

The repeal of the Statute of Artificers was a belated acknowledgment that the barriers to work and to trade, which still survived from the Elizabethan era were anachronisms.

Mansfield's opposition to combination per se did not survive the C19. In 1898, in Allen v. Flood, the right of workers to combine to threaten mass resignation was upheld, as was the right of workers to combine to demand the sacking of other workers not members of their particular union. What became legally crucial was the methods used by combinations of workers, trade unions, to pursue their ambitions. Inducements to breach contracts were found to be illegal as in the celebrated case of Lumley v. Gye of 1853. This case centred on an opera singer, appropriately named Miss Wagner, who had been induced by the defendant to breach her contract with the plaintiff. Violence and threats of violence were illegal. But combination, and lawful attempts to gain rents through combination, were of themselves, not illegal.

What then is the position of strikes, go-slows, bans and limitations, refusal to perform particular duties, under common law?

Any of these actions, under normal circumstances, constitutes a repudiation of the contract between employer and employee. It is difficult to imagine that an employer would find it to his advantage to negotiate a contract in which the employee could desert his post, at will, for any length of time, and return to the employer at his convenience, and resume the contractual relationship, as if nothing untoward had taken place. Having stated this unlikely situation I am reminded this is precisely what used to happen on the cattle stations in the NT, prior to the terrible 1965 Aboriginal Stockman's case which Sir John Kerr discussed at our inaugural seminar just over five years ago.

Nonetheless, strikes, bans, etc constitute, in the most direct way, a repudiation of the employment contract by employees. Lockouts, contrariwise, are repudiations by employers. Such repudiation puts the other party to the contract, in the position where they must decide whether to terminate the contract or not, or to seek damages for repudiation or not. If the employer, for example, does terminate the contract then he must seek other employees, or seek to negotiate new contracts with his old employees.

The essential feature of strikes, at least over the last 150 years, has not been the act of walking off the job, but has been the often successful attempts by unions to prevent employers from negotiating contracts with new employees. These attempts have been usually characterised by violence or threats of violence. The picket line at Hoechst at Altona last year was typical. Another example from recent times was the picketing by the Airline Pilots' Federation, of American and European pilots who were employed during the pilots' strike. This picketing was all the more bizarre in that the pilots had not gone on strike, they had resigned. The court action seeking damages from the Federation, was not based on their mass resignation, which was lawful, but on their refusal to work after 5 pm, which was a repudiation of their contract designed to damage their employer. Similarly the case of the Thorley 25, was all about attempts by the FEDFA to brand those 25 people as 'scabs'.

At this point let me quote again that great speech which F E Smith, later Lord Chancellor and the Earl of Birkenhead, made in the debate on the Trade Disputes Bill of 1906, which when passed, gave the trade unions immunity from tort in the furtherance of industrial disputes.

    'We are asked to permit a hundred men to go round to the house of a man who wishes to exercise the common law right in this country to sell his labour where and when he chooses, and to 'advise' him or 'peacefully persuade' him not to work. If peaceful persuasion is the real object, why are a hundred men required to do it? ...

    'If I were a man who was wishful to dispose of my labour as I chose, although the member for Merthyr [Keir Hardie] might not persuade me to break a contract, still, if the honorable member came with fifty other peaceful persuaders to the house where I and my wife live, I fear I should be much more likely to yield to persuasion than if the honorable gentleman came by himself. We are told that another object of these well-attended deputations is that information may be given. Is it more convenient that information should be given by fifty men, than by one man? Even in this House it is recognized that, as a general principle, it is more convenient that one member should address the House at one time.

    'Every honest man knows why trade unions insist on the right to a strong numerical picket. It is because they rely for their objects neither on peacefulness nor persuasion. Those whom they picket cannot be peacefully persuaded. They understand with great precision their own objects, and their own interests, and they are not in the least likely to be persuaded by the representatives of trade unions, with different objects and different interests. But, though arguments may never persuade them, numbers may easily intimidate them. And it is just because argument has failed, and intimidation has succeeded, that the Labour Party insists upon its right to a picket unlimited in respect of numbers.

Despite Smith's eloquence the Bill was passed on party lines and even the House of Lords, which had a Tory majority, was persuaded to pass it. That 1906 Act set the trade unions above the law. It meant employers had no legal redress in the event of damages caused to them by trade unions. There have been many books written about the economic decline of Great Britain since the Great War, and many explanations of that decline have been put forward. None of them, to my knowledge, make any reference to the 1906 Trade Union Disputes Act. In my view it is the central cause of C20 British economic decline. The outstanding success of those very few British industries not subjected to unions' influence, such as the financial services industry, provides supporting evidence for this argument.

The 'right to strike' is a phrase which is now being used, quite deliberately, in mischievous and ambiguous ways. The only sense in which it can be used as purporting to represent a state of affairs which is different from that which now prevails under common law, is in the sense that an employer, faced with the fact of an employee who has repudiated his contract, cannot then terminate the contract and employ someone else, and cannot sue for damages if the employer suffers loss because of repudiation of the contract.

There is no doubt that the trade unions believe very strongly that the common law should be over-ruled by statute in this matter and that the fact of repudiation of a contract by one party, employees, should, nonetheless, not allow the employer to terminate the contract, nor sue for damages. They also believe, equally strongly, that the reverse should not hold.

That trade unions should argue such a case is not unusual. What I find extraordinary is that lawyers should also argue it. The essential nature of a contract is that of a bargain between two parties, freely made, of advantage to each party, but which is, ultimately, upheld by the courts. In order for a contract to work there must be penalties for breach or repudiation of the contract. In particular, if a contract requires A to perform some service for B and then, subsequently, for B to reward A in some way for that service, the temptation upon B to repudiate when A has performed his part of the bargain is very strong, unless B knows that A can go to court to obtain damages for non-performance on B's part.

If the right to terminate a contract, and to sue for damages, does not follow automatically from repudiation, then the whole structure of contract law, as it applies to the labour market, will collapse. If contract law is not to apply to the labour market then control and command systems will have to take its place. The trade unions may well believe that they will occupy the pinnacle of these control and command systems. Any trade union leader who knows a little history would not be so confident.

There are two ways of organising the daily work of the world. The first is to have a central planning body, comprising very clever people appointed, presumably, by very powerful people, who tell everybody else what to do, and how to do it. These are, or were, the centrally planned economies. The other way of organising the work of the world is to let everybody do what they want to do, in other words, to do deals with one another, to trade. In order for this sort of system to work (we can call it the market economy) we have to have a rule of law, and in our legal tradition this rule of law breaks down into the law of property, the law of tort, the law of contract, and an independent bar and bench to administer them.

Let me now quote from Atiyah's book again.

    'There is so much in the modern world that suggests an affinity with some of the mediaeval traditions so that one may seriously pose the question whether we are not returning, in some respects, to those traditions, and whether they may not suggest that the great age of economic freedom represents an aberration rather than the norm in the development of English society.'

The key economic ideas in mediaeval times were as follows. Relationships were customary. A man inherited his father's trade or craft or status. He did what he did not because of choice but because of custom. Custom was backed by law, and indeed the two were not easily distinguished.

Contractual behaviour did occur but it was strongly influenced by ideas of equity. A contract was only fair, St Thomas Aquinas had said, when both parties gained from it equally. Most people thought that it was impossible for both parties to gain from trade. The common view was that somebody had to win and somebody had to lose. Hence a life of trade and contract was seen to be disreputable. Hence the predominance of Jews in early mediaeval commercial life. Since the only contracts which were fair, and therefore legitimate, were contracts in which both parties gained equally, a great deal of scholastic endeavour went into determining what comprised a just wage. H B Higgins renewed these endeavours with great enthusiasm in 1906 when he assumed the Presidency of the Arbitration Court.

However, the difficult corollary to the doctrine that the job (and the just wage attached to that job) belongs, through custom or inheritance, to the man, and that he can not be dispossessed of it, is that the man also belongs to the job. The fundamental essence of the just wage was that it was the only wage which legitimised the contract between employer and employee and thus neither party was free to vary the wage. Strikes were therefore intolerable and Higgins certainly regarded those trade unionists who regarded his pronouncements on just wages as nothing more than providing a base from which to bid up the wage, if necessary through strikes or bans, as heretics. He attacked them in the strongest language.

The idea of the 'right to strike' is therefore a C20 update on the mediaeval notion that a man owned his job, and the 'just wage' that went with it. The additional gloss which our current disciples of H B Higgins seek to impose upon us is that he owns the job, and its perquisites, regardless of whether he turns up to perform his duties or not. In other words all jobs are, ultimately, to become sinecures.

This 'jobs as sinecures' doctrine has been a fact in some of our industries for quite some time. The waterfront is the outstanding example. Ian McLachlan observed at a previous H R Nicholls Conference how sinecures on the waterfront, in true mediaeval style, are inherited. We can further note that the cost of buying out those sinecures, through the WIRA process (to use the current idiom) is no small thing.

An economy in which all jobs are sinecures is not going to do very well. Fortunately for Australia, Senator Cook's Bill, which we are told will probably include a clause guaranteeing a 'right to strike', will hit the deck at a time of severe and increasing economic hardship. It should not be difficult to point out to the community that this Bill, if enacted, will accelerate what is already apparent, the flight of capital from Australia. Like theTrade Disputes Act of 1906, it may get through the Parliament. We should do all we can to persuade the Government of the folly of such a course. But if it does get through I cannot see it lasting long.


    1. 'The Rise and Fall of Freedom of Contract', by P.S. Atiyah, D.C.L., F.B.A., Professor of English Law and Fellow of St John's College in the University of Oxford. Clarendon Press, Oxford.

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