The Law and the Labour Market

Voluntary Industrial Agreements: You Agree I Agree,
But Will The High Court Agree?

Greg Craven


It is not the concern of this paper to make any comment as to the correctness or otherwise of the Coalition's industrial agreement policy: rather, it is directed purely to a consideration of the constitutionality of such a policy. Accordingly, this is a paper which addresses the legalities of the policy in question, and does not explore in any detail its operative features. In this connection, the author happily acknowledges that he is not an expert in Australia's industrial relations system, nor does he pretend to understand the complex details of the likely interaction between that system and the proposed policy, when and if that policy is implemented. In any event, it is important to realize that, as it is likely the details of the policy will change before implementation, it is appropriate at this stage---and for the purposes of constitutional debate---to avoid becoming too fixated on any particular, current detail.

It should be noted at the outset that this paper is based upon certain assumptions. Some of those concern the content of the policy as such. Thus, it is assumed that the policy in its final form broadly will be aimed at re-directing Australia's industrial relations system from one primarily based upon compulsory arbitration, to one centering around voluntary agreements between individual employers and employees, and similarly non-coercive enterprise agreements between groups of employers and employees.

Further assumptions are made about the legal aspects of the policy. First, and centrally, it is assumed that the policy will need to be effected by Commonwealth legislation. In other words, the passage of an Act of the Commonwealth Parliament will be required to embody and implement the policy. This is an obvious but important point, and one which is (fortunately) universally appreciated. Secondly, such an Act will need to deal at least with certain key regulatory matters. These would include the status of 'voluntary' and 'enterprise' agreements in law generally; the relationship of such agreements with any remaining award system which might continue to exist at Commonwealth level; the relationship of agreements with State (as opposed to Commonwealth) industrial laws and awards; and agreement registration.

Of course, the key question in considering the constitutionality of the Coalition policy is whether the Constitution permits the enactment of such legislation by the Commonwealth Parliament. This in turn raises a number of issues. First, one must consider whether there is any available power in the Constitution under which the Commonwealth may legislate. Secondly, one must assess whether, even if such a power exists, it is of such a nature that, were it resorted to, serious legislative and regulatory gaps would nevertheless arise. Finally, one must determine whether other major complications of a constitutional nature might arise.

The Constitutional Climate:

Before beginning a technical discussion of the constitutional strengths and weaknesses of the Coalition policy, it is essential to discuss in general terms the constitutional context within which it will be required to operate. By this, I mean primarily the contemporary climate of politico-constitutional thought (and values) operating upon the High Court. After all it is the Court that will ultimately decide the legality (and thereby the practical achievability) of the Coalition's policy. Thus, the likely reaction of the Court to the policy is of critical importance, both in terms of its chances of ultimate success, and as regards the question of how the Coalition should go about its implementation.

The first thing to note here concerns the general attitude of the present High Court Justices. It must be conceded that many of the present members of the High Court are likely to be---for lack of any better term---'culturally opposed' to the Coalition policy. This is not to say that these judges will be biased in any technical sense, but they will be inherently inclined as a matter of instinct to look upon the policy as outlandish, unusual, threatening, and radical. Perhaps the most obvious repositories of such sentiment on the Court will be those Judges who are (like myself) of an essentially Irish Catholic, labour background, and who will be likely to have a profound and natural disinclination towards the policy in terms of their own cultural heritage and predispositions. Clearly, this is bad news for the Coalition.

Ironically, it is also a matter of concern from the Coalition's point of view that the High Court is currently in retreat on the general question of the scope of Commonwealth power---and this at precisely the time when the Coalition will need to secure a highly favourable interpretation of the Constitution on this point in order to constitutionally ground its policy on voluntary industrial agreements. After a high watermark reached in the Dams case in 1982, the High Court appears gradually to have lost some of its enthusiasm for the indefinite expansion of Commonwealth power at the expense of State legislative competence. The Corporations case of 1990 is only the clearest example of an emerging High Court reticence in this area. It would seem clear, in fact, that the High Court has lost some of its taste for an ascendant Commonwealth, and this, combined with the cultural predispositions mentioned earlier, does not augur well in general terms for the constitutionality of the Coalition's industrial agreement policy.

Finally, it must be recalled, particularly with such decisions as the Banks Nationalisation case in mind, that the High Court is inclined to look askance at radicalism. Ironically, radicalism in modern day Australian politics tends to be seen as coming from the right, and this is yet another reason to suppose that the Coalition's industrial agreement policy will not find a sympathetic High Court. The net result of all this is that, even before one raises any specific constitutional doubts concerning the policy, one must accept that were such doubts in fact to occur, the High Court would be inherently predisposed to accept them as fatal legal obstacles to the policy's implementation. This is a factor which must be kept firmly in mind when considering the seriousness of any constitutional doubts which might be raised.

The other thing which must be appreciated in terms of general constitutional climate concerns the implications of a loss before the High Court for the long-term implementation of the industrial agreement policy, and indeed for the long-term viability of a Coalition government. In fact, such a loss could be disastrous in a number of senses. The first problem would be that, in the popular mind, a loss in the Court tends to be interpreted as a judgment not merely upon the legal, but also upon the moral and political acceptability of the initiative concerned. The result of this is that the impugned law is rapidly delegitimized in a purely popular-political sense. A good example of this arose in relation to Menzies' attempt to secure the dissolution of the Communist Party. Thus, a successful challenge to the law implementing voluntary agreements might cause grave political damage.

Secondly, as a matter of purely practical politics, it is possible to imagine a highly problematic scenario which would develop out of the invalidation of an industrial agreement law by the High Court. For example, consider the situation where the relevant bill was introduced into the Commonwealth Parliament, and then blocked in the Senate, a highly likely eventuality. In light of Mr Howard's public statements, this would presumably be followed by a double dissolution, fought over the fate of this, and probably other blocked bills. Assuming that the Coalition won the ensuing election, a joint sitting of the Commonwealth Parliament could be convened under section 57, at which the bill could be passed, and eventually enacted. What would then happen if the constitutionality of the Act were challenged after this point, and the High Court were to hold it invalid? What would be the best course for the Coalition in these circumstances?

The only choice for the Coalition, assuming it to be serious in pursuing the policy, would be to put a new bill to a referendum for the purpose of amending the Commonwealth Constitution under section 128. But grave problems would attend this course. First, as we have seen, the law would already have been significantly delegitimized by the High Court decision. Secondly, in political terms, how could the newly re-elected Coalition government practically hold a referendum poll so soon after the election consequent upon the double dissolution? What all this arguably means is that, if one is really serious about an industrial agreement policy, and if one is also gravely concerned as to the constitutionality of such a policy, it would be better to pursue a course of constitutional amendment at the outset, without even trying to assert the validity of a law under the Constitution as it presently stands. This could be done either early in the term of a Coalition government, or---were a double dissolution to occur---at the same time as the consequent election. Of course, one must not underestimate the legion difficulties of constitutional amendment in Australia, but even these might be preferable to the sort of constitutional-political disaster that would in all probability attend the invalidation of an industrial agreement law in circumstances where constitutional amendment could not practically be pursued thereafter.

Constitutional Heads of Power Justifying Industrial Agreement Legislation:

It must be noted by way of opening here that real difficulties do in fact attend the enactment of industrial agreement legislation by the Parliament of the Commonwealth. Put simply, there is no fully satisfactory power for the passage of such legislation. This paper will address the more obvious possibilities among the Commonwealth's enumerated powers.

Section 51 (35)---Conciliation and Arbitration Power:

No detailed consideration will be given to this power, as it is generally (and rightly) conceded that it would not justify the enactment of industrial agreement legislation. In general terms, the power is one which of its nature looks to laws which deal with aggregated industrial interests, whereas the policy of the Coalition looks to the legislative individualisation of precisely those interests. In the context of industrial agreement legislation, the conciliation and arbitration power simply would be inapt for the suggested purpose.

More specifically, two very obvious problems would attend the use of section 51(35) for the enactment of this type of legislation. First, it would be extremely difficult to characterise a law with respect to voluntary industrial agreements as a law with respect to conciliation and arbitration. Secondly, it would frequently be just as difficult to make out the element of 'inter-stateness' which is an indispensable element of a law made under section 51(35). The effect of this is that, inevitably, a Coalition government would have to look elsewhere in the Constitution for an appropriate power.

Section 51(20)---Corporations Power:

The corporations power has been immensely expanded by the High Court over the last twenty years, and attained its greatest extent in the Dams case. In general terms, the question in the present context is whether it would extend so far as to substantially justify a law concerning voluntary industrial agreements? The immediate issue is whether section 51(20) would allow the Commonwealth to enact a law concerning employment agreements entered into between a corporation and its employees. This turns upon the question of whether such a law could be characterized as being a law with respect to 'corporations'---or more correctly, with respect to 'trading' or 'financial' corporations' Ä within the meaning of section 51(20). Such a characterization would be indispensable to the validity of such a law.

The answer, on balance, is that such a law would indeed probably fall within the scope of section 51(20), on the basis of one or both of two separate lines of reasoning. First, it could be argued that the law would be one with respect to trading corporations in the sense that it was a law for the protection and enhancement of their trade, drawing upon dicta in the Actors' Equity Case, which upheld the validity of anti-secondary boycott provisions in Commonwealth trades practices legislation. Secondly, it could be maintained that the law was one with respect to trading corporations in the sense that it regulated activities undertaken by such corporations for the purpose of trade. This would be based on the assumption that the entry by a corporation into an employment contract was an act undertaken for the purpose of trade, and could thus be regulated under section 51(20) on the basis of the dominant dicta in the Dams case.

It should not be thought, however, that a finding of constitutionality on one or other of these bases would be inevitable: validation of the law on either ground would involve a significant increase in the scope of each. Thus, it is much more difficult to argue that industrial agreement laws are directly for the protection of a corporation or its trade than it is to argue the same thing in relation to secondary boycott legislation: the operation and effect of the law is considerably less direct. Likewise, one must necessarily take a very broad view of the concept of acts undertaken for the purpose of trade to regard the entry into employment contracts by corporations as falling into that category. It may be noted in passing that the definition of the term 'trading corporation' adopted by the High Court in Dams and connected cases is so wide that it is undeniable that most companies would in fact fall within the general scope of the corporations power: all that is required in this connection is that a corporation have 'significant' trading activities.

Even assuming, however, that the corporations power does permit the enactment of industrial agreement legislation applying to most corporations, there nevertheless remains the problem that such a law would be subject to huge regulatory gaps. This is because, of its very nature, it could only apply to industrial agreements which involved a corporate actor---it could not apply at all within the non-corporate employment sector. Yet large sections of the Australian employment market are indeed non-corporatised, including many of the small businesses which the Coalition hopes most profoundly to relieve from the burden of excessive industrial regulation.

This lack of legislative coverage under the corporations power raises real questions for the Coalition concerning the implementation of its policy, assuming that the policy is indeed constitutionally based primarily upon section 51 (20). First, the Coalition will have to assess whether the problem, while real enough in legal terms, will in practice be as grave as might be imagined: it may be that, in reality, noncorporate business will be able successfully to bring itself within some version of a voluntary industrial agreement system quite quickly, although many issues are raised here. Secondly, consideration should be given to the question of whether or not it is possible to get around some of the worst aspects of the limitations of the corporations power by such devices as the enactment of legislation requiring businesses employing above a certain number of persons compulsorily to incorporate. This would have the effect of bringing such businesses within the corporations power, although the constitutionality of such a law would itself be dubious. Finally, the necessity arises to consider whether there is some other constitutional power which provides a more comprehensive foundation for voluntary industrial agreements.

Section 51(29)---External Affairs Power:

At least since the Dams case, the Commonwealth Parliament has had the power to legislate in the implementation of treaty obligations. There is, however, an obvious initial problem in a conservative government seeking to secure the enactment of key legislation in reliance upon the external affairs power. Rightly, the conservative (and generally federalist) side of politics has regarded the excessive use of the external affairs power to invade the domain of the States as smacking of constitutional illegitimacy. Assuming that such scruples were to be cast aside, the difficulty would be in finding a suitable treaty obligation in pursuance of which legislation might be made. This is a serious difficulty, as the most obviously eligible international documents---a wide variety of labour conventions---are directed primarily to such matters as the right of labour to organise and to strike, and thus would be entirely useless for the present purpose.

This is not to say that it would be absolutely impossible to locate some international document which would be of at least vague relevance to the issue of voluntary industrial agreements, but it would be exceedingly unlikely that such a document would impose useable obligations. Rather, the likelihood would be that the language of such a document would be inapt to impose a real requirement for action on the part of an Australian government. Beyond the context of written treaties and conventions, it is an utterly implausible suggestion that Australia's international trade balance and other international economic considerations would justify the enactment of voluntary industrial agreement legislation pursuant to the external affairs power.

Implied Power from Nationhood:

It is at least arguable that the Commonwealth Parliament possesses certain legislative powers which spring from the fact of its existence as a national polity. The scope of these powers and their nature is extremely vague, but it would seem that they may extend to authorizing legislation with respect to matters which are peculiarly the subject of concern to a national government. Such matters might include, for example, certain aspects of public research, the territorial sea, and even the celebration of events of national importance. Of course, this legislative power, if it exists, does not appear among the placita of section 51, but is rather to be implied into the Constitution.

Extraordinarily optimistic statements are sometimes made that this implied power would support a law with respect to industrial agreements, on the basis that such legislation is imperative for the nation's economic health, and thus of peculiar concern to the national government. This is constitutional nonsense of the first order. To extend the implied power from nationhood in this way, always assuming that it exists in the first place, would have the practical effect that the Commonwealth was enabled to make any law which it liked, provided only that it could plausibly assert that the law in question was in the national interest. Such a view would completely undermine the federal division of power, and would be unacceptable to the High Court in even its most centralist incarnation.

Section 51(1)---The Interstate and Overseas Trade and Commerce Power:

The trade and commerce power is not a highly developed constitutional power in Australia, although it has been of immense importance in the United States. To some extent, it has been overtaken in Australia in recent years by the use of the corporations power. Arguably, however, the trade and commerce power could be used to extend the scope of an industrial agreement law beyond the area which it could cover were it to be enacted in exclusive reliance upon the corporations power. Thus, under this power, a law relating to industrial agreements could perhaps be extended to apply not only to corporations, but also to those engaged in interstate and overseas trade and commerce, although such an extension would not be without constitutional doubt. Nevertheless, even assuming that the trade and commerce power would stretch so far, legislative gaps similar to those arising in relation to the corporations power would occur. Notably, the trade and commerce power can only be exerted in relation to the interstate and overseas activities of those engaged in interstate and overseas trade and commerce, and therefore could not affect any intrastate industrial activity. Again, in the context of industrial agreements, this would be a particular problem in relation to the activities of small business.

Conclusion Concerning Constitutional Powers:

It is thus apparent that no Commonwealth power provides a fully satisfactory base for comprehensive industrial agreement legislation passed by the Commonwealth Parliament. Those powers which seem to be applicable (corporations, trade and commerce) would undeniably produce legislation with serious regulatory gaps and their invocation is not in any event free from constitutional doubt. Other powers whose use is sometimes urged, such as the external affairs power and the suggested power from nationhood, seem inapplicable. Consequently, it is undeniable that there exists real reason to suppose that any Commonwealth law concerning voluntary industrial agreements will be subject to serious constitutional challenge. An at least partial recognition of this fact has meant that one further constitutional option is occasionally advanced.

Section 51(37)---Reference of Power by the States:

Pursuant to section 51(37) of the Constitution, the States---collectively or individually---can refer any power which they possess to the Commonwealth Parliament. Thereupon, the Commonwealth can legislate in pursuance of that power. Accordingly, in theory, were the States to refer all power over industrial agreements (or indeed over industrial relations generally) to the Commonwealth, there would be no difficulty in arguing that the Commonwealth possessed the necessary legislative power to enact industrial agreement legislation. Indeed, the suggestion that the reference power should be relied upon is occasionally advanced by supporters of the Coalition policy as a panacea for all its possible constitutional ills.

Regrettably, this position is far too simplistic, and State reference legislation would, in reality, provide an impossibly unstable base for Commonwealth industrial agreement legislation. Here, I speak from some significant personal knowledge, as I helped draft proposed Victorian reference legislation relating to corporations in the months before the Corporations case was decided, and am familiar with all the constitutional 'dirty tricks' which a State can legitimately insert in referring legislation.

In the most basic of terms, the use of the reference power in the context of the enactment of Commonwealth industrial agreement legislation is beset with grave problems. The first is the obvious threshold political difficulty, that it would be extremely difficult to persuade all the States to agree to such a reference. Obviously, States with Labor governments would decline, but it is quite conceivable that even a State Coalition government would be reluctant to part with such extensive powers. If one or more States remain aloof from a reference, the best that could be hoped for in relation to industrial agreement legislation would be a far from desirable checkerboard regulatory coverage.

Secondly, as the States would be able to set the terms of the reference, it is highly likely that those terms would be very far from those truly desired by a Coalition government, and could contain numerous unacceptable reservations and qualifications. Thirdly, and perhaps most importantly, it would appear on the basis of High Court authority that a State could revoke its reference at any time. The effect of revocation would seem to be that thereupon the Commonwealth loses its power to legislate in pursuance of the reference, and--- even more importantly---all legislation hitherto made dependent upon that reference falls to the ground. The consequences of such an eventuality within the context of a Commonwealth legislative scheme for voluntary industrial agreements would be catastrophic.

Finally, the States are now much more sophisticated in their approach towards referring legislation. It is perfectly possible for a clever draftsperson to insert numerous clauses in a reference act with a view to making life difficult for the Commonwealth at a subsequent point in time. Such clauses could include a variety of provisions, including those which had the effect that the reference would automatically terminate at a future point (with all the consequences that this would involve) were the Commonwealth to engage in a range of activity unacceptable to a State. This (entirely legitimate) form of constitutional blackmail would have the potential to be both highly effective, and deeply troubling to a Coalition government.

A Further Constitutional Problem:

This problem does not relate directly to Commonwealth powers as such. It concerns rather the ability of Commonwealth industrial agreement legislation to protect agreements made under it from interference by State laws and awards. The legislation obviously would need to display such an ability were any scheme of industrial agreements to be effective. Otherwise, hostile States could frustrate the agreement system simply by enacting legislation which provided for the making of detailed State industrial awards, or the setting up or extension of compulsory State arbitration systems, as soon as the Commonwealth attempted to vacate the field in favour of voluntary agreements.

In a sense, the Commonwealth has always faced a similar task in seeking to protect its own industrial awards from State legislative interference. Here, it has been able to ensure that its awards prevail over contrary State laws by resort to section 109 of the Commonwealth Constitution. Section 109, commonly called the 'paramountcy clause', provides that a Commonwealth law will prevail over all 'inconsistent' State laws. Of course, this section does not directly protect Commonwealth awards, as they are not 'laws' of the Commonwealth in the relevant sense, and inconsistency between them and a State law thus does not immediately attract the operation of section 109.

But in McClean, the High Court held that section 109 did operate indirectly to protect Commonwealth industrial awards against inconsistent State legislation, not because the State laws were inconsistent in a constitutional sense with the awards as such, but because such an inconsistency arose between the relevant State law and the Commonwealth act under which the awards were made, that act evincing an intention that the award system was to cover the policy field concerned. Admittedly, this is a somewhat subtle distinction, and the practical effect of McClean for most purposes has been that State laws can be struck down for inconsistency with Commonwealth awards.

Thus, assuming that the Commonwealth can indeed find a power to support voluntary industrial agreement legislation in the first place, it will also have to ensure that such agreements receive a similarly privileged status in relation to State laws as do existing Commonwealth awards. In strict legal theory, the McClean reasoning should be sufficient to achieve this result, on the basis that it will still be possible to argue that the enacted industrial agreement legislation reveals an intention that the system of voluntary agreements for which it provides should cover the relevant field or fields to the exclusion of State legislative interference.

However, consistently with what has been said above in the context of section 109 inconsistency and Commonwealth industrial awards, the practical effect of acceptance of this line of reasoning would be that a mere contractual agreement between individuals would be accorded legal primacy over State awards, and even State laws, including acts of the quasi-sovereign State Parliaments. In my view, the High Court is likely to be intensely reluctant to accept this conclusion. The Court might well resort to an argument based broadly upon principles concerning the delegation of legislative power by the Commonwealth Parliament, and the separation of powers generally. It might argue that by practically giving to industrial agreements legislative force for the purposes of section 109 inconsistency, the Commonwealth Parliament was in real terms making a delegation of legislative power in the relevant context to any group of employees and employers who cared to use it. This reasoning could in turn be relied upon to bring into play possible limitations upon the delegation of Commonwealth legislative power expressed in cases like Dignan. Such limitations would then be used for the purpose of invalidating the head Commonwealth industrial agreement legislation.

Were the High Court determined to take this course, it would be comparatively easy for it to distinguish the current constitutional position concerning awards from that presented by the new system of industrial agreements. After all, an award is at least made by a body which is the formal emanation of the state, and so it could be argued that to confer upon such an instrument derivative legislative effect is constitutionally legitimate: but a voluntary industrial agreement is simply a private agreement between individuals. This is quite a powerful line of argument, especially if the High Court is already hostile to the proposed law.

One consequence of all this is that, at the very least, there is a need to dress up a legislative regime concerning voluntary industrial agreements so that it more closely resembles a system of state regulation, rather than a private scheme of contractual arrangements. I say this in the full knowledge that this will not be a proposal congenial to those in favour of such legislation. But it will be necessary if the law is to be adequately protected from possible constitutional challenge on the ground set out above. The most obvious possibilities here would be the institution of a registration procedure, in order that a government body might be seen to be giving its imprimatur to each agreement, and the creation of a series of minimum conditions and terms to be included in all agreements. But even such measures as these might not be enough to save the legislation.

Where Does One Go From Here?:

The major point of this paper has been to suggest that the general assumption that Commonwealth legislation implementing the Coalition's industrial agreement policy would indeed be constitutional is quite unjustified. In fact, such legislation will be attended by major constitutional difficulties. It may be that these difficulties will not prove insuperable, but they are undeniably grave, and this will be exacerbated by the likely unsympathetic stance of the High Court.

It is important that all concerned particularly appreciate the implications of defeat before the High Court. Not only will a key Coalition policy have been destroyed, but there will be serious political repercussions flowing from a perceived major reverse for the Coalition. This potential debacle raises the whole question of whether it would or would not be more advisable to approach the issue of Commonwealth industrial agreement legislation rather by way of constitutional amendment, and the circumstances in which such an alternative course might most appropriately be attempted. Above all, this paper underlines the need for the Coalition to plan its moves in advance, and to consider all legal and constitutional structures and options. It is imperative that the Coalition not be caught between a rock and a hard place by profound constitutional questions, in Opposition, or in Government.

Why HR Nicholls?