A New Province for Law and Order

An Analysis of the New Victorian IR Bill

Colin Howard

In the lead-up to the Victorian election of 3 October 1992 I wrote a Backgrounder for the Institute of Public Affairs on the principles that ought to guide any reasonable system of industrial relations. This paper is in a sense a continuation of that one. At that stage we had the outlines of two opposition policies before us: federal and Victorian. In their main features they appeared to be very similar and both were advanced as blueprints for change. At the time of writing we now actually have the Victorian version before Parliament in the form of the Employee Relations Bill.

I believe that discrepancies can be detected between the Bill and the second reading speech, not to mention earlier policy documents. No doubt there will also be minor changes made to the Bill on its way through Parliament. Similarly, in quarters that regret the result of the election, there has been much indignation that the new Premier, Mr Kennett, omitted to mention certain features of his industrial relations policy during the campaign. I find that complaint quite extraordinary. I cannot understand how anyone with even a rudimentary sense of proportion and propriety can set such a routine political peccadillo against Labor's record of persistent financial deceit and economic incompetence over many years.

I do not propose to spend time on any of these matters. Having expressed a view in the IPA Backgrounder on what an industrial relations system ought and ought not to be about, my purpose today is to see how the Victorian Employee Relations Bill measures up. I start by recalling in a summary way the view that I previously expressed and to which I still adhere. My conclusions were as follows, and I quote.

"The main purpose of reforming our industrial relations system is to allow a rapid return to full employment and to foster and promote economic growth and the widespread prosperity which such growth brings.

The means to these ends is the encouragement of competition within a free labour market operating within the rule of law. Freedom means that people are able to do deals with each other that both parties find attractive without the State intervening and imposing a less satisfactory deal. Competition means that neither employers nor employees are able to coerce or bully the other party into agreeing to a deal that is unsatisfactory to one party.

To this end Victorian reforms should:

  • Include provisions to ensure voluntary unionism while at the same time securing the right of employees to be represented by a union or professional employee representative.
  • Build on the law of contract as the basis of labour market relations and make it lawful for people to use the law of contract to their own best advantage. Additional constraints such as minimum hourly rates, mandatory periods of leave etc unnecessarily limit competitive capacities. There should be no acceptance of a right to strike even in contract negotiation periods. Competition between employers under conditions of full employment is the most effective way of protecting employees from low wages and poor conditions.
  • Seek to wind down the existing State system of arbitral tribunals as quickly as possible. This should be done not only to save taxpayers' funds but to encourage the citizens of Victoria to gain confidence in themselves as competent and effective workers who can command good salaries and conditions in competition with workers anywhere else in the world.
  • Proceed on the assumption that Commonwealth reform will be slow, difficult and not necessarily as effective as State reform. If this assumption is proved to be wrong, well, no harm is done. But it would be tragic if the new State Government left industrial relations reform to the Commonwealth, only to find that the Senate or the High Court, for example, proved to be major hurdles to effective reform."

Let us now see how the Employee Relations Bill looks alongside these principles. The place to start is s.3, in which are set out the objects of the Bill. The first is "to promote efficient and productive industry in Victoria and an efficient labour market". Splendid, and nowadays quite an original idea. Next, "to establish an employee relations system for Victoria which facilitates the freedom of employers and employees to choose how they regulate their own affairs". Wonderful. I am all for it. Another original idea. So far, so good.

But wait, what is this? Postpone the rejoicing for a moment. Object the third is "to facilitate the prevention and settlement of disputes between employees and employers and provide a framework which assists in the maintenance of sound relationships between employees and employers". I do not like the ring of that. We have spent most of the 20th century in the iron grip of a system for the prevention and settlement of disputes some of the more notable achievements of which have been to create innumerable disputes, encourage contempt for the law and at times reduce industrial relationships to a shambles.

If employers and employees have disputes, they should be left to settle them themselves, subject to the rule of law. If they are adult enough to run a business together, they are adult enough to compose their differences. They do not need a State tribunal to do it for them. If they cannot compose their differences within the law, so be it: they either part company or go to court.

For my part I also do not like the reference in this context to sound relationships. It has disquieting overtones of political correctness. A sound relationship between employer and employee results from one thing and one thing only: a bargain that they both find acceptable. They themselves are the best judges of that.

Exactly the same considerations apply to object the fourth: "to promote industrial harmony and co-operation between employees and employers in Victoria". If the two groups are left to their own devices, subject always to the rule of law, industrial harmony and co-operation is precisely what we can expect to get. Harmony and co-operation are not usually associated with the word "industrial" because neither side can lift a finger nowadays without being regulated out of their minds.

Leaving aside for the moment the fifth object of the Bill we find that the dismal trend not only continues but worsens with the rest of them. There is to be "a framework for the prevention and settlement of disputes and the orderly and fair handling of industrial matters". And why? To "minimise disruption to the community".

What do they mean, "minimise"? The words "disruption to the community" are a polite synonym for breaking the law. Is it not a depressing comment on the level to which political debate has sunk in the industrial relations area that one of the objects of a Bill purporting to be a reform measure can offer nothing better than a so-called framework for minimising unlawful conduct that disrupts the community?

We already have such a framework. It is called the law of Victoria and it is administered by the courts. And if we had a rational system of industrial relations, which means a competitive contract-based system enforceable within that framework, there wouldn't be any unlawful community disruption to minimise.

And so the objects continue. The next one is about prevention and settlement too. In fact, out of a total of ten objects of the Bill no less than five are concerned with prevention, settlement, disputes, conciliation, mediation and arbitration, all of them naturally, and I quote, "with the minimum of legal form and technicality", an expression not exactly consistent with the rule of law.

If you include the object that dwells on harmony, you have six out of ten. And if that is not enough, the concluding object is for the new Victorian system "to complement" the Industrial Relations Act 1988 of the Commonwealth. All up, seven to three against me.

If you take this up-front legislative window-dressing seriously therefore, you have a so-called reform Bill deeply marked by traditional ideas that not only don't work but cause great economic harm to the whole community all the time. As against this there are of course, if you look carefully, some signs that that may not be the whole story.

The object that I passed over earlier is "to ensure that fundamental civil liberties are protected including freedom of association". It may therefore be reasonably understood that one object of the Bill is to preserve freedom of contract and accordingly abolish compulsory unionism. This is fact done in ss.53-55. If this is taken together with the first two objects (efficient labour market and employers and employees regulating their own affairs), you have a small collection of principles of considerable power.

This is a comforting thought but what it is worth depends on the extent to which these various objects are translated into actual measures in the body of the Bill. Before looking at the rest of the document however I record an unavoidable initial difficulty. It is that there is no way at all of reconciling the two groups of objects that I have identified. The three and the seven simply contradict each other.

If both groups of objects are to be taken seriously, the only way out of the problem is to frame them as alternatives, so that in the end one or the other group of the substantive provisions of the Bill that put the objects into effect will become dead wood because the labour market prefers the other system. Maybe I ought not to object to this in principle because it can be argued to be democratic competition in action, although in a rather unusual way.

I do object however. The Kennett government was voted in, in order to change things, with a prominent emphasis on the labour market. It was not voted in to have a bob each way. In my view it should carry through its three good objects and forget the rest. Let us now look at other parts of the Bill. Unfortunately its size and scope mean that I shall have to be selective and concentrate more on what I do not like than what I do like.

The first major feature is the now famous Part 2 on employment agreements. They come in two forms, collective and individual. If we ask the basic question, what is an employment agreement, we find that for practical purposes the Bill does not tell us. It simply says that it is an agreement under Part 2, which we could probably have worked out for ourselves.

Never mind. We all know what an employment agreement is. It is a contract between two people that one shall employ the other on stated terms and conditions. It is different from a contract for services in that the concept of employment concentrates on one person being paid for working for another with some continuity whereas a contract for services concentrates on the sale to another for a particular project of a specialised skill or facility.

The distinction is relevant to this Bill because s.3 says that the word "employee" does not include anyone engaged under a contract for services. The reason of course is obvious. A person engaged under a contract for services, typically a sub-contractor, has already been through the contract process and arrived at an agreement. This however immediately provokes the question, why do we need an Act of Parliament to regulate employment agreements when their first cousins, contracts for services, operate perfectly well under the common law?

It is, as the saying goes, a good question and takes us at once to the heart of this Bill. It is quite unnecessary to pass an Act of Parliament to enable people to enter into employment agreements. They can do that anyway, any time they like. Until this Bill came along they even had their own particular nickname in the jargon. They were called enterprise bargains. But it doesn't matter what they were called. Although much interfered with by prevention and settlement laws, they were still contracts of employment.

Granted, as I mentioned in the Backgrounder, there are many industries that benefit from industry specific legislation to accommodate their own special characteristics. I cited mining and insurance as examples. But working for a wage is not in itself an industry. So why do we need a new statute to create a power to contract that is already there?

The answer lies not in the appearance of creativeness worn by the first two sections of Part 2 which talk about collective and individual agreements. It lies in all the prohibitions, all the things that the parties to these contracts may not agree upon with each other because the State knows best. I am referring to some of the many sections of the Bill that provoke the question, why, or why not?

For example, s.11. This section says that an employment agreement cannot endure longer than five years. Why not? It then goes on to say that collective agreements cease to apply on their expiry, which is something else that we might have been able to work out for ourselves. Thirdly however the section then says that in the absence of a new collective agreement the old one is converted automatically into identical individual agreements with any relevant employees who stay on.

In itself this may be a useful device for avoiding a contractual vacuum but why should it be compulsory? If the idea is to limit the operation of collective agreements, why legislate for them in the first place? Why not provide that although they can be negotiated collectively, they operate in law as individual contracts and accordingly can be modified by further agreement between the individual parties at any time?

As it is, s.12 of the Bill prohibits variation of a collective agreement except to remove ambiguity or uncertainty. Once again, if the parties see good reason to vary it, why can they not do so? The answer probably lies in government doubts about abuse of the collective agreement process. If so, surely the best remedy is the one just mentioned: negotiate collectively by all means, but contract individually.

The limitations on freedom to contract that I have mentioned so far turn on the collective agreement concept. We come next to limitations on both forms of agreement. In this context one's attention is rivetted by s.14. This section provides for minimum terms and conditions that cannot be opted out; for prevention and settlement procedures; and for standing down.

The minimum conditions are to be found in Schedule 1. They cover maternity, paternity and adoption leave and part-time employment and are replete with references to awards. They occupy 53 sections and amount to an award in themselves. Detailed discussion of them would be irrelevant to my purpose today, even if there were time to enter upon such an exercise. It may be that the specific provisions represent an enlightened code of employment. My objection to s.14 and the schedule is that the specific provisions become entitlements and obligations as a matter of law and not agreement.

They are a major interference with freedom of contract and as such represent a potential disincentive to employment. It has to be remembered that only in other-worldly theory is a published statement of minimum conditions like this also a statement of maximum conditions. Actual conditions are going to be negotiated upwards from the word go and distort the market and the economy accordingly. Such a result is in direct contradiction of object No.1 of the Bill.

I move now to s.17, which has the intriguing sub-heading "How employment agreements work". These words are intriguing because without them it would not have occurred to me that the question arose. If an employment agreement is a contract, albeit a regrettably restricted one, surely it means that the parties either abide by it or run the risk of being sued for breach. The Bill indirectly acknowledges this in s.19 by referring to damages awarded by a court, although in so doing it adds the inexplicable restriction that damages against any one person must not exceed $5,000.

But s.14(1)(a) cuts right across this straightforward understanding of the position by specifying that "the provisions of the agreement have the same effect, and can be enforced in accordance with this Act in the same way, as an award". Certainly this is at once ameliorated by providing that agreements prevail over awards. Certainly also other parts of the Bill provide for certain matters to be heard in the Magistrates Court. But the reference to awards is what catches the eye.

It does so because it implies the preservation in one form or another of the machinery of prevention and settlement with which we are so wearisomely familiar. Look further into the Bill and one finds the whole catastrophe set out at length. Parts 6 to 13, comprising 64 sections, establish the Employee Relations Commission and tell us all about it. I need hardly drag you through them. I can only express the hope that the Commission will shortly find itself with nothing to do and turn to other features of the Bill.

Prominent among them is s.36, which introduces the idea of unlawful industrial action but in so doing necessarily acknowledges the concept of lawful industrial action. Industrial action is defined in s.4(1) effectively as strikes, bans and lockouts. It does not include cessations of work to avoid accident or injury. Accepting that definition of industrial action, it is obvious that it is a breach of contract. Is there any need for legislation on the subject?

In considering this question I must stress a distinction that no-one ever seems to take into account, which is the difference between civil law and criminal law. At this very time plenty of emotive propaganda is circulating to the effect that it is a return to the dark ages to imprison an employee for refusing to work. This proposition is then swiftly converted into the slogan that everyone has a right to strike, usually uttered,in tones of portentous sentimentality, as a right to withdraw labour.

I am not talking about putting anyone in prison. I think that the Employee Relations Bill in its original form went overboard in the matter of creating summary offences and thereby handed a useful propaganda weapon to the opposition. There is one sense in which any employee has the right to strike: he can break his contract of employment and take the consequences. I see no reason in principle why that should be a matter for the criminal law unless to do so creates a danger to others or actual physical harm.

But that is not what the right to strikers are talking about. Behind all the circumlocution about the dignity of man and withdrawal of labour lies the simple and unlovely proposition that anyone should be allowed to down tools without suffering any consequences. I am quite sure that the degree of support for a right to strike that is routinely revealed in opinion polls depends in great degree on people not realising the way in which the concept is manipulated.

Another failure to grasp the realities that is often evident is the apparently widespread assumption that every employer in the land is only waiting for the first opportunity to make life a misery for every employee. At the moment it tends to take the form of arguing that the idea of enterprise bargains or employee agreements is unfair because employer and employee are not in equal bargaining positions.

That is largely true, but not in the sense intended. My view is that the stranglehold enjoyed by the union movement over industrial relations in this country has been such that until quite recently no employer stood a chance in a serious fight with a union. Mind you, I have to say that I think that many of the big employers in this country, and their representative organisations, have brought much of the trouble upon themselves by a distinctly less than resolute attitude towards rogue unions and too much nitpicking with each other.

The basic situation is now changing, not, I regret to say, because of them but because ordinary people who are sick to death of abuses of union power are prepared to put their votes behind a cleanup of the system. But that is not the point I wish to make. The extraordinary feature of the scene is the perceived attitude of employers towards their employees. For one thing it is totally inconsistent with the rise of enterprise bargains, but leaving that evidence aside, it is irrational.

No-one yet has been able to explain to me what percentage is in it for the employer if he has a resentful workforce. If he wants to make money and he needs a workforce to do it, both sides benefit from co-operation. In a reasonable system an employer who turned out to be a self-centered sadist would soon have no employees. An employer who refused to pay the market price of a skilled worker would lose that worker, who would go to the opposition. The same applies to all the other benefits that are the subject of industrial negotiation.

What inhibits the development of a rational attitude towards each other between employer and employee is not anything to do with some psychological mishap that occurs every time someone turns into an employer but the fatally one-sided industrial relations system itself. It is so difficult to dismiss an unsatisfactory employee that employees have little incentive to do a good job or take a pride in their work and employers have correspondingly little incentive to show any kind of initiative.

Because the system is so inflexibly biased, a normal hiring and firing situation cannot develop. Neither side is free to bargain terms to suit themselves. The whole atmosphere is dominated by forced separation between the very people who have to work together to make any business successful: employer and employee. The simple fact is, and it has been said often before, that the easier it is to fire, the easier it is to hire. Far from being a threat to the employee, the evidence is overwhelming that those two freedoms create a vigorous economy, a high standard of living and a labour shortage. Hong Kong is the outstanding current example.

Instead of that, what do we have? We have a situation in which the dominant attitude is typified to perfection by Mr John Halfpenny, the Victorian Trades Hall Council secretary. Faced by the decisive defeat of his side of politics at the election, and knowing full well that Victoria's economic situation requires every constructive contribution that anyone can make, what is his reaction? It is to persuade everyone he can to go on strike, with the promise of plenty more to come.

In its editorial of Wednesday 11 November 1992, the day after Mr Halfpenny's strike, the Melbourne Age commented as follows. "With their eyes, as always, firmly fastened on history, the lumbering orators of the trade union movement are bracing for another Great Struggle against the Capitalist Oppressors. It is all so old-fashioned and silly. These Rip Van Winkles fighting 100-year-old class struggles should join the 1990s, especially the man controlling the agenda." I could not agree more.

To sum up, the Employee Relations Bill is to be welcomed as a politically courageous step in the right direction but it is nevertheless in my view sadly flawed. Its aims are self-contradictory, the contract-based system of industrial relations that it envisages falls short of what is required, it preserves the antiquated prevention and settlement machinery of industrial commissions, it relies too much on criminal law and it acknowledges the concept of a lawful right to strike.

No doubt these shortcomings are in part, or perhaps wholly, the result of a political calculation. If so, I am out of tune with it. They seem to me to give unnecessary encouragement to the Bill's opponents, as witness the effrontery of Mr Halfpenny and the public confusion that he is causing. In my view Mr Kennett would have done better to go straight to a proper contract-based scheme of industrial relations and have done with it.

Perhaps one can nevertheless look forward to the time when it becomes even more obvious that the baggage Mr Kennett has preserved from the past serves no purpose and the new ideas he has for the future are too restricted in their present form. When that day comes I shall inspect the Employee Relations (Amendment and Improvement) Bill with interest.

Why HR Nicholls?