A New Province for Law and Order
An Analysis of the New Victorian IR Bill
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
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
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
- 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,
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
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
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
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
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
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.