Industrial Relations Reform: A Perspective from Early 1993
The Prime Minister's speech to the Institute of Directors
in April 1993 seems to have been as much quoted as
the Bible. However, the interpretation that should
be placed on the section dealing with industrial relations
is akin to the way Chinese policy should be interpreted---these are the words, but the meaning is quite different.
My talk is divided into two parts. First of all,
I will describe where we have got to and describe the
achievements and failures. Secondly, I will outline
the substance of the further reforms required.
You know, I always wondered whether the H R Nicholls
Society should have a sunset clause, and that hopefully
one day, there will be that sunset because the fight
will be over and the achievements will have been made.
Unfortunately, how I interpret the current events,
is that we are not up close to that sunset. Indeed,
some people might think that we are not going forward
but that we are going backwards. I will get on to
I do think it is worth reviewing recent history, because
it is true that the industrial relations arrangements
that exist now are in some ways quite different to
those that existed a decade ago. Of course, very concerted
efforts have been made by the interested parties to
demonstrate that flexibility can be achieved within
the system. Witness the travelling road shows of the
past couple of years where selected business people
have come out and told us about the agreements that
have been made with the unions. In my opinion, however,
these assessments have to be treated with some scepticism.
Listening very closely, a number of consistent impressions
emerge. First, the length of time taken to reach agreement
is inordinate in most cases. Secondly, some of the
'concessions' made are trivial to the firm's bottom
line. And finally, agreements generally only vary
marginally from the underlying award.
Considering the early part of the '80s, we had a highly
centralised arrangement which was being reinforced
by the Accord. The real crunch came in 1986, when the
terms-of-trade collapsed, the Australian dollar collapsed
and Mr Keating made his famous 'Banana Republic' comment.
This was also a time when some of those key incidents
in industrial relations of the 1980s, like Robe River,
began to have an impact on the thinking in the trade
union movement, particularly the ACTU.
As a consequence, there was a loose coalition of influential
players who foresaw the need to try to decentralise
industrial relations, albeit in a pretty managed and
controlled way. The first development was the Two
Tier experiment which some of you will recall was a
two part arrangement whereby workers received a flat
$10 per week pay rise and there was an additional
4% for productivity trade-offs. Now, in fact, the
experiment has been much maligned, certainly by industrial
relations academics. I interpret it differently, however.
The Two Tier system was actually a really good idea,
in my opinion. It was a bit limited in some ways:
award conditions were largely quarantined and so what
could be bargained away was limited. However, by and
large, the system was focused on the enterprise and
that was a very good thing. Obviously there were some
sham deals and there were changes agreed to but never
implemented. But there were some examples where some
good things came out of it. For example, if you talk
to the big banks, they would tell you that they got
a lot out of the Second Tier and it was negotiated
at the enterprise level.
The truth is that things were always going to take
a little time to get going---so many of the participants
were wedded to the old way of doing things. But I
think what happened was that the union movement saw
the danger of going further down this enterprise-focused
track and had to invent something else to replace it,
but which still looked like decentralisation. Hence
award restructuring was born, but which ran to a very
different agenda than the Second Tier. Award restructuring
was not pitched at the enterprise level at all. It
was all about awards; it was about peak unions; union
officials generally doing deals with the employers'
associations. So it actually moved the focus back
to something that was much more traditional Australian
industrial relations---award focused and centralised.
Moreover, the union movement was essentially able
to impose its own agenda on award restructuring, while
the business agenda on measures to improve the competitiveness
of industry was downgraded.
Surveying managers of workplaces and asking them to
nominate what was implemented under award restructuring,
the typical responses are things like worker classifications,
new training arrangements, skill-based career paths,
some multi-skilling, some reduced demarcation. But
then when you ask these same managers to nominate what
factors are the most important to their competitiveness,
they rattle off a series of completely different factors
(such as building common purpose, creating shared objectives,
removing penalty rates, changing manning arrangements).
Certainly some of the changes ushered in through award
restructuring were marginally beneficial to businesses,
but they weren't the core issues affecting business
Even then, there came a point where I think the ACTU
felt that this award restructuring stuff might get
away from them. They then started to emphasise the
Minimum Rate Adjustment process, whereby low paid workers
could receive pay rises so that there would be consistency
across awards according to some baseline classifications.
This was in fact an extremely retrograde step. To
set in concrete some rigid grid of relativities whereby
someone on Level Four in the clothing industry should
more or less earn the same as someone on Level Four
in the mining industry is an extraordinary idea!
Interestingly, there were few howls of protest during
those years when all these union-inspired charges
were going on, because, on balance, there was neither
a freeing up of the arrangements nor a deregulation
of the labour market. Additionally, this was a time
when the training guarantee levy was coming in, when
the superannuation guarantee legislation was being
mooted and was then passed. This was a time when there
was talk about competency-based training arrangements
and having six skill levels across the entire economy.
It is a brave person who would argue that any of those
things were, in fact, deregulatory.
Thus, while I think that the Second Tier was quite
a good thing, this development was cut short, and then
essentially we have had a regulatory period. There
is no doubt that opposition within the union movement
to anything that smacks of decentralisation was, and
is, entrenched and pervasive. Thus some of the experiments
of the late 1980s and the various versions of the Accord
were seen as being temporarily necessary, "if you only
had to hang out for so long and until things got better.
Then you can go back to the good old ways of doing
things and, in the meantime, we will get relativities
'right', according to our particular point of view".
However, the pressures continued, especially with
the recession commencing in late 1989. The union movement,
the ACTU and the government came up with Accord Mark
VI. This involved a flat pay increase of $10 per week,
plus enterprise bargaining. That was put to the Industrial
Relations Commission. Their decision on the matter
(April 1991 National Wage Case) was then described
as 'vomit' by the Secretary of the ACTU because of
the decision by the Full Bench to reject enterprise
bargaining and to provide for a 2.5 per cent pay rise
instead of the $10 per week claim.
In fact, of all of the Commission's recent decisions,
this one is probably the best argued. It reads very
convincingly---it essentially is saying that the parties
did not know what is meant by enterprise bargaining
and there were therefore reasons to 'hang fire' until
we do know what we mean by the term. At that time,
that was probably a reasonable decision.
The unions then sought to impose the Accord Mark VI
provisions in the field, but with the weakening of
the labour market the campaign eventually petered out.
Eventually most workers got the 2.5% arising from
that decision. I suspect tactically, however, the
decision was a mistake from the Commission's point-of-view.
As events panned out, the case was re-opened and the
Industrial Relations Commission did promulgate an enterprise
Probably, under the circumstances,---again the way
in which the principle was phrased was reasonable---
it was about establishing single bargaining units so
that agreements had to be negotiated with every single
union with coverage in a workplace. It made provisions
in relation to duration and specification of the need
for productivity trade-offs. Therefore, there was
in effect a test to knock out 'shonky' deals.
But the Commission was essentially ambushed or betrayed
by Senator Cook who, in the next year, amended the
Industrial Relations Act and introduced what
is widely called Section 134 (it should be called Division
3A). This section completely undermined the enterprise
bargaining principle. It completely neutered the Commission.
The Commission essentially had no grounds for knocking
back agreements---certainly single enterprise agreements.
It significantly demoralised and de-motivated most
thinking members of the Commission.
One example was the Qantas deal which was clearly
'shonky'---there has been a long history of shonkiness
of deals in this industry partly because of the protected
product market and government ownership. An agreement
was put to the Commission to ratify covering all of
Qantas. It was clearly suspect (especially in terms
of achieving demonstrable productivity gains) and the
Commission knocked it back on the grounds that Qantas
was not a single enterprise. So what happened? Well,
they just cut it up into 14 Qantas agreements to achieve
single enterprise agreements, put them back to the
Commission and the Commission had no option but to
apply the rubber stamp to them.
The potentially good aspect of Section 115 which was
replaced by Section 134 was its slight ambiguity about
who could be parties to agreements and could thus potentially
cover non-union cases. This was removed in Section
134. Now, it is clear that a Certified Agreement
can only be made with a registered union or unions.
So, in effect, registered unions have monopoly positions
in respect of certified agreement making, which of
course raises a different issue because we know that
about 60% of enterprises don't have union coverage
Of course, one interpretation of the restriction in
Section 134 is essentially that the powers that be
are not really interested in an holistic enterprise
bargaining model but essentially wish to continue the
award system in one way or another. People will say
enterprise bargaining is here to stay and is now the
main game. But the truth of the matter is that in
no way is arbitration dead. In fact, there have been
three important arbitration decisions recently, which
underpin the proposition that enterprise bargaining
is likely to be the backdrop against compulsory arbitration.
I refer to, firstly, the decision in relation to redundancy
payments in the clothing award where small employers
with 15 members or fewer which were previously exempt,
are no longer exempt. Moreover, in the classic style
of the old way of doing things, there is now likely
to be flow-on to other awards. The second important
decision, again at the award level and an arbitrated
decision, was in the hospitality industry where the
Commission declined to agree to the claims by the Hotels'
Association to remove penalty rates. Again this was
an arbitrated decision.
The third decision is the Hoyts decision which was,
in fact, an application under the old Section 115 to
enter into an agreement directly with the workers and
under which they have effectively been operating since
1988. But the Commission, in its wisdom, decided that
that wasn't on and has now brought down an award covering
the employees which diverges in some very significant
ways from the agreement. The point is that enterprise
bargaining remains an extremely fettered process with
the dead weight of arbitration remaining a central
Now let me just go quickly through some recent labour
market outcomes. These are the movements in real earnings,
which I think are quite interesting. Of course, people
have claimed that the declines in real wages that we
saw in the first half of the '80s were more or less
entirely due to the Accord. The fact is that we had
had an almighty spike in real wages in 1983/84, so
there was always going to be a lull after that. In
other words, one has to be careful in how one interprets
Of course, I suppose one might argue that in 1988/89
a big increase in real wages might have occurred because
at that stage the labour market was tight. This was
the time, of course, when the Second Tier and then
award restructuring had been introduced. There is
no doubt that these mechanisms introduced some staggering
wage increases which did contrast with a high level
of synchronisation that began with the early phases
of the Accord. So that did tend to slow down the pace
of wage increases.
But if you go to 1991/92, you would have to argue
that the real wage movements that occurred were perverse
given what was probably the weakest labour market since
the Second World War. (There were some technical reasons
why real wages rose; in particular, the job losses
of the less well paid and the incremental pay arrangements
of those who remained employed. However, it was clear
that there were real wage rises in addition to these
The number of industrial stoppages, no doubt, have
come down considerably. I should however point out
that this trend is apparent elsewhere in the world.
The story on working days lost is a little less favourable
in the sense that there have been some ups and downs
over the past decade. The figures on working days
lost will be affected by mass demonstrations of workers
such as the protests over the changes to worker's compensation
in New South Wales and against Kennett's industrial
What is more interesting, however, is what we hope
to get from our different industrial relations arrangements
and that is productivity growth. Starting from 1986/87,
which was when some of these new industrial relations
arrangements were introduced, there is absolutely nothing
to indicate that macro-level productivity increased.
In other words, there was nothing to suggest that
we were getting any sort of help out of the Second
Tier or award restructuring arrangements on this score.
More recently, we have had a resurgence in productivity
coming out of the recession, but the evidence indicates
that this is simply a typical pro-cyclical surge.
One response might be that slow productivity is a fact
of life across the world. In fact, this is not so.
In particular, New Zealand has experienced a dramatic
improvement in productivity.
Overall, it would not appear that macro-level productivity
in Australia has been lifted at all. Certainly, there
are some companies, which have traditionally undertaken
collective bargaining and have company awards. They
may have secured some productivity gains from the industrial
relations changes, including enterprise bargaining.
However, if you analyse their positions closely it
would appear that agreements have taken a long time
to complete, many of the changes are quite trivial
and there is only some divergence from the underlying
There are also instances of what I would call 'catastrophe
bargaining' in which firms going to the wall can extract
some real concessions from the unions and workforce.
For example, the Heinz agreement was really a case
of catastrophe bargaining because the unions understood
that, without substantial change, that plant might
be relocated to New Zealand. Similarly, with the agreement
covering Safeway Supermarkets (part of the Coles-Myer
chain), there was a distinct possibility that large
number of workers would lose their jobs without major
change. But, the unions were smart enough to realise
that when it came to other parts of the organisation,
such concessions did not need to be made and would
not be given.
There is also the agreement covering the Federal public
service, in which essentially 5% was given away for
nothing with a further 4-5% up for grabs on the basis
of agency level bargaining. Not the type of enterprise
bargaining many of us have had in mind!
To be sure, the Prime Minister's April speech gave
some grounds for optimism. The main game now is basically
about giving substance to the words---to having a system
squarely based on real enterprise bargaining. It's
about, probably, effectively ditching awards and compulsory
arbitration and using some other mechanism, for example,
the ILO Conventions to impose a fairly thin safety
net covering low paid workers. It is also about having
rules in relation to bargaining and contracts which
will include enforcement mechanisms and allow for non-union
bargaining. But dashing hopes of real reform was a
press release from the ACTU, quoting very favourably
Mr Brereton, which undercut the main points of the
Prime Minister's speech. Awards would not go away
and compulsory arbitration would remain, according
to the press release.
On the issue of non-union bargaining, in any case,
I don't expect there will be a great rush to allow
non union agreements but allowing unions to vet the
agreements, then you may as well not bother. The other
thing critical in the legislation as it stands (and
which is unlikely to change) is that there is a 'no
disadvantage rule' which says that an agreement can
only be certified if it can be demonstrated that workers
are not disadvantaged. Now, how is one to test disadvantage?
As it stands at the moment, it is measured or assessed
in relation to the awards; so an agreement essentially
has to be at least on balance as favourable as the
award; otherwise there are grounds for it being knocked
On the issue of strikes, I would be quite keen to
see the right to strike provision in some new piece
of legislation because that would at least tell us
that there are occasions when you can't strike. However,
I would object to the idea of the prohibition of and
penalties for secondary boycott being watered down.
A secondary boycott is a quite different
principle to a primary boycott and should always be
illegal. The fact that Section 45D & E have essentially
been applied to primary boycott is only a case of redrafting
those Sections, not removing them.
INDUSTRIAL RELATIONS CHANGE:
THE MID-1980S TO THE PRESENT
1. THE TWO TIER EXPERIMENT 1987-88
2. AWARD RESTRUCTURING 1988-1991
3. APRIL 1991 IRC REJECTION OF ENTERPRISE BARGAINING
4. OCTOBER 1991 IRC PROMULGATION OF ENTERPRISE BARGAINING
5. INDUSTRIAL RELATIONS LEGISLATION AMENDMENT ACT
1992 SECTION 115 REPLACED WITH SECTION 134