Standing Fast

Industrial Relations Reform: A Perspective from Early 1993

Judith Sloan

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 that later.

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 competitiveness.

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 bargaining principle.

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 at all.

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 element.

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 those trends.

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 reasons.)

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 relations law.

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 award.

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 back.

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.