Light on the Hill: Industrial Relations Reform in Australia

Voluntary Agreements Between Employers and Employees in Queensland

Andrew Brown

In April this year, the Queensland Government introduced enlightened and progressive amendments to the Queensland Industrial Conciliation and Arbitration Act. Voluntary employment agreements will become possible in the State, enabling us to catch up with practices that have increased productivity in most of the Western world over the past 40 years.

By the early 1970s, Australia's economic performance was deteriorating and our standard of living compared with the rest of the world had been falling for 20 years. The structure of the economy was clearly not appropriate for the next stage of development even though it may have been for the major developments taking place in the 1950s. Certainly by the 1960s the structure was rigid, inefficient, uncompetitive and outdated in all sectors of the economy.

The economy was not, on any view, a free enterprise economy. Each major sector of the economy was rigid and uncompetitive:

  • there was insufficient competition in the industrial/commercial sector due to the growth of restrictive trade practices;
  • there was insufficient competition and over-regulation in the finance sector stemming from the policies of the Labor Government of the 1940s; and
  • there was gross rigidity in the labour market, that particular market in Australia having traditionally been constrained by principles of centralised wage fixing.

By moves originally initiated by Sir Garfield Barwick, some deregulation and measures to ensure freedom of enterprise in the commercial industrial sector were implemented. Whilst bank nationalisation, and thus strict control of the financial sector, had been defeated by legal action in the Privy Council, the Liberal/Country Party Government did little to dismantle the various restrictive financial legacies left from the Chifley Administration.

During this period, no steps had been taken to improve the flexibility of the labour market. Indeed, with the effective demise of sanctions for breach of orders of industrial tribunals following upon the O'Shea case, industrial relations increasingly followed union prescriptions which have not, in Australia, favoured flexibility.

With the electorate perceiving future economic turmoil and sensing a dissatisfaction with present structures, Australia still had a significant chance to arrest the rot in the 1970s.

Two oil crises were to hit the world which should have benefited Australia as a net exporter of energy. Had all sectors of the economy been competitive and efficient, Australia would have climbed back to its rightful place in the world.

However, after a Labor Government, a Liberal/National Coalition, and then another Labor Government, it is clear that this is not happening. Australia is on a backward slide that could shortly see it not much better than a ramshackle kind of Argentina of the South Pacific.

Whilst, of course, there is no single cause of any problem, the central and consistent reason given by many commentators and businessmen here and overseas for the weakness of our dollar and the economy is the structure and nature of the labour market.

In late 1985, the Australian Productivity Council published a commissioned work called 'Structural Chaos'. A chart from that publication, indicating the productivity gap between Australian industries and the average US and West German productivities for those industries, is reproduced below.

The Productivity Gap

Industry

Food, beverages, tobacco 50
Textiles 70
Clothing 70
Footwear 80
Wood, furniture 65
Paper 70
Printing, publishing 35
Chemicals 50
Cement, glass 75
Base metals 70
Metallic products 60
Motor cars etc 45
Precision instruments 65
Electrical equipment 65
Machinery 55
Leather products 80
Rubber & plastic 70
Miscellaneous 65

Productivity of Australian Industries as a percentage of the average of

US and West German productivities.

From available figures, labour productivity in Australia between 1960 and 1982 was one of the lowest of 10 observed OECD countries, as the figures below reveal.

Average Annual Productivity Growth, 1960 to 1982

%
United States 1.2
Japan 6.2
Austria 3.9
France 3.8
Germany 3.4
Italy 3.9
Sweden 2.3
United Kingdom 2.2
Australia 1.8
Canada 1.6

Moreover, during the 1970s, labour productivity growth in the Australian manufacturing sector compared unfavourably with growth in labour costs over the same period. Increases in labour costs were not matched by output gains, leading to a decline in international competitiveness illustrated in the following table comparing labour costs relative to the United States.

Labour Costs Relative to the United States

1970 1984
% %
United States 100 100
Japan 28 60
France 42 57
Germany 61 78
Italy 45 62
Sweden 62 65
United Kingdom 38 49
Australia 52 85
Canada 61 93

The problem of relatively low productivity growth in Australia is also reflected in the high number of working days lost in comparison with other OECD countries; again I refer to the statistics.

Working Days Lost in Industry, Annual Average 1973 to 1982

Days lost per '000 employees
United States 415
Japan 93
France 181
Germany 24
Italy 1, 197
Sweden 152
United Kingdom 459
Australia 672

In the final analysis a flexible labour market will facilitate the establishment of wages and conditions appropriate to Australia regaining its rightful position in the world. The worker realises now that to restore Australia's position, productivity must improve. Flexibility in the markets will then enable flexible policies to develop between employer and employee organisations. To increase productivity, a 'top down' approach cannot succeed. Every industrial sector is different; differences also reflect geographical and climatic influences. Appropriate policies and conditions cannot be determined by a central out-of-touch bureaucracy in Canberra or by the Arbitration Commission. In Queensland, it cannot even be determined in Brisbane for the whole of the State. The method of organisation and conditions sought by a small group in Cairns could well be different to those sought in Brisbane. In a flexible system, the most appropriate wages and conditions to apply in each instance, be it company or town, will lead to increased worker satisfaction and increased productivity.

In saying this, however, it is important that this flexibility should not be abused to drive down living standards. The future of Australia lies not in a low-wage society, but a high-wage one financed by high labour productivity. This is the lesson of the successful economies to our north and even from arrangements such as those adopted by the Mudginberri proprietor and his employees.

The introduction of flexibility into the labour market in a manner which satisfies the foregoing requirements is a matter of great national importance. When introducing the Queensland legislation in Parliament on 9 April 1987, the Minister for Employment, Small Business and Industrial Affairs, the Honourable Vince Lester, said:

    'the need for more flexibility in the labour market had received considerable discussion in recent years and yet only the Queensland Government had actually got around to doing something about it. The rigidity of the Australian Conciliation and Arbitration Systems had not adequately catered for individual firms, particularly those in small business, where there was a definite need for flexibility in the use of their limited human material and resources. These impediments were particularly onerous for companies in the start-up stage or those in new fields. This Bill is firm evidence of the Queensland Government's willingness to take innovative action to create a work place environment that has the potential to bring across the board benefits to all parties'.

He added:

    'this is not a revolutionary step intended to demolish the award system; instead, it allows an evolutionary process whereby consenting employers and employees can vary award conditions while preserving certain basic award provisions as to ordinary pay and paid leave. Resulting from this would be the opportunity for the more productive use of labour, development of mutually acceptable work patterns, increased productivity, increased job opportunities, greater scope for the introduction of profit sharing schemes and increased services for the consumer'

What then, does the legislation provide? Two varieties of voluntary agreements are possible.

  • A voluntary agreement between an employer and at least 60 per cent of employees in a calling covered by an award or agreement or in a business establishment or undertaking, which I will hereinafter refer to as 'an establishment agreement'. The expression, 'calling' was already defined in the Act as 'any calling, vocation, craft, business or other occupation or any section of any calling'
  • Agreements between unions of employees or employee associations and unions of employers or any employer, which I will hereinafter refer to as union agreements'.

Until the union movement fully supports the legislation, it is expected that most agreements will be establishment agreements. When there is only one employee in a particular calling, an establishment agreement may also be entered into.

Section 94B sets out requirements to ensure the validity of the agreements. These are required to be in writing, signed by all parties and witnessed by a Justice of the Peace. The employer must make available, upon request, a copy of a voluntary employment agreement to every person employed or who becomes a party to that agreement. The agreement is to be lodged with the Industrial Commission for registration and will take effect not upon registration but from the date it was made. To protect minors, their agreement will need to be consented to in writing by a parent or guardian.

A voluntary employment agreement may vary the effect of an award industrial agreement or voluntary employment agreement in whole or in part, except for provisions in respect of Christmas Day, Good Friday and Anzac Day.

Section 94C provides that certain Act provisions may be varied, e.g. restriction on hours worked, overtime, rest pauses, mixed functions payment and payments for public holidays, but alternative arrangements can be negotiated. For public holidays other than Christmas Day, Good Friday and Anzac Day, provision is made that these will be regarded as a day's paid leave when not worked, but when work is performed, at least a day's ordinary time paid or equivalent must be provided.

Section 94D ensures that the current standard provisions for four weeks' annual leave, eight days sick leave and long-service leave will remain. Further, where there is a current entitlement to five weeks' annual leave for continuous shift workers, this entitlement is preserved. However, the agreement can contain 'a cash in lieu' clause for the benefits. An example of such a package arrangement would be, say, two weeks' pay and two weeks' annual leave, or one week's pay and three weeks' annual leave.

Section 94F provides that a registered voluntary employment agreement is enforceable as if it were an award. The agreement is binding upon the parties to the agreement, including:

    1) every member for the time-being of an industrial union of employers that is a party to the agreement and to whom the agreement relates; and

    2) every employee, whether or not a signatory to the agreement, who at any time whilst the agreement is in force

    a) in the case of a union agreement, is employed by the employer upon whom the agreement is binding, and

    b) in the case of an enterprise agreement, is employed in the calling to which the agreement relates.

Significantly, under Section 94F(3) the voluntary employment agreement shall not deprive an employee of any right or benefit received by him or any right accrued to him on account of annual leave, sick leave and long-service leave, or any payment in respect of that leave, before the date when the agreement takes effect.

Further, provision is also made to protect the worker against discrimination from an employer on the grounds of refusal to enter into a voluntary employment agreement.

An interesting provision is Section 94G which provides that if there is an inconsistency between a union voluntary employment agreement and an enterprise voluntary employment agreement, the enterprise voluntary employment provision will prevail.

Additional parties can be joined to voluntary employment agreements by filing with the Commission a notice, and an employer who is a party to a voluntary employment agreement shall give a person about to commence employment notice in a prescribed manner and form. The agreements are for a term of not less than twelve months and continue after formal expiration until terminated in accordance with Section 94K. To terminate, not less than one month's notice in writing is required in the case of a union agreement by any party to the agreement or, in the case of an enterprise agreement, by the employer or more than 40 per cent of the employees bound by the agreement. A copy of notice of termination must be given to the Commission.

Unless the voluntary employment agreement so provides, the Commission does not have power to vary the provisions of a registered voluntary employment agreement, but the Commission shall exercise all of its jurisdiction in relation to a voluntary employment agreement as if it were an award. Copies can only be issued to parties, the Minister or an industrial inspector, but to no other person. Accordingly, the role of the Commission in dispute settlement is preserved. There is a minimum hourly remuneration that can be paid under these agreements and this is the average hourly rate for ordinary time applicable to the relevant award. Conditions of part-time workers and the loading of 19 per cent payable to casuals are fully protected.

When introducing the legislation, the Minister described it as 'a pioneering initiative allowing a new direction for employment arrangements in Queensland and in fact, Australia. While creating many opportunities, this puts us into unchartered legislative territory'. He went on to say that the 'concept is introduced permanently, but it is possible that it might be necessary to fine tune the legislation after say, twelve months' experience, when the mechanics will be reviewed. It is to be hoped that the union movement realises very early, the benefits in such pioneering legislation'.

One can only hope that Australian unions adopt the approach currently being followed by US unions, making substantial concessions when they believe productivity is improved. As stated in a recent article in the 'Harvard Business Review' (September-October 1986):

    'Today's dramatic increase in global competition requires management and labour in America's basic industries to rethink the wage benefits and work rule patterns that have become entrenched over the years. Pay cuts, two tier work plans and narrower application of seniority have become commonplace in the auto, steel and farm equipment industries. Industry bi-partisan compensation agreements are fading from the scene. A new accommodation is needed to make older companies in established industries, more competitive, otherwise newly emerging nations will wipe out established companies that have operated under rigid labour management arrangements'

These comments apply even more to Australia. Similarly, in China, the principles of voluntary employment agreements have been operating for some years as the present leadership of China is very anxious for the bonus system to work as a genuine incentive system, both for enterprises and individual workers. Leaders want to implement the principle of 'for each according to his ability and to each according to his work'. In the words of Premier Zhiau Yeng in his speech to the 6th National People's Congress in mid-May 1984: 'At present the central task in the structural reform of the whole economy is to eliminate the practice of making no distinction between employees who do more work and those who do less'.

It cannot be long before the rest of Australia adopts Queensland's lead in following the rest of the world.

Why HR Nicholls?

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