Public Interest or Vested Interest
Current Labor Market Reform in New South Wales
David Russell, Q.C.
'I fully appreciate that Australia's industrial relations
record has been a bone of contention with some of the
people and companies in this nation with whom we deal.
And while sometimes the problems may have been exaggerated,
frankly, I fully accept that Australia's industrial
relations record fell well short of what was desirable....
The challenge now is to further develop the process
whereby enterprises can deal directly with their workforce,
as occurs in Japan.'
[The Hon P J Keating MP---Speech to Nomura Securities
Ltd., Tokyo, November 1989]
Whilst at first glance the Treasurer's endorsement
of the concept of enterprise-based industrial relations
might appear to recognise a consensus as to the future
development of the Australian industrial relations
system, the reality, as we all know, is very different.
In the context of the current election campaign, the
dispute between the parties is between the Accord Mark
VI supported by the ALP and the Coalition's policy
of permitting employers and employees who choose to
do so to negotiate voluntary agreements on wages and
conditions of employment at enterprise level, either
individually or through a union (or unions) of their
As the Coalition is now finding out, its proposals---as with any proposals for change of the labor market---are being attacked as lacking clarity both as to
specific operation and ultimate outcome in terms of
wage levels. This makes a consideration of the attempts
to date to establish enterprise bargaining procedures
in Australia one of great contemporary relevance.
Until recently, the only attempt was that of the former
Queensland Government to establish opting out procedures
under Part VIA of the Industrial Conciliation and
Arbitration Act. That took two forms, the earlier
involving a review of the enterprise level agreement
by the State Industrial Commission before it came into
force to determine whether or not it complied with
the law and was not harsh or unconscionable or against
the public interest; and the later dispensing with
that requirement and substituting instead the right
of a party to apply to the Commission for relief against
the agreement on similar grounds.
The new Queensland Government has indicated that these
provisions are to be repealed. If that occurs in the
forthcoming session of the Parliamentary sitting, the
provisions will have been in effect for slightly over
The other attempt which has been made to give legal
form to the concept of enterprise agreements in a state
context is that of the New South Wales Government in
the Industrial Arbitration (Enterprise Bargaining)
Amendment Bill 1989. This Bill has yet to be enacted.
The New South Wales Government, lacking the untrammelled
power of its Queensland counterpart to legislate by
reason of the composition of the State's Legislative
Council, has been advised that the Bill in its present
form would be unlikely to pass. As a result, possible
amendments have been mooted which would result in a
system apparently closer to the first Queensland version
than the second being made in order to ensure that
the Bill is enacted.
For present purposes I will treat the Bill as currently
before the New South Wales Parliament as having been
enacted, although in comparing and contrasting its
provisions with those of the Queensland legislation,
I will touch on the consequences which might be expected
to flow from its amendment in the manner foreshadowed.
In addition to the provisions of State legislation
enabling enterprise bargaining, it may be that enterprise
level bargaining is possible under the Commonwealth
Industrial Relations Act 1988. In proceedings
brought in the Industrial Relations Commission by the
Transport Workers Union for an award 'roping in' Mini
Movers Pty Ltd (which had concluded a voluntary employment
agreement under Queensland law) to the federal system,
thereby overriding that voluntary employment agreement,
the Commission observed that the agreement there in
question was not unlike one which might have been
made under section 115 of the Commonwealth Act, although
the absence of a registered organisation as a
party to the agreement will usually be an impediment
to the use of this section.
In one sense however what was said was accurate; a
state of affairs could readily be brought into existence
under which the Commission would have jurisdiction
to certify an enterprise based agreement. But the predilections
of the parties who would normally be before the Commission
make the use of that section for that purpose likely
to be unusual: indeed under Part VI of the Queensland
Act and sections 11 and 13 of the New South Wales Industrial
Arbitration Act,a similar jurisdiction exists
in the arbitral authorities of those States. The Queensland
legislation did not incorporate these provisions into
the enterprise bargaining provisions: the New South
Wales legislation will.
In order to appreciate the legal issues raised by
enterprise bargaining to the extent that that operates
alongside an award based system of labor relations,
it is necessary to outline the basic legal principles
involved in this area. These are:
- At general law employers and employees are free to
enter into agreements for the provision of services
for reward. Such contracts will contain terms which
are either expressly agreed to by the parties or will
be implied by law from the circumstances of the employment,
and to the extent necessary to give commercial efficacy
to the agreement they will be enforced in the same
way as other contracts.
- Each such agreement creates personal rights as between
the employer and the employee concerned. It creates
no rights as between employees one with another.
- Notwithstanding the agreement which has been made between
the parties, if there is a relevant award of an industrial
tribunal (or certified agreement having the effect
of an award) in operation which would confer more advantageous
conditions on the employee, the employee is entitled
to the benefit of the conditions so prescribed.
- Where there are more than one of such instruments which
are capable of application (for example, a state industrial
agreement and an award) arising from either State or
Federal legislation, the conflict between the two will
be resolved in accordance with rules laid down by legislature
under whose law the conflict arises. The conflict having
been resolved, the instrument which prevails to that
extent will override any inconsistent private agreement
between the parties.
- Where instruments relating to the employment exist
under both State and Commonwealth law, the Commonwealth
law prevails to the extent of any inconsistency.
In addition to the applicable legal principles, the
structure of enterprise-based agreements is effected
by the historical development of the arbitration system
on the basis of craft demarcations. The practical consequence
in the context of enterprise bargaining is that it
will be rare in any enterprise of substantial size
that only one award will be potentially applicable.
It is against this background that the issues that
have to be addressed in any legislative move to permit
enterprise bargaining are determined. That background
no doubt explains the substantial similarity of the
New South Wales and Queensland models. The fundamental
issues which arise from existing award structures are
- minimum conditions; and
The existence of award coverage for the vast majority
of the workforce produces the result that an enterprise-based
agreement if it provides conditions which are in any
respect less than those prescribed in the applicable
award will be ineffective unless the agreement has
force which overrides the award. Both the Queensland
and New South Wales legislation deal with this issue
by providing that such an agreement is enforceable
as an award and prevails to the extent of any inconsistency
with it. Since one characteristic of an award is
that it can be varied by the arbitral tribunal which
pronounced it, the legislation of both states provides
that an arbitral tribunal does not have the jurisdiction
to vary an enterprise agreement, although in each case
it is provided that the parties may by consent confer
such jurisdiction on the relevant tribunal.
One consequence of this legal structure is that in
entering into an enterprise agreement the parties are
doing very much more than entering into a simple contract
with one another with the consequences which would
normally attend upon that. Non-compliance with an award
has criminal as well as civil consequences and, as
will be seen, a third person can become bound by an
enterprise agreement although not having entered into
the agreement in the manner which would be required
in the case of an ordinary civil contract.
These differences also produce the result that obligations
equivalent to award type obligations exist in relation
to the agreement itself. For example, it is required
to be published to employees. Because an award has
the force of law, an enterprise agreement in effect
varies the law otherwise applicable to the parties.
This has led to requirements as to the form and registration
of enterprise agreements. Both the New South Wales
and Queensland Acts require such agreements to be in
writing and to be registered on pain of being ineffective
in default of registration.
Each jurisdiction, however, imposes limitations on
access to the registered document, presumably out of
a concern that the fact of the agreement being a matter
of public record may lead to industrial victimisation
of parties thereto.
Parties, Coverage and Enterprise Unions
Neither the New South Wales nor the Queensland Act
provides for individual contracting out of awards.
The agreements which may be entered into are collective.
There can be no doubt that this is a fundamental principle
and it is perhaps a criticism of both the Queensland
and New South Wales enterprise bargaining models that
the necessity for such agreements being collective
rather than individual has been taken for granted rather
than considered in any depth. The New South Wales Government's
Green Paper discussed the matter thus.
'A critical concern is whether an agreement with an
employer is collective, in the sense that all or some
large proportion of employees are covered, or whether
individual agreements are struck between the employer
and particular employees. The virtue of the individual
agreement, it may be argued, is the ultimate scope
for flexibility and the ability of employers to reward
particularly strong effort. Certainly in some areas,
such as segments of the computing industry, individual
agreements are common and seem to operate without significant
disruptive effect. In mainstream areas, however, where
work relations are built on strong intergroup relations,
individual agreements would be unnecessarily divisive.
Perhaps this is why there have been very few instances
in New South Wales where management in mainstream contexts
has taken up the option, through over-award arrangements,
to fashion individual agreements.'
This analysis may be viewed as an uncritical acceptance
of the ethos of the present system, since it is the
present emphasis on a collective approach to industrial
relations issues which would make the contrary approach
'disruptive'. Why it might be argued, should the preferences
of employees in 'mainstream areas' prevail over those
engaged in sunrise industries, whose productivity and
industrial relations record is infinitely preferable.
Even if the preferences of the latter are not to be
mandated for all, there is a strong argument for making
them an available option.
The shift to enterprise focus is perhaps more defensible
if analysed in terms of establishment of equality of
bargaining power. One on one negotiations may be thought
unfairly balanced in favour of the employer; there
is an appearance of symmetry in collective agreements
between an employer and all his employees. Once the
parties extend beyond the enterprise the symmetry on
any view disappears because employers have proven incapable
of effective collective action whereas unions have
proven most effective at it.
At a state level the collective nature of the process
can be defended on the basis that it reduces the prospect
of Federal Award intrusion, since it offends the underlying
logic of the industrial relations system less than
would individual contracts. It was this consideration
more than any other which shaped the Queensland approach
to enterprise-based employment agreements.
The mechanics created by the two jurisdictions differ
as to how the collective principle is to apply in the
context of the negotiating process. Both jurisdictions
provide that a registered union with coverage in respect
of the callings in the enterprise or membership in
the enterprise may sign the agreement on behalf of
employees. Both also provide that a mechanism whereby
the employees in an enterprise can notwithstanding
the wishes of their established union become bound
by such an agreement.
Sections 13P to 13V of the New South Wales Act provide
for the establishment of industrial associations comprised
of employees of the enterprise. These can be formed
if 65% of employees of the enterprise who would be
bound by the agreement vote in favour of forming the
association. There is a requirement for a secret
ballot to be conducted by an independent person to
determine the support. Once the association is formed,
it must be registered, although there is a 7 day 'cooling
This entity once formed has all the powers and privileges
of a trade union including the right to negotiate an
enterprise agreement subject to limitations as to the
proceedings before the state arbitral authority in
which it can appear. However the continued existence
of the association is dependent upon the registration
of an enterprise agreement.
The Queensland Act, on the other hand, permits the
formation of an association of employees without such
a ballot. However, any agreement which it signs
is subjected to ballot procedures which are for all
practical purposes identical to those prescribed under
the New South Wales legislation in relation to approval
of an enterprise employee association. The continued
existence of the association is dependent upon the
subsistence of a voluntary employment agreement, although
registration does not lapse unless there is an absence
of a voluntary employment agreement applying to the
association for 6 months or more. There is, however,
no requirement that employee associations exist in
order for an agreement to be made or to have effect.
Indeed the possibility of formation of such associations
only arose in the second version of the legislation.
Interestingly, it was this aspect of the legislation
which employer organisation representatives on the
panel advising the government anticipated would provide
the greatest union hostility.
The New South Wales legislation also contains provisions
which effectively allow employees to change the union
coverage which would otherwise apply to their enterprise.
If at a ballot of employees initiated either by a union
representing at least 50% of the persons employed at
the enterprise or a prescribed number of employees
(usually 5%) it is determined by a 65% majority that
a single registered union shall represent the employees,
that decision changes the coverage to that extent.
In such a case, any necessary alterations to the union
rules to afford coverage will be made.
Under the Queensland legislation, to the extent that
coverage can be altered by variations to the award,
a similar result would occur. But the New South Wales
legislation is broader in the sense that it comprehends
also the grant of coverage to unions whose rules do
not, absent the agreement, permit them to represent
the employees involved.
Once made, the agreement binds not only those who
are parties but employees of the enterprise in the
craft or calling to which the agreement relates,
even if they voted against its adoption (in the Queensland
case) or the formation of the enterprise association
which negotiated it (in the New South Wales case).
Also bound are all persons who thereafter become employees,
who at a point of engagement are required to be provided
with particulars of it.
Although the legislation in each case provides that
the term of an agreement may be from 1 to 3 years,
it also provides that once the 3 year term expires,
the agreement continues in effect until positive action
is taken to terminate it by one party giving notice
to the other.
Each of the legislative schemes provides that there
are limitations on the powers of the parties to depart
from the terms of the otherwise applicable award. In
New South Wales, these are a guaranteed weekly rate
based on a 40 hour working week (which may be averaged
over 12 weeks) with a scale prescribed for junior employees,
hourly rates for part time and casual employees, sick
leave, redundancy payments, public holidays or long
service leave. The Queensland minimum conditions
include hourly rates of pay equal to the hourly rates
payable under the applicable State awards, annual leave
(although 50% may be cashed in), statutory holidays,
sick pay, and superannuation fund entitlements.
The inclusion of these provisions necessarily involves
a departure from the operation of a pure market. The
New South Wales system, by having a fixed minimum wage
amount applicable to all employment, departs less than
the Queensland model.
It may be doubted whether these provisions serve a
real industrial purpose, as opposed to providing a
political underpinning for the scheme by providing
its proponents with an immediate answer to the suggestion
that the result of its implementation will be gross
levels of exploitation of employees by employers. It
may well be that once the concept becomes more familiar
in Australia, there will be less need for provisions
such as these which inevitably are complex and restrict
the methods of remuneration that may be adopted in
such agreements (because it will be necessary to always
be capable of ascertaining whether or not the agreement
complies with the prescribed minima). In all probability
such provisions provide little effective security since
at least in the short term, there will be far more
employment not regulated by such agreements than is
regulated by them, with the marketplace consequence
that employers who depart excessively from overall
community standards will be unlikely to secure the
services of competent employees.
Supervision by Arbitral Authorities
The original Queensland model conferred jurisdiction
on the State Industrial Commission to declare an agreement
void if in its opinion the agreement was against the
public interest or harsh and unconscionable. This
determination was to be made in the context that an
agreement was required to be approved by the Commission
before it could be registered.
A number of consequences followed from such a provision.
Given that the Commission has as its primary role the
determination of fair (as it sees them) employment
conditions, there is an inevitable tendency to regard
provisions of an agreement which are less favourable
to an employee (in any respect) as unfair. The question
of trade-offs in the context of an individual enterprise
is necessarily a difficult one for the Commission.
Second---and in my experience this proved to be the
greater difficulty in practice---the Commission tended
to see its task as analysing the worst situation for
which an agreement could provide rather than the conduct
of the parties which would actually occur under it.
This necessarily meant that an agreement was tested
not by reference to the intention of the parties but
by hypothetical situations placed before the Commission
before the agreement was even in effect.
Coupled with what were initially thought to be the
rights of unions who might be affected by the agreement
to appear in such proceedings (it being later determined
that the legislation conferred no such right) the testing
of such agreements 'at the margins' resulted in a major
logjam and tended to defeat the provisions designed
to afford some confidentiality to the making of agreements.
These provisions have been criticised in Papers given
to this Society previously and it is perhaps relevant
to note the basis upon which they were thought to be
necessary given that the existence of prescribed minimum
conditions might in the ordinary course of events have
been thought adequate to prevent exploitation of employees.
Over 70% of the employment in Queensland is regulated
by State awards. Employers and most unions have generally
found this to be preferable to operating under Federal
awards. Reasons given include the convenience of the
availability of the Industrial Magistrates Courts for
award enforcement (rather than Federal Court), ease
of access to the Commission (since it normally sits
in Brisbane but can make arrangements to sit elsewhere
if required) and the status of personnel in industrial
As previously mentioned, one of the legally effective
techniques available against voluntary employment agreements
is to have the parties thereto 'roped in' to a Federal
One of the bases upon which the Commonwealth Commission
is entitled not to proceed in relation to a dispute
is to dismiss it where in its view the dispute is being
dealt with or is proper to be dealt with by a state
industrial authority or proceedings are not necessary
or desirable in the public interest.
The view is certainly open---and indeed supported
by observations made by the Industrial Relations
Commission in the Mini Movers' case---that the
involvement of the State Industrial Commission in the
process attracted to the greatest extent possible the
defences which might be raised to Federal award intrusion.
When the State Government was asked to amend the legislation
due to the difficulties which the vetting process was
perceived to be creating, many of those who made submissions
to the Government argued for all involvement of the
Commission to be terminated. The Government opted for
a modified version of vetting which enabled the Commission
to exercise the jurisdiction to declare an agreement
or a provision thereof void, the vetting process taking
place after registration and only upon the application
of a party to the agreement or an industrial inspector.
This, it was considered, would not appreciably diminish
the availability of any defence against Federal award
intrusion whilst obviating the practical difficulties
created by the former regime.
If, as has been reported, it is the intention of the
New South Wales Government to amend its legislation
so as to confer some form of supervisory jurisdiction
over enterprise agreements upon its state arbitral
authorities, the Queensland experience provides a very
strong basis for argument that the supervisory jurisdiction
should be exercised as at present under the Queensland
legislation and not in the manner which originally
obtained, i.e. it should be a jurisdiction to avoid
an agreement already registered and it should be exercisable
only at the instance of a party bound by the agreement.
For practical purposes the model established by the
New South Wales legislation differs from its Queensland
counterpart in three respects only: the enhanced ability
to vary union coverage of employees in an enterprise,
the fixing of the guaranteed minimum pay by reference
to a general rate rather than one fixed by the award
which would otherwise be applicable to a particular
employee, and the lack of a supervisory jurisdiction
for the state arbitral tribunal (a difference which
is now in doubt).
As such, it may be expected that the New South Wales
model will attract similar criticisms to those directed
at the Queensland model: from the standpoint of those
favouring maximum pro-deregulation, that it is excessively
bureaucratic, open to sabotage by unions, and by reason
of the various 'safeguards' included in it, inapt by
reason of inflexibility to deliver the advantages which
one might normally expect to flow from enterprise level
The intellectual and economic rationale of these criticisms
is not difficult to understand, particularly when the
response from opponents of the system could hardly
be stronger if all of the safeguards and bureaucratic
procedures which have been included had been omitted.
From that standpoint, it is perhaps less easy to see
why the opponents of enterprise bargaining on either
model oppose it as strongly as they obviously do. Gross
exploitation of employees is a practical impossibility
both for the reasons which the economists who support
deregulation of the labor market advance in its favour
and because of the safeguards previously referred to.
If an arbitral tribunal retains a residual supervisory
jurisdiction (as in Queensland) then it is difficult
to conceive how such an agreement could lead to exploitation
no matter how ill-intentioned the employer.
Whilst there is in a formal sense a capacity for enterprise
agreements to operate to the detriment of unions (as
opposed to their members) by reason of the resolution
of demarcation issues and the avoidance of preference
clauses, it is doubtful whether an enterprise which
could meet the conditions applicable to such an agreement
by reason of the support required in the workforce
would be heavily unionised and unless it were there
would be no loss flowing to a union.
In this sense it is paradoxical that those who seek
to reduce union power regard these proposals as not
particularly effective, whilst those who seek to maintain
it regard them as extremely damaging.
It should be apparent from what I have said that in
my view the effective freedom of action of the States
to create an effective framework of enterprise bargaining
is greatly limited by the existence of the Federal
In the Federal context these limitations do not exist,
as a State award cannot override Federal law. But there
would be a greatly increased scope for the operation
of State awards if the existing Federal system were
wound back and nothing put in its place. As a result
many of the lessons to be learned in a State context
have no relevance to the introduction of enterprise
bargaining at national level, whilst the State experience
provides no guide to what will be the most difficult
Federal issue, namely how, given the constitutional
limitations upon Commonwealth powers, can any deregulation
it effects not be counteracted by existing or future
If the limitation on the freedom of action of the
states which have been incorporated into each of the
legislative schemes so far advanced reflect reality
rather than an excess of caution, the question can
no doubt be asked by those who favour a greater injection
of freedom to contract whether such limited measures
Which of the views is right will obviously be a matter
for debate here. One possible synthesis accepts the
view of those who argue that enterprise agreements
as currently proposed represent only a small step but
recognises also that power if it is to be retained
must be defended at its outer extremities rather than
at the centre. A society whose workforce regards the
taking of decisions which affect their own lives as
par for the course would be a very different society
from that which we know today. And, as the experience
of Eastern Europe has shown, a taste of freedom tends
to whet the appetite for more rather than to slake
1. Liberal-National Economic Action Plan p.13.
2. NSW s 13C(1), Qld s 94 K.
3. NSW s 13C(2), Qld s 94 B(2).
4. NSW s 13C(3), Qld s 94 L(4).
5. NSW s 93(1), Qld s 113 (1).
6. NSW s 13F, Qld s 94 (F)(6).
7. NSW s 13F, Qld s 94 E(3).
8. NSW s 131(3), Qld s 94F (1).
9. NSW s 13M, Qld s 94R.
10. Transforming Industrial Relations in New South
Wales, p.37 para 3.3
11. NSW s 13R.
12. NSW s 13V.
13. Qld s 94T.
14. Qld s 94F.
15. Qld s 94T(7).
16. NSW s 13W, 13X.
17. NSW s 13J, Qld s 941.
18. NSW S 13p(2), Qld s 94Q.
19. NSW 13G, Qld s 94J.
20. NSW ss 13K, 13L.
21. Qld ss 94G, 94H.
22. Qld former s 94D.
23. Industrial Relations Act s 114(1)(g)(ii)
24. Qld s 94L.