Reflections on the Electrolux Judgment and The Right to Strike
[An Address to the Young Liberals Convention, Melbourne,
5 January 2002]
The decision by three justices of the Federal Court (Willcox,
Branson & Marshall JJ) in overturing the decision by Justice
Ron Merkel in the Electrolux case has brought into sharp focus
the decision by the Keating Government to provide legal immunity
for 'the right to strike' in its 1993 Industrial Relations
Reform Act. Although the Queensland Parliament had for some
years provided legal immunity for trade unions from tort action,
that legislation was repealed by the Bjelke-Petersen Government
in the 1970s. The Brereton Act of 1993 was thus a milestone in
Australian law, and the failure of the Howard Government to repeal
that section of the 1993 legislation in its 1996 Workplace
Relations Act (WRA) was a serious one. (Presumably the Democrats
would not have accepted such a proposal.)
The Federal Court has now seized on the words of Sec 170LI
which seek to confine the 'right to strike' to prescribed issues
and occasions, and have interpreted them so as to provide a virtual
carte blanche to the unions in their ceaseless quest to
create and extract the rents which give meaning and purpose to
their institutional lives.
Three issues now arise. The first is the justification which
has been advanced by trade unions for more than a century for
'the right to strike'. The second is the folly of the Commonwealth
Parliament in providing legal immunity for strike action under
certain prescribed circumstances, and the third is the behaviour
of the Federal Court in opening up the interpretation of the words
of the Workplace Relations Act far beyond the intent of
the foolish legislators who passed those words into law.
It would be easy for the Howard Government to wait on the High
Court and hope that the Federal Court will be overturned on appeal.
That temptation should be resisted. It is now imperative that
the legislation should be changed and that the 'right to strike'
provisions of the WRA be struck out. These provisions should be
placed with the Unjust Dismissal provisions in the double dissolution
Reflections on the Electrolux Judgment and The Right
A full bench of the Federal Court,
(Wilcox, Branson and Marshall JJ), in the Electrolux case (21 June 2002), has widened the grounds
under which unions can lawfully 'advise' their members to walk
off the job and thus bring the employer's business (and probably
other businesses) to a halt. This decision immediately prompted
debate and criticism in the media. For example, in the ABC's 7:30
Report of 24 June, Kerry O'Brien repeatedly, but unsuccessfully
sought to force Minister Tony Abbott into denying any legitimacy
for 'the right to strike', and ACTU President Sharon Burrow repeatedly
referred to 'international law' as providing legitimacy for such
For more than a century, trade
unions have sought to identify the 'right to strike' as an essential
part of democracy, along with the right to free speech, and the
right to vote. But the common law courts have always regarded
strikes as a breach of contract, and picketing, depending on the
violence employed, as a criminal act. In Australia, the issue
was fudged for decades as the common law courts often declined
to hear plaintiffs who sought immediate redress from union militancy
by directing them in the first instance to industrial relations
These tribunals have always contrived
to avoid facing up to the basic illegality of union militancy,
because to do so would fundamentally undermine their own legitimacy.
The whole structure of labour market regulation, in which trade
unions enjoyed a unique degree of legal privilege
(including privileged access to the arbitral tribunals established
to administer it), has been built on the false notion that there
is an imbalance of bargaining power between workers and employers.
The right to strike was, according to trade union rhetoric, justified
because the workers were powerless and the employers were all-powerful.
The threat and implementation of the strike weapon was said to
be necessary, therefore, to redress this imbalance of power.
However, the arbitral tribunals' policy of turning a blind
eye to trade union unlawfulness could no longer be defended when,
in 1969, Mr Justice Kerr, as he then was, of the Commonwealth
Industrial Court, determined that he was obliged to direct that
Clarrie O'Shea of the Tramways Union should go to jail for contempt
of court. In 1986 Sir John Kerr, when speaking of the O'Shea case,
I treated O'Shea as an ordinary
citizen would be treated for refusing to answer questions which
he was properly directed to answer in legal proceedings. The
powers I exercised are powers of the kind which exist in many
jurisdictions to underpin the operation of the judicial system.
O'Shea was released six days later when an anonymous benefactor
paid the fines.
Breen Creighton, one of the most
prominent of the labour lawyers within the ACTU orbit, and whose
book (with Andrew Stewart) is
an excellent source of information on the history and the development
of the common law in these matters, summarises the position thus:
[13.06] It is hardly surprising that strikes and other forms
of industrial action should encounter significant difficulties
with the legal process, given that their essential purpose is
to exert pressure upon other parties through the imposition,
or threatened imposition of economic loss. This is reflected
in the fact that so many of the early legal problems encountered
by the early unions in both Britain and Australia related to
strikes in general and the activities of pickets in particular.
Indeed so far as the common law is concerned, virtually all industrial
action would be unlawful as a tort, a breach of contract, and
frequently a crime.
In an economy where people are
free to find jobs and to leave them whenever they see fit, and
where people can start businesses, often with very little capital,
and through hard work and disciplined commitment build them up
into successful enterprises eventually employing other people,
in short, in an economy where the rule of law prevails,
there is no imbalance of power between workers and employers,
and the legal privileges granted to trade unions perform no
useful social or economic function. The exception to this general
rule is found in the public sector where employees must necessarily
negotiate with an employer (the Government) who is not easily
influenced by market disciplines and imperatives.
Where contracts are upheld by the courts, and property rights
are respected, the use of strikes, pickets, and other forms of
intimidation is no different in kind from the extortion rackets
which the Mafia and other criminal gangs have operated in southern
Europe and in the US, sometimes for long periods.
Trade unions live by extorting
what are called 'economic rents' from businesses. These rents
(to be distinguished from the rent we pay for leasing a flat,
an office, or a shop) are revenues that can be siphoned off without
threatening the viability of the enterprise.
The unions' capacity to mount a credible threat of striking to
close down an enterprise forces the owners (or those responsible
to them for managing the business) to choose between earning no
revenue, or acceding to union demands for some part of the future
enterprise rent in the form of above-market wages and working
conditions and/or excessive staffing. This is equivalent to extortion
by hold-up. This rent-extraction process deprives other people
(primarily the business owners and the ultimate consumers of the
products of the business) of income at least equal to the value
of the extracted rents (often substantially more). Today the business
owners are usually other workers whose superannuation funds are
channelled into share ownership.
Where an enterprise has the capacity or the potential to generate
rents by virtue of special and non-reproducible advantages such
as are found in a rich mineral deposit or a prime construction
site, the 'rent' corresponds roughly to the difference between
the enterprise revenue, and the income which a marginal mineral
deposit, or a marginal construction site, would generate. Rents
can also be created in an industry by government-imposed restrictions
(regulations) which give a firm or an industry a special advantage
in the form of protection from domestic competition (e.g. the
two airline policy), or protection from imports from overseas
(restrictions or tariffs on imports). Unions lobby governments
to achieve these outcomes. In this case the rent is approximately
the extra revenue earned relative to an openly competitive situation.
Again this results in a transfer of income from consumers to union
members and officials.
Another source of rent, applicable in industries which produce
non-traded goods or services, is created when unions turn themselves
into monopoly suppliers of labour (no ticket-no start) and then
force enterprises to pay above-market wages. In such an industry
the number of workers will be lower than in an open market situation,
and consumers will have to pay higher prices for products and
services to enable the targeted enterprises to cover the higher
labour costs. Such extortion, however, can only work if the entire
industry is 'roped in' to the rent-extraction process. The arbitral
tribunals, and the labour market legislation under which the tribunals
operate, greatly facilitate that process.
In all cases, the rent-extraction process is based on the capacity
of a trade union to act as a monopoly supplier of labour. This
makes the threat to strike, or its implementation, no different
in kind from the offer which a Mafia boss puts to a prospective
victim, telling him that it is 'too good to refuse'. The argument
which the trade union movement has assiduously promoted over the
years, in an attempt to legitimise what in any other field of
activity would be recognised as demanding money with menaces,
(ie criminal extortion), is that the strike is a morally justifiable
strategy. Workers, so the argument goes, are justified in combining
to create a monopoly, in order to offset the imbalance of power
which is claimed to be intrinsic to the employer-employee relationship,
and then to negotiate terms and conditions of employment from
the position of strength which monopoly power provides.
In order to maintain their monopoly position as a supplier
of labour, the trade unions must rely on the threat of violent
resistance to any attempt to cross a picket line. They have, consequently,
sought tenaciously for many decades to legitimise the use of pickets
and other forms of intimidation and coercion. A withdrawal of
labour poses little threat to a firm which can employ other people
to replace those who have walked off the job. Hence the picket
line, and the use of the term 'scab', are essential corollaries
to the use of the strike weapon, so as to ensure that the workers
who have 'withdrawn their labour' cannot be replaced. The picket
line is not only designed to prevent new workers from entering
the plant, but also to prevent supplies and finished products
from entering and leaving the plant.
The final stage in this extortion process is to require the
employer to pay the striking workers the wages they would have
earned if they had not been on strike, as a condition of returning
to work. The process of transforming what is essentially criminal
behaviour into socially acceptable conduct (accepted at least
by many in the media and some in society generally) has been assisted
by the regulatory authorities and arbitral tribunals which have
acceded to the first increment of lawlessness, and then the next
incremental demand, and so on, as part of a code of 'industrial
realism'. Thus over the decades, and through the back door, the
strike weapon was quasi-legitimised, inevitably leading to the
increasing use of strikes and the threat of strikes as part of
normal life. This climaxed in the early 1980s. The election of
the Hawke Government in 1983 was a response to the Fraser Government's
inability to uphold the law and thereby maintain peace and concord
in the labour market.
During the 19th century, as common-law
doctrine on the nature of the employment contract developed, the
right of the employee to quit 'at will' became firmly established. Balancing the employee's right to
quit, was the employer's right to fire, 'at will', 'for good reason,
bad reason, or no reason at all'.
Further, the common law held that employees could quit en masse,
on the grounds that since it was entirely lawful for an employee
to quit his own job 'at will', it could not be conspiracy for
a worker to lawfully persuade his colleagues to all quit simultaneously.
If it could be established, however, that the primary purpose
of such a mass resignation was to injure the employer, then conspiracy
could be argued.
But the argument that employees
could, either individually, or en masse, breach their contracts
of employment by 'withdrawing their labour' and then demanding
that the employer should resume the employment contract, at the
demand of the employees, as if no breach had occurred, was never
accepted by the common law. As Breen Creighton succinctly described, the common law judges recognised
that the strike weapon was an instrument of coercion, designed
to impose sufficient economic loss on employers to make them accept
the terms the unions demanded as the lesser of two evils.
However, the common law (and common-sense) position regarding
the illegality of strikes was cut down by the passage of the
Industrial Relations Reform Act of 1993 (the Brereton Act)
and re-affirmed in the 1996 Workplace Relations Act (WRA)
(the Reith--Kernot Act), which provided statutory legitimacy to
'the right to strike' and to 'the right to lock-out'. And the
Federal Court, not for the first time, is now using that statute
as a vehicle to impose its own idiosyncratic view on how labour
markets should be regulated in Australia.
To repeat the essential point. The use of the strike weapon
by trade unions has been recognised by all participants in the
labour market as a form of coercion, through which the firms which
have been targeted have to choose between accepting the demands
which the unions are making, or accepting the economic losses
which the strikers are imposing on the firm. In theory, a firm
could sue for damages from each of the participants in, say, a
picket line, but the legal costs would be very great, and the
likelihood of obtaining damages which would remotely cover the
economic losses incurred would be most unlikely. Thus the use
of the strike weapon has become 'normalised' over the last century.
However, as Australia's airline pilots discovered in 1989, strikes
and other forms of 'industrial action' were always unlawful until
If an ordinary criminal threatens
to bring financial loss or ruin to a company through tampering
with a product which can then bring death or sickness to an unsuspecting
customer, then the full force of the law is brought to bear on
the situation. But when a trade union makes demands on a firm
which, if resisted, are then re-asserted through strikes, pickets,
and other forms of implicit and sometimes explicit violence, the
full force of the Industrial Relations Club is brought to bear
to bring about a 'peaceful resolution' of the dispute, usually
by pressuring the employer to acquiesce.
This process of appeasement has been extremely damaging to the
welfare of Australians and to the economic strength and resilience
of the Australian economy.
Because such a 'peaceful resolution' means that the trade union
officials who are responsible for damages to the firm directly
targeted, and to other parties, which can amount to hundreds of
millions of dollars, rarely face criminal charges or civil action,
the incentives to engage in this mode of extortion are very strong.
The Federal Government should now make the repeal of the 'right
to strike' provisions of the WRA a major political issue, and
just as exemption from the unfair dismissal provisions of the
WRA for small business is in the pipeline as a double dissolution
trigger, so repeal of the right to strike provisions of the WRA
should also be put into the double dissolution pipeline. The Federal
Court's Electrolux decision, the serious damage done to the steel
and car manufacturing industries (and Australia's reputation)
during the recent strikes and pickets at BHP's Westernport steel
plant, and the closing down of the Pilkington Glass plants, have
set the stage for such a campaign.
There is, however, a far more cogent reason for legislation
to repeal these provisions, and to bring the issue to the attention
and adjudication of the Australian people.
In recent years considerable thought and research has been
given to seeking answers, again, to the old question which Adam
Smith asked more than two centuries ago, viz, why are some countries
rich, and others poor? This question has become increasingly pertinent
as some of the poorest countries in the world, notably in sub-Saharan
Africa, keep on getting poorer, despite receiving the best advice,
and huge amounts of foreign aid, through the mediation of the
World Bank and other international organisations.
One answer to this question has been put forward by American
historian Francis Fukuyama in his 1995 book simply entitled Trust.
Those societies in which the citizens can, as a matter of everyday
life, trust one another most of the time to be honest in their
business and social dealings, are able to create successful economies.
Contrariwise, societies in which suspicion replaces trust are
societies in which economic life becomes burdened with huge transaction
costs, and prosperity is replaced with stagnation and decline.
In such societies trust is only possible within the extended family
and economic life is limited in scale and scope to the family
Great concern has been expressed in recent months over the
malfeasance of corporate executives, both in Australia and in
the US, who have misled the markets on the true state of their
companies and at the same time have enriched themselves at the
expense of other shareholders, some of them fellow employees who,
like the market analysts generally, were kept in the dark. The
point has been made that we critically depend upon corporate leaders
to be honest, since dishonesty can take years to become apparent
and very great damage can be done in the meantime.
The universal support for bringing the full force of the law
to bear upon those executives guilty of fraud and malfeasance,
is a manifestation of the efficacy of time-honoured institutions
and of values working behind the scenes to repair this breakdown
in our system. Unless justice is done, and done thoroughly, the
trust which people had in our accountants and auditors and company
directors will be irretrievably lost. These are powerful arguments
and they have not been challenged. No one has come out in support
of the executives of Enron.
But no one has made the point that by legitimising strikes
in the WRA and its preceding 1993 legislation, coercion and the
threat of coercion has been placed beyond the reach of the law.
The Federal Court now smiles upon 'industrial warfare'. The losses
as a result of this legal immunity are arguably much greater than
the losses consequent to the collapse of HIH or OneTel.
By conferring statutory legality on the 'right to strike',
the Commonwealth Parliament has diminished Australia's most precious
resource, our social capital. All business investment, large or
small, is based on the premise that Australians who exchange promises
in the form of a contract, particularly a contract of employment,
will honour those promises. The vast majority of contracts which
underpin the fabric of Australian economic life are never brought
to court for adjudication. If that were not the case, our economy
could not function. The bulk of our workforce would be engaged
in litigation, with a catastrophic decline in the output of goods
and services, particularly for customers abroad.
The Federal Court judges who decided Electrolux provide us
with a description of a society overwhelmed by suspicion and litigiousness
and inevitably, therefore, impoverishment. A key line in the conclusions
reached by the Full Bench is as follows:
'Fundamental to Part VIB of the Act is the notion that, within
strict and objectively definable limits, organisations, employees
and employers are entitled to engage in industrial warfare.
We agree with the comment of North J in Australian Paper Ltd
v Communications, Electrical, Electronic, Information, Postal,
Plumbing and Allied Services Union of Australia (1998) 81 IR
15 at 18:
The action of this statutory scheme is to allow negotiating
parties, both employer and employee, maximum freedom consistent
with a civilised community to take industrial action in aid of
the negotiation of agreements without legal liability for that
Neither extortion, nor the threat and use of violence on picket
lines, should be tolerated in a civilised community.
It is worth stating the thesis again. The three judges who
cited Justice North with approval are writing about the threats,
or the implementation, of strikes or other forms of 'industrial
action', which were specifically and openly designed to cause
economic damage to Electrolux. The damage has to be nicely calculated
in that it must be sufficiently onerous to force Electrolux to
submit to the unions' demands, in this case the right to tax non-union
members $500 per annum on behalf of the unions, but not so serious
as to cause Electrolux to shut down its Australian operations.
More importantly it establishes a precedent enabling unions to
impose taxes on people who work in any sector of the economy where
rents exist or unions can create rents through political processes
or industrial action. This fully legitimates two powers that have
been hitherto reserved for government, viz, the power to coerce
and the power to tax. The power to tax, if it endures, will give
the trade unions enormous financial resources.
Electrolux is a company which is fighting to retain market
share against imports in a global industry which is extremely
competitive. The fact that the future of the Australian whitegoods
industry is anything but secure should be known, one would hope,
to judges of the Federal Court. Faced with such criticism they
would respond with the argument that their job is to state what
the WRA means in the particular situation before them, and the
fate of industries and individual workers is irrelevant to that
But the criticisms of the Federal Court's interpretations of
the WRA continue to mount. Its willingness to block recourse by
employers seeking relief from 'industrial action' to the State
Supreme Courts should not be forgotten, and the attempt by Justice
Wilcox to use his judicial position to influence the outcome of
the 1996 federal election by attacking the Coalition's industrial
relations policy, was a high point in judicial indifference to
the reputation for impartiality which our courts once used to
regard as their most important asset.
The unions can make a judgment concerning the degree of 'industrial
warfare' which they believe will secure their objectives, confident
in the knowledge that their actions will be 'protected', ie they
enjoy outrageous privileges within the law. If the Australian
whitegoods industry finds that it is not a sensible policy to
continue to manufacture in a jurisdiction in which judges refer
with equanimity to 'industrial warfare', then it would be nice
to think that Wilcox, Branson and Marshall JJ, and their colleague
North J, might then reflect, at least for a moment, upon the plight
of the workers who will lose their jobs.
The legitimisation of the Right to Strike, like the Unfair
Dismissal provisions of the same Act, promotes mistrust, discourages
investment, and brings the law and the courts which interpret
this legislation, into public contempt. It now falls upon the
political leaders of Australia, in particular the Prime Minister
and his cabinet, to seek from the people a mandate to bring this
sad chapter in our history to an end.
is President of the H R Nicholls Society. He is much indebted
to Barrie Purvis and Geoff Hogbin for advice and comment in the
preparation of this paper.
This Full Bench overturned a decision by Merkel J. The case hinged
on interpretation of Sec 170LI of the Workplace Relations Act
which seeks to define under what circumstances strike action is
'protected' (ie immune from traditional common-law consequences).
Justice Merkel found that the Unions' demand for payment for a
'bargaining fee' was outside the fence as defined by the words
of s 170LI. The three judges of the Full Bench decided it was
inside. It is impossible to avoid the conclusion that, unless
this judgment is overturned on appeal to the High Court, there
will be not be much left outside the fence, ie the unions will
be able to go on strike almost at will, and do so without any
fear of legal consequences.
The use of ILO conventions to justify the right to strike is part
of a wide ranging political campaign, now increasingly manifest
throughout the Western world, which seeks to replace the authority
and autonomy of the nation-state, in our current global polity,
with a new form of 'global governance', modelled in large measure
on the Holy Roman Empire of pre-Reformation Europe. There is nothing
of itself reprehensible about such a political movement. What
is reprehensible is that its protagonists will not acknowledge
the far-reaching implications of the particular measures they
At the end of the day the common-law courts would hear appeals
for redress, but for small-to-medium sized businesses, justice
delayed was usually justice denied. A business could quickly haemorrhage
into insolvency by the time the arbitral tribunals had considered
all the options, and the unions were well aware that intransigence
on their part, and the loss of cash flow which drawn-out legal
processes entailed, would usually persuade the employer to accept
a 'pragmatic solution'.
Today, the most important form of legal privilege enjoyed by the
trade unions is immunity from the Trade Practices Act (TPA) and
the regulatory powers of the ACCC. Given that the primary purpose
of the TPA and of its regulatory instrument, the ACCC, is the
outlawing of monopoly and collusion in business and commercial
life, it is extraordinary that the activities of trade unions
in energetically creating monopolies in the labour market, the
most important market of all, should be given statutory immunity.
In 2001, the ACCC granted a dispensation to the Parliament of
NSW to allow for price collusion in its Ethical Clothing Act
See Arbitration in Contempt, Proceedings of the First H
R Nicholls Conference, March 1986 at http://archive.hrnicholls.com.au/archives/vol1/vol1-8.php
Breen Creighton and Andrew Stewart, Labour Law: An Introduction,
2000, Federation Press, page 380.
Where governments own and control the dominant share of industries
such as the education and health services industries, immense
difficulties arise in setting wages and other emoluments which
will create appropriate incentive structures for employees, and
provide efficient and market-responsive services for the public.
Associations of employees with a high degree of membership are
commonplace in this situation, but it is noteworthy that employee-employer
relations in government instrumentalities (such as the public
health and education sectors) are frequently characterised by
bitterness and discord. Complete privatisation of these industries
is the answer to this problem. Where government-employee relations
are particularly intractable is in services such as the police
and the armed forces, where governments are monopoly employers.
Extraction of rents may force the existing owner into insolvency,
but the enterprise may still have positive value and remain viable
under a new owner. This was not, however, the case with Ansett
which even the Fox-Lew syndicate was unable to bring back to life,
presumably because union miscalculation, combined with management
indifference, resulted in an extraction of revenue which far exceeded
the available rents.
Any other view of the employer-employee relationship would have
implied a doctrine of servitude. Forms of indentured labour were
recognised, e.g. in apprenticeships and in contracts involving
maritime service, but indenture agreements were not looked on
with favour by the courts.
Ibid., page 381.
See, for example, the history of the Leo Gorman case in H M Morgan
'I Pride Myself on Being a Clubable Man' in Proceedings of the
1987 HR Nicholls Conference Light on the Hill at http://archive.hrnicholls.com.au/archives/vol3/vol3-7.php
Why HR Nicholls?