The Law is the true embodiment
Of everything that's excellent.
It has no kind of fault or flaw
And I, my Lords, embody the Law.
One cannot help thinking that Justice Higgins must have taken
seriously the dictum in Iolanthe that "the law is
the true embodiment of everything that's excellent, it has no
kind of fault or flaw". He certainly echoed Gilbert's Lord
High Chancellor's claim to be the embodiment of the law when he
made his romantic assertion in A New Province for Law and Order3
that "there should be no more necessity for strikes and stoppages"
"... the process of conciliation with arbitration in
the background is substituted for the rude and barbarous processes
of strike and lockout. Reason is to displace force; the might
of the State is to enforce peace between industrial combatants
as well as between other combatants; and all in the interests
of the public".
Of course, this perceived rationale for compulsory conciliation
and arbitration has also been promulgated by many others since
Higgins, such as former long serving industrial relations Deputy
President and economics Professor, Joe Isaac. In 1987 he wrote
"The Great Strikes [of the 1890s] ... and the perception
and perseverance of a handful of men -- liberal-minded and labour-minded
-- [were] the main active joint agents in the establishment of
arbitration ... The Great Strikes changed the climate of opinion.
Although the strikes were confined to a small number of industries,
they were in economically strategic industries and the strikes
lasted a long time. This was unprecedented".4
The inclusion in the Constitution of a dispute settling power
was certainly very much a response to a period of extended industrial
conflict in the 1890s, and the recession that effectively continued
through most of that decade. But for those circumstances s.51
(xxxv) might not have scraped the majority of three votes (including
two surprise "conservative" supporters) it received
at the Melbourne session of the Convention in 1898.5
It is pertinent that when, in 1903, liberal Alfred Deakin was
debating the establishment of the Conciliation and Arbitration
Court, he affirmed that the "object of this measure is to
prevent strikes", and even he rejected any idea that legislation
should attempt to regulate industrial affairs generally, because
".... would be incompetent to do so, because of the impossibility
of drafting provisions, however well devised, so that they would
meet all the contingencies, changes, and difficulties of different
industries, which are subject in themselves to continuous alteration".6
Indeed, one would be hard put to explain to a visitor from
Mars how it has come about that the Commonwealth developed a quasi-judicial
system that has intervened comprehensively in employer-employee
relations solely on the basis of a specific constitutional power
limited to the prevention and settlement of interstate industrial
disputes. It is also hard to reconcile the palpable failure of
the regulatory institutional arrangements with their continued
existence. The Old Province for Law and Order must surely
cease to be part of the legal system before its centenary in three
My proposition is that various participants in the legal system
effectively created the industrial arrangements because of their
perception that social interventionism was needed to offset the
alleged failure of the labour market to produce "fair"
outcomes, and because they saw a role for themselves. Mr Justice
Higgins' denigration of bargaining between employers and employees,
what he scornfully described as the "higgling of the market
place", provided the superficial rationale for wide-ranging
judicial and quasi-judicial action. This kind of thinking encouraged
self-elected legal politicians to devise a comprehensive, general
Commonwealth power to regulate employer-employee relations even
though the constitutional base was clearly not intended to provide
that power. Moreover, such power-hungry gentlemen persisted with
their interventionism despite the fact that Australia continued
until fairly recently to have a high rate of industrial disputation
under the system, including during the period to 1930 when strikes
and lockouts were proscribed, and then during the 1930s recession
The "real" courts approved the interventionism when
they allowed a case-hungry Court to accept the unions' clever
technique of "creating" an interstate dispute and then
submitting it for settlement. The dubious legitimacy of this so-called
paper disputes mechanism was not settled by the High Court until
the 1914 Builders Labourers Case,7 and when
as recently as 1997 it came before that Court,8 Justice
Kirby's separate judgment endorsed such a strategy on the theory
that it is "now so deeply entrenched in the long-standing
authority of this Court and in Australia's industrial practice
that (it) should not be disturbed"!
The Industrial Relations Commission (IRC) (as it now is) has
also been allowed to interpret widely the power for preventing
and settling industrial disputes. This has extended to the imposition
of a broad range of employment conditions, including the fixing
of wage levels, on the ground that it would help settle disputes.
Even today the Commission presides over twenty "allowable
matters" in wage awards. And, according to one experienced
authority, the IRC even has a strategy designed to avoid legal
challenge through the making of "recommendations" rather
than "orders", which are subject to challenge. Unsurprisingly,
unions often (mis)use these recommendations to give the impression
to members and the media that they are enforceable decisions.
Overall, it is difficult not to characterise the emergence
and continuation of the Commonwealth industrial relations system
as a prime example of what economists call "capture",
that is, an effective takeover by those who perceived social interventionism
as a source of power and employment for themselves.
Justice Higgins was a prime captor through his promulgation
of the unemployment-producing basic wage in the 1907 Harvester
Case and provides a classic example of the misguided social
interventionism pursued by the legal politicians. Although his
superficially compassionate concept of a "living wage"
did not have immediate application, it was gradually taken up
by State wages authorities and had become widespread by around
1920. Analysis by economic historian Dr Colin Forster suggests
that the resultant increase of about 20 per cent in the mandated
wage rate at the bottom end of the labour market was a primary
cause of the substantial increase in unemployment in the 1920s,
particularly amongst the unskilled.9 It is one of the
quirks of history that a decision that helped worsen the situation
of the poorest classes continues to be hailed widely as a virtuous
My analysis of the history of interventionism in industrial
relations matters suggests that the record of the IRC is an extremely
poor one when viewed from a broad economic and social perspective.10
It not only fulfilled the prediction of Sir George Reid at the
1898 Convention11 that s.51 (xxxv) would encourage
the spread of disputes, but its decisions have almost certainly
also had an adverse influence on employment and unemployment;
and, given the widening in the distribution of earnings within
the labour market, they have failed even to deliver the much-touted
comparative wage justice. Yet, with its half-sister at the Federal
Court, the IRC continues to interpret legislation governing employer-employee
relations in a way that makes it much more difficult and more
costly for employers to enter into employer-employee relationships,
a situation which reduces employment opportunities, particularly
at the bottom rung of the employment ladder.
Policies devised within legal institutions influence more than
the economic outcome of market place higgling and, in Australia's
case, the policies reflected in decisions on employer-employee
relations have had a wide-ranging adverse impact on social structures
and attitudes. Those familiar with the papers presented to HR
Nicholls Society12 conferences will be aware of the
corporatism, anti-individualism and misconceived attempts at egalitarianism
that have been inherent in those decisions, reflected in particular
in the favourable treatment of unions and the infamous "industrial
relations club" label. The gross inequity of many IRC decisions
in preventing people from accepting jobs on non-union terms is
also readily apparent but has received little attention.
It may be argued that, if the industrial relations system has
had such adverse economic and social effects, it was up to the
political arm to correct the situation, and that no blame for
the poor outcomes should rest on the shoulders of the legal arm.
It is certainly relevant that the promulgation by the likes of
Justice Higgins of the case for social interventionism by the
legal system did permeate deeply into the thinking of the political
and other arms of society.
However, in the last twenty years the greater exposure to international
competitive forces has led to increasing recognition and not inconsiderable
steps, on both sides of the political fence, to limit the potential
for adverse economic effects from regulatory decisions on employer-employee
relations and to create a more flexible labour market. The need
to move away from the centralized award system and allow enterprise
bargaining was recognized by Labor in the Industrial Relations
Acts of 1988 and 1992, albeit in a limited form and offset
to some extent by the introduction in 1993 of federal unfair dismissal
laws. The setting in 1996 by the Coalition of a low inflation
target under a largely independent Reserve Bank has been a major
and important shift in the balance of institutional power that
now means, in effect, that monetary rather than centralized wages
decisions are the prime determinant of inflation. The present
Government, led in this area by former Workplace Relations Minister
Peter Reith, has also made valiant attempts and some progress
in continuing the reduction in the scope for interventionism.
Such action has not been confined to Australia and, for some
time now, international economic institutions, notably the IMF
and the OECD, have not only endorsed our changes but have recommended
they be taken further. The latest OECD survey, for example, politely
notes that Australia has moved "towards a largely decentralized
and more flexible industrial relations system", but suggests
there is a "need for further improvement in the areas of
wage-bargaining and employment conditions".13
But, while the system that Australia's current generation has
inherited still leaves much for the political arm to do to move
us from having probably the most regulated set of employer-employee
relations amongst developed countries, it would be difficult to
detect any significant response from the legal arm to the obvious
change in direction. Quite apart therefore from whether, from
a legal perspective, the extent of interventionism was justified
originally and for the first 80 odd years, there is the more important
question of why the legal arm has not responded to the change
of direction and the development of a more competitive economic
environment (but where social security has been increased to help
those unable to obtain employment). This is not to deny that parliamentary
authority has existed for the regulation of employer-employee
relations, and continues to exist: the question is whether the
interpretation of the legislation by the relevant legal authorities
has been appropriate, and why the legal arm has apparently continued
as though, both economically and socially, unchanged interventionism
has been needed.
A legal perspective on interventionism
Of course, the making of law by judges has been continuing
for so long that AP Herbert was even prompted to quip (in 1935)
that "the Common Law of England has been laboriously built
about a mythical figure -- the figure of The Reasonable Man".14
But statute law was much more limited then, and we now have reams
of statutes and an Acts Interpretation Act requiring that interpretations
should promote the purpose or object underlying statutes. So,
in changed modern circumstances, what guidance can be obtained
from the present Chief Justice of the High Court, Justice Murray
In an article entitled Individualised Justice -- The Holy
Grail,15 which he wrote in 1995 when Chief Justice
of NSW, His Honour noted the growing trend for judicial decisions
to be based on individualised or subjective assessments of a case
rather than the straight application of general rules. Accompanying
this has been a greatly increased attention to detail and additional
pressure on the court system to the point where:
"One cannot help feeling, on occasion, that the kind
of truth for which the courts sometimes search is nonexistent,
or at least undiscoverable".
The Chief Justice instanced many departures from general rules,
and attributed the increased subjectivisation largely to a mysterious
beast called "the consequences of what society has come to
demand" of the legal system, so that it reflects "the
spirit of the times" that sees justice as "much less
likely to be met by formal and inflexible rules".
Thus, nowadays a killer who (successfully) uses a defence of
diminished responsibility or provocation can escape with a conviction
for manslaughter rather than murder. Those who imagine they have
a contract may have their actions judged to be unconscionable
or unfair or inequitable, thereby preventing the enforcement of
an agreement. Indeed, Justice Gleeson even stated that:
"... we can no longer say that, in all but exceptional
cases, the rights and liabilities of parties to a written contract
can be discovered by reading the contract".
In tort, there is now a situation where:
"... the concept of reasonableness is of key importance
and the duty owed by one person to another depends so much on
the facts of the case..."
and judges and legal commentators have even "noted the
tendency of the law of tort to supplant contract". Further,
the idea that hearsay is not admissible in evidence is apparently
old fashioned if it can be regarded as reliable or even needed.
Notwithstanding these departures from general rules, His Honour
was clearly concerned that:
"There is a balance to be maintained and it is important
to note the consequences, for the law and the justice system,
of this seemingly irreversible move towards subjectivisation
of issues and, also, some constraints to which the process remains
He emphasised the need for consistency so that:
"... the outcome of cases (should) depend as little as
humanly possible upon the identity of the judges who decide them".
Encouragingly, he also saw an "abiding need for predictability
and certainty", because it particularly affects the "willingness
of people to engage in commercial transactions". And, although
not ruling out judicial lawmaking (it must be incremental and
involve the development of established principle), he saw a need
to avoid judges acting "as ad hoc legislators who,
by decree, determine an appropriate outcome on a case-by-case
Finally, he suggested a need to recognize that:
"... there is no general principle of fairness which
will always yield a result if only the judge can manage to get
close enough to the facts of the individual case.....The law
responds to many impulses in addition to the dictates of apparent
fairness in individual cases, and these need to be given full
weight in any rational development of the law".
It may not be going too far to suggest that AIRC President,
Mr Justice Guidice, has effectively acknowledged that the courts
and tribunals dealing with the employment relationship are doing
exactly what the Chief Justice said they should not be doing!
Justice Guidice recently complained about the potential for unfairness
that arises because:
"The uncertainty generated by the mixture of laws which
impact on employment relationships in this country constitutes
an erosion of freedom and impacts on the quality of our society".
While he disclaimed any criticism of "the basis or continuing
need for the various laws" applying to that relationship,
he observed that "the very significant increase in the number
of judicial, quasi-judicial and administrative bodies to which
resort may be had in relation to the various statutory rights
and rights of action" meant that "the outcome of particular
cases is of very little predictive value in similar cases".
And, echoing the Chief Justice's warnings:
"What is of real concern... is the potential, some may
say the fact, for discretionary decisions to be made by individual
judges or arbitrators which have no consistent theoretical basis
either because they are made in different statutory contexts
or because the discretion afforded by the law is too wide".16
Since his appointment as Chief Justice of the High Court, Justice
Gleeson has had more to say on judicial activism. In an important
speech on 2 July, 200017 he recognized that many laws
gave discretion and that judges have "the capacity, and sometimes
the obligation, to exercise qualities of judgment, compassion,
human understanding and fairness". At the same time:
"... in the administration of any law there comes a point
beyond which discretion cannot travel. At this point, if a judge
is unable in good conscience to implement the law, he or she
may resign. There may be no other course properly available".
It would be idle speculation to suggest that these remarks
by the Chief Justice may have been prompted by the fact that the
High Court had previously taken Federal Court judges to task on
several occasions for their interventionist decisions. In a paper
to the eleventh conference of this Society in 1999, Dr John Forbes
suggested that the over-ruling by the High Court of Federal Court
decisions in immigration cases was basically on the ground that
those decisions were an unjustifiable usurpation of the functions
of other branches of government.18 To an outsider,
the handling by all the courts of immigration claims seems an
extraordinary example of excessive interventionism.
In his 2000 Boyer Lectures the Chief Justice also noted "important
practical limitations on the capacity of judges to make law",
and he acknowledged that:
"If the Constitution is silent on human rights and freedoms,
then it is up to Parliament from time to time to deal with that
subject -- or not to deal with it -- as it thinks fit".
At the same time, he asserted that, once a human rights issue
comes before the courts, the protection of the rights and freedoms
of individuals and minority groups is "an essential part
of the role of the courts". This led to the rather puzzling
"One of the most important and difficult issues of current
debate ... [is the] ... working out [of] the principles according
to which the will of an elected Parliament that is responsive
to popular opinion must bend to the law, as enforced by unelected
and independent judges".19
Unfortunately, the Chief Justice did not elaborate on why the
High Court has made significant subjective judgments in, for example,
human rights and other areas. Yet, as Justice Meagher pointed
out in January, 1998,20 although:
"... there are to be found in the Constitution very few
express, or necessarily implied, civil rights.....the High Court
has begun reading into the Constitution civil rights which are
certainly not overtly mentioned there, nor which are necessarily
implied there on any ordinary rules of construction, but which
are 'implied' because the current judges of the High Court regard
them as indispensable democratic rights".
Justice Meagher noted in particular the High Court's "discoveries"
of a right to freedom of communication on matters relevant to
political discussion,21 a new right to equality of
legislative and executive treatment, an implied right to a fair
trial and a right in certain circumstances to be free of the laws
of defamation. In a 1997 lecture Professor Greg Craven was similarly
(and more extensively) as critical as Meagher J.22
Justice Meagher did not discuss the Court's highly controversial
decisions in relation to Aboriginal issues, presumably because
they do not read rights into the Constitution per se. These
decisions clearly reflect emotional interventionism of the highest
order. For example, in an article in July, 1993 responding to
criticisms that the High Court had been trying to usurp the role
of Parliament, a former Chief Justice of the High Court, Sir Anthony
Mason, defended the Mabo decision on the simple basis that:
"In some circumstances governments and legislatures prefer
to leave the determination of a controversial question to the
courts rather than leave the question to be decided by the political
Again, in a further article in November, 1993 the Chief Justice
even patronized critics of judicial activism as believers in "fairy
tales", who are "entirely ignorant of the history of
the common law".24
In a paper to the fourth conference of this Society in July,
1994, Dr John Forbes has some further analysis of the Lord-High-Chancellor-like
behaviour of then Chief Justice Mason. In basing their decisions
largely on their assessment of past injustice experienced
by Aborigines, and their perception of what they judged to be
morally appropriate for the nation, the majority judges in Mabo
effectively adopted the role of an elected government.25
All this suggests that, while some judges have significant
reservations and concerns about the process and implications of
subjectivisation, it appears to have become quite widely accepted
that a large section of the judiciary will, when given the opportunity
and/or occasion to do so, adjust the balance of decision making
to accord with what it perceives to be society's demands. While
Chief Justice Gleeson's recent remarks provide some encouragement
that there may be a move under way for the legal system to stop
looking beyond statutes and their expressed objects, these remarks
seem to have had limited effect -- and in any case they paid no
specific attention to the industrial relations area.
One assumes that Mr Justice Gleeson would feel bound by the
1914 Builders Labourers Case and, based on Justice Kirby's
recent highly inaccurate description to the Australian Labour
Law Association of the "successes" of the conciliation
and arbitration arrangements (and his mistaken suggestion that
resort to ordinary courts under the common law cannot take the
place of the national tribunal system), the High Court already
has two strong supporters of interventionism in this area.26
On this basis, while one might agree with the High Court judge
who is supposed to have quipped that the industrial judiciary
has been providing "milk bar justice", that justice
might nevertheless be said to be consistent with legal theory.
It might also be seen as appropriately democratic and reasonable:
after all, the judiciary should not be allowed to fall into disrepute
by preserving out of date social standards!
But there is another side to the question of the serious underlying
problems with judicial intervention in the contractual relationship
between employers and employees. If jurisprudence says society's
demands should be recognized, why hasn't the legal arm responded
to the changing "spirit of the times" regarding reduced
labour market regulation?
The legal arm should at least start looking behind the old
beliefs and myths in industrial relations and ask itself whether
they really require intervention in modern society. It should
also acknowledge that interventionism by un-elected officials
requires that account be taken of adverse implications, particularly
the uncertainty and the adverse effects on employment, which have
hitherto gone largely unrecognized.
The solution is surely not simply to rationalize industrial
laws and the tribunals exercising jurisdiction, as suggested by
Justice Guidice. Judges and commissioners need educating in the
social and economic problems arising from industrial interventionism
and, until they catch up with modern society, their capacity for
exercising discretion needs to be reduced. In the US, the Law
and Economics Center at George Mason University, Virginia has
been running an economics education program for judges for about
twenty years. We need something comparable.
The inequality ofbargaining power argument
Such an education process would need to point out that the
whole regulatory system is based on completely mistaken perceptions
about the employment relationship. It is assumed that there is
a major imbalance of bargaining power between employers and employees
that would, if allowed free rein, operate against employees, and
reduce the rewards they would otherwise obtain from their working
relationship with employers. It is unsurprising perhaps that,
while this misperception exists, the judiciary takes the view
that subjective assessments are needed, in the interests of fairness,
to correct the perceived imbalance.
At first glance, it does seem obvious that employers have an
intrinsically much stronger position deriving from their greater
wealth and their power to hire and fire, albeit much reduced.
Yet this notion has been too facilely accepted, and little analysis
appears to have been undertaken into whether it corresponds with
reality. HR Nicholls Society members are well aware, for example,
that sub-contractors who work on building sites, and who actively
compete against other "subbies", earn an average annual
wage of over $40,000 without any "protection" other
than their own bargaining power and trade skills. They work, moreover,
in an industry that is one of the most efficient in the world,
that is virtually free of disputes between builders and sub-contractors,
and that provides no evidence that its trades-people feel "exploited"
by what is effectively a free market system.
What the judiciary do not appear to understand is that modern
labour markets actually operate within a competitive environment.
The demand for and supply of labour is determined in a context
where over 1,000,000 businesses compete for the labour services
of over 9,000,000 workers, a situation that can scarcely allow
the exercise of monopsony power by employers except in certain
limited situations. Of course, competition in the labour market
is heavily constrained by regulation, but employers do compete
between themselves within that context, and they compete for a
labour supply that offers only a limited quantity of each of the
various different kinds of labour. Indeed, there effectively exists
not one single labour market but a whole series.
During a debate I had with former Deputy President of the AIRC,
Professor Keith Hancock, at a meeting of the South Australian
Economic Society on 30 May, 2000, Hancock conceded that not enough
account had been taken of the competition constraint that employers
face, but argued that "there remain instances where employers
can exert significant bargaining power". He referred specifically
to companies such as CRA (which had by then gone out of existence),
BHP, Telstra, Patrick Stevedores and Qantas; i.e., he put forward
the absurd proposition that these companies are not subject to
competitive constraints in the labour market. Hancock also made
the equally absurd assertion that "the notion of negotiation
at the point of hiring is, in most instances, nonsense".
It is relevant that, in circumstances where the labour market
operated in the 1990s under more competitive conditions, the share
of national income going to labour remained stable and average
real wages increased strongly. This outcome occurred, moreover,
despite predictions that labour would experience adverse effects
on both employment and real wages from the more competitive environment
which businesses had to face from tariff reductions, competition
policy and the like.
By contrast, while the considerably higher interventionism
in employer-employee relations by government and arbitral and
judicial authorities in the 1970s and 1980s led to an initial
short, sharp increase in labour's share of national income in
the mid 1970s, that was followed by a long, steady decline in
that share in an environment where there was only a tiny annual
growth in real wages and a relatively small growth in the rate
of profit, not to mention higher unemployment. Further analysis
of these comparative trends is contained in the Productivity Commission's
excellent paper on Distribution of the Economic Gains of the
This marked contrast in the outcomes under widely different
extents of interventionism clearly suggests that more intervention,
allegedly on behalf of workers, does not increase the returns
on their labour, and certainly does not improve business output
and profits. It is not to say, of course, that the labour market
operated satisfactorily in the 1990s. Judicial intervention continued
apace and, as I have pointed out elsewhere,28 the reduction
in unemployment was due more to the large increase (from 15 to
22 per cent) in the proportion of the working age population on
income support payments than to a more competitive labour market.
The limited nature of the improvement in the rates of underlying
unemployment and employment is being revealed in the current slow-down
in economic activity.
Even so, the improvement in labour market performance under
more competitive arrangements does provide an additional basis
for challenging the inequality of bargaining power argument. And
the likely increase in the unemployment rate in the short term
can be used to reinforce arguments for reform. It is relevant
that the "imbalance of power" arguments now used to
legitimize arbitral or judicial intrusion into labour market arrangements
have no constitutional or statutory authority. Nor for that matter
does H B Higgins' view that labour disputes arose because of the
market's incapacity to determine the "just" price for
labour services, a mediaeval notion that has no rational basis.
Higgins' belief that the "just" price had to be determined
judicially, and that any deviation from such a price was an infraction
of the natural order, raises a real question as to whether he
should have been allowed to continue to hold judicial office.
Interpretation of employment contracts
The second main problem with judicial interventionism in the
employment relationship relates to the incapacity of the judiciary
to interpret employment contracts. An invaluable draft paper by
economist Geoff Hogbin29 summarising recent thinking
by labour economists30 on employment relationships,
and its relevance in the Australian context, highlights the virtual
impossibility for third parties to make informed and meaningful
judgments on employment contracts, let alone rewrite them ex
post to the betterment of the contracting parties.
The little recognized reality is that many elements of employment
contracts take the form of expectations and understandings that
are impossible (or at least prohibitively difficult and costly)
to specify in explicit terms. These implied or relational
terms are, moreover, as important to the satisfactory performance
of a contract as the explicit or formal terms that are
normally the subject of judicial attention. For example, an outside
party cannot really observe and accurately assess performance
in relation to the amount of physical and mental effort to be
devoted to tasks, the required degree of alertness on the job,
and the amount of on-the-job training to be provided and undertaken.
In fact, whether an employment contract operates satisfactorily
for both employer and employee depends importantly on whether
the self-enforcing and in-built incentives work out in practice.
These incentives take the form of both "carrots" and
"sticks". For example, an employee may be induced to
make an extra effort by the promise of a career path (a carrot),
or a stick involving a threat of incurring the costs of finding
a new job in the event of being fired. Most employers are constrained
from making excessive demands on employees by the risk of losing
their investments in hiring and training if employees quit. Also,
getting a reputation as a "bad employer" makes hiring
competent workers more difficult and costly in the future. As
performance in relation to such implied terms cannot be independently
verified, employment contracts simply cannot be enforced effectively
by a court. The already-quoted remarks by Alfred Deakin when debating
the bill to establish the Conciliation and Arbitration Court are
The impossibility of fairly enforcing such implicit contractual
terms was almost certainly recognized by courts when they allowed
employment contracts under common law to evolve into at-will contracts.
There is an analogy here with unfair dismissal cases, where courts
concentrate on the more readily verifiable issue of fairness of
procedures, rather than on the substance of alleged malfeasances.
But this indicates an inability to address overall fairness in
the employment relationship, as well as creating a situation that
is inherently biased against the employer because of the procedural
focus. The "at-will" contract in which the employee's
right "to quit", at a moment's notice, was balanced
by the employer's right "to fire" equally spontaneously,
has been subverted through unfair dismissal provisions which,
while on the face of them a burden on employers, in reality work
against employees, and particularly on people who want to become
employees. The costs of complying with these provisions are, in
the end, born by employees, consumers, and especially the unemployed.
Earlier this year Rio Tinto Iron Ore Vice President, Sam Walsh,
illustrated the difficulties a third party would have in interpreting
the trade-offs involved when employers treat employees as individuals
in order to maximise their potential to contribute not only to
a company's performance but to their own well-being. It is particularly
interesting, given that Rio has been a prime target for attack
by the union movement for "exploitation" of employees,
that Walsh emphasised that:
"At the core of what we are talking about here is the
alignment of employee goals, expectations and behaviours with
the goals of the company and the expectations of management ..."
and that he also noted, "We are proud of the fact that
since 1993 we have not lost any time to industrial disputation".31
The inability of courts to effectively enforce employment contracts
does not, unfortunately, deter third party adjudication under
statutory laws and regulations. But that adjudication tends systematically
to undermine the self-enforcing properties of employment contracts,
thereby eroding incentives to contribute productive effort to
jobs. For example, as adjudicators are simply unable to verify
performance with respect to relational terms, and as institutional
tradition leads them to favour employees, the existence of unfair
dismissal laws has the effect of reducing the penalties employees
would normally expect to experience for "shirking".
(Shirking is used here as a general term to cover slackness and
negligence in all dimensions of effort.) This can be expected
to raise the general level of shirking in the workforce, partly
because those predisposed to shirk expect to "get away"
with more of it, and partly because the morale of more diligent
workers tends to be sapped. This loss of morale can be catastrophic
in situations such as nursing homes, where the nature of the job
is morale-sapping to begin with.
But higher levels of shirking have implications for fairness
as well as efficiency. Thus, although prima facie it may
appear that the cost of a decision to reinstate or compensate
a fired shirker falls on the employer, in practice it may well
be borne by workers generally. Since in the longer term wages
must reflect the net value of workers' contribution to production,
employers as a group respond to reductions in productivity and/or
to required additional supervision costs by providing lower wages
than otherwise for staff generally. The result is that the costs
of increased shirking resulting from unfair dismissal laws tend
to be borne ultimately by more diligent employees.32
Another fairness problem with unfair dismissal laws is their
potential adverse effects on matching between employees and jobs.
Such effects will occur when workers capable of performing more
satisfactorily are excluded because of regulatory impediments
to firing. This will likely have negative effects on the welfare
of workers capable of forming superior job matches. However, as
it is impossible to identify those affected, those dispensing
"justice" simply cannot take these negative effects
Equally, the judiciary cannot take adequate account of the
likely adverse effect of employment protection regulations on
marginal workers. When tribunals are biased against them, employers
are much less likely to employ such workers because they fear
that firing will be costly if the job-match proves to be unsatisfactory.
The Institute of Chartered Accountants spokesman for small business
claimed on 20 March, for example, that those he represents are
"seething" over the unfair dismissals legislation and
that "everyone of them has a horror story".33
Although such comments may have partly reflected the federal Government's
then announced intention to have another try in the Senate to
reduce unfair dismissals protection, it was undoubtedly also inspired
by the deterrent effects that protection has on employment. Those
deterrent effects have recently become so extensive that the statistics
on unfair dismissal cases provide no indication of them, because
employers frequently make out-of-court settlements even where
there is no substantive case rather than incur the cost of allowing
the matter to go before a tribunal.
It is ironic that the virtually costless access to tribunals
for unfair dismissal claimants, and the consequent encouragement
to such claims, became built into legislation after Clyde Cameron's
attempt in the mid 1970s to make access easier for claimants against
union misbehaviour. Amendments to unfair dismissal laws passed
earlier this month attempt to reduce the encouragement in various
ways, such as by allowing expanded cost orders to be made against
parties who act unreasonably in pursuing, managing or defending
claims and by providing penalties against lawyers and advisers
who encourage claims where there is no reasonable prospect of
It is a consequence of human nature that some employers are
heartless and unscrupulous and make unreasonable demands on employees.
However, as University of Chicago Law and Economics Professor,
Richard Epstein, has pointed out, regulations aimed at achieving
perfect justice are frequently counterproductive because they
create unintended injustices that outweigh any benefits they might
confer. The best protection against exploitation for workers is
a freely functioning labour market that allows employees to change
jobs if they believe their current employer is treating them unfairly.
It is also the most effective way of disciplining employers.
I return to Chief Justice Gleeson's comment that:
"The justice system is rarely equipped to undertake an
exhaustive investigation of the merits of a particular dispute,
and only by a fairly strict limitation of issues can courts hope
to achieve even an approximate knowledge of the facts of a case".
Although this admission was made in considering the law generally,
it is clearly very relevant to cases involving the employment
relationship. A tribunal that cannot be apprised of all the facts,
and cannot comprehend the significance of important aspects of
a relationship, is necessarily unable to make a meaningful assessment
of that relationship.
It is particularly worrying that the overwhelming focus of
tribunals is on the perceived interests of the great majority
of workers with secure jobs (insiders), to the neglect of the
adverse effects on the minority of marginal workers and the unemployed.
While growing numbers of students of labour markets are now prepared
to concede such adverse effects, the judiciary seems yet to reach
even the student stage. In short, the intrinsically complex nature
of the employment contract provides a powerful argument against
The growing concern about excessive interventionism that developed
in 1998-99 became a matter of public discussion last year and
was followed by some improvement within the legal arm.
Some public criticism
The main public commentary has been:
(i) An editorial in The Australian Financial Review of
7 February, 2000 featured worrying aspects of Justice Gray's
extraordinary injunction, which prevented BHP Iron Ore pursuing
individual agreements because they could involve discrimination
against union members. The editorial highlighted:
- The growing tendency for the Federal Court to interpret the
Workplace Relations Act in ways that help unions pursue
- The difficulty this created for even large employers to effect
changes needed to improve efficiency, and the likely adverse
- The establishment of a panel of specialist Melbourne-based
industrial relations judges, nearly all former union barristers,
and the need to change arrangements that appeared to continue
the industrial relations club.
(ii) Two days later The Age published an article by
its State political reporter entitled IR Chaos, drawing
attention to the outbreak of major disputes in the construction,
airlines, automotive and manufacturing industries. The article
saw this as clearly the start of a determined attempt by unions
to undermine the trend to enterprise and individual bargaining
and to force a return to industry-wide bargaining.35
(iii)That was followed by a paper presented to the Leo Cussen
Institute on 29 March, 2000 by Richard Dalton of Freehills arguing
that there had developed "aggressive industrial action by
unions and a lack of rigour by the Federal Court (and to a lesser
extent the AIRC) in applying the relevant compliance provisions
under the [Workplace Relations] Act". Dalton
pointed out that certain provisions in the Act designed to limit
industrial action had been rendered ineffective because:
- "At times" the AIRC was reluctant to issue orders
under Section 127 to stop industrial action, often preferring
to grant union applications for adjournments and long conciliation
sessions, with employers thus coming under pressure to compromise
to obtain a return to work;
- Even when Section 127 orders were issued, the Federal Court
showed "a distinct reluctance" to issue an injunction
to enforce them, adopting instead an approach that was overly
technical and would drag out proceedings. The Court was also
"giving primary attention to the unions' and employees'
- Attempts by employers to obtain protection against industrial
action by having recourse to the Victorian Supreme Court were
effectively prevented by the Federal Court, which appeared determined
to establish a monopoly position as the judicial decision maker
in industrial matters.
(iv)The next stage in highlighting concerns about judicial
intervention was the paper presented by Melbourne barrister Stuart
Wood to the HR Nicholls Society's May, 2000 conference.36
Wood gave many examples of tribunal decisions on industrial issues
and highlighted the fact that many unions simply treated Section
127 orders as having no effect. He pointed out, indeed, that
one prominent union official, Craig Johnston, had boasted publicly
that: "I've got hundreds of them and I just throw them in
This paper also noted that, as a consequence of the Federal
Court's attitude to Section 127 orders, employers had turned
to common law remedies in the Supreme Court. The thrust of Wood's
paper was that the Federal Court had attempted to prevent this
from happening by granting anti-suit injunctions against the
Supreme Court and, for the first time ever, was hearing appeals
from the Supreme Court in industrial matters.
Wood also noted that ten of the Federal Court judges, who
had been appointed by the previous Labor government and who had
been part of the previous Industrial Relations Court, were continuing
to operate a de facto Industrial Relations Court through
the administrative mechanism of the Federal Court industrial
docket system. Although he also observed that four "commercial"
judges had started to sit on industrial cases "in the last
few months", his presentation clearly indicated that unions
were continuing to receive preference over employers and the
Federal Court was attempting to set itself up as an intermediate
appeal court between the Supreme and High Courts in industrial
(v) Another significant development indicating concerns about
the Federal Court was an important article on 12 June, 2000 by
The Age's industrial correspondent, Paul Robinson.37
While this article contained some typical Age-type misrepresentations
and one-sidedness, it made several important revelations, viz:
- At the judges' biannual conference in April "some interstate
judges expressed concern about the damaging publicity judges
in Melbourne were receiving, which they said reflected on the
Court as a whole".
- The Chief Justice of the Federal Court had allocated five
extra judges -- Merkel, Goldberg, Kenny, Finkelstein and Weinberg
to the industrial panel. While these extra judges were said to
be "assisting" Justices North, Marshall and Ryan to
cope with a "rapidly increasing industrial workload",
the reality appears to be that those three judges, along with
Justice Gray, are largely undertaking other duties. Justice North,
for example, appears mainly to be sitting on immigration cases.
(There has been no change, however, in the system by which Federal
Court cases are assigned to a judge's docket and that judge stays
with the case. By contrast, in the Supreme Court a case is assigned
to a subject-based list rather than a judge's list.)
- The leading union lawyer, Josh Bornstein, was quoted as accusing
certain identities of conducting a campaign against the Federal
Court, which is simply "applying the law as it stands".
According to Bornstein, this campaign came from:
"... a very small but vocal group associated with the
HR Nicholls Society. A lot of federal government policy in industrial
relations is driven by the HR Nicholls Society and the Institute
for Private Enterprise, which is the same as a Labor government
taking advice on IR policy from Spartacists!".
- The article attempted to portray as responsible the fining
in May by Justice Merkel of union officials Mighell and Johnston
for contempt of court in relation to the holding of statewide
stop work meetings late in 1999.38 However, the fine
of $40,000 was not only minuscule in relation to the deterrent
effects on employment and other damage to business that would
have been wrought by these two officials, but was made payable
by the garnisheeing of their wages; i.e., the penalty could be
met by payment over a period. Importantly, the costs order against
the employer considerably outweighed the penalty imposed upon
(v) On 27 July, 2001 Stuart Wood pointed out in an article
in The Australian Financial Review39 that,
in strongly supporting the existing system in a speech before
the Labour Law Association, Justice Kirby had so clearly entered
the political arena "that it's hard to differentiate Kirby's
speech from Labor policy".
It is doubtless possible to argue that the action taken by
the tribunals, as described by Mr Dalton, was consistent with
one interpretation of the Workplace Relations Act 1996.
For their part, Federal Court judges would presumably say that
the Act has impelled them to be more interventionist because it
made provision for injunctions to be issued under Section 127
and for breaches of the freedom of association requirements. However,
the question at issue is how the courts and tribunals use their
legislative discretion. For example, it was clearly the intent
of the Act to prevent arbitration on bargaining issues during
bargaining periods, and to strengthen the compliance provisions
to deal with unlawful industrial action. Indeed, in his Second
Reading Speech on 23 May, 1996, Minister Reith stated that the
intent of the compliance provisions was to give "parties
suffering from illegal industrial action....access to effective
legal redress, including injunctions and/or damages. Industrial
action that continues in breach of such directions from the court
will be in contempt of court". It was clear that many judges
of the Federal Court interpreted Section 127 in accordance with
personal whim rather than give effect to parliamentary intent.
Also, the Federal Court granted anti-suit injunctions, and
heard appeals from the Supreme Court on industrial issues, in
circumstances in which Parliament had made it clear that the traditional
Supreme Court common law remedies were available, and the traditional
appeal routes had not changed. This can be seen as part of the
Court's strategy not only to favour unions directly but also to
establish itself as a major player in industrial issues, and thus
favour unions on appeals instead of leaving it to the Supreme
Court to hear appeals. To the extent it succeeds, the composition
of the Court makes it almost inevitable that it will be interventionist.
It would also by-pass the new Courts of Appeal established for
Supreme Courts in Victoria and NSW.
How much has interventionism reduced?
The public commentary and the (not unconnected) decision to
change the composition of the Federal Court have led to some reduction
over the past year or so in judicial intervention, and some attempt
to deal more effectively with aggressive union behaviour:
- Unions have reduced their previous attempts to have cases
held in the IR capital of Australia. This implies a sidelining
of the coterie of former union barristers within the Federal
Court that was grossly sympathetic to union positions.
- As the Federal Court has stopped granting injunctions against
Supreme Court actions, this suggests that unions have accepted
that they have reduced chances of getting anti-suit injunctions.
However, this came about only after the public complaints led
the Federal Court to introduce a requirement that three judges
have to grant a stay of a Supreme Court decision. Moreover, the
Supreme Court's bad experience with anti-suit injunctions issued
by the Federal Court has made it reluctant to issue orders against
strikes and has therefore made it less worth employers' while
pursuing strike-restraining applications in that Court. At the
same time, by focusing on applications to stop unlawful and violent
picketing, employers have reduced the chance of unions being
successful with an anti-suit injunction.
- There has also been a significant drop in Section 127 actions
asking the Commission to issue an order to stop or prevent threatened
industrial action. It is not clear why this has occurred. The
reduction in such action may reflect greater union concern that
a follow-up Federal Court injunction may be issued requiring
observance of a penalty provision. It may also reflect a strategy
of presenting a "softer" union image in the lead up
to the federal election in the hope that a Labor government will
implement re-regulatory measures.
- Despite its timidity, Justice Merkel's $40,000 fine of Mighell
and Johnston can at least be seen as an attempt by the Federal
Court to discipline militant unions by giving effect to a Section
127 order. (Note, however, that although the dispute was in Victoria
and involved Victorian manufacturing unions, the Australian Industry
Group demonstrated its confidence in Victorian judges by deciding
to seek the Section 127 order in Sydney, where it was granted
by Justice Whitlam.)
- The Federal Court now appears somewhat less sympathetic to
union applications to prevent the introduction of workplace changes
by management. In December it gave the Employment Advocate favourable
decisions in two separate cases commenced in March, 1999 and
involving threats of industrial action by Queensland unions with
the object of preventing the employment of a non-unionist. However,
no decision was made on penalties and the CFMEU has appealed
against the decision.
- In December the Burnie Port Corporation succeeded in an appeal
to the full bench of the Federal Court against a decision by
Justice Ryan that the Corporation had contravened the freedom
of association provisions by refusing to employ a prospective
employee because he would not accept employment under the individual
agreements policy that the corporation was pursuing. The Court
took the view that the Workplace Relations Act 1996 did
not prevent an employer from offering one form of employment
rather than another.
- In an address to the Industrial Relations Society of New
South Wales on 20 March, 2001, the Employment Advocate, Jonathan
Hamberger, indicated that, of the nine cases that have gone to
the Federal Court (four against employers, four against unions
and one against both), only one has been lost by the Advocate,
and that is currently the subject of appeal. This part of the
legal arm has dealt with over 1,000 freedom of association complaints,
with complaints in relation to the right not to be in
a union outnumbering those in relation to the right to be in
a union by about three to one. The great majority of such complaints
have been satisfactorily resolved without taking legal action.
However, as recently as 24 August, the Federal Court was still
intervening in these matters by excluding evidence showing CFMEU
intimidation and thuggery.40
While the foregoing suggests some improvement in the legal
arm's handling of the situation, there remains substantial evidence
of excessive interventionism, an inadequate response to aggressive
union action and an unsympathetic attitude towards structural
reform by business. Thus:
(i) Unions and unionists have continued to be allowed to get
away with illegal behaviour and obstruction of needed productivity
- In Queensland, for example, coal-mining unions successfully
flouted court orders earlier this year when strong action was
taken against BHP's attempts to improve the efficiency of its
coal operations in that State. Such union action may have reflected
a fear that BHP would attempt to move to individual agreements
in coal as well as iron ore rather than the enterprise agreement
being debated. A Supreme Court order for unions to maintain order
on picket lines and on coal trains was openly defied by individuals
whose reckless behaviour prevented trains from running to the
port. An application by BHP to have the protected bargaining
period terminated was rejected by the AIRC on the basis that
the protected strike action had not been sufficient to threaten
the national interest. Finally, after four months of mediation
and negotiation under the Commission's direction, it would appear
that an agreement will be concluded this month. While reforms
have improved productivity by up to 20 per cent, with much of
this resulting from reductions in employees (BHP's Queensland
workforce has reduced from 4,700 to 2,600 over four years), and
while this latest agreement will introduce further reforms, the
process has incurred considerable unnecessary costs, including
much management time.
- Although in March the Federal Court fined the CFMEU $200,000
for contempt, one can only doubt the effectiveness of fines of
this size for such a powerful union, whose officials are prepared
to engage in what Justice Kiefel described as "calculated,
devious, dishonest and cynical" actions. The fine culminated
from an illegal stoppage at five of BHP's Illawarra coal mines
in February, 2000 as part of a national strike against BHP's
price settlement with Japanese steel mills. When the CFMEU in
NSW then extended the strike at the Illawarra mines to 48 hours,
BHP obtained a return to work order from the AIRC but employees
failed to return, pleading they had not received adequate notice.
This was disproved in court and led to the subsequent Federal
Court fine. The CFMEU action also needs to be seen in the light
of its earlier national coal strike against BHP's alleged failure
to achieve coal price increases, which led to the CFMEU's infamous
charge of Parliament House, Canberra.
- In industrial action last December, the AMWU led a violent
attack against The Age that included breaking the paper
on the printing presses, pressing emergency buttons to stop the
presses, and completely disregarding an injunction issued by
Justice Marshall at 12.30 am (it might be noted that The Age
was dissuaded by the Federal Court from going to the Supreme
Court). In the ensuing case,41 the unions made no
attempt to dispute the facts and Justice Finkelstein imposed
penalties of $8,000 on one union and $6,000 on another. However,
he refused to grant an injunction that would provide the basis
for a future contempt action, on the ground that "there
is no evidence [of]... a real risk of unlawful industrial action"
-- but he gave no reasons for that view. Moreover, although he
acknowledged the "considerable loss for many people"
resulting from the action, his penalties were less than the pathetic
maximum of $10,000 (which has apparently never been "awarded"!).
- Last August the CFMEU trashed the National Gallery site in
a bout of deliberate destructiveness which was vividly described
by Justice Goldberg in the case against the union by Abel Constructions.
A Supreme Court injunction has been issued restricting union
entry, but the Federal Court trial is still to be held.
- The State Secretary of the Workers First group, Craig Johnston,
appears recently to have led a similar trashing expedition against
Skilled Engineering in regard to a dispute over contract employment.
However, on this occasion police at least responded, with the
result that he and some other AMWU officials have been charged
with aggravated burglary, riot and affray.
- The blatant repudiation by the CFMEU of agreements made in
the Victorian 36 hour construction industry dispute contrasts
with the subsequent readiness of the AIRC to approve increased
demolition allowances. The industrial and legal tactics during
the Victorian Construction Industry 36 hour dispute of early
2000 were a huge success for the union, and its pattern agreements
have since been extended outside metropolitan Melbourne. Indeed,
according to the Master Builders Association, after the "agreement"
the unions continued to conduct aggressive industrial action
within the Victorian building industry, and also engaged in pay-backs
against companies that (almost uniquely for the industry) joined
together to oppose the Campaign 2000 push. Having effectively
wasted over $1 million on that opposition, there has naturally
been great reluctance by employers to take legal action to curb
union militancy. Action by an individual employer would be almost
unthinkable. Anecdotal evidence suggests a deterioration in productivity
in the Victorian construction industry.
- The best that can be said about the tribunals' treatment
of militant action is that employers' access to the Supreme Court
to prevent violent picketing, and a somewhat less sympathetic
approach to union actions by the Federal Court, appear to have
stopped unions achieving all their objectives. But unionists
such as Craig Johnston have retained significant media credibility
as a spokesman for "the workers" and, when it is used,
Section 127 remains relatively ineffective in dealing with militant
union action. Some of the "quietness" may reflect a
short-term political strategy by unions. Overall, the Federal
Court can scarcely be said to have encouraged attempts by business
to improve efficiency.
(ii) Considering the last five years as a whole, attempts
by "aggressive" unions such as the CFMEU, the AMWU
and the CEPU to prevent freedom of association and enforce union
restrictive practices, by coercion and intimidation of both employers
and employees, have probably become more successful. Importantly,
the Employment Advocate's recent report on the building industry42
indicates that much of the intimidatory kind of union behaviour
is "outside the jurisdiction of the Employment Advocate",
and that his actions are limited because of "complainants'
fear of repercussion". It also asserts that referring to
other authorities is ineffective because "they will not
be actioned with any priority". This is clearly a reference
to the well-known reluctance of police to prosecute as a result
of complaints about intimidation, coercion and even violence
in the industrial area. For example, in the case of a West Australian
CFMEU official who failed to observe the conditions of his right
of entry to a particular building project, the Advocate had to
take him to court, where he was fined and ordered to pay costs.
The successful flouting by some unions of court orders (which
recalls the infamous description of unions in the Hancock Committee
report of 1985 as "centres of power" that should not
necessarily be treated as subject to the law on the same basis
as other "subjects"),43 presumably reflects
an unwillingness by the legal arm to create a "crisis"
by confronting the situation and sending union officials to jail
and/or making unions insolvent (except in extreme cases, such
as the action taken against the Builders Labourers Federation
by the Victorian and federal Labor governments in the 1980s,
which led to the deregistration of the union but its effective
merging with and partial take-over of the CFMEU ).
The decision last month by the political arm to establish
a(nother) Royal Commission to investigate the building industry44
confirms that, where unions continue to operate aggressively,
there is an acquiescence by the legal arm in an imbalance of
bargaining power that actually accords favorable treatment to
unions. Such pro-union judicial interventionism also, of course,
has adverse effects on law-abiding employers and employees. But
what seems to be needed is not another inquiry but action to
ensure the law is actually implemented.45
(iii)Although Justice Kenny rejected union claims that BHP
Iron Ore's46 individual agreements policy constituted
discrimination, it took over a year before Justice Gray's injunction
stopping BHP from making further individual agreements was removed.
After being assigned the case, Justice Kenny required senior
executives to spend considerable time giving evidence about the
company's intentions. In effect, she tried to put herself in
the position of company executives in order to test whether those
executives were genuinely seeking the conclusion of individual
agreements for efficiency reasons -- "BHP industrial relations
management's reasons for introducing the Workplace Agreements
(are) a central issue in this case".
The fact that Justice Kenny's judgment ran to 76 pages tells
a story: if BHP had to incur what must have been large costs
in terms of management time alone, how would smaller companies
fare if they have to go through similar procedures in trying
to introduce individual agreements? It also indicates the economic
burdens that the award regime imposes on companies and workers
alike: while companies such as BHP are able to offer substantial
increases in remuneration to workers who accept individual contracts,
that simply indicates that the award regime is imposing a huge
economic burden on all involved in the enterprise. Clearly, the
rewards that follow from escape from this régime can be
shared between the shareholders and the workers.
The importance of this case is illustrated by the decision
of the ACTU to become actively involved, and to make a major
effort to persuade those who had not signed individual agreements
to hold off decisions pending amendments by the newly elected
Western Australian Labor government to that State's industrial
legislation. However, in June the AIRC revoked the entry permit
to the Pilbara site of an ACTU organizer because, while trying
to persuade employees not to sign individual agreements, he failed
to observe the entry conditions. Moreover, with Premier Gallop
claiming to have brokered a compromise, the State's legislation
is now expected to allow individual agreements (to be known as
employer-employee agreements or EEAs), albeit presumably involving
deterrent-like procedures. In the meantime, although the ACTU's
major effort to hold the fort has kept BHP Iron Ore's individual
agreements to about 55 per cent of the workforce, the company
claims the changes already made should increase productivity
by 15-20 per cent.
(iv)Rio Tinto has had a similar experience to BHP Iron Ore
in its long running attempts to improve productivity at the key
Hunter Valley No. 1 Coal Mine.47 While the latest
AIRC verdict accepted that Hunter Valley No. 1 had established
the need to improve productivity and hence to reduce the number
of employees, before reaching her decision Deputy President Leary
effectively tried to sit in the managers' chairs for 57 days,
to hear 51 witnesses and examine 85 witness statements (which
were even acknowledged by Ms Leary to have involved "a great
deal of time ... pursuing evidence which was of little or no
relevance"). In what some might see as having an element
of pay-back for some of Rio's earlier actions in the Commission,
she eventually decided that the method used to lay off 288 employees,
which included detailed assessments of performance of individual
workers as opposed to the seniority approach demanded by unions,
contravened Section 170 CE of the Workplace Relations Act
1996 that forbids terminations to be "harsh, unjust or unreasonable".
In effect, the Deputy President reached the absurd conclusion
that the company shouldn't use previous performance to determine
who should remain at Hunter Valley No. 1, and should re-instate
those made redundant over the previous two years (70 of whom
have, however, already accepted voluntary redundancy). While
it is scarcely surprising that the company has appealed to the
full bench (and succeeded in staying re-instatements), the serious
aspect of this case is the deterrent and cost effects for businesses
that want to improve their productivity.
(v) While the Federal Court's interventionist enthusiasm may
have been curbed by the over-turning by the High Court last November
of its decision in the St George Bank case, a very fine line
of interpretation was involved in deciding whether there had
been a "transmission of business" when the bank had
created an agency at a chemist. The Federal Court had concluded
that the bank had assigned part of its business to the chemist,
and that the agent was therefore bound by the relevant banking
award, but the High Court said that "it is not correct that
it is carrying on banking business. It is carrying on the business
of a bank agent".48 It is not difficult to imagine
that businesses would be hesitant in making substantive investment
and employment decisions dependent on such judgments.
The scope provided for judicial intervention in the employment
relationship, whether by the AIRC or the Federal Court, remains
very large. The Workplace Relations Act 1996 comprised
536 main sections plus numerous supplementary sections, most requiring
judicial interpretation, not the least being the 20 allowable
award matters under Section 89 of the Act to which industrial
disputes are notionally confined. (While the Government was successful
in having the Senate pass legislation on 7 March, 2001 removing
"tallies" from the list, the AIRC had already deleted
them from the main meat industry award and replaced them with
a payment by results system. The Democrats refused, though, to
delete union picnic days from 750 awards on the ground that workers
would continue to have a day off because such days already have
public holidays gazetted by the States!) The question for the
legal arm, and the community more generally, is the basis on which
it should exercise its interpretation.
It can be argued that the prime responsibility for the extent
of third party intervention in Australia in employment relationships
lies with the failure of successive governments to address the
issue at the political level, and the associated failure of others
(particularly the business and academic communities) to actively
support the rights of people to manage their own relationships.
However, the legal arm must also share a substantial part of the
blame, if only because it has promulgated an increasing role for
judge-made law in interpreting "what society demands".
It has surely failed to recognize the extent of competition in
the labour market, the virtual impossibility of making meaningful
judgments on employment contracts and the considerable security
now provided to those in social need. It has equally failed to
pay heed to the objects of statutes as required by the Acts
The adverse social and economic effects from interventionism
in the employment relationship demonstrate the serious problems
with the subjectivisation approach. The Chief Justice of the High
Court has identified many of the general problems with this approach,
but he has not addressed the important industrial relations area
and has left open the question of what should be done about the
issue. As there seems little prospect that the legal arm will
itself take action to reduce interventionism, there is a strong
case for reducing by legislative means the discretion that tribunals
and courts can exercise in this field. I have published some proposals
on this aspect.49
There is also the question of the marked contrast between interventionism
in the corporate and industrial relations areas. Those thought
to have infringed corporate law are pursued and, if caught and
convicted, are fined or jailed and the companies they have operated
are made insolvent. Some are even barred from operating a business.
But, while this is appropriate, there appears to be very limited
comparable action in relation to behaviour by unionists/ employees
that is either unlawful or deliberately obstructive, and there
are few higher penalties for repeat offenders.
The apparently "soft" approach adopted in dealing
with such unlawful/obstructive behaviour seems to reflect a fear
that, say, jailing a unionist or sending a union insolvent is
socially unacceptable while providing the same treatment to a
"greedy capitalist" is not. The reluctance of the police
side of the legal arm to pursue complaints against intimidation
and coercion by unionists is part of this syndrome, and helps
explain why Royal Commissions into the construction industry are
needed from time to time to bring a temporary halt or easing in
criminal behaviour in that industry. There is also a natural reluctance
by employers to pursue penalties to the maximum degree.
One way of dealing with this problem might be to create a body
to ensure competition in the labour market and to prosecute those
who behave unlawfully, just as the Australian Competition and
Consumer Commission prosecutes, some would say too readily, anti-competitive
behaviour by business in the production and trading fields. The
NSW Building Industry Task Force operated successfully for three
years in the construction industry and it could provide a model
for a body with wider authority.
The recent moderation in the extent of judicial intervention
in industrial cases does suggest that expressions of concern from
various quarters have produced some response from the legal arm,
most notably reflected in the Federal Court's compositional change
and the slightly more amenable attitude to employers' attempts
to restructure employment arrangements. But even there the picture
is mixed, and it seems absurd that compositional changes in a
court should be a determining influence. There is certainly a
need to reduce the role of the Federal Court.
It remains particularly worrying that an examination of the
plethora of industrial cases dealing with the Workplace Relations
Act 1996 reveals no precedent that would enable one to advise
an employer that he could confidently pursue this or that course
of action; or, as Justice Guidice put it, "the outcome of
particular cases is of very little predictive value in similar
cases". To the outsider at least, it seems that ad hocery
prevails. Chief Justice Gleeson's "abiding need for predictability
and certainty" is nowhere to be found: it has been overwhelmed
by the "irreversible move towards subjectivisation of issues".
Finally, particularly if Labor were to attain government in
Canberra, there is a further worry that even the recent slightly
more moderate Federal Court approach will not last. Labor has
already largely adopted the ACTU's industrial relations interventionist
agenda and was responsible for many of the aberrant Federal Court
appointees. Those who believe that minimal intervention in employment
relationships is in the best interests of the community clearly
need to explain and proselytize better their arguments that society
is not demanding judicial intervention, and that we would all
be much better off without it. It seems unbelievable that grown
men and women should behave as the participants in this interventionist
system have been behaving, and continue to do so. As Dr Johnson
said of an acquaintance, "such an excess of stupidity, Sir,
is not in nature".
1. I acknowledge the generous assistance provided for this
paper by Dr John Forbes, Mr Ray Evans, Mr Barrie Purvis, Mr Geoff
Hogbin and others who prefer to remain anonymous. They are not
responsible, however, for my comments and interpretations of
2. The Lord High Chancellor, Iolanthe, WS Gilbert.
3. Higgins, H, A New Province for Law and Order, Sydney
Workers' Educational Association of New South Wales, Sydney,
4. Isaac, J, The Foundations of Arbitration, in
Labour and Industry, Vol. 1, 1987, pp.157-8.
5. Crisp, LF, The Parliamentary Government of the Commonwealth
of Australia, Longmans, Green and Co Ltd, London and New
York, 1949, p.19.
6. Deakin, Alfred, Conciliation and Arbitration Bill
in Committee, Hansard, 30 July, 1903, 2863-4. The first
attempt to establish the Commission, introduced in 1901, was
abandoned; the second led to the resignation of Prime Minister
Deakin and a failed attempt by the first Labor Government to
have an amended version passed, leading in turn to the resignation
of Prime Minister Watson; a bill was eventually passed in December,
1904 under the Reid-McLean administration.
7. R v. Commonwealth Court of Conciliation and Arbitration;
Ex parte GP Jones; Ex parte Cooper (1914) 18 CLR 224.
8. Attorney General for State of Queensland v. Riordan
& Ors (1997) 74 IR 37.
9. Forster, C, An Economic Consequence of Mr Justice Higgins,
in Australian Economic History Review, Vol. 25, No.2,
10. Moore, Des, The Case for Further Deregulation of the
Labour Market, Commonwealth of Australia, November, 1998.
11. Crisp, op.cit..
12. These papers are available on the Society's web site at
13. OECD, Economic Survey of Australia, Paris, 2001.
14. Herbert, AP, Uncommon Law (1935).
15. Gleeson, Murray, Individualised Justice -- The Holy
Grail, in The Australian Law Journal, Vol. 8, June,
16. Guidice, GM, Keynote Address to Industrial and Employment
Law Conference, Bar Association of Queensland, www. airc.gov.au,
20 April 2001.
17. Gleeson, Murray, Judicial Legitimacy, on www.hcourt.
gov.au, Australian Bar Association Conference, New York ,
2 July, 2000.
18. Forbes, John, Judicial Tidy-Up or Takeover? Centralism's
Next Stage, in Upholding the Australian Constitution,
Proceedings of The Samuel Griffith Society, Volume 11 (1999),
19. Quotes are from various articles published in The Australian.
20. Meagher,RP, Civil Rights: Some Reflections, in
Australian Law Journal, Vol 72.
21. See Nationwide News v. Wills (1992) 177 CLR 1 and
Australian Capital Television Pty Ltd v. Commonwealth (No 2).
Meagher J interprets the decision in these cases as guaranteeing
"a right of freedom of communication on matters relevant
to political discussion". The decision prevented the curtailment
of political advertising prior to an election.
22. Craven, Greg, The High Court of Australia: A Study
in the Abuse of Power, The Thirty-First Alfred Deakin Lecture,
The Alfred Deakin Lecture Trust, 9 October, 1997.
23. Mason,A, Chief Justice Defends Ruling as Lawful, in
The Australian, 2 July, 1993.
24. Mason, A, It's Time to Rule Legal Fairytales Out of
Court, in The Australian, 8 November, 1993.
25. See also my address to the Tivoli Club on We Stole
Their Country, They Stole Our Biscuits, at www.ipe.net.au,
26. Kirby, Michael, Industrial Relations Law -- Call Off
The Funeral, at www.hcourt.gov.au,
18 July, 2001. Mr Kirby was a member of the AIRC before being
appointed to the High Court, as was Justice Mary Gaudron.
27. Productivity Commission Staff Research Paper, Distribution
of the Economic Gains of the 1990s, Commonwealth of Australia,
28. Moore, Des, Reform's big problem is political, in
The Australian Financial Review, 15 December, 2000.
29. Hogbin, Geoff, Employment Relationships, Employment
Contracts and Earnings, unpublished mimeo, 2000.
30. Malcomson, James M, Contracts, Hold-ups and Labor Markets,
Journal of Economic Literature (1997), 35(4) pp.1916-57, especially
p. 1917; and Baker, George, Gibbons, Robert and Murphy, Kevin,
Relational Contracts and the Theory of the Firm, mimeo
(1999),Harvard Business School.
31. Future Success Depends on People, Sam Walsh, AMMA
Conference, Perth, 8-9 March, 2001.
32. While this statement is broadly correct, at least two
substantial caveats should be noted. First, where a firm has
the capacity to earn economic rents (i.e., returns to special
advantages not enjoyed by competitors, such as an unusually rich
mineral deposit), union power may be used to capture part of
the rent through shirking at the expense of the owners. Second,
in non-traded goods industries some of the costs of shirking
may be passed on to consumers in the form of higher product prices.
Also, the statement does not mean that employers need not be
concerned about shirking -- an employer who fails to control
it at least as well as his competitors will not survive. Rather,
in the longer run there tends to be an equal amount of shirking,
the level of which reflects the prevailing labour market institutions.
Moreover, each employer separately has a financial incentive
to gain a competitive advantage by devising employment contracts
that reduce the costs associated with shirking.
33. Rendall, Curt, Unfair Dismissal Laws 'Worse Than Recession',
in The Australian Financial Review, 20 March, 2001.
34. Workplace Relations Amendment (Termination of Employment)
35. See also Wood, Alan, Menaced by Union Muscle, in
The Australian, 14 March, 2000.
36. Wood, Stuart, The Death of Dollar Sweets, at archive.hrnicholls.com.au,
37. Robinson, P, Contempt of Court, in The Age,
12 June, 2000.
38. Australian Industry Group v. Automotive, Food, Metals,
Engineering, Printing and Kindred Industries Union 
39. Wood, Stuart, For impartiality's sake, do curb Kirby,
in The Australian Financial Review, 27 July, 2001.
40. Employment Advocate v. Williamson FCA 1164
(24 August, 2001).
41. The Age Company Limited v. Automotive, Food, Metals,
Engineering, Printing and Kindred Industries Union ,
42. Hamberger, Jonathan, Employment Advocate Report on
The Building Industry, at www.dewrsb.gov.au,
11 May, 2001.
43. Report of the Committee of Review of Australian Industrial
Relations Law and Systems, Commonwealth of Australia, 1985.
44. Abbott, Tony, Royal Commission to investigate building
industry, Media Release, 26 July, 2001.
45. See also, Inquiry won't fix construction, editorial
in The Australian Financial Review, 20 July, 2001.
46. AWU v. BHP Iron Ore Pty Ltd  FCA 3; AWU
v. John Holland Pty Ltd  FCA 93; and NUW v. Qenos
Pty Ltd  FCA 178.
47. Davies, Allan, Coal Reform -- the Hunter Valley No
1 story, at archive.hrnicholls.com.au, March, 2001.
48. PP Consultants Pty Limited v. Finance Sector Union
 HCA 59.
49. See Moore, Des, op.cit.