Thursday, 19 September 2019

The Government’s Approach to Industrial Relations Reform

Speech

Thank you for the invitation to address the topic of Industrial Relations as part of CEDA’s 2019 State of the Nation Conference.

When coming into a new portfolio it is always a good habit, as well as reading everything you get your hands on, to make an assessment of the space.

Where the system you are dealing with is at and how did it arrive there.

The earliest observation I made about the Industrial Relations landscape in Australia was that IR is very important to the Australian economy and it has a history of being a contested and often controversial policy space.

That is the coarsest possible summary imaginable of a complicated area of intersection being law and the economy – but even if an inelegant summary of the industrial relations landscape, they point further to the two most important questions before a government seeking to make improvements in this area.

  1. Of a range of conceivable legislative or systemic or administrative changes - what possible improvements are of the most importance to strengthening the Australian economy AND
  2. What changes are actually possible - in the sense of - what possible changes can achieve a significant enough degree of consensus that they can be supported through parliament?

These are not simple inquiries to resolve and an event occurred this week in the Senate that illustrates the contestability of issues in the industrial relations space and how some decisions which are finely balanced in terms of their ability to secure a majority of support in the Senate can have huge ramifications for the Australian economy.

Late last year the government made a regulation to provide clarity to small and family businesses about a potential unexpected liability (estimated to total $8bn across the economy). The issue arose from claims by class action law firms and unions to pay casual employees for annual leave, even when casual employees have already been paid a 25% loading and that loading is expressed as being to compensate for not having an entitlement to annual leave.

The regulation simply reflected the existing legal position that when a payment has been paid, by way of the loading, and it is later found that a payment for annual leave is payable, the employer can offset that liability by the payment it has already made. In other words, a fair and common sense position, to avoid business having to make double payments.

On Monday this week, Labor sought to remove that simple protection by moving a disallowance motion in the Senate. Had they succeeded in that disallowance motion, it would have potentially cost business an estimated $8bn.

Even a cursory examination of the history of Australia’s industrial relations system and law reveals the revolving door of contestability and the instability that can occasion.[1]

Zero Sum Game

So much of the contestability in this area has arisen from the simple but mistaken view that the industrial relations system is a contest.

A false view in my observations - that the IR system is a perpetual contest between employers and employees.

There is probably no other area of economic/legal policy where the zero sum game conception is less reflective of the actual real world facts – which are that there are significant opportunities for changes that benefit both employers and employees because they grow the economy, grow jobs and put pressure on (or directly) lift wages.

Obviously the trick is to identify what those potential changes are and reach agreement around them – which is what I will return to shortly (by way of describing our Government’s approach in this area and in announcing the first two issues to be the subject of a process designed to find common ground.)

One point worth making is that the starting point for considering potential improvements in Australia’s IR system is far from terrible.

There is some common starting ground – there is now general consensus around a number of core features of the system:

  • There is now a single national Industrial relations system for the vast majority of Australian workplaces.
  • The system has been transformed from one based on arbitration to one based on agreement making at the workplace level.
  • There is now little legal tolerance for industrial action outside the enterprise bargaining process.
  • We have a minimum wage set independently from Government which is, as measured by the OECD, the highest in the world
  • The award system has been simplified by the creation of 122 mainly industry based modern awards replacing many thousands of disparate instruments.
  • The safety net underpinning enterprise specific arrangements now comprises the 10 national employment standards in the Fair Work Act and the relevant industry award.
  • There is freedom of association and remedies to address discrimination and unfair dismissal.

The present system benefits from the great virtue that in most sectors most of the time it is a relatively orderly rules based system.

A central reason why the radical ACTU/Labor policy platform at the last election – was that the spectacularly unsuccessful Change the Rules union campaign – was seen for what it was and what it was not.

It was not an acceptance of the fundamentals of the present rule based system and an effort to look for sensible changes inside that rule based system that can benefit everyone.

Rather it was an agenda for wholesale replacement of one set of rules with completely foreign and radical policy prescriptions such as the move towards direct tax payer subsidy to produce large wage increases in cherry picked areas of the economy by processes or mechanisms that could not even be described.

Most telling of all was that the version of the rules that Union and Labor leadership at the last election wanted to radically change and replace - were essentially Labor’s rules established when Labor were last in Government - indeed essentially instituted by a fellow speaker at this conference,  Julia Gillard.

Australians don’t like the idea of wholesale radical replacement of one set of rules with another. They will consider modifications, adjustments and improvements where the case can be proven and there is a demonstrable need for improvement.

And two areas where there is a demonstrable need for improvement evidenced by significant present shortcomings – both appear in the two IR Bills presently before the parliament.

Bills before Parliament

The Ensuring Integrity Bill and the Protecting Worker Entitlements Bill.

Both these bills are designed to allow more reasonable and timely responses to known instances of lawlessness and corruption in the industrial relations system.

The present laws on the integrity of registered organisations have been totally insufficient to change in any way whatsoever the behaviour of the CFMMEU.

Justice Mortimer of the Federal Court observed last week in handing down yet another penalty to the CFMMEU, this time for faked safety concerns at a school worksite in Geelong:

“This level of contravening conduct can only indicate a continuing readiness to disregard and flout the industrial laws of this country, when it suits the CFMMEU and its officials to do so.”

The organisation has famously been described by another Federal judge as, “the most recidivist corporate offender in Australian history”.

Yet another Federal Court Judge recently said: “the CFMMEU, and in particular the (Victorian construction) divisional branch, has an appallingly long history of prior contraventions of industrial laws… There is no evidence before me ....of any compliance regime ever put in place by the CFMMEU to address its long history of prior contraventions".

The CFMMEUs record is truly and astonishingly appalling.

2,166 separate breaches and contraventions of the law in the past 15 years – an average of almost 3 per week.

Over $16.5 million in court ordered penalties – and that’s just for breaches of industrial law, it doesn’t include those more serious criminal offences that the organisation and its officials have been convicted of in recent times including of course drug dealing.

The response of the CFMMEU evidenced by John Setka on radio is that they are ALL minor transgression of right of entry laws ALL designed to improve health and safety.

That is nonsense. 

We are talking about blatant, repeated breaches that ACTUALLY undermine health and safety at building sites, coercion, intimidation and securing a culture of bullying and harassment where the union gets its way – or employers and employees pay the consequences.

Just one example is proceedings commenced in Queensland last December against a CFMMEU organiser for his behaviour towards a Queensland government occupational health and safety inspector at the Cairns performing arts centre.[2]

And it is the community that ultimately pays the costs of this unlawfulness and intimidation in the building industry.

Master Builders Australia has estimated infrastructure projects in Australia, such as schools, roads and hospitals, can cost up to 30% more due to union militancy and unlawful industrial action.[3]

And despite how clearly unsuited he is to his position, it’s clear that the problem in the CFMMEU runs much deeper than just John Setka.

In fact of the 2,166 contraventions of the law I mentioned earlier, Mr Setka is responsible for just 22 – around 1%. That means 99% of the wrongdoing is by people in the organisation not called Mr Setka.

The second Bill – the Protecting Worker Benefits Bill, will provide transparency to worker entitlement funds as recommended by the Trade Union Royal Commission.

The idea of these funds is to keep safe the money need in the future for potential workers benefits like severance entitlements and where the capital generates interest and there are funds beyond the contingent liability in capital need to pay worst case scenarios of future events – interest can be used to fund programs to the benefit of workers.

No difficulty with that process and nothing in the Protecting Worker Benefits Bill would prevent that process but the reality of what is happening does not confirm with the beneficial theory.[4]

A fund euphemistically called “Protect” established by the ETU in Victoria and an employer body NECA in Victoria appear to have transferred, in two years, extraordinary payments of $45 million to the ETU, and over $15 million to NECA (that takes 25% of trust distributions).

And that is on top of moneys received by the ETU from Protect and other trust sources for administration fees, management fees, directors’ fees and interest on these receipts which we have calculated as in the order of $125 m over the past 10 years. These sums dwarf the income from membership dues. What is it spent on? Well no-one knows.

What’s more, the ETU entered into a loan facility agreement to loan back the capital distributed to the ETU if protect needs to recall the distribution to meet ongoing expenses.

This is worker’s money paid by employers which is supposed to be for their employees’ benefit.

The Bill before Parliament would simply require proper transparency for what goes into the benefit funds, what comes out and how it's spent so that we can all rest assured that it is spent for the benefit of workers.

I cannot overstate the importance of these two bills.

Workplaces in Australia will not be fair, high performing places that drive job growth and wages growth if they are not lawful places and  if activities like those of the CFMMEU are allowed to go on and on and on unchallenged.

AND ultimately we want to see high-performing workplaces that sustain high-paying jobs in a competitive global economy.

As I noted at the outset - if we are going to make a change, we need to build the case for it and be able to demonstrate that it will deliver real and lasting benefits for all Australians.

If it is correct to observe that the radical ‘change the rules’ campaign of the Labor party and Union movements failed because it was a radical effort to enact wholesale changes of the rules rather than sensible piece by piece improvements, then the obvious alternative path is piece by piece issue by issue, case by case.

One of the great liberal 20th century figures compared public policy to engineering noting that physical engineers refine machines through a series of adjustments to existing models, looking at what parts you can change to have the greatest effect on outcomes. This thinker did not see piecemeal change as inferior - but as superior to radical approaches because it allows a triage in dealing with the areas that can have the most potential impact and permits a series of readjustments that will be of greatest overall benefit.

In this theme, the PM set three key criteria that any future reforms will first need to meet before we actively pursued.

  • Firstly, they will need to create jobs and put upwards pressure on wages to benefit workers.
  • Secondly, they must help business by boosting productivity.
  • And thirdly, we need to be able to demonstrate that reforms will help to grow the economy overall.

If we can meet those three criteria, then everyone wins and we can hopefully develop a consensus for change.

The simple method of exploring the areas where a series of readjustments can have the most potential impact - will be by inviting submissions on a series of issue by issue discussion papers published by my Department on discrete aspects of the industrial relations.

The issues selected are based on representations by stakeholders to me and generally to government over several years.

There have been many recurring themes – complex awards, complex agreement requirements, delayed resolution of disputes, unpredictability of decisions, inconsistent levels of compliance, lack of flexibility, inconsistent meanings of casual employment inconsistency in codes dealing with small business dismissals. The list is long enough to warrant serious attention.

Discussion papers will describe the current state of the law, the issues at play, identify general directions or options for reform and ask questions aimed at eliciting plausible information to assess the benefits of a change.

Whilst it will depend on their subject matter, the papers are intended to be plain English, straight forward and brief. And provide a period of 4-8 weeks for comments and submissions to be made via my department’s website. Additional discussion papers will be issued in due course.

I will be placing a heavy emphasis on evidence to support any changes[5].

And today I announce the publication of the first two discussion papers. The first paper deals with the penalty framework.

Penalties paper

Compliance and the rule of law lie at the heart of a fair system. Legal compliance is essential for registered employer and employee organisations. That principle is reflected in the Ensuring Integrity Bill currently before the Senate and it is just as essential for those participating in the broader IR system, including employers.

The discussion paper published today deals with penalties imposed for various forms of misconduct, including the criminalisation of certain forms of worker exploitation, to complement existing offences for serious criminal forms of labour exploitation, including forced labour, servitude and debt bondage in the Criminal Code 1995 (Cth).

By way of background, earlier this year, the Migrant Workers’ Taskforce, Chaired by Professor Alan Fels AO, delivered a report to Government which highlighted the widespread exploitation of migrant workers in Australian workplaces. The Government has accepted, in principle, all 22 recommendations of that report.

The majority of those recommendations focused on, in broad terms:

  • the adequacy of the existing penalty framework
  • the introduction of criminal sanctions for the most serious forms of exploitative workplace conduct
  • the adequacy of compliance and enforcement tools available to workplace regulators and the courts; and
  • mechanisms to recover unpaid wages.

The discussion paper published today is focussed on the first two items. A separate paper focusing on the second two items will be issued in due course.

As a starting point, we recognise that in order to develop a more effective compliance regime,  there are opportunities to amend the Fair Work Act to provide further protections for workers and deter unscrupulous employers from doing the wrong thing.

To this end, we are currently in the process of drafting a Bill to criminalise certain forms of worker exploitation and through this discussion paper consultation process, we will seek views on a number of aspects about this ground-breaking reform to help inform that drafting process.

It is important to be clear that this is not about targeting employers who make inadvertent errors and mistakes. Criminal sanctions will apply where employers engage in unlawful conduct that is clear, deliberate and systemic. This will level the playing field for those businesses that do comply with their workplace obligations and enhance the fairness of the system for employees and employers.

Given the findings of the Migrant Workers Taskforce, I expect that a case for reforms is likely to be made out. And I also expect that reforms in this area to attract widespread, bipartisan support.

Greenfields Paper

The Second discussion paper published today deals with the length of greenfields enterprise agreements. Under the Fair Work Act, a greenfields agreement is an agreement that relates to a new business, activity, project or undertaking prior to the employment of employees.[6]

At present, a greenfields agreement may be made between an employer (or employers) and a union (or unions) able to represent the industrial interests of a majority of employees who will be covered by the agreement. In such cases, the parties must sign the agreement before submitting it for approval to the Fair Work Commission. 

Critical to the issue upon which submissions are sought by this paper, all agreements made under the Fair Work Act, (including greenfields agreements), must include a nominal expiry date that is not more than four years after the day the Fair Work Commission approves the agreement.

While all enterprise agreements must include a nominal expiry date, the Fair Work Act provides that enterprise agreements continue in place unless terminated or replaced. In practice, many large greenfields projects will extend beyond the nominal expiry date of their enterprise agreement. Where an agreement has passed its nominal expiry date, employees can access protected industrial action, if bargaining has commenced for a new agreement and the action is authorised by a protected action ballot.

Businesses, communities and governments require infrastructure projects to be delivered on time and on budget. These projects often cover the construction of much-needed public infrastructure, such as hospitals, roads and schools, and require complex long-term planning and future investment in these projects will depend, in large part, on Australia being able to demonstrate an ability and track record of being able to deliver such projects without uncertainty about costs (including labour costs) and project delays. In this sense, the ability to predict the budget of the projects and deliver the project within a reasonable budget is the key to attracting investment and so create jobs.

Overall, industrial uncertainty and the impact of industrial action can add significant costs and delay to major infrastructure projects, many of which are, at least in part, funded by the taxpayer. The Productivity Commission stated that any weaknesses in bargaining for a greenfields agreement can have ‘potentially large impacts on major project investment in Australia’ and that current arrangements ‘pose risks for large capital‑intensive projects with urgent time frames’[7]. This, in turn, poses significant risks to job creation in Australia.

Potential benefits of longer project agreements include the following:

  • industrial certainty for employers and investors,
  • better wages and conditions for employees, and,
  • to the extent it encourages the making of greenfields agreements, improved engagement with enterprise bargaining generally, consistent with Fair Work Act objectives and the opportunity to generate higher rates of involvement in these types of projects and so supercharge Australia’s job growth.

Conversely, some parties have expressed concern that permitting a longer nominal expiry date for a greenfields agreement, decreases flexibility over the long term, and prevents the parties’ ability to adapt to changed economic and market conditions and other unforeseen events.

The consultation process will bring out the evidence on these matters and enable the government to decide how best to deal with this issue. I am hopeful that through this process appropriate reforms can be formulated that attract widespread bipartisan support.

I strongly encourage each of you to engage with the Government throughout this process.


[1] The Conciliation and Arbitration Act was rewritten and replaced by the Industrial Relations Act in 1988.
The focus of the system was fundamentally changed again in 1992 by the Keating reforms and the move to an enterprise bargaining based system.
Major changes were then made to that system by the Howard government in 1996 including individual bargaining options.
Further changes were made in 2005 such as the single national system based on the corporations power of the Constitution and the introduction of statutory minimum terms and conditions of employment
The 2009 Fair Work Act then completely rewrote the legislation again – as the unions and business agree, somewhat imperfectly.
Four major rewrites in 20 years. And the Act is now far longer and many will say far more complex as a result.

[2] Public sector safety inspectors are now prevented from going onto 17 major construction sites in Queensland because of the CFMMEU. The safety inspector was in the course of inspecting exit signage. He was confronted by the CFMMEU official, who within centimetres of the face of the safety officer said, 'you are an effing dog'—not once, not twice but three times.

[3] Other studies have also verified the increased cost of infrastructure in Australia compared with other jurisdictions; the BCA (2012) and Infrastructure Australia (2013) suggest infrastructure is 40% more expensive in Australia than in the USA, while the McKell Institute (2016) suggests a 2-lane undivided road costs 26% more in Australia than the UK, 42% more than the USA, 53% more than Canada and 78% more than the EU.

[4] The Trade Union Royal Commission found for example that the building fund BERT in Queensland for example used workers funds to pay strike pay at a Queensland hospital site, was only offering programmes to workers who were union members and was denying the benefits of the programs to non-union members – so that non-union members were not getting the benefit of their own money which is a totally unacceptable result.

[5] Broadly, the initial topics we are considering for review as part of the initial tranche of discussion papers will include the following:

  • The enforcement and penalties regime
  • Greenfields agreements
  • The Building Code applicable to Commonwealth funded building work;
  • Casual employment;
  • Small Business Fair Dismissal Code; and
  • Several aspects of enterprise bargaining

Other topics will be considered further down the track, mostly using a similar consultative method.

[6] See footnote at s.172(2), Fair Work Act.

[7] Productivity Commission Inquiry into the Workplace Relations Framework, 2015 Volume 1, page 3.​

​​​