A photo by Thomas Kelley. unsplash.com/photos/hHL08lF7IkcThe Aurizon decision handed down on 22 April 2015 and endorsed by a Full Federal Court on 3 September 2015 has created a viable option for employers needing to move away from legacy industrial arrangements that are bad for business.

The Aurizon decision was a watershed ruling because it swept away a longstanding presumption that agreements should not be terminated whilst bargaining negotiations for a new agreement are occurring (see our earlier blogs about this decision here). The mere fact the option exists has given employers more leverage in bargaining, as well as providing an opportunity to change arrangements other than through a union-resisted employee ballot for a new agreement.

Figures released by the Department of Education last week show that applications to terminate agreements have almost doubled. The Fair Work Commission terminated 416 agreements in Q1 – Q3 2016, which represents an increase from 275 in 2015 and 156 in 2014.

Of course, not every agreement is a good candidate for termination – a lot depends on the context, the reasons for the application, what has occurred during the bargaining process, and a list of other factors. An employer making an application to the FWC without the consent of employees covered will need to show that termination of the agreement is not contrary to the public interest, and is appropriate in all of the circumstances.

The union response to these recent developments has been multi-layered, with the following key strategies observed:

  1. Deal with it “on the ground” using traditional IR tactics and weapons (including ramping up protected action and/or taking covert unprotected industrial action)
  2. Go after the “brand” with media campaigns and the like
  3. Lobby for changes to the legislation – unlikely at present
  4. Look for suitable test cases to run to try to overturn Aurizon, and / or
  5. Try to agree restrictions in the agreements currently being negotiated to the effect that if the employer applies to terminate the agreement in the future, specified terms and conditions considered particularly important will be maintained by way of undertaking.

This fifth strategy is itself a result of a recent development. Late last month, VP Hatcher stayed a decision of DP Clancy to terminate the Loy Yang Power Enterprise Agreement 2012. The stay was issued on the grounds that termination was ordered despite a specific clause in the EA requiring the Company to maintain a suite of conditions until a replacement agreement was negotiated. While AGL gave an undertaking it would maintain certain conditions, the undertaking was narrower than the list of conditions specified in the clause.

The appeal will be heard on 21 February 2017. The appeal will look closely at the effect of this clause and particularly whether AGL moving away from it impacts on the “appropriateness” of terminating the agreement. This part of the test requires the FWC to consider a range of discretionary factors.

The impact of the AGL stay has been immediate. Across our partnership, we have seen unions ask for a similar protective clause in over half a dozen separate bargaining negotiations in the past week. Major employers will increasingly need to deal with this kind of claim and the public campaigning that results if there is a rejection of the claim. Of interest over the next month will be how far the AGL appeal goes – and whether it has ramifications beyond the specific facts of that case.

ColourIn 1993, the Keating government passed laws to move Australia towards a “system based primarily on bargaining at the workplace, with much less reliance on arbitration at the apex” (Laurie Brereton MP, Minister for Industrial Relations, 28 October 1993).  The embrace of enterprise bargaining instead of industry-wide, centralised wage fixation was to be the end of a creaking “Australian settlement” that had been overtaken by modern values and economic reality.

Enterprise level bargaining has undoubtedly been a positive move away from the system that preceded it.  Nevertheless, over 20 years since its introduction, an observer might feel skeptical about the promise of agreements that would be tailored to the needs of individual workplaces and their employees, under which “employees and employers alike can and will benefit”.  It is not hard to find examples where enterprise bargaining’s ideals are being undermined by:

  • Sectoral bargaining. Many employers who have tried to strike genuinely enterprise-specific bargains will be familiar with variations of the phrase “this is the industry standard…”. The reality is that many terms and conditions of employment are set at an industry or sectoral level, sometimes with the cooperation of industry bodies, even if they are formalised in enterprise-level agreements.
  • The proliferation of “pattern” agreements. Unions can and do force businesses to sign up to slight variations of the same template enterprise agreement, a process repugnant to the idea that agreements are tailored to each enterprise. While unions cannot take industrial action to support “pattern bargaining”, the legislation is cast so narrowly as to offer little real protection against this practice.
  • Power based rather than interest based bargaining. The enterprise bargaining process often involves a “push/pull” exercise of debating claims in an oppositional way, rather than bargaining representatives workshopping creative ways of meeting their needs and desires in a way that is good for staff and the business. Indeed, once the nominal expiry date of an agreement has raised, employees and employers can inflict all sorts of legal damage on each other with strong legal immunities applying to the consequences of that behaviour. The levers within the system encourage rather than discourage oppositional based bargaining. The weak threshold requirements for the taking of protected industrial action do nothing to help the situation.
  • Highly technical rules for making agreements. Employers of all sizes have trouble complying with the scheme for bargaining in the Fair Work Act. These well-intentioned provisions have the effect that, for example, changing the mandatory notice issued to employees at the start of bargaining – even to fix the typos in the template! – can invalidate an agreement, regardless of whether any employee was actually disadvantaged. For many smaller businesses, this and many other potential pitfalls mean that bargaining isn’t worth the hassle. This leaves employers and employees with the default safety net: an industry-level modern award, with standard terms determined by a centralised authority.

So what can be done to put the theory of enterprise bargaining into practice? Taken in isolation, the problems above might be patched up through tweaks to the legislation: put in place stronger protections against sectoral or pattern bargaining; clean up problem industries such as building and construction; relax procedural rules and allow the Fair Work Commission to waive compliance where no harm has been done; or overlay a system of individual statutory agreement making, etc.

On the other hand, perhaps it is time for Australia to look at its policy settings more broadly and decide whether enterprise bargaining as we know it has had its time in the same way as centralised wage fixation ran its race over 20 years ago. This would require the same kind of vision and boldness that was shown decades ago when the system was changed for the better. It would involve looking holistically at the industrial relations system and alternative ways to meet the policy objectives which underpin the legislation. We should not rule out the idea that the system can evolve or be fundamentally altered for the better. History shows that it can be done when the right mix of ingredients are present.

Often enterprise bargaining ends with a deal brokered in circumstances of crisis. Perhaps industrial action and a union media campaign are now viewed as too distracting or expensive. Perhaps management discontent with long negotiations has brought frustration to the fore, and an instruction to negotiators to “end it, get a deal, any deal”.

In these circumstances an employer might have no choice but to “take” the price of whatever deal is being offered – the financial price, the price of new conditions of employment, additional restrictions on operating the business, etc. The cost of continuing the bargaining process is viewed as outweighing the cost of the deal.

Contrast this with an employer who has thoroughly prepared for enterprise bargaining negotiations. This employer knows where their leverage and that of unions and others lies. Their contingency planning is comprehensive. Their communications are insightful and explain their case for change, and the communication channels are well defined and effective. They know their legal options and have been working towards an end goal before enterprise bargaining even started. They have thought through the gains they want to achieve and the pain they are willing to go through to achieve them.

This employer might be under pressure – but they are not in crisis. They will agree to a new enterprise bargain if, and only if, the deal meets their minimum requirements. This employer is a “price maker” – they choose whether to do the deal and the price they pay for the deal because they are not desperate for any deal. And the price paid reflects the value of the deal to the business, wages are based on appropriate indices such as skill level and market forces, productivity gains and the like.

How does an employer become an enterprise bargaining price maker?

The key to success is simple but not easy. It means preparation, investment in planning, and disciplined execution. It means understanding early the cost of the process versus the cost of the deal and recognising the long-term nature of the latter.

We have worked with many clients that have achieved excellent enterprise bargaining outcomes that were previously thought too ambitious. The key was the front end planning that created a path to success and instilled confidence in the approach to achieve it.

When does a person who works within a business, but isn’t on the ‘books’ of the business owner, become an employee? This issue has been litigated many times in Australia but, to date, courts have been reluctant to embrace the concept of ‘joint employment’ – that is, where an employee is employed by two different entities in relation to the same job, and each of those entities has responsibilities to the employee. Despite this, it is an issue that has increasing prominence, particularly given how many modern working relationships operate – for example, where a company uses labour hire employees to supplement its workforce or where a business enters into franchise arrangements. Continue Reading Will the ‘joint employment’ concept take hold in Australia?

Retail, like other industries, is facing challenging times. As we mentioned in our recent ‘HR Now’ blog, employers are facing a world characterised by:

  • continuous change – including rapid digitisation and globalisation of service offerings,
  • doing more with less – this is especially so in retail, where customers continue to demand more value for lower expenditure, while wage costs continue to rise, and
  • the emergence of ‘retailtainment’ – not just engaging with customers in-store, but using tools like brand ambassadors to get customers interested and in the mood to buy. The name of the game is to create a ‘customer experience’, which goes beyond merely the hard sell.

What does this mean for employers in the industry? There are three key issues facing retail employers in the next 12 months: Continue Reading The top 3 HR issues in the retail industry

Last year, we wrote about the 7 lessons for successful bargaining which highlighted that “tit for tat” communications rarely lead to a successful bargaining outcome.  We regularly see that leading the communication agenda with employees is imperative in achieving any workplace change including enterprise bargaining.

Unfortunately, some union officials see enterprise bargaining as a fight between the union and the employer. Invariably the ‘campaign’ arrives.  Flyers put a spin on what’s happening inside and outside the negotiation.  Employers feel compelled to react and this plays into the ‘tit for tat’ game that the union thrives on. Continue Reading Achieving change – active employee engagement is crucial

The Bargaining Coach rarely comments on decisions of courts or tribunals. Plenty of others do that. This is a rare exception.

Many of you will by now be aware of the Aurizon decision where a Full Bench of the Fair Work Commission constituted by Vice President Watson, Deputy President Gostencnik and Commission Spencer terminated 12 enterprise agreements. Fundamentally, this decision recalibrates the approach taken to the termination of expired enterprise agreements. Continue Reading The Bargaining Coach: FWC provides bargaining reality-check

Aurizon, previously a government owned entity, operates in the rail industry. The company had been bargaining in relation to numerous enterprise agreements. Part of the company’s bargaining platform was to be relieved of onerous restrictions on management, many of which were legacies of its public sector origins. The changes were resisted and the bargaining became intractable.

In an effort to overcome the legacy arrangements, Aurizon applied to the Fair Work Commission to terminate the agreements. Continue Reading Aurizon: Operating in perpetuity not in the public interest

In the 6 January edition of the Australian Financial Review ANZ Bank CEO Mike Smith described the effects of digitisation as being “as significant as the changes imposed by the industrial revolution”.

This comment is supported by a deep and diverse data set and important research from organisations such as McKinsey & Company and we have previously written about the Business Council of Australia’s discussion paper from last year.  Continue Reading The new industrial revolution – digitisation in the workplace