On Wednesday 18 October, the Shadow Minister for Industrial Relations Brendan O’Connor foreshadowed amending the bargaining regime in the Fair Work Act to outlaw so-called “sham agreements”.

The target of the changes seems to be enterprise agreements that are voted on by one group of employees, but have the potential also to cover a much broader group, or to cover a similar group who will be employed in a different geographic location. The Shadow Minister referred to these situations as employers “gaming the system”. 

However,  we note that the Fair Work Act already contains a number of safeguards to prevent “gaming the system”, including that agreements are genuinely made, that employees who vote to make the agreement are “fairly chosen”, and employees are not coerced to vote or not vote for an agreement.

While we do not have the benefit of any detail (such as a draft Bill) – there are some things to be said about the potential effects of the foreshadowed changes.

The concept put forward by Shadow Minister O’Connor in his speech would allow an agreement that has been made, to be challenged and potentially reversed on the basis that the employees who made the agreement are not “representative” of those who will be covered by it.

This raises a number of important questions including:

  • What factors are to be taken into account in determining representativeness?
  • Which characteristics of the employment will be given priority over others in determining representativeness?
  • Who could challenge an agreement that has been made? For example:
    • Could a competitor union to that which represents the employees use the provisions to unwind an agreement that has been made?
    • Could another company challenge the approval, with the goal of ensuring the employer is hindered in achieving competitive terms and conditions for its business?

These questions may not be answered unless and until the provisions are enacted and tested by the many varied situations real life throws up.

Our initial impression is that any amendments that allow agreements that have been made to be effectively “undone” could cause enormous problems that go well beyond the immediate issue being addressed. This exemplifies the danger of focussing on first order consequences, at the expense of equally (sometimes more) important second and third order consequences.  By trying to plug a perceived gap in the legislation, these amendments have the potential to open up a new form of “litigation sport” – where agreements that have been made are subject to lengthy legal challenges and then undone much later down the track. There are many industrial reasons – which have nothing to do with the supposed problem being addressed – which might provide motivation for such challenges.

Few, perhaps apart from those in the legal profession, would have fond memories of the New South Wales unfair contracts jurisdiction which permitted contracts of employment to be re-written long after they were made and even after the relevant employment relationship had already ended. Whilst there were (and always are) meritorious claims, the second order consequences – including lack of certainty and finality in agreements that have been made – may outweigh the perceived problems supposed to be addressed in the first place.

Last year we wrote about the future of enterprise bargaining. Reflecting on the Shadow Minister’s speech, again raises the question about whether making “running repairs” to the system looks deeply enough at the current state of bargaining within the industrial relations framework in Australia.

In his speech, the Shadow Minister reiterated diminishing use of the enterprise bargaining system in Australia. As we mentioned in our blog, rather than looking at “Band-Aid solutions” for perceived problems, it may be time to ask more fundamental questions about enterprise bargaining such as:

  • What is driving the decline?
  • What is it about the system, the rules and the players that means employers and employees would rather stay away?

Our blog raised the possibility that the decline is associated with employers (and possibly employees) seeing the system as overly technical, unnecessarily burdensome and expensive to navigate for all but the most well-resourced organisations that have a workforce scale that justifies its use. Indeed, our experience is that the prospect of engaging with the system every two or three years, even for those who have significant negotiating experience and sophistication, is often not a welcome one.

Bargaining fatigue is real, particularly when the benefits of using the system are not always apparent.  It may be that there is advantage in both the Government and Opposition examining the policy settings at a more fundamental level.


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