HR/IR Strategy

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For years, the emergence of truly global supply chains and the rise of large, increasingly skilled workforces has wrought havoc on labour supply in Western developed countries. It seems that these days nearly every industry, profession or occupation is facing an existential threat due to automation, artificial intelligence or other advances in technology (indeed, lawyers are said to be the next to go!). This is seen as the next frontier.

In this environment, there is a soothsaying comfort in taking measures that might “future proof” your organisation from the potentially terrifying effects of change and disruption.

But is that really possible? More to the point, is this thinking even helpful?

We work with many of the most successful global organisations. We are always curious to learn why some organisations are successful in the long term, on a massive scale, whilst others fall by the wayside or are diminished over time.

One feature stands out. The most successful organisations do not pretend that there is one initiative – that can be implemented now – to forever insulate them from the effects of change. Rather, their leadership (and these organisations have great leaders at all levels) cultivate a mindset of constant, very often brave, change.

They disrupt themselves before any competitor will have the chance. They make bets on the future and are open to doing things differently, seeing failure as an inevitable part of the learning process. These organisations know that in a truly dynamic and global business environment, there is huge risk in just repeating what has worked in the past. These organisations do not fall into the trap of trying to “future proof” their organisation. They intuitively understand there is no such thing, and that bold leadership, and a learning and calculated risk-taking orientation are a better bulwark against disruption than any future proofing initiative will ever be. These organisations know that an opportunity-driven approach is the only way, and that a risk-driven business model “don’t change anything, don’t break anything” is the riskiest business model of all.

In the last six months we at Seyfarth have seen so many great examples of these types of organisations. Here are a few:

  • An Australian big 4 retail bank with extensive overseas operations, introducing new ways of working that are breaking down silos and making collaboration within the bank much easier
  • A global e-commerce and data services client establishing its operations in Australia, in what is sure to be its latest successful international expansion
  • A global manufacturer and seller of solar panels, investing in Australia given the enthusiasm of various State and Territory Governments to promote renewable energy, whilst somewhat dismayed and discouraged by President Donald Trump’s introduction of tariffs on their products imported into the United States
  • An Australian based manufacturer of a unique biodegradable resin moving its manufacturing from China to Europe in order to take advantage of the friendly production environment in some European countries combined with the progressive and environmentally conscious nature of European consumers of its products.

These organisations are strong examples of opportunity driven leadership – willing to make bold decisions to position themselves well, always thinking in global terms, and always willing to incorporate new and better ways of working. That may mean incorporating or even inventing new technologies, or simply making constant incremental operational improvements. They don’t try to future proof, because they accept that tomorrow will bring more change – some of it unforeseen and perhaps unwelcome.

The cycle of change and transformation is constant. The tension between stability and change, between order and chaos, is ever present: but it is accepted and managed, not denied. These organisations accept the uncertainty that must be managed in today’s world. In fact, they embrace it, knowing that this attitude is itself a competitive advantage.

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Automation is a game changer that is altering the industrial landscape. A Committee for Economic Development of Australia publication estimates that over the next 10 to 20 years, 40% of jobs in Australia have a high probability of being susceptible to computerisation and automation.

Smart businesses will approach the automation process from the front end and engage with their workforce in a manner that ensures the business is able to harness all of the productivity benefits from automation, without suffering the industrial dissention and dislocation which so often coincides with dramatic workplace change.

Planning and practical implementation is critical

McKinsey recently published “A CEO action plan for workplace automation”, highlighting the benefits of business harnessing automation processes within their workforces. However, it cautions the need for an appropriate plan of action.

From an industrial relations standpoint, preparing for automation sooner rather than later can provide a business with payoffs down the track.

Where the opportunity presents itself for a business to enter into a carefully tailored enterprise (or greenfields) agreement prior to implementing automation measures, such an opportunity should be seriously considered. If timed properly, this will minimise the impact on the business from workplace change, and maximise workplace flexibility to allow the business to easily transition, saving time, cost and mitigating the risk of workplace disputes arising.

Left to the last minute, an enterprise may face pitfalls in implementing technological change. For instance, should a round of enterprise bargaining be imminent, employees and their representatives will push for greater job security during bargaining through superior redundancy and retention type arrangements. These could slow change, and add cost and complexity. Late engagement and consultation may also create resentment and cause further disputes and delays.

Where workforce engagement occurs early, these issues may not be so prevalent, and a business can ensure that it has the appropriate flexibility mechanisms in place to easily transition. As reported in The Australian recently, NAB’s Andrew Thorburn reflects on the importance of planning for NAB to “retrain and redeploy” workers post-automation. Clearly, planning can deliver the best outcomes for all stakeholders.

Enterprise bargaining in the post-automation world

There are implications on an employer bargaining for a new enterprise agreement (or for a greenfields agreement over a new enterprise) that will cover the business post-automation.

For example, the ability to influence new roles that will be required from technological advances comes with the ability for an employer to:

  • effectively bargain for terms and conditions off a fresh slate as post-automation roles may result in coverage of employees with vastly different terms and conditions
  • use a different modern award (if any) as a base for terms and conditions
  • provide an employer with greater leverage in bargaining through dealing with a smaller, more specialised workforce
  • bargain in circumstances where the agreement’s coverage will dictate which union (if any) has a right to represent employees.

Of course, the need to engage workers with a different skill set may also provide a business with an opportunity for workers to grow in their careers, and present an environment in which cultural change might be effectively promoted and achieved. Viewed through this lens, technical change need not be seen as a negative from an employee relations perspective.

Implementation of process

‘Redundancy’ is the word that comes to most employees minds when they catch wind of an employer taking steps to automate elements of their work.

However, despite many claims made to the contrary, major technological change does not necessarily result in a workforce being decimated. Opportunities are inevitably presented from change for employees to upskill in order to fulfil different roles in the business (or elsewhere).

Unfortunately downsizing a workforce is, in a number of cases, a necessary step in achieving the full productivity benefits that are so attractive in implementing technological change. Again, early and effective planning can minimise forced job losses, and maximise opportunities to upskill.

Transparency and appropriate engagement with employees is critical during the process, as is implementing an appropriate consultation plan.

In a world where so many businesses are moving to automation, failure to take these steps may result in your business falling behind its competitors, change (and its benefits) being seriously delayed, or the often significant capital costs required blowing out.

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Within eight days of each other Bill Shorten and ACTU head, Sally McManus, have called for changes to the enterprise bargaining regime which is a central feature of Labor’s own Fair Work Act. Whilst we will no doubt hear more on this these statements would be chilling to many an employer who regards the current system as stacked against them.

To be fair, finding the right balance in a system which directly effects wage outcomes is difficult. But Labor’s legislation cemented collective bargaining as a central platform for agreement making and did away with a statutory regime to make individual agreements. In doing so unions were given the best legislative platform to date to compel employers to bargain – even with a union that has a minority membership interest in the business.

Mr Shorten cites low wage growth to make the case for change amidst greater productivity. The wages-work bargain is unfair it seems. Conversely employers will tell you that the “productivity lemon” has been well and truly squeezed from enterprise bargaining with little or no incentive for unions to countenance genuine trade-offs. In its inception back in the 1990s, enterprise bargaining presented an opportunity – to move away from inflexible centrally set terms and conditions to outcomes which better reflect the needs of the enterprise. It paved the potential for “win-win” outcomes. But no more. If macro data points to increased labour productivity, the nexus between this and collective bargaining will be very tenuous.

To this extent there is universal acceptance of a system unable to meet the needs of the workplace today and certainly not the future. If no agreement is reached, the status quo typically remains. In negotiations, speak the “Best Alternative to a Negotiated Outcome” for a union and employees is the status quo being the existing enterprise agreement. Very often, the genesis of these agreements were struck when the business was in a very different place – many years ago and when current competitive conditions were beyond contemplation.

Enterprise bargaining, once an opportunity is now an exercise in managing risk. This involves stemming the tide of increasing labour costs and avoiding claims which, for instance, prevent outsourcing or mandate third party involvement in legitimate business decisions. But there’s more. The system relies on a game of leverage. Unions can organise industrial action to effectively coerce employers to agree. Employers can lock employees out in response. Neither are very constructive in the long run. Ms McManus is calling for greater ease to take industrial action and tighter controls on employer lock outs. Mr Shorten wants to shut down the Fair Work Commission’s (limited) ability to terminate old enterprise agreements – which provides employers with a precious opportunity to remove outdated and restrictive clauses albeit not without a contested hearing process usually over some months.

So, inherent in the thinking of both Labor and the ACTU is a re-setting of the legislative levers of leverage which drive bargaining outcomes. For employers more of the same but worse. Employers will make agreements palatable in the short term only because the short term cost of the bargaining process (industrial action) is too high. Rational economic outcomes are thus easily distorted. Of course in the medium-long term the cost of making an agreement becomes intolerable. Restructuring, outsourcing, and offshoring become part of an inevitable ‘solution’ for employers.

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Employers will need to be prepared for close scrutiny of enterprise agreements that use a “small group” or “seed group” approach, following a number of recent developments in enterprise bargaining. The recent Federal Court decision in CFMEU v One Key sounds a cautionary note for the “seed group” strategy that some employers have been using in recent years.

In recent blogs, we have been looking at recent trends in enterprise bargaining including issues about how the group of employees covered by an agreement is selected. The trends include:

  • unions seeking to undermine enterprise agreements made without union involvement
  • the Federal Opposition’s proposal to prohibit enterprise agreements where the voting population is not “representative” of the agreement’s potential coverage.

The One Key case highlights the intersection of these developments and provides an example of how some enterprise agreements can be “undone” even years down the track.

What is the “seed group” strategy?

At a high level, the strategy involves an employer engaging with a small group of employees to make an enterprise agreement that will potentially cover a much larger group of workers in the future. The goal is this: establish an enterprise agreement on suitable terms which creates stability for up to four years, and can be rolled out to a larger workforce as recruitment “ramps up”.

How has the strategy been attacked by unions?

The strategy has seen some success, but has been the subject of attack from unions. Indeed, the CFMEU has said that it will “relentlessly” target deals to which it objects, and has attacked agreements made with “seed groups”.

Previously, one avenue of attack was to argue that such an agreement failed to meet the requirement that the group of employees covered be “fairly chosen”. That avenue was effectively closed in a case concerning John Holland, where the Federal Court said that there was nothing inherently wrong with a small group of employees voting on an agreement which might subsequently cover many more employees. The Court also said that the “fairly chosen” requirement does not mean that the group of employees had to be chosen in a “manner which would not undermine collective bargaining”.

A different line of attack was used in One Key, where it was argued that the relevant enterprise agreement had not been “genuinely agreed to” by the relevant employees. The Federal Court accepted that argument and determined that the enterprise agreement must be set aside (even though it had been in force for 2 years) because:

  • the agreement had been voted on by three employees with very “confined” employment experience; and
  • the three employees represented only a small sub-set of the group of employees who would be covered by the agreement – the three voting employees were covered by mining and construction awards, whereas the coverage of the agreement extended to future employees who would be covered by 11 different awards including those in the hospitality, road transport and manufacturing industries.

What does this mean for bargaining with seed groups?

Importantly, the Federal Court has not said that an enterprise agreement can never be made with a small group of employees that ultimately might cover a much larger cohort. However, the One Key decision does suggest that an employer may encounter difficulty if the employees who vote are not broadly representative of the range of different employees to whom the agreement will apply in the future.

In this way, the One Key decision emphasises that, unlike Jack trading the family cow for beans, there is no “magic seed” which will give employers quick and easy access to untold riches. While seed group agreements are legitimate, employers will still need to carefully consider the scope of an agreement and understand that a close examination will be made of whether the group of employees who vote is “representative” of the potential coverage of the agreement. This will be particularly important for agreements that cover multiple occupations and industries.

At a broader level, the debate remains whether enterprise bargaining is actually delivering a system of regulation of terms and conditions which are meeting the needs of employers and employees. That employers are seeking to adopt these strategies, and that debate has to be had about whether such a strategy is “legitimate” or not, does tend to suggest that the entire system needs to be revisited, rather than tinkered with.

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Trade union conduct is constantly changing, and our team have observed trends that are reshaping the boundaries, and that have already begun to impact our clients.

Policy Measures: increased scrutiny on trade union conduct

On the policy front, the conservative government has implemented three measures addressing unlawful behaviour by unions and their members based on the findings of former High Court Justice John Dyson Heydon AC QC in the Royal Commission into Trade Union Governance and Corruption in 2015.

Two key measures passed in late 2016.

The Australian Building and Construction Commission (ABCC) has been reformed and is expected to repeat the effective reform of union practices achieved by the previous ABCC in the mid-to-late 2000’s. The ABCC regulates building and construction industry participants its functions include implementing a code of practice to regulate workplace practices and taking action to prosecute breaches of workplace laws. Sanctions can be imposed to exclude companies from tendering for government funded building work. The return of the ABCC has generally been welcomed by the construction industry.

A new regulator was introduced. The Registered Organisations Commission (ROC) was established to enhance governance and financial accountability of trade unions following multiple findings of misuse of union funds. The regime draws upon statutory duties placed upon company directors under Australia’s corporations law. Financial reporting and disclosure obligations have been strengthened, and penalties for non-compliance have increased, including criminal offences for serious breaches. New whistle-blower protections have also been introduced.

Further new laws have been proposed to prohibit making or receiving corrupting payments at the direction of unions, bringing greater accountability to unions and their office holders.

Novel application of anti-bullying protections

A recent decision of the Fair Work Commission (FWC) in its anti-bullying jurisdiction provided a novel application of existing law to address unlawful behaviour by unions in industrial disputes. The decision recognises that abusive or offensive conduct directed at other workers won’t be excused in the heat of industrial battle.

The catalyst for the dispute was a change of contractor providing maintenance services at the site on terms opposed by the unions. The dispute was heated, and a picket at the site continued for almost six months. Drawing on the power to name and shame, the union-led campaign included extensive use of social media (some against individual workers), a boycott of the targeted company’s products and fundraising activities.

A key priority for the new contractor was to protect its workers from being bullied at the site and on social media. The FWC made orders against unions and officials to restrain conduct directed at workers entering or leaving the site during the dispute.

The FWC orders prevented:

  • photographing, filming, or digitally recording any of the workers (or attempting to do such things);
  • abusing or harassing workers, including calling out offensive or insulting names, including “scab” or “dog”;
  • accosting or obstructing workers;
  • holding up any signs or material at the picket which contain offensive or insulting language towards the workers; and
  • approaching a worker, any vehicle driven by a worker or a vehicle in which a worker is a passenger.

The FWC determined it appropriate to make orders protecting the identities of workers seeking orders. This should provide comfort to workers subjected to similar tactics in future.

This matter represents the first time the FWC has made anti-bullying orders against a union and picketers in relation to protest activity and represents a novel and effective use of the FWC’s anti-bullying jurisdiction by employers. Before this decision, the FWC’s anti-bullying jurisdiction, which commenced in 2014, has most often been used by individual employees against employers and managers.

Traditional employer responses to picketing have involved seeking injunctions to stop such activity, which can be time consuming and costly. The FWC’s anti-bullying jurisdiction supplements these options with a quick and cost-effective alternative to counter intimidation during union organised picketing.

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The gig economy is only one of the reasons that workers of the future will not have close connections with one employer or business – another is the movement towards arranging their life so that they spend substantial periods of time not working at all.

The trend towards regularly spending long periods of time away from the workforce is highlighted in an article by Christine Long in the Sydney Morning Herald considering people who only work a few months of the year, and the renowned demographer Bernard Salt’s column in The Australian that looks at changes that millennials will bring to the workforce. Both identify movement towards:

  •  workers wanting to spend significant time doing other things – beyond the traditional two year stint in London, many millennials (and even Gen-Xers) want to spend months every year travelling or pursuing personal interests. Workers no longer feel a need to hold down a steady job the whole year or to take only four weeks leave per year
  • to achieve that goal, workers seek flexibility by negotiating specific employment arrangements or engaging with businesses strictly on their own terms – eg establishing their own service business and working where and when (and for how long) they choose
  • for the above reasons, workers will interact with organisations on a sporadic basis – they will not have long-term or even regular engagements with one business.

The stability employees once sought through steady employment with large companies, to support nuclear families, will be relegated to the history books for an ever increasing number of Australians. And as more and more millennials enter the workforce, we will continue to see business practices needing to adapt to these changes.

As we‘ve mentioned, substantial legislative reform will be necessary to make sure that these developments are properly catered for – and balanced against social expectations about minimum wages and other entitlements.

But, how will your organisation cope in the meantime? From our work with clients, and our own experience starting from the ground up in Australia four years ago, we have identified a need to:

Consider business need before engagement. Mindful of the nature of your business, your legal risk profile and appetite for change, consider if your current business need can be properly supported with workers taking substantial periods away. Carefully examine whether it is best to engage such workers as independent contractors or employees and if you’re ready for the administrative overheads involved in a change to the way workers are engaged.

Think about how the arrangements will work in practice. You need to examine the legal implications of the treatment of time away from work. If you use employment arrangements, consider how unpaid leave can be handled, as there may be impacts on length of service (which may impact things like accrued leave and access to unfair dismissal). Think about ways you might be able to build connection and loyalty so that the worker is willing to be there for you at short notice.

Re-visit your contracts and workplace policies. You will need to ensure your contracts and policies clearly and comprehensively deal with the organisation’s expectations about long-term absence and when it is prepared to enter into flexible arrangements, preferably at the organisation’s discretion.

Business continuity. While no business is assured continuity, you must consider how you will manage operations on critical processes and projects when workers want to take substantial periods away, including how you will achieve satisfactory knowledge transfer. You will need to look at whether you can support business continuity by covering long periods of absence with another flexible worker – including, perhaps, using job share arrangements or short-term engagements.

On-boarding and off-boarding. Resources should be allocated to processes to on-board and off-board workers on these arrangements. For roles that have critical safety risks, you must ensure you fully understand your duties to protect yourself from legal risk.

Our ‘future of work’ series has been considering how businesses will need to grow and adapt to changes to the way in which work will be performed in the future. Many of these developments flow from significant advances in technology that we have seen over the last 20 years – for example, increased automation, increased use of robotics and increased computing power have made many traditional roles redundant, while Increased communications potential has meant that many workers can perform their roles flexibly. We understand these developments as the law firm known for our role in transformational legal industry and labour and employment issues, we believe it is our responsibility to harness our knowledge, experience and relationships to forge a path for the Future Employer.

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We have been watching with close interest the exponential expansion of crypto-currencies. These instruments, such as Bitcoin, Ethereum and Litecoin, are methods of secure, electronic transfer of value between individuals using advanced digital encryption techniques – without any central regulation by government.

Recent research published by The Conversation suggests that crypto-currencies are showing no signs of being merely a speculative bubble. With their recent translation from purely online origins into tangible interfaces, for example, the establishment of Bitcoin ATMs in Australia, employers need to consider not only the future of work, but the future of the ways in which businesses will be able to, or might want to, reward contribution.

While crypto-currencies remain in their infancy, the likely speed of growth of direct, electronic-based, decentralised, financial interactions between individuals mean that they are likely to grow in relevance as consumers become more comfortable and familiar with their use – and possibly overcome their fear!

As more transactions occur in crypto-currencies, businesses may find that they collect some of their revenue in crypto-currency or that their contributors ask to receive reward in crypto-currency. In both these scenarios, the business will be under pressure to use a currency that may be rather different to what they have been used to.

But what does this mean for the way in which a business will interact with its contributors? There are two separate groups of contributors that need to be considered at the moment:

  1. where a business employs a worker in Australia, a business will generally need to pay the worker in “cash” for the work they have performed, as result of particular provision in the Fair Work Act. This provision was originally designed as a protective system for employees – it prevents an employer trying to implement a system where an employee is paid “in kind” a prohibition which originally from the old UK “Truck Acts”, preventing employers paying employees in goods (but that’s for a future blog to explore). Payments in kind present obvious challenges in relation to the value that is placed on the good or service that the employee would receive – requiring cash payment reduces the prospect that the employee might be short-changed.
  2. where a business engages a worker as an independent contractor, there is significantly less regulation in Australia. There are no express prohibitions on businesses giving contractors reward in something other than cash – arguably reward could be given in Bitcoin or other crypto-currency.

Obviously, as crypto-currencies become more widely accepted (though the total market capitalisation across crypto-currencies already well exceeds USD 100 billion), we may see the employment legislation develop to allow alternative payment methods – but this may well be a decades-long evolution rather than a Che Guevara style revolution.

Importantly, though, viewing the workforce through this lens reflects the trend we are seeing – as the basis on which the workforce is engaged shifts over time away from traditional employment and towards independent contractor gigs, it is likely that even without legislative reform, businesses will have increasing flexibility in the way they pay for the services that are provided.

Our ‘future of work’ series has been considering how businesses will need to grow and adapt to changes to the way in which work will be performed in the future. Many of these developments flow from significant advances in technology that we have seen over the last 20 years – for example, increased automation, increased use of robotics and increased computing power have made many traditional roles redundant, while Increased communications potential has meant that many workers can perform their roles flexibly. We understand these developments as the law firm known for our role in transformational legal industry and labour and employment issues, we believe it is our responsibility to harness our knowledge, experience and relationships to forge a path for the Future Employer.

Subscribe to receive the next blog in our Future of Work series direct to your inbox.

One of the more interesting recent developments in relation to work has been the continual rise and development of the gig economy – that is, workers developing niche areas of specialist expertise, but having careers characterised by a series of interactions with various organisations, rather than being employed by one company for many years. This doesn’t just mean a person working in multiple jobs over the course of their life, but that they are much more likely to be running their own independent business providing services to customers.

Over the last 15 – 20 years, many businesses have made the distinction between core and non-core functions, using that distinction to drive and make judgment calls about the nature and form of their relationships with those contributing to their business (including employees, contractors, suppliers or others). With the development of the gig economy, businesses will need to be more sophisticated in their analysis, taking a much more fundamental and holistic view of how they want the business actually to operate – entrepreneurs, leaders and managers need to consider how the emerging gig economy will impact on the structure of the business’s relationships with its contributors.

So, how can your business make the most of the opportunities that a gig economy offers, while also managing the legal, reputational and business risks of dealing with multiple independent contractors?

Employment and industrial law may be slow to catch up with these developments – indeed, it has only been within the last five to seven years that the industrial tribunal in Australia revisited the whole way in which awards work (with the result that a simplified system has been developed, albeit one still focussed on a traditional employment model). But sophisticated businesses with an eye on long-term success will be looking at a range of issues now to make sure they are ahead of the gig movement:

  • how to ensure that customer experience (“CX”) remains consistent over time if customers interact with different personnel each time (perhaps, for example, by using CX metrics as part of the contractor reward system)
  • how to ensure that the business is properly resourced and able to respond to urgent customer demands with a workforce that does not necessarily have any particular loyalty
  • which labour markets the business will use to source gig workers – will we have a “Beta vs VHS” winner or live with an “Apple vs Android” solution? Will the business accept the standard terms associated with using markets like Airtasker?
  • whether to develop a standard form for the engagement of contractors/gig workers, and how to ensure that the right type of engagement is used in each circumstance
  • how safety systems and processes need to adapt as the pendulum swings from workers being employees to workers only lightly touching the periphery of the business from time to time – will you need to re-evaluate your risk profile?
  • how the legal risks associated with gig workers are managed and ensuring that systems insulate the business as far as possible from legal claims, such as sham contracting
  • the increased interest by regulators in how businesses are interacting with their workers.

Our ‘future of work’ series has been considering the ways in which businesses will need to grow and adapt to changes to the way in which work will be performed in the future. Many of these developments flow from significant advances in technology that we have seen over the last 20 years – for example, increased automation, increased use of robotics and increased computing power have made many traditional roles redundant, while Increased communications potential has meant that many workers are able to perform their roles flexibly. We understand these developments as the law firm known for our role in transformational legal industry and labour and employment issues, we believe it is our responsibility to harness our knowledge, experience and relationships to forge a path for the Future Employer.

Subscribe to receive the next blog in our Future of Work series direct to your inbox.

Enterprise bargaining is down. That’s the big call out from the Department of Employment Report on Enterprise Bargaining February 2017. Comparing private sector agreement numbers from 2014 there is a reduction by a third overall, with close to 50% less in retail and construction and around 20% in most sectors.

As a result, the number of employees covered by current agreements (ones that haven’t expired) has declined. The decline is felt in respect of both union and non-union agreements.

If fewer agreements are being made or perhaps, more accurately, are taking longer to be replaced, why? The economic environment has a big part to play particularly in some key sectors. Unions are finding it harder to secure deals – obviously. Is this a function of the economic environment or is it a function of a longer more systemic trend borne out of declining union density, and therefore union organising power? Probably both.

The agreement making numbers are down, particularly in smaller enterprises. Unions are best placed to focus their resources on larger employers where the potential membership pool is larger. On the employer side, the cost of making a new agreement (2% per annum plus wage increases) outweighs the pain (union pressure/employee discontent) of not doing so. An employer’s “BATNA” (best alternative to a negotiated agreement) is the status quo. There is more leverage for employers in an environment where the termination of expired agreements is more readily available than once thought.

When this occurs employers start thinking about a concept that gets revisited every decade since the dawn of enterprise bargaining: “beyond bargaining”. How can we, the employer, operate in a sustainable, risk-free way without enterprise bargaining? The solutions here are well known, but long term and resource intensive. It relies on two key premises:

  • First, there is nothing to be gained operationally by enterprise bargaining. The “productivity lemon” has been well and truly squeezed. Employers consistently tell us this.
  • Secondly, bargaining can be avoided with manageable risk. Put another way, any risk associated with the bargaining process (read “industrial action”) does not outweigh risks associated with making an agreement which, in the longer term, risks the viability of the enterprise.

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.