enterprise bargaining

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On 12 December 2013 Seyfarth Shaw announced our Australian offices were officially open for business. Today marks five years since those doors opened.

What better way to reflect than to ask ourselves, what have been the biggest changes in our specialist areas of law over those five years?

“It has become increasingly difficult to make enterprise agreements that are compliant, genuinely enterprise-focused and fit for purpose due to increasing modern award complexity combined with the unworkable approach adopted in decisions of the Fair Work Commission and Federal Court to the BOOT and other procedural aspects of agreement making.”
– Rachel Bernasconi

“Over the past five years, I have observed the tension between sharing improved safety lessons and legal risk. I am concerned about compounding this potential unintended consequence with the rise of the industrial manslaughter offence.”
– Paul Cutrone

“I think the biggest development in employment and industrial law is how courts and tribunals are grappling with modern expectations of what ‘working’ looks like. This means they are looking at how to deal with the gig economy, flexible working arrangements (including working from home and telecommuting), employees wanting lengthy periods away from work and ‘portfolio’ careers. There is a real tension as employers seek flexibility to ensure customer demands are met while balancing the costs of labour vs employee representative groups seeking to pull the other way, seeking automatic casual conversion rights and laws that treat gig workers as employees. The next five years will see this tension play out in the policy debate.”
– Ben Dudley

“The most significant change I have seen is increasing employee mobility. Employees of large international organisations are spending more time on assignment in locations throughout the Asia Pacific, on both a short-term and long-term basis. We see this occurring as a result of organisations expanding their operations throughout the region. Employers are increasingly seeking specialist employment advice on both a single jurisdiction and multi-jurisdiction basis, including to confirm compliance with new frameworks and to ensure the appropriate arrangements are in place.”
– Luke Edwards

“The last five years has cemented a realisation that has been brewing for the last ten years. Enterprise bargaining amidst the current regulatory environment has reached its use-by date for many employers. Enterprise bargaining is no longer an opportunity to secure win-win outcomes but rather a process aimed at reducing the risk to on-going operations.”
– Chris Gardner

“There has been a shift away from spending money on large, wordy paper systems written by lawyers. I question whether anyone is any safer once they are developed. Smart organisations are investing heavily in understanding their key risks, controls and testing the effectiveness of those controls. This is where their efforts need to be.”
– Jane Hall

“One of the most significant developments I have seen in the last five years is the rise in the influence of workplace regulators. Consistent with the overall dynamic facing corporate Australia, we are seeing far more active, better resourced and assertive regulators across various workplace issues. The environment is one of heightened focus on compliance with workplace and safety laws; the financial and reputational stakes are higher than ever for employers who fall short.”
– Darren Perry

“Over the past 5 years, we have seen a number of areas where our Fair Work Commission cannot speak with one voice. While many parts of its jurisdiction have been affected, it is most noticeable in individual claims. How the Fair Work Commission balances even very serious conduct against mitigating factors remains unpredictable and has resulted in flip-flopping which creates ongoing uncertainty. This is costly and time consuming. Faced with cost and uncertainty we are seeing our clients feel pressure to settle rather than defend a sound and rational decision to uphold reasonable standards of conduct. The absence of clear statements of principle from the Fair Work Commission (such as we had in the past) and its increasingly subjective approach creates uncertainty, inefficiency and unfairness of a different kind.”
– Henry Skene

“The changes have been many and varied. What I am seeing is increased competition across a number of industry sectors, which means there is a war to retain and protect the most talented staff, who are the engine of the business. This has led to a big uptick in restraint of trade work – a highly specialised area which can be compared to a game of chess. We are passionate about this area of law and have built a specialist service model that in our opinion is market leading – whether it be getting into court within a matter of days when necessary, to defending applications for injunctions or damages. Our clients recognise that a good restraint is a business asset, and invest accordingly.”
– Michael Tamvakologos

On behalf of the team, we would like to thank the truly valued supporters of Seyfarth Shaw in Australia. We are excited to continue to work with you into 2019, and beyond.

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At a recent industry conference, a keynote speaker talked about great outcomes a number of our clients achieved in a critical enterprise bargaining round.

One observation was the importance of “patience“ – with which we would wholeheartedly agree.

So it got us thinking about ingredients for success.

Here are some key ones, borrowed from our bespoke workshop process dedicated to this end.

  1. Clarity of need: articulated and connected to the business needs
  2. Gain v Pain: clarity of what’s needed and the pain points along the way
  3. Leadership: the bedrock of any project
  4. Strategy: integrated – articulated – understood
  5. Planning: which falls out of the strategy and in respect of which one can never do enough
  6. Alignment: cemented by sound governance
  7. Resilience: which comes back to leadership

Each can be strengthened for any employer embarking on a bargaining campaign by the taking of tangible steps. You might not be perfect on each but it’s possible to ‘move the dial’.

Would you like to hear more about our workshop process for enterprise bargaining? Contact Chris Gardner.

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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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According to the Shadow Minister for Workplace Relations, Brendan O’Connor, (collective) bargaining power has tilted too much in favour of employers. This would rankle many an employer who, amongst other things, would feel the intense irony of Labor asserting that its workplace law, The Fair Work Act (The Act) carries employer bias.

A key tenet of Shadow Minister O’Connor’s National Press Club speech is that employers are “gaming” the Act. He relies on the example of an employer that sought to outsource work and have the services performed by a third party. Hardly remarkable. So what might employers say about this? In what ways do unions “game” the Act? Here’s a short list. Some involve taking advantage of existing laws and are therefore legal. Some are not.

Unlawful picketing – the relatively slow, expensive and difficult legal process to remove an obstructive picket provides a union with massive leverage in bargaining or a dispute (such as was the case in the example cited by Shadow Minister O’Connor). The ends justifies the (illegal) means it seems.

Unlawful industrial action – often taken for short periods but with maximum impact knowing the employer is unlikely to seek meaningful redress because the cost, effort and ‘pay-back’ is not worth it.

“Subterranean” industrial action – mass sickies or “go-slows” which are often hard to prove as industrial action and again very potent.

Threats of industrial action – made in bargaining but often not followed through. Sure, it’s better to not have the industrial action, but the employer needs to assume it is happening and in turn that it won’t be able to meet supply needs. Try running an airline on this basis.

Minority interests rule – in a system aimed at ‘the collective’, it’s nonetheless very often the interests of a powerful minority in the workplace that dictate bargaining outcomes. True, the majority are often passive and hence you might say ‘in agreement’. But the reality is very different.

Agreements made without union involvement are undermined – agreements are technically made with employees. Many have union involvement. Some do not. As you can imagine, unions will often take every point and make every attempt to delay the making of a ‘non-union’ agreement whatever the consequences for the employees who have made the deal.

Taking industrial action without bargaining in good faith – because the law doesn’t require this.

Preventing legitimate change – using legal processes to stymie change, because the union and typically a minority don’t like it. Delay costs an employer money and/or progress and who knows what can be extracted from more time. Sometimes the change is for the better health and safety of employees and delay is potentially at their expense.

Bad employee behaviour is supported – not always, but all too often, where the behaviour is that of a loyal union delegate whose absence from the site means the loss of a vulnerable union foot soldier.

Am I generalising? Yes. Would there be plenty of employers and peers of mine who agree with the above assessment? Yes.

See our related blog Proposal to outlaw “unrepresentative” enterprise agreements – when will an enterprise agreement be undone? for additional commentary on the Shadow Minister’s speech.

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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. Continue Reading Proposal to outlaw “unrepresentative” enterprise agreements – when will an enterprise agreement be undone?

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. Continue Reading The trend is your friend: why enterprise bargaining is down

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”.   Continue Reading What lies beyond enterprise bargaining?

We’ve been doing work in a range of sectors facing challenging enterprise bargaining negotiations. Legacy arrangements made in the past are no longer fit for the future.

What are the some of the key success factors for employers who achieve gain from a difficult enterprise bargaining negotiation?

Infographic

As with any significant project, leadership is critical.

A ‘burning platform’ galvanises clarity of need. What is the gain needed and what ‘pain’ is tolerable in its pursuit?

A well run campaign demands solid resourcing and alignment across the business in what invariably becomes a multi-dimensional project. Often, it gets tough and resolve is critical but this is where planning is invaluable.

In our unique enterprise bargaining workshops we take clients through a process which addresses each of these issues to form a bedrock for success.

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”. Continue Reading Successful enterprise bargaining – Move from being a “price taker” to a “price maker”