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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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?