Productivity commission to conduct generational review of Industrial Relations laws

In December 2014, the Australian Government asked the Productivity Commission to undertake a broad enquiry into Australia's workplace relations framework and make recommendations about how current laws can be improved to maximise outcomes for Australian employers, employees and the economy.

The Productivity Commission recently released five "issues papers" setting out the scope of its inquiry and inviting public submissions and comment about Australia's workplace relations system.  The Productivity Commission's final report is scheduled to be released in November 2015.

The issues papers broadly contain a summary of the objectives of Australia's workplace relations system, the safety net provided by minimum wages, awards and National Employment Standards, enterprise bargaining, employee protections, compliance costs and institutions in the system.  Each issues paper includes a range of questions posed by the Productivity Commission to interested stakeholders, including unions, employers and employees.

The enquiry in context

In its first issues paper, the Commission states that it is "open to lateral suggestions [about changes to the workplace relations system] so long as they are practical, beneficial and backed by solid evidence and argument." 

The paper acknowledges flaws perceived with the current system by businesses, including issues relating to lack of flexibility, high negotiated wage rates, failure to encourage productivity, high penalty rates and costly and slow unfair dismissal laws.   Concerns raised by unions include lack of safety nets for workers other than employees, sham contracting, narrow general protections, limitations on the scope of bargaining, narrow rights to request flexible working arrangements and perceived impediments to collective action.

Safety nets

The second issues paper discusses employment safety nets, including the minimum wage, National Employment Standards, awards and penalty rates.

In relation to minimum wages, the Commission is asking for feedback on issues including the effects of the minimum wage on households, special minimum wage arrangements for juniors, trainees and apprentices, the impacts of minimum wages on employment and particular groups of people, the best process for setting minimum wages, the effect of minimum wages on incentives to increase skills and whether or not there should be a process to allow the minimum wage to vary by State, Territory and region.    

The National Employment Standards (NES) specify mandatory minimum standards for leave, hours of work, termination of employment, redundancy and other entitlements, which cannot be excluded by awards, enterprise agreements or employment contracts.  The Commission has identified that these standards, like minimum wages, "could impose a cost on employers that might exceed the marginal benefits of hiring some employees."  

The Commission has indicated that it does not intend to undertake a full review of the NES, but it has invited submissions on any particular features that should be changed, highlighting differences between long service leave entitlements in different states and the impacts of minimum standards on workplace flexibility and compliance costs as potential areas of concern.

Penalty rates are also up for review.  Of the 122 current modern awards, 116 specify penalty rates, with the actual rates varying depending on the industry and day and time worked.  The issues paper acknowledges that positions on particular penalty rates are "polarised" and identifies social and regulatory changes, including increased expectations of weekend work and trading, as potential arguments against the regulation of penalty rates for working weekends or evening.  The Commission has invited submissions as to whether penalty rates should continue to be regulated (and if so, what methodology and benchmarks should be used to determine the rates) or be unregulated and left to the market.

The Bargaining Framework

The third issues paper indicates that "an overarching concern will be the extent to which bargaining arrangements allow employees and employers to genuinely craft arrangements suited to them". 

The Commission has acknowledged concerns expressed by employers about replica enterprise agreements, particularly in the construction industry, reflecting an appearance of pattern bargaining (a practice prohibited by the Fair Work Act).

The issues paper also identifies potential concerns about the content of enterprise agreements (including union deductions from wages, the capacity of unions to represent employees and terms restricting the use of independent contractors or labour hire) and asks about the appropriateness of the current better off overall test (BOOT).   The current government has proposed changes to this test "to make it clear that non-monetary items such as flexibility for an employee about when they work can be considered as part of the BOOT."   

The current lack of emphasis on productivity in enterprise agreements is also a topic up for discussion.  The current government has proposed to introduce rules that require discussion of productivity improvements to occur as part of the bargaining process; however these rules would not actually impose any requirement that terms directed at increasing productivity be included in an agreement.

Employee Protections

The fourth issues paper discusses employee protections, including unfair dismissal, anti-bullying laws, general protections and adverse action and employee protections outside the workplace relations system.  

This paper observes that "unfair dismissal provisions have imposed modest, but not trivial, costs on employment and businesses, but had uncertain impacts on productivity".  Issues canvassed by the paper include the potential for employers to be reluctant to employ people with a higher perceived risk of underperformance, higher costs of employment due to unfair dismissal claims being reflected in employment terms or wage rates, potential for protected unfair dismissal proceedings to increase workplace tensions, potential improvements to personnel management systems due to the procedural requirements of the unfair dismissal regime, compliance costs associated with unfair dismissal and payment of "go away money" to settle unjustified claims.

Amongst other things, the Commission is inquiring as to whether or not the tests used by the FWC in determining whether conduct is unfair are appropriate, whether current caps on unfair dismissal compensation are appropriate and what the effects of unfair dismissal arrangements are on costs, productivity, recruitment processes and employment.

Other workplace relations issues

The fifth issues paper outlines a variety of additional workplace issues, including the efficiency and effectiveness of the workplace relations systems institutions (including the Fair Work Ombudsman and Fair Work Commission), the compliance costs of the workplace relations system (particularly on small business) and the role played by alternative forms of labour, such as independent contracting and labour hire, in the economy.

The paper acknowledges the complexity of the workplace relations system, recognising that this complexity can lead to mistakes, as well as high compliance costs for employers.   

An important question raised by the issues paper is whether the current system overly frustrates or encourages independent contracting as an alternative to employment.  The Fair Work Act makes it unlawful to disguise an employment contract as an independent contract and currently, a complex common law test is used to determine the true relationship between contracting parties.  The issues paper raises the possibility of a statutory definition being adopted, with the intention of making the test simpler and reducing room for ambiguity and errors.

Minister for Employment, Senator Abetz has described the Productivity Commission's task as a "once in a generation review" and encouraged interested parties to share their views with the Productivity Commission.  In a media release issued on 22 January 2015, Senator Abetz stated that any recommendations from the review that are adopted by the Government will be taken to the Australian people in the 2016 election.    

Initial submissions from the public are due by 13 March 2015, and further comment will be sought by the Productivity Commission once its draft report is released.

For more information contact:

Jim Rutherford
Principal
Harwood Andrews
T: 03 5226 8579
E: jrutherford@harwoodandrews.com.au

Sonia McCabe
Senior Associate
Harwood Andrews
T: 03 5226 8558
E: smccabe@harwoodandrews.com.au