Today, the Productivity Commission released a draft report on its once in a generation review of the Australian workplace relations framework (see related article - Productivity Commission to Conduct Generational Review of Industrial Relations Laws).

The draft report outlines the key issues identified so far during the inquiry, discusses some of the draft recommendations and findings of the Productivity Commission, and invites feedback and comment from stakeholders on a variety of issues.

In summary, the Commission has identified that Australia’s current workplace relations framework is not dysfunctional and that it needs repair – not replacement. Key areas flagged for improvement in the draft report include:

  • the structure and operation of the Fair Work Commission (FWC) and the Fair Work Act 2009 (Cth) (Act) – the Commission suggested that the Act and sometimes, the FWC, can give too much focus to procedure rather than substance, leading, in some cases, to poor outcomes and compliance costs. Examples given include that minor procedural defects during enterprise bargaining can require an employer to recommence bargaining, and lapses in procedure in otherwise justifiable dismissals can result in awards of compensation being made under the unfair dismissal framework. Draft recommendations have been made to introduce more merit focused conciliation processes in unfair dismissal claims, and adjust the penalty regime for unfair dismissal cases to avoid reinstatement or compensation orders being made as a result of procedural errors by employers.

  • the process and considerations involved in minimum wage setting – the Commission noted that minimum wages are justified and considers that the view that existing minimum wage levels are highly prejudicial to employment is not well founded, but notes that significant increases to minimum wages do pose a risk for employment.

  • awards – the Commission recognised that some awards have undesirable inconsistencies and rigidities but nonetheless serve as an important safety net and benchmark for many employers. The Commission suggested that specified troublesome hotspots should be addressed by the FWC rather than existing awards being completely replaced.

  • penalty rates – the Commission recognised that penalty rates have a legitimate role in compensating employees for working longer hours, or at unsociable times, but has recommended that Sunday penalty rates for cafes, hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates.

  • enterprise bargaining – the Commission found that this generally works well but is often ill-suited to smaller businesses. It also acknowledged that the current “better off overall test” may be causing a loss of flexibility for employers and employees. The introduction of a ‘no-disadvantage’ test has been encouraged as a replacement for this test, for both enterprise agreements and individual flexibility arrangements. In addition, the Commission identified scope for a new form of agreement - the ‘enterprise contract’ — to fill the gap between enterprise agreements and individual arrangements and has recommended permitting employers and employees to enter into individual flexibility arrangements dealing with any matters agreed between the parties, as well as the limited matters which are currently permitted. The Commission also recommends that terms of enterprise agreements which would restrict or regulate the engagement of independent contractors or labour hire workers should be made unlawful.

  • industrial action – the Commission noted that industrial action in Australia is at low levels and identified that some minor tweaks are required, including changes to the processes for secret ballots, which can be overly complex, and restricting the FWC from making a protected action ballot order until enterprise bargaining has actually commenced.

  • sham contracting – the Commission has acknowledged arguments that the current common law test for determining whether a worker is an employee or independent contractor lacks clarity and can lead to inadvertent errors as well as making enforcement difficult, but noted that it is hard to develop a better legislative test. The draft report comments that it seems too easy under the current sham contracting test for employers to escape prosecution, and notes that recalibration of this test may be required, after further consideration.

This report is a draft only and the Commission has emphasised that some of its positions may change based on new information.   Comments and submissions to the Productivity Commission on the issues raised in the report are invited to be made by 15 September and the Commission’s final report is expected to be provided to the Government in November 2015.

For further information please contact:

Jim Rutherford
Harwood Andrews
T: 03 5226 8579

Sonia McCabe
Senior Associate
Harwood Andrews
T: 03 5226 8558