Flat White

It’s time to give enterprise bargaining the boot

7 February 2020

4:01 PM

7 February 2020

4:01 PM

ACTU secretary Sally McManus believes Australia’s enterprise bargaining system is “broken. While Jennifer Westacott, CEO of the Business Council of Australia may not have used the same expression, she has effectively admitted its accuracy by saying enterprise bargaining is “slowing collapsing in front of us”. Although the ACTU and BCA essentially agree on the current state of the bargaining system and both organisations are pressuring the federal government to find solutions, Australia would be better off overall without this industrial relations policy.  

Enterprise bargaining generally involves an employer and a group of employees collectively negotiating wages and conditions instead of using an applicable award.  During the 1990s and the first part of this century, it provided workers with higher wages and boosted labour productivity for most employers. Today, however, there are very few tangible benefits for either workers or small and medium-sized businesses to warrant its resurrectionwith benefits almost exclusively flowing to big unions and big business. It is self-interest that is driving both the ACTU and the BCA to revive the bargaining system and they have become increasingly desperate. Westacott is adamant that we can’t let enterprise bargaining “die the death of a thousand cuts” and has even proposed employers and unions “sit down and save the enterprise bargaining system”.  

Both the ACTU and BCA rely on similar strategies to push for a revival of enterprise bargaining. Predictably, the ACTU is relying on Labor winning government and changing our IR laws to give big unions more bargaining power, despite this strategy failing in 2019. Similarly, the BCA is relying on the current Coalition changing our IR laws to make it easier for big business to have enterprise agreements approved. However, resurrecting enterprise bargaining is unlikely to improve labour productivity. 

The growth in labour productivity, a key element for improving the living standards of all Australians, is currently negative. Far from being a solution, enterprise bargaining offers little or no opportunity to trade off higher wages for productivity improvements at the workplace. The vast majority of enterprise agreements specify wage increases of up to four years in advance, while increasingly containing restrictive work practices. Many union officials refuse to accept meaningful productivity improvements during bargaining. It is a fallacy that reviving enterprise bargaining will contribute to boosting Australia’s declining labour productivity. 

It is almost three decades since enterprise bargaining commenced. During this period our bargaining system has produced many regrettable outcomes, including:  

  • Big unions and big businesses unlawfully forcing some workers, including younger workers, to join unions in exchange for reducing workers’ penalty rates; 
  • Big unions and big businesses making questionable deals, resulting in the wages & conditions of hundreds of thousands of workers being worse off  
  • Big unions and big businesses breaching privacy laws due to the latter sharing their workers personal information with the former, without workers’ permission; 
  • Big unions and big businesses profiting by forcing small and medium-sized businesses, as well as sub-contractors, to pay the same excessive wages & conditions paid by big businesses in some industries or risk losing work; 
  • Big unions and big businesses colluding to destroy competition and labour productivity in some industries in order to profit; 
  • Some big unions and some big businesses regularly agreeing to unsustainable wages & conditions without productivity improvements, resulting in those businesses obtaining billions of dollars of taxpayer subsidies and undertaking massive job cuts when taxpayer subsidies ended; and  
  • Big unions and a small number of employer groups working together to siphon off millions of dollars of workers’ money contained in worker entitlement funds. 

Today, our enterprise bargaining laws are a tangled web of highly technical requirements, regulations and rules, intertwined with complex and sometimes contradictory legal decisions. There are almost 100 sections of legislation in the Fair Work Act 2009 (Cth) specifically devoted to enterprise agreements, which then interact with hundreds of other sections within the legislation. It is little wonder that the Fair Work Commission website contains a 266-page guide on enterprise agreements! 

For the vast majority of employers, enterprise bargaining involves an enormous amount of time, effort and money, including whether proposed enterprise agreements pass the convoluted better-off overall test (BOOT). This test assesses whether employees are better off under enterprise agreements compared to applicable awards and is one of a number of factors which determine whether enterprise agreements are approved.  It is no surprise that enterprise agreements are being abandoned by employers where possible and increasingly terminated in favour of using applicable awards, in conjunction with an employment contract. While the use of awards is often viewed by employers as the least worst option, they have significant drawbacks.  

Awards remain inflexible, contain too much content and are overly complex, particularly when a business has to use multiple awards across its workforce. It is an indictment on our industrial relations system that in the year 2020, in many cases the only opportunity to pursue productivity or workplace flexibility comes from our highly prescriptive and antiquated award system. However, a return to awards will not boost Australia’s labour productivity and ultimately improve living standards.  

While the total number of awards was reduced from over 1500 to 122 more than a decade ago, a legislated review of the remaining 122 awards which commenced in 2014 has made awards even more prescriptive. This review has yet to be completed 6 years later! An award simplification process is now desperately needed, particularly as enterprise agreements are based on the applicable award. 

The process of simplifying awards could occur by removing many of the essential clauses commonly contained in all 122 awards, redrafting those essential clauses and including them in the current list of legislated National Employment Standards (NES). By reducing the number of award clauses and expanding the NES, the total number of awards could be progressively reduced. Additionally, with incremental improvements, the NES would become the legislated safety net instead of awards.  

Before this important reform process can begin enterprise bargaining should be abandoned. After all, if enterprise bargaining is detrimental to workers and small and medium-sized businesses, surely the current federal government should ensure this industrial relations policy is given the boot.

Sam Puri is an advocate for industrial relations reform. 

Got something to add? Join the discussion and comment below.

Got something to add? Join the discussion and comment below.

Show comments