Enterprise Contracts Detract from Productivity Commission Mission to Improve Fair Work
The Productivity Commission (PC) Workplace Relations Review’s draft report intends to repair not replace the Fair Work system. Yet its proposal for a new regulatory instrument called an Enterprise Contract is counter to the objectives of the Act, unnecessary and even likely to produce negative unintended consequences. New research suggests reform efforts would be better directed at improving the existing collective bargaining system.
The objectives of the Fair Work Act include ‘an emphasis on enterprise‑level collective bargaining underpinned by simple good faith bargaining obligations’ as well as ‘enabling fairness and representation at work’ and ‘acknowledging the special circumstances of small and medium‑sized businesses’. The Productivity Commission’s proposed new instrument is not consistent with these objectives, and actually works against them. A key benefit of the Fair Work system was that it consolidated a variety of union and non-union agreements into a single stream geared toward collective bargaining.
Collective bargaining is considered a human right by international conventions and the UN’s International Labour Organisation. Instead of exploring ways to better achieve the Act’s objective of emphasising enterprise-level collective bargaining, the Commission overrules the legislated goal, determined instead to ‘offer employers enough choice’. This is apparently because ‘employer representatives suggested that Australia’s [workplace relations] system tended to give undue emphasis to enterprise agreements as the preferred vehicle for establishing flexibility’.
But the Fair Work Act emphasises collective bargaining because it is an important public policy goal that employees participate meaningfully in decision-making that affects their employment. Clearly some of the most important decisions concern pay and conditions. Although consultation with employees can improve decision quality this is not the same as reaching a joint decision. Reform effort would be better directed at needed improvements to the singular collective bargaining stream, rather than creating an additional unnecessary form of contractual regulation.
In research published in the September issue of Labour and Industry, I explore how practices under Fair Work for making collective agreements can be unlike collective bargaining. Although some agreements are clearly collective bargaining, many others occupy a gray area shown in the diagram below. Very little is known about the nature of agreements in the gray area, although we do know that agreements in the bottom right corner represent informal consultation and employer unilateralism which are both unambiguously NOT collective bargaining. The Enterprise Contracts proposal overlaps with these processes and part of the gray area.
I find achievement of the collective bargaining goal is conditional on the choices of individual employees and employers because of particular aspects of Fair Work’s good faith bargaining system. Agreement-making under Fair Work can diverge from collective bargaining along two dimensions: how employees are represented, and how employers involve employees in decision-making.
- Collective bargaining requires employee representation on a collective, not individual, basis. But under Fair Work each individual employee must have the opportunity to appoint a bargaining representative, and the Act permits choosing personal forms of representation (such as self-representation). Agreements can even be made without any formal representation of employees.
- Bargaining is also necessary, meaning that the terms of agreement are jointly decided by the employer and employee negotiators. Agreements are made when a majority of employees approve it in a vote and employers have the power to choose when in the negotiation process the vote occurs and the terms of the proposal. Fair Work’s bargaining rules allow employers to go directly to the vote without requiring that negotiators reach agreement first. The employer therefore can choose whether to pursue a joint decision with the employee representatives, engage in some consultation or to take their unilaterally-decided proposal directly to a vote.
Reform effort would be better directed at finding ways to encourage employers to involve employee representatives in decision-making, and employees to choose collective forms of representation.
The PC’s Enterprise Contracts proposal runs directly counter to the fundamental principles of collective bargaining and the Fair Work Act. Employers of any size would be allowed to bypass good faith bargaining obligations associated with Enterprise Agreements. As the diagram indicates, AT MOST employees may be consulted about the terms of Enterprise Contracts. The PC recommends that the employer cobble together a contract using template terms from the Fair Work Commission website, ‘not requiring negotiation with each party to the contract, either individually or as a group’.
The Enterprise Contracts proposal is arguably both unnecessary and likely to exacerbate problems. Ostensibly it responds to particular issues smaller businesses have with Enterprise Bargaining. However the issues identified – lack of bargaining experience and skill or established relationships with unions and employee representatives, resource costs and complexity of bargaining – would be more appropriately addressed through expanded education and assistance programs for employers already run by government bodies. The draft report emphasises that small and medium businesses lack specialist employment relations staff. Sharing the cost of specialist expertise is a key benefit of employer associations and the PC should consider how smaller businesses can be encouraged to use them.
The PC claims Enterprise Contracts will reduce administrative costs for employers. However, it may actually increase administrative costs. Existing employees can choose to ‘opt in’ to the Enterprise Contract or remain on the award, and after a specified period employees can choose to ‘opt out’ of the contract as well. Employees’ free choice could mean employers end up with multiple contracts that only cover some employees while others remain on the award or their existing conditions. Of course it would be unfair for an employee to be forced onto a contract against their will. Having many different arrangements for different individuals would increase administration costs and confusion.
The terms of reference state the PC ‘review should consider the Act's performance against its stated aims and objects’. Crucial amongst these is emphasising collective bargaining. The latest research shows that the Act currently allows wide divergence from this goal, with a significant gray area of agreement-making activity that is not well understood. Rather than addressing how small and medium businesses can be supported in implementing collective bargaining, the Productivity Commission has put forward a proposal that is likely to have deleterious unintended consequences and directly undermine the good faith bargaining system.
- Productivity Commission (2015) Workplace Relations Framework, Draft Report, Canberra
- Walpole (2015) ‘The Fair Work Act: Encouraging collective agreement-making but leaving collective bargaining to choice’, Labour and Industry, 25(3), doi: 10.1080/10301763.2015.1061817