CHAPTER 11
When I first published "The Industrial Relations Club" (Chapter 4 of this volume) the atmosphere in the Commonwealth Department of Employment and Industrial Relations (DEIR) in Melbourne, to say the least, was somewhat icy as various disapproving messages were relayed from Canberra head office. It was as if the Will of Allah had been queried in a mosque. There was no substantive criticism of the piece -- heresy doesn't require refutation. There were, however, some mutterings that whilst bits of what I was saying might have been true, it was all unrealistic. After all, how could one change a system that had existed for over 80 years? What would happen to consensus? Who would there be left to drink with? etc. In more recent times the ACTU's Simon Crean encapsulated this position of "high realism" when he addressed the January 1985 National Agricultural Outlook Conference. Farmers facing an estimated reduction in income of 30 per cent in 1985 were treated to a dose of IR Club realism. According to Mr Crean, decentralised wage-fixing may be supportable economic theory in that only those who make profits should pay higher wages -- but Australia was not a theoretical economy. (1)
In April 1983 the National Economic Summit Conference noted the intention of the Hawke government to hold a fundamental review of the Conciliation and Arbitration Act. In July, the Minister for Employment and Industrial Relations, Mr Ralph Willis, announced that Professor Keith Hancock was to be chairman of the review committee. The other members were Mr C.F. Fitzgibbon (a former vice-president of the ACTU) and Mr G. Polites (a former director-general of the Confederation of Australian Industry). Staff support for the Hancock Committee was drawn from colleagues in the Melbourne office of DEIR.
The Hancock Committee was swinging into action around the time my IR Club piece was first published. Among the people in DEIR who complained it was "unrealistic" to propose fundamental changes to our 80-year-old system were some members of the Hancock secretariat. I responded to this criticism by drafting a quick paper on what could be done by a future Coalition government to achieve radical reforms to the industrial relations system by minimal changes to the existing legislation. (It was assumed that a Labor government would not be able to make substantial changes to the existing system.) The paper was completed in October and is set out below. It was entitled "What is to be done".
WHAT IS TO BE DONE?
In theory at least, a market-sensitive wages policy could result either from a centralised or decentralised system. The December 1981 wages freeze was an example of an economically realistic centralised decision. But, unfortunately, such decisions are few and far between. This is because wage determining bodies in Australia are committed to comparative wage justice -- and have tended to be so ever since Justice Higgins's appointment as President of the Conciliation and Arbitration Court in 1907. As presently interpreted, comparative wage justice does not entail that all employees receive the same income. But it does lead to a situation where they invariably receive the same percentage wage increases. This is especially so during periods of full wage indexation where across-the-board increases are passed on irrespective of the capacity of individual industries and enterprises to pay.
In the 1970 Engineering Oil Industry Case, a Full Bench of the Conciliation and Arbitration Commission (consisting of, among others, Sir Richard Kirby, Mr Justice Moore and Mr Justice Williams) defined the doctrine of comparative wage justice in the following terms:
That employees doing the same work for different employers or in different industries should by and large receive the same amount of pay irrespective of the capacity of their employer or industry is well embedded in Australian industrial thought.
There have been occasions when the Commission, in exceptional circumstances, has departed from the principle of comparative wage justice. In November 1982 Mr Justice Maddern ruled that four fruit growing companies could pay lower wages than their competitors covered by the same award because of their economic incapacity to pay. (The secretary of the Food Preservers' Union described the decision as setting a dangerous precedent.) (2) And in June 1983 the Commission refused to grant a wage rise to workers in the pastoral industry. The National Farmers' Federation had argued before the Commission that the recession and the drought had deprived the pastoral industry of the capacity to pay a $14 flow-on from the Metal Industry Award. The ACTU Secretary, Mr Bill Kelty, described the decision as unfair. (3) Twelve months later an $11 increase was granted.
That these two cases represent the exception rather than the rule can be seen from an analysis of the September 1983 National Wage Case. During the hearings, Deputy President Isaac questioned the ACTU about its rejection of capacity to pay as a consideration in national wage rises. Dr Isaac said that the system of handing down a wage rise for all workers tended to put the whole of an industry in a straightjacket in that industries in difficulty were forced to pay the same rises as others better off. (4)
The ACTU, supported by the Hawke government, maintained its opposition to the capacity-to-pay principle. In its unanimous judgment the Commission supported the ACTU-Commonwealth Government position:
While we would not debar argument being advanced on economic incapacity we would emphasise not only the long established principle of wage fixation that those seeking to argue incapacity to pay must present a strong case, but also that the fundamental basis of a centralised system is uniformity and consistency of treatment. In particular in cases involving the adjustment of rates in line with national wage decisions the Commission should not refuse an increase except in extreme circumstances.
The end result of comparative wage justice is that employers in severe economic difficulties have little option but to reduce and (sometimes) retrench staff -- or go out of business. This, indeed, was the position adopted by Justice Higgins in the Broken Hill Mine Case (1909) when he stated that:
If a man cannot maintain his enterprise without cutting down the wages which are proper to be paid to his employees ... it would be better that he should abandon the enterprise.
Comparative wage justice is not the only economic distortion inherent in the centralised wage structure. The system itself is flawed in that it presupposes that a centralised body should fix the wages and conditions that prevail throughout Australia -- irrespective of differing climatic, geographical, social, and economic conditions. This frequently inhibits sensible agreements between employers and employees as to, for example, working times -- unless such arrangements outside awards have received the imprimatur of the Conciliation and Arbitration Commission.
In its May 1982 National Wage Case decision the Conciliation and Arbitration Commission examined the likely consequences of moving from a centralised to a decentralised system of wage fixation:
If there is to be a move in this direction the consequences would need to be fully understood. National movements in prices and productivity would cease to have the same relevance. Capacity to pay would have a new meaning -- it would be the ability of the individual establishment to pay that would be relevant. The role of comparative wage justice would therefore be substantially downgraded.
Decentralisation could also result in greater emphasis being given to State and country differentials in wages and conditions. It would follow that the ACTU's preference for simultaneous and equitable treatment of wage earners would be replaced by irregular and differential increases. In those circumstances the wage level below which no worker could be employed would take on a new importance. Indeed the Commission may be called upon to break with tradition and involve itself more actively in facilitating the decentralisation process. The result could be to bring the tribunal's dispute settling role closer to the work place where that role originated. Furthermore the current practice where ratification of an agreement by the Commission is sufficient authorisation for a price increase by the consenting employer, could well require review.
In May 1982 the Commission commented that it "may be that circumstances are pointing the future of wage fixation in this new (decentralised) direction". But in September 1983, in the first national wage case after the election of the Hawke government, it decided "that in the current circumstances a return to a centralised system of the kind we have provided offers the best prospects for industrial stability and economic recovery". It referred to "the strong and universal desire for a centralised system" expressed (1) in the ALP-ACTU Accord; (2) at the National Economic Summit; and (3) during the National Wage Case hearing -- by (among others) the Commonwealth Government, the ACTU and the CAI. The Commission decided to implement centralised full indexation. It did concede, however, that the 4.3 per cent increase could lead to higher unemployment, lower growth and higher inflation than would occur if the return to indexation were delayed and the wage pause extended until April 1984. It is unclear as to whether Australia's unemployed appreciated the "realism" of this decision.
Sustained economic recovery will not take place in Australia unless substantial reforms are made to the existing wage-fixing structures. Any proposals for change must take account of constitutional restraints and political realities. They must be publicly presentable and technically competent.
Presented below are a number of options that a future Coalition government may choose to take up. They are based on the assumption that a Liberal-National Party government would not wish to abolish the federal industrial tribunal or return responsibility for industrial relations to the States. Any such move would be political dynamite. Moreover, there is no evidence at the present time to suggest that the State governments and the various State industrial commissions would be any more market-sensitive than their Federal counterparts. It is possible that they would be even less conscious of economic realities. If a more market-sensitive wages structure is to be established in Australia, the Commonwealth should take the initiative in the legislative area. It must be willing to take on those organisations and individuals that have a vested interest in the perpetuation of the existing system.
Substantial changes can be made to the existing industrial relations system -- either by legislation or executive action, or a combination of both. Recent High Court decisions appear significantly to have increased the constitutional capacity of the Commonwealth government to act in the industrial relations arena. (5) Assuming a government with a Senate majority, a number of important amendments could be made to the Conciliation and Arbitration Act and to other Commonwealth legislation.
LEGISLATION
Section 39(2)
Section 39(2) of the Conciliation and Arbitration Act should be amended by deleting references to Sections 31, 34, 34A, 35 and 36A, and adding the following words: "and on the capacity to pay of specific industries and individual employers". A further addition should be made to require the Commission to take into consideration Australia's international competitiveness. Section 39(2) would then read:
In proceedings before the Commission, the Commission shall take into consideration the public interest and for that purpose shall have regard to the state of the national economy and the likely effects on that economy of any award that might be made in the proceedings or to which the proceedings relate, with special reference to likely effects on the level of employment, on inflation, on the capacity to pay of specific industries and individual employers, and on international competitiveness.
Note that the existing Section 39(2) refers to proceedings before a Full Bench of the Commission, references to the President, and appeals to a Full Bench. Under the proposed amendments, the Commission would be required to take account of economic factors in all its deliberations -- not merely those listed above. The inclusion of the capacity to pay principle in Section 39(2) would compel the Commission, by legislative enactment, to abandon its present commitment to comparative wage justice and to determine wages and conditions by tough-minded economic criteria.
Section 39A
A new Section 39A (to be titled "Economic Impact of Certain Full Bench Decisions") should be inserted:
In proceedings before the Commission under Sections 31 or 34, sub-section (4) of Section 34A or Section 35 or 36A, the Commission shall provide impact statements on the economic consequences of its decisions with particular emphasis on employment, inflation, and international competitiveness.
This section would require the Full Bench, when dealing with those matters of national economic importance that come before it, to state publicly the likely consequences of its own decisions. The National Economic Summit demonstrated that it is possible to prepare scenarios dealing with the likely impact of wage decisions on inflation, employment, and economic growth. The Commission should be required to provide similar information when bringing down decisions which will have an impact on the Australian economy. As presently structured, the Commission does not have the economic expertise to undertake this task. It is proposed that Treasury staff should be seconded to the Commission to provide specialist advice and undertake economic research.
Section 25
Section 25 should be amended to require the agreement of the parties before an industrial dispute is referred to compulsory arbitration. This would be a radical change to the existing legislation in that it would ensure that, apart from exceptional circumstances, the Commission had power to arbitrate an industrial dispute only where the parties are of the opinion that it should do so. At present the Conciliation and Arbitration Act virtually encourages industrial disputation since, by bringing on a dispute, an organisation can achieve award coverage or obtain an award variation. Frequently unions use phone books to cite respondents -- who, unless they challenge the citation, are likely to become bound to federal awards (or bound to abide by award variations) irrespective of whether they are actually in dispute with their employees. This amendment would ensure that the Commission only becomes involved in settling real disputes -- not artificially created ones. The Commission's conciliation role should continue unabated but be separated (by legislation) from its arbitral function.
In exceptional circumstances the Commission should be empowered to take hold of a dispute in the public interest -- at the direction of the Minister for Industrial Relations. The Minister would issue such a direction where there was in existence a serious and protracted dispute which one or both of the parties had refused to take to arbitration. It should be noted that this was the original conception of the Commonwealth conciliation and arbitration power.
Section 25A
Section 25A deals with limitations on the powers of the Commission. This section should be expanded to provide that the Commission's powers with respect to wages extend only to minimum rates. By bringing down paid-rates awards the Commission gives legal force to over-award payments, which then become subject to indexation increases along with the minimum award rates. Add the effect on the calculation of overtime, long service leave, annual leave and other entitlements, and the result is a significant increase in labour costs. The Commission's role with respect to wages should not extend beyond setting minimum rates. This principle should be enshrined in the Act.
Section 59
Section 59 should be amended with a view to substantially restructuring the Commission's power to vary an award. This would ensure that both parties -- employers and employees -- give more detailed consideration to the initial framing of an award or agreement. In addition it would help to bring about a situation in which awards are regarded as being akin to legally enforceable fixed term contracts -- and not as mere pieces of paper that can be altered continually by means of artificially-created disputes.
Section 59(1) and Section 59(3) should be repealed.
Section 59(2) should be amended to read:
The Commission shall, if it considers it desirable for the purpose of removing ambiguity or uncertainty, vary any of the terms of an award.
A new Section 59(1) should be inserted:
The Commission may, at the direction of the Minister for Industrial Relations, set aside an award or any of the terms of an award.
The Minister would issue such a direction where there was a serious and protracted industrial dispute concerning an existing award in which the Commission should intervene in the national interest.
Section 119
The amendments proposed above, if implemented, would lead to a more market-sensitive and contract-based industrial relations structure. To be effective a contract must be enforceable. This can be achieved under the present legislation. At present awards and certified agreements are enforceable under Section 119. The fact that prosecutions are virtually never launched against unions for award breaches is a reflection not on Section 119 but rather on the nature of awards themselves -- they invariably cast obligations on employers only. Justice Higgins in 1926 noted this phenomenon:
The awards of the [Conciliation and Arbitration] Court could not go outside the claims made, and, the claims being made by employees, every award was a restraint on the employer and not the employees. This is an explanation of the curious fact that the prosecutions for breaches of the awards are practically all prosecutions for breaches committed by the employers ... (6)
Market-sensitive, contract-based awards should impose obligations on both parties. These could be enforced under the existing Section 119 -- provided there was the will to do so. The only obviously necessary amendment would be to increase the maximum penalties in Section 119(1D). It should be remembered that parties to awards also have rights at common law and, at times, under other legislation. These existing rights should be retained and where possible enhanced.
Industries Assistance Commission Act
The policy guidelines of the Industries Assistance Commission should be amended to require it to take account of wage agreements (particularly "sweetheart deals") when recommending appropriate levels of industry assistance. Those industries that have become less competitive as a result of wage increases should not be able to recoup their losses by obtaining higher tariffs and quotas.
Commonwealth Employees (Employment Provisions) Act
Over a quarter of the Australian workforce are public sector employees. The Commonwealth has the constitutional power directly to control its own employees and, through its financial powers, it has considerable potential influence over State and local government in their capacity as employers. A future government should legislate for a Commonwealth Employees (Employment Provisions) Act along the lines initiated by the Fraser government.
Trade Practices Act
Section 45D of the Trade Practices Act is an effective legislative provision against secondary boycotts. If repealed by the Hawke government, it should be restored.
Unions
Legislation should be enacted to provide that unions could negotiate awards only with reference to their own members -- and not, as is currently the case, also with reference to people who are merely entitled to be members. The aim would be to bring about a situation in which unions act on behalf of their members within the IR system, and those employees who are not unionised are able to operate freely outside it.
NON-LEGISLATIVE INITIATIVES
If a future government is unable to get its IR reforms through the Senate, it will have to take non-legislative initiatives. This should include forceful and tough-minded advocacy before the Conciliation and Arbitration Commission. The evidence suggests that the Commission can at times be swayed by this kind of advocacy (note, for example, its December 1982 National Wage Case and its June 1983 Pastoral Industry Award decisions).
National wage case advocacy
The total wage should be abandoned and a return made to the basic wage and margins (for skill) system that existed prior to 1967. If some form of indexation is to continue it should be confined to the basic wage only. This should be argued before the Commission.
Public sector employees
The Commonwealth should use its direct power over its own employees to restrain wages. It should indicate to the States and local governments that, unless they follow the Commonwealth's example, their grants will be cut. Any cut in funding should reflect the actual budgetary cost of State and local governments not following the Commonwealth's public sector wages policy.
Notifying employers
The Commonwealth should argue that the Commission has an obligation formally to advise respondent employers that they are bound to observe federal awards. At present an employer can become bound to a federal award without knowing it. If an award breach is detected, the employer may be liable for any arrears of pay incurred over the previous six years. These legal obligations arise even though the employer will not have been advised by the Commission that he has been made respondent to a federal award. This amounts to a severe denial of natural justice. The Commonwealth should request that the Commission take action to ensure that all respondents to federal awards are made aware of their legal duties and obligations. (If necessary, the Act could be amended to direct the Commission to notify employers of their award respondency.)
POSTSCRIPT
The "What is to be done" paper reproduced above was written to suggest ways in which there could be a significant move towards the creation of a market-sensitive, contract-based industrial relations system in Australia by means of minimal amendments to the existing legislation.
It was recognised that some unions could attempt to escape the new structure by moving from Commonwealth to State jurisdiction. But this, of itself, should not prevent much-needed reform. The fact is that the States, unlike the Commonwealth, do have direct power over wages. An economically tough-minded State government could therefore require its industrial tribunals to follow its economic directives. This could lead to a situation in which certain States (with lower labour costs) became more economically attractive than others. This in itself would, over time, facilitate a more market-sensitive approach to wages policy.
In 1984 the then deputy leader of the federal Opposition, Mr John Howard, proposed that employers and employees should have the freedom to enter into voluntary work contracts covering such areas as starting and finishing times, hours and weeks worked, lunch breaks, annual holidays, penalty rates and (more generally) wage levels. The introduction of voluntary work contracts would free employers and employees from the excessive bureaucratic requirements of the existing tradition-bound system. This would encourage the creation of new jobs and enable employers and employees to arrange their work to suit their business and personal requirements -- for instance, travel, child care, recreation, education. Such contracts could be subject to basic standard-of-employment legislation covering matters such as minimum pay and maximum hours, safety, health and welfare. But some or all such legislation might be deemed unnecessary.
Legislation could be enacted -- as amendments to the Conciliation and Arbitration Act or otherwise -- compelling federal industrial tribunals to recognise the validity of voluntary work contracts. To prevent "leap-frogging" from one tribunal to another, the Commonwealth and at least one State would have to enact complementary legislation.
There is nothing "unrealistic" about voluntary work contracts. It would be quite possible to begin the process of labour market deregulation in the small business sector of the economy where union organisation is often weak or virtually non-existent. Voluntary work contracts would have a special attraction when new industries are being established.
The Hancock Report (released in May 1985) is, predictably, a profoundly conservative document. Professor Hancock and his colleagues put their names to such comments as:
The role of trade unionism in Australia is accepted and endorsed within our society.
The industrial relations system now existing in Australia is a product of history; and, to a degree, Australia is a captive of that history.
Moreover, the committee members went so far as to endorse corporatism -- which was defined as "very much the notion of policy-making by agreement at a centralised level". The Report embraced the findings of DEIR staffer Dr Kerry Schott that corporatism is the way of the future, in spite of the fact that her research was based on the period 1965-1981 -- prior to the world economic recovery that was led by the distinctly non-corporatist United States economy. (7)
The thrust of the Hancock recommendations, if implemented, would be to make Australia's industrial relations system even more rigid, inflexible and centralised. Industrial tribunals and unions would be given significantly more power. There would be no legal redress (including a right of appeal) concerning industrial relations to any court except the proposed Australian Labour Court. All sanctions for any form of industrial action would be abolished -- except, of course, for when employers breach awards. Many independent contractors would be conscripted into unions simply by defining them as "employees". The federal industrial tribunal would be empowered to order an employer to pay striking employees for the period during which they were on strike. And the enormous privileges conferred on unions by the existing legislation would be preserved -- in spite of the fact that union privilege inevitably results in a diminution of the civil liberties of all employees, union members or not.
The Committee refrained from making any tough-minded recommendations on Australia's wage-fixing system. It proposed that the federal industrial tribunal, in all proceedings, should take into account "the state of the national economy" and make "special reference to likely effects on the level of employment and on inflation". But it did not show how such economic competence is to be injected into the deliberations of the Arbitration Commission.
There is virtually nothing in the Report to gladden the hearts of the proponents of labour market deregulation. Recommendation 21 provides that in certain circumstances the "parties" should be able to determine their "terms and conditions of employment", but it is made emphatically clear that this so-called alternative system would only "be available for employers and unions who wish to use it". Individual employees -- as distinct from union bosses -- would have no legal right to enter into voluntary work contracts.
By nailing its flag to the economic mast of regulation, centralisation, even corporatism, the Hancock Committee produced a set of recommendations that are precisely the wrong remedy for Australia's economic ills.
It is both possible and realistic to substantially reform the existing industrial relations system and to introduce an alternative opting-out procedure for employers and employees who wish to enter into voluntary work contracts free of unions, employer organisations, and industrial tribunals. Whatever the Hancock Report says, this is the way of the economic future.
ENDNOTES
1. Australian Financial Review, 31 January 1985.
2. Australian Financial Review, 21 June 1983.
3. The Age, 22 June 1983.
4. Melbourne Sun, 14 July 1983.
5. See especially the High Court's decisions in the Tasmanian Dams Case (Commonwealth v. Tasmania, (1983) 57 ALJR 450) and the Social Welfare Union Case (R. v. Coldham: exparte the Australian Social Welfare Union (1983) 57 ALJR 575).
6. H.B. Higgins, "Industrial Arbitration", address delivered in the Chapter House of St Paul's Cathedral, Melbourne, 22 March 1926.
7. See generally, K. Schott, Policy, power and order: the persistence of economic problems in capitalist states, London, Yale University Press, 1984.
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