Fair Work Act, productivity and the balancing act between bosses and workers

Employment Minister Bill Shorten says the Fair Work Act review shows the regime doesn’t impact negatively on productivity.

Perceptions of widespread union militancy in Australia’s industrial relations environment is generally unfounded, according to the University of Melbourne’s Professor of Management, Peter Gahan.

Recommendations released yesterday by the Fair Work Act review panel has rejected calls for substantial changes to the regime, arguing it is essentially working well.

Yesterday’s report, carried out by Reserve Bank Board Member Dr John Edwards, former Federal Court Judge Michael Moore and legal and workplace relations academic Professor Emeritus Ron McCallum, concluded the system of enterprise bargaining was delivering fairness to both employers and employees.

The government will now report back on the 53 recommendations.

Professor Gahan says the panel has opted to maintain balance between employer and employee interests.


So the review has not delivered any major changes.

That partly reflects that from the outset it was made clear by the Minister Bill Shorten that it wasn’t going to be a root and branch review of the legislation.

They weren’t looking at making fundamental changes to the model on which it was based - and nor were they really looking to make a choice about whether they should move back to something like WorkChoices or the system of compulsory arbitration that might have existed before the early 1990s.

Also, the other big thing to keep in mind is that labour law and regulation is in this odd position where from an employer perspective it’s principally about efficiency, productivity, innovation and managing workplace change in response to changing business needs - whereas for employees and unions, the workplace is really all about how fairly they are treated.

So the legislation always has to find this balance between fairness on the one hand and efficiency on the other, and the recommendations are very explicit about keeping that sort of balance in mind and made a judgement about what that appropriate balance should be.


Business aren’t going to be particularly happy with this as they have been lobbying for substantial changes.

Yes, and the panel said they wouldn’t entertain any proposals which involve altering the balance of power between the parties or taking from one side and giving to the other - unless there were substantial increases in productivity, or something that improves economic performance. There had to be not just a business or union demand for a change but a case made that it was good for the economy.

Both sides lost out on some big ticket items. For instance, the panel made it very clear - to the dissatisfaction of some business interests - it wouldn’t entertain going back to individual agreements because that undermined collective bargaining.

Unions also wanted it to introduce a much bigger power for the tribunal to arbitrate disputes particularly where they reached an impasse or appeared to be intractable. Again, the review said we’re not going to change the balance because we can’t necessarily see that has a big economic benefit in doing that.

Having said that, the review panel also said they weren’t looking at changes that involved substantial statutory reform because you can’t legislate for productivity.

Those sorts of things are affected by a range of factors like the investment environment, and in terms of what management does in the workplace. It’s not so closely affected by the legislative framework.

In fact, the evidence over the period since the early 1990s shows the shift to enterprise bargaining in the first place had no substantive effect on productivity growth. Nor have the reforms introduced as part of the Workplace Relations Act under the Howard government, or the WorkChoices legislation - none of those reforms had any direct impact on productivity. If they did, it was relatively slight.


Bill Shorten said the “good news” from the report showed the Fair Work Act did not have a negative impact on productivity. In that case why do we keep going down that track?

That’s a very good question! There is no evidence that it has an impact on productivity. The reason is in most cases with employers, with most workplace and union-managed relationships, the harsher bits of the legislation never get activated. It’s only really in those difficult bargaining relationships that the more “strident” aspects of the legislation get activated. That’s important to remember.

The reason why it comes onto the table now is because economic growth continues to be slow and the outlook for growth isn’t great. So employers are finding it hard to think of where the profit growth is going to come from. Also, the exchange rate continues to maintain its very high levels and that is having such a huge impact on the capacity of sectors such as manufacturing in particular to compete, and we know in the retail sector it’s leading to a significant growth in online trading.

All this means businesses have to change their models - and their workplaces. The legislation implies they have to negotiate that change, and they’d rather do it unilaterally.


So is the talk of strident unions and increasing militancy a true reflection of Australia’s industrial relations environment?

No, I don’t think it’s a fair description overall. I think it is true in some sectors such as resources and construction, where there have been ongoing issues over a very long time around the way unions conduct themselves and their capacity to disrupt large projects. In the mining and resources sector unions where new sites are being constructed, unions can hold the threat of industrial action over the completion - or even start - of projects. In those instances, they have been able to negotiate very large wage increases and favourable conditions, sometimes that flow into the sector more broadly. But it means in those situations they are earning a hell of a lot more than comparable workers in other parts of the economy. One of the panel’s key recommendations is compulsory arbitration in greenfield agreement negotiations that reach an impasse. That’s the only place they are saying that the role of the tribunal should be extended.

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