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Qantas case shows the need for interest arbitration

International examples show that quicker access to arbitration could have avoided the drastic action taken by Qantas chief Alan Joyce. AAP

As the Qantas dispute moves into the arbitration phase in Fair Work Australia (FWA), it is timely to consider whether the tests for access to arbitration under the Fair Work Act need refining.

Prompted by the Qantas case, the ACTU is now pressing the ALP to allow arbitration by FWA in response to “surface bargaining” by an employer, and in “first contract” situations.

This follows demands by some employer groups over the last few weeks for quicker access to FWA intervention as a way of bringing an end to costly bargaining disputes.

There are some compelling international examples of how interest arbitration can provide a solution to impasses in collective baragaining.

Empty terminals at the height of the Qantas dispute. AAP

What is “interest arbitration”?

At present, FWA’s ability to resolve bargaining disputes by arbitration is very limited. In contrast, “interest arbitration” by a labour board or tribunal is a commonly available method for settling differences between disputing parties in North American collective bargaining systems.

Interest arbitration has been used in the United States since the early twentieth century, with employers preferring to give up a “final say” over the terms of a new collective agreement if it meant workers could not resort to strike action.

In private sector collective bargaining in the US, interest arbitration is available only on a voluntary basis. There is no provision for mandatory interest arbitration under the National Labor Relations Act (NLRA). However, in some sectors (such as the automotive industry) it is common for employers and unions to refer an agreement impasse to private arbitration by, for example, an expert from the National Academy of Arbitrators.

Recent attempts to amend the NLRA to provide for compulsory interest arbitration by the National Labor Relations Board after 90 days of negotiation, and 30 days of mediation, were unsuccessful (the proposed “Employee Free Choice Act” did not pass through Congress). It seems that America’s free enterprise system could not cope with the idea of a government agency mandating employment conditions for private sector workplaces.

Mandatory interest arbitration is a feature of most public sector employment in the US, at both the federal level (overseen by a specialist body: the Federal Service Impasses Panel and in many states where it is used to resolve police, firefighters and teachers’ contract disputes (among others).

Can “interest arbitration” work here? AAP

The Canadian experience

In Canada, interest arbitration is an entrenched feature of the bargaining landscape. Mostly, it applies in “first agreement” or “first contract” situations, when it is considered that a union (having obtained “recognition”, ie the right to bargain with the employer) is most vulnerable to delay tactics by an employer which might frustrate the making of a collective agreement.

Seven of Canada’s 11 labour law systems make provision for “first contract arbitration” – mandatory interest arbitration of private sector collective bargaining disputes.

These provisions enable a union or employer involved in unsuccessful negotiations for an agreement to apply to a federal or provincial labour board, to have an agreement imposed through interest arbitration (although the jurisdictions differ in relation to how quickly arbitration can occur).

The evidence from Canada is that the application rate for first contract arbitration is fairly low across all seven jurisdictions (with the exception of Manitoba, where it is more easily accessed).

The actual rate of imposition of first agreements through first contract arbitration is even lower, as the parties often resolve agreement terms themselves after an application for arbitration is made – or the arbitrator only determines some contract provisions for them.

Research by Johnson has shown, however, that the existence of first contract arbitration has a “shadow” effect, in that the possibility of arbitration leads employers and unions to negotiate their own outcomes. (Susan Johnson, ‘First Contract Arbitration: Effects on Bargaining and Work Stoppages’ (2010) 63:4 Industrial and Labor Relations Review 585)

Can it work in Australia?

So what mechanisms are there for interest arbitration in Australia?

The availability of interest arbitration was a highly contested aspect of the Fair Work Bill.

The term “interest arbitration” was not really used in those debates, but the ACTU lobbied very hard for what it called “last resort arbitration” provisions – mechanisms to deal with situations where parties were deadlocked in bargaining negotiations, or when an employer ignored its good faith bargaining obligations.

After its election in 2007, Labor maintained that “compulsory arbitration” would not be a feature of the Fair Work system.

Then in late 2008, the Government announced that there would be some limited circumstances in which arbitration would be available under the new collective bargaining framework.

This is reflected in the Fair Work Act, which provides for bargaining disputes to be subjected to interest arbitration by FWA in four circumstances:

  1. By agreement between the parties, following a joint application for arbitration under section 240

  2. Following the making of a “serious breach declaration”, after serious or sustained breaches of good faith bargaining orders by one of the parties – known as a “bargaining-related workplace determination”, but arbitration is not automatic: it can only occur after a 21-day (or up to 42-day) negotiating period has ended

  3. Following the termination of protected industrial action by FWA on public interest grounds, such as disputes affecting essential services or, as in Qantas, causing damage to a significant part of the economy – known as an “industrial action-related workplace determination”, but again, only if agreement cannot be reached during a 21 (or 42) day negotiating period

  4. In the special low-paid bargaining stream, where parties are unable to negotiate a first agreement after extensive efforts – known as a “low-paid workplace determination”, with some similarities with Canadian-style first contract arbitration.

Labor originally said compulsory arbitration would not be a feature of the Fair Work Act. AAP

Difficult to satisfy

Until the Qantas dispute, there had been no instances of interest arbitration occurring under these provisions (apart from voluntary arbitration under s 240).

There is a reason why mandatory interest arbitration is hardly ever utilised: the tests for accessing it under the Fair Work Act are very difficult to satisfy, and are intended for extreme situations such as that which arose following Qantas’ proposed lockout of employees and grounding of flights.

To have FWA terminate protected industrial action which may then lead to an industrial action-related workplace determination, it must be shown that industrial action is threatening to endanger the life, personal safety, health or welfare of the population or part of the population; or that the action is causing significant damage to the Australian economy or part of it.

Case law over the years has established that these are high hurdles to clear, and that the right of parties to take protected action will not be extinguished lightly.

Adjusting the tests

What these tests do not provide for is a situation where the parties are simply unable to reach agreement after protracted negotiations.

We need to look at whether the tests for accessing interest arbitration can be adjusted, so that the emphasis is not so much on establishing extreme bad faith (or “fault”) by one party, or that industrial action by one side is causing the other so much pain that it should be ended.

Rather, one of the tests for access to arbitration should be focused on whether parties – having negotiated with each other in good faith – have reached the point where further negotiation is unlikely to be productive.

Consider the situation at Cochlear: more than two years ago, the employees won the right to bargain collectively with their employer, but still no agreement has been reached.

The limits of good faith

At what point should the system say, bargaining in good faith has its limits, and it is time an agreement was imposed to resolve the impasse?

Arguments about the merits of interest arbitration have been examined in papers by Winograd and Sexton. (Barry Winograd, ‘An Introduction to the History of Interest Arbitration in the United States’ (2010) 61: 3 Labor Law Journal 164; Jean Sexton, ‘First Contract Arbitration: A Canadian Invention’ in W. Kaplan, J. Sack & M. Gunderson (eds), Labour Arbitration Yearbook 1991, vol. 1, p. 231)

The arguments against mandatory interest arbitration include:

• it has a “chilling” effect on negotiations – parties become highly dependent on arbitration, which then becomes a substitute for the reaching of voluntary agreements;

• it encourages parties to make exaggerated claims and not make any concessions in negotiations, on the basis that the arbitrator will “split the difference”;

• in the Australian context, interest arbitration could be seen by some as marking a return to something like the old award-making process, reversing the shift to enterprise-based bargaining over the last 20 years.

There may be a role for interest arbitration in Victoria’s nurses dispute. AAP

Has the day of interest arbitration arrived?

However, the arguments in support of interest arbitration have particular currency in light of the recent high-profile and intractable bargaining disputes in Australia (in addition to Qantas, for example, the Victorian nurses and public sector agreement negotiations):

• interest arbitration focuses the parties on the need to reach agreement, under threat of an imposed outcome;

• it offers a pathway to timely resolution of bargaining disputes, rather than escalation of a dispute through strikes and lockouts;

• it can provide an effective remedy against a party’s failure to bargain in good faith;

• most importantly, interest arbitration is not a replacement for collective bargaining (and therefore does not infringe the notion of “free” bargaining) – rather, it is a remedy to be utilised where the conditions for viable collective bargaining have broken down.

Several issues would need to be resolved in effecting a more decisive shift towards interest arbitration under Australia’s current enterprise bargaining framework, including whether access to arbitration should be automatic; or available only after defined time periods have elapsed (based on the model applying in Manitoba, Canada); or as one of the avenues for addressing “bad faith” conduct (based on easier tests than those in place now for the making of “serious breach declarations”).

Another major question is how interest arbitration would interact with the current rights of parties to take protected industrial action.

These issues need to be worked through, and the North American models examined more closely – because recent experience in Australia shows that interest arbitration is an idea whose time has arrived.

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