Australia’s Workplace Relations Framework: The Case for Reform

An outspoken critic of the CFMEU and the influence of trade unions on members of the Labor caucus, Martin Ferguson is the maverick voice of the ALP. A former minister in the Rudd/Gillard governments, he was Minister for Resources and Energy and the Minister for Tourism until March 2013, when he resigned from the Ministry. Today he is Chairman of the advisory board to the Australian oil and gas industry association, APPEA and an executive with the Seven Group Holdings with responsibility for natural resources and a non-executive director of British Gas. Martin Ferguson’s address to The Sydney Institute, on Tuesday 8 August 2017, coincided with the release of the Minerals Council of Australia’s monograph Australia’s Workplace Relations Framework: The case for reform.

AUSTRALIA’S WORKPLACE RELATIONS FRAMEWORK: THE CASE FOR REFORM 

MARTIN FERGUSON

Thank you to the Sydney Institute for hosting this event on the case for reform in Australia’s workplace relations framework.

I want to acknowledge Gerard Henderson’s role as a leading contributor to debates on workplace relations in Australia — from his original article The Industrial Relations Club back in 1983 to his diagnosis of The Return of the Industrial Relations Club thirty years later. [1]

Then and now Gerard has presented a provocative critique of Australia’s system of workplace relations laws, regulations, awards, institutions and systems. He asked the uncomfortable question of whether this system was advancing the interests of powerful labour market insiders at the expense of labour market outsiders.

I haven’t always agreed with all of Gerard’s arguments. But they have always challenged us to think seriously about the real impact of our industrial arrangements on all members of society.

Most of you will be aware that I have a long history in the labour movement. I have worked hard for the interests of workers over several decades. And I was very much involved in the big industrial relations reforms through the 1980s and 1990s. Those reforms were part of a comprehensive suite of policy reforms which provided the foundation for a period of tremendous growth in Australia’s prosperity.

Today, many of our political leaders seem to have forgotten the lessons of history. They don’t seem to realise that Australia’s prosperity has more to do with good policy, than good fortune. The truth is — our prosperity was hard-earned and it can easily be squandered. We are facing an uncertain economic outlook. Unless we are prepared to see unemployment rise and living standards fall, we must improve productivity. And industrial relations reform must again be placed at the centre of the national productivity agenda.

That is why I have been working with the Minerals Council of Australia on a new policy paper which sets out the case for a package of reforms to the existing legislative framework.

A changing workplace

It’s been nearly a decade since there have been any substantive changes to Australia’s main federal workplace relations legislation which have been focussed on improving productivity. In that time, jobs have changed, the workplace has changed, and the economy has changed.

And we are now in the midst of a technological disruption which will bring further changes to workplaces and jobs — from robotics and artificial intelligence to the gig economy and big data. So, we need to ensure our workplace relations system allows us to maximise the opportunities that these changes will bring — opportunities to tap into new sources of economic growth, to find new ways of working, and to create the rewarding and highly skilled jobs of the future.

Australia’s mining industry is at the forefront of these economic, workplace and technological changes. The mining investment boom of the 2000s has permanently lifted the living standards of all Australians. The Reserve Bank has estimated that the investment boom boosted real per capita household disposable income by 13 per cent by 2013.[2]

Now the mining boom has moved from the investment phase to the production and export phase. Australia will continue to reap the economic benefits of the massive investments that have already been made as this production phase of the boom continues for many years to come. But we need to ensure that the workplace relations system does not act as a barrier to new investments, in an environment where mining companies now must compete harder to finance the new projects that will create the jobs and wealth of the future. And with commodity prices down from their peaks a few years ago, Australia’s mining companies need constantly to improve productivity and reduce costs, so they remain competitive on international markets.

The mining industry is also rolling out highly innovative technologies: automated drilling rigs; autonomous and semi-autonomous trucks and bulldozers; driverless trains; drones to conduct mine site inspections; and gathering and analysing vast quantities of data to improve planning and operations. Technologies like these improve quality and productivity and change the way people work — often making work safer and more skilled and rewarding. Some jobs may have been lost, but others have been transformed and new jobs have been created, with employees acquiring new skills and learning different ways of working with the new technology.

Mining’s contribution

The mining industry comes to this debate with strong credentials. The industry’s number one priority in the workplace is safety — and that priority is embedded in education and training, in work practices, and throughout the industry’s operational and production processes. Nor is this an industry which has sought to engage in a race to the bottom on wages and conditions. In fact, the mining industry provides some of Australia’s best-paid jobs, for blue-collar and white-collar workers alike.

The average mining employee earns $140,000 a year, making mining the highest-paying industry in Australia — and mining has had the fastest wages growth of any industry over the last decade.[3]

Mining also makes a major contribution to job opportunities in Australia. The mining and mining equipment, technology and services sector provided 1 .14 million full-time equivalent jobs across Australia in 2015-16.[4] And in percentage terms, employment growth has been faster in the mining industry than in any other sector of the economy over the last decade.[5] Jobs in the mining industry provide significant opportunities for people in regional Australia, for our Indigenous population and, increasingly, for women in the workforce.

Mining is critically important to many regional communities, with 61 per cent of industry employment in regional and remote areas, compared with 37 per cent for all industries. ^[6] The sector is also the largest private sector employer of Indigenous Australians.

More than 6 per cent of the industry’s workforce identify as Indigenous, up from an average of less than 1 per cent 20 years ago. At some sites Indigenous workers account for up to 40 per cent of those directly and indirectly employed.[7]

Minerals Council member companies are also focused on improving the gender balance of their workforce. Concerted strategies to reduce barriers to women’s participation in the industry have seen the female employment share rise from 9 per cent in 1999 to around 15 per cent by 2016.[8]

The mining industry matters not only for mining companies and their employees, and for remote and regional communities, but also for Australia’s national economy. Minerals and energy resources are the primary sources of Australia’s comparative advantage. Developing, extracting, processing and exporting these resources has been a key driver of the national economy, supporting living standards for all Australians, most notably in recent years by helping us come through the global financial crisis without falling into recession.

Australia’s minerals and fuels exports were worth $160.5 billion in 2016 — nearly two-thirds of our total merchandise exports. ^[9] Mining has been responsible for major capital investments and projects which are enormous engineering and construction achievements in their own right but which also have major flow-on benefits throughout the wider economy.

The mining and METS sector’s economic contribution was worth $237 billion in 2015-16, representing around 15 per cent of the Australian economy. ^[10] The industry includes some of Australia’s biggest companies, companies which have made major contributions to this country’s economic development and which have grown to be truly global in scale. It also includes hundreds of small and medium-sized businesses, those engaged in exploration, medium-sized producers, contractors, equipment, technology and services providers.

But the mining industry’s continued contribution to Australia’s prosperity cannot be taken for granted. The industry operates in highly competitive global markets with strong competing sources of supply of resources commodities. The capital needed to grow the industry will move between resource-rich countries in response to changing opportunities and costs of development and production.

Australian companies operate in global commodity markets with highly transparent prices and intense competition — but their costs are largely determined domestically. That means mining companies and their employees need to work together, and the industry needs to work with government, to maintain its competitiveness. And we need a workplace relations framework that contributes to that effort — a workplace relations framework that fosters productivity, innovation and flexibility, so the mining industry can continue growing, creating jobs and raising living standards for all Australians.

Workplace relations reform – five priority areas

The policy paper we are releasing tonight sets out the case for sensible reforms to Australia’s workplace relations framework. The paper is the result of several months of discussion with the Minerals Council of Australia’s member companies. The Minerals Council has not set out to upend the existing system or to undermine the safety net of National Employment Standards and modern awards. Indeed, the workplace relations safety net provides a valuable role in setting the basic employment entitlements needed to ensure decent wages and fair employment conditions for low-paid workers.

Rather we have identified the issues which are priorities for the mining industry and its made practical and realistic suggestions for reforms which will improve workplace relations and help the industry to continue to create well-paid, rewarding jobs into the future.

The reforms we put forward are designed to ensure the legislation supports improved productivity, investment in new projects, balanced workplace bargaining, and flexible employment arrangements to reflect the changing nature of mining work.

For the mining industry, there are five priority areas in urgent need of reform through amendments to the Fair Work Act. First, removing the availability of protected industrial action over business decisions and limiting the content of enterprise agreements to direct employment matters.

The Fair Work Act has expanded the content of enterprise agreements beyond matters relating directly to the employer-employee relationship, into a wider range of issues. These new issues include use of contractors, union membership, and an employer’s ability to choose an employment mix suited to its business requirements.

This opens the way for protected industrial action over such issues, meaning that collective bargaining can go well beyond wages and conditions and into areas of everyday management and into matters concerning union business rather than direct employment matters. To cite one example, the enterprise agreement for South 32’s Port Kembla Coal Terminal requires employee representatives to be informed of the name and commencement date of new employees — a requirement which creates administrative burdens for the Company and privacy concerns for new employees.

Our proposed reform in this area will better balance bargaining rights with the need for flexibility in business and management decision-making, and the ability of businesses to respond to changing workforce and market conditions.

Second, refocusing “adverse action” provisions to ensure they do not interfere unreasonably with management decision-making and performance management processes. The Fair Work Act prohibits adverse action against employees for exercising their workplace rights or engaging in industrial activity. But these adverse action provisions have been drafted so broadly that they go beyond protecting freedom of association and preventing workplace discrimination.

The breadth of actions covered, coupled with a reverse onus of proof on employers, mean these provisions are being used to obstruct business decision-making and performance management processes. There has been a constant rise in the number of claims in recent years — a 50 per cent rise on 201213 levels. An example of how these provisions encourage claims which lack merit is BHP’s 2015 decision to contract out work at its BMA Blackwater mine.

The CFMEU commenced Federal Court adverse action proceedings based on vague pleadings suggesting that BHP and the contractor had entered into an agreement for prohibited reasons. Large parts of the union claim were struck out in interlocutory proceedings, but the CFMEU appealed this decision only to have the full Federal Court uphold the strike out. BHP now faces an extensive legal discovery exercise which the union claims is necessary for it to amend and properly plead the claim.

Eighteen months after the proceedings started, the case is still in its early stages and by the time the matter is heard enormous legal expenses will have been incurred in defending a claim that is without merit.

Adverse action provisions should be reformed to include a sole or dominant purpose test.

This will ensure these provisions protect employees without acting as barriers to legitimate organisational restructuring to adapt to new business conditions.

Costs orders should also be allowed to follow the result of the case — to provide greater disincentives for unmeritorious claims and a greater ability to run cases that do have merit.

Third, introducing more balanced right of entry laws. The current right of entry rules are rigid, allow entry even where a union is not party to an award or agreement applying to employees at the premises, and have resulted in significant operational disruption in the mining industry. Right of entry privileges are commonly being abused by permit holders and the abuses have led to significant impacts on productivity by causing unnecessary disruptions to workplaces.

BHP’s Worsley alumina refinery had more than 550 right of entry visits between 2011 and 2013 — another MCA member was subject to 257 visits between January 2015 and June 2016. Right of entry laws should be reformed to provide greater balance — ensuring they allow employees to meet with their representatives while minimising operational disruption. This will create a more balanced approach and one which reduces impacts on production, improving the economic performance of businesses while recognising the legitimate role of employee representatives.

Fourth, reforming greenfields agreements to help get new investment projects off the ground. The current framework for negotiating employment arrangements for planned new sites and projects effectively gives trade unions a veto power. This can delay the agreement making process for major projects, lead to higher cost structures and create uncertainty over the costs that will be incurred over the life of a project.

While there is some recourse to the Fair Work Commission if agreement is not reached for three months, the test applied by the Commission to approve the agreement — consistency with prevailing pay and conditions — is likely to lead to non- competitive outcomes.

It leads to continued ratcheting up of wages and allowances so that project owners cannot be confident about the cost of labour over the full lifespan of construction. Another problem is that under the current system greenfields agreements must have a maximum duration of four years.

Many of Australia’s recent LNG engineering projects, for example, are some of the world’s most complex construction projects and extend well beyond four years. But the current greenfields workplace relations provisions mean employers on projects like this are required to renegotiate their agreements during the life of the project, exposing them to significant risk of industrial action, delay and cost rises.

The uncertainty this creates is a significant barrier to investment decisions to go ahead with such projects. The MCA is proposing reforms to have the Fair Work Commission adopt a simpler test for approving greenfields agreements — consistency with at least one other comparable enterprise agreement.

We also recommend enabling employers to enter into “life of project” agreements which last for the duration of a greenfields project. Major investment projects in the mining industry create significant numbers of new jobs both in the construction phase of the project and once it becomes operational. These changes will ensure the industrial relations system supports major new projects rather than creating impediments to them at a time when Australian mining companies have to work harder to attract and justify new investment proposals.

Fifth, letting employees choose between enterprise agreements or individual employment agreements if they earn above a high-income threshold. Individual employment agreements have been used extensively in the mining industry for many years — they have facilitated flexible work practices while providing attractive salaries and working conditions for the industry’s changing workforce.

But there are currently limited options for agreement making in Australia’s workplace relations system, with no place for individual agreements between employers and employees as an alternative to collective agreements.

This reflects the continuing legacy of WorkChoices, which removed the “no disadvantage” safety net provisions which had previously underpinned individual workplace agreements.

But instead of reinstating the no disadvantage test, the Fair Work Act removed individual statutory agreements altogether, restricting the choices available to employers and employees.

Our proposal would give employees the choice to opt out of enterprise agreements and instead enter individual agreements where they earn over a particular income threshold. We are open to discussion on the level of the threshold —one approach would be to set it at the Fair Work Act’s existing high-income threshold for unfair dismissal claims, currently $142,000 a year. This would reinstate individual agreements as vehicle for achieving a flexible and motivated workforce, for boosting performance and productivity — and for rewarding employees with well-paid, individually tailored employment agreements.

A return to reform

This package represents a continuation of the path of pragmatic industrial relations reforms which Australia has pursued in the past. They are sensible reforms like those of the Industrial Relations Reform Act in 1993, which shifted Australia from centralised wage-fixation to enterprise bargaining — including a non-union bargaining stream — underpinned by an award safety net.

They are sensible reforms like the Workplace Relations Act in 1996, which introduced individual agreements (Australian Workplace Agreements) with a modified “no disadvantage test” to protect overall terms and conditions of employment under the relevant award.

Unfortunately, the broadly-accepted reform path of the 1990s was derailed in 2005 by the Workplace Relations Amendment (Work Choices) Act. WorkChoices undermined the employment safety net by replacing the “no disadvantage test” with statutory minimum conditions plus a list of “protected” award conditions.

The subsequent introduction of a new” fairness test” (administered by a new Workplace Authority) was insufficient to restore public confidence in individual bargaining. This led in turn to the Fair Work Act, which focused on dismantling WorkChoices. The problem is that, in reaction to WorkChoices, the Fair Work Act has swung the pendulum back too far in some areas. And it has remained essentially unaltered since its passage through Parliament in 2008.

A decade later, we need to get back to the pathway of sensible reform, avoiding the extremes and the polarised postures which have characterised Australia’s workplace relations debate since WorkChoices. We need to get back onto the reform path of the earlier period, to pursue changes from within the system to support productivity, wages growth and job creation.

Our international competitiveness is being put under the microscope. We should focus on keeping people employed by ensuring we are attractive to investors — both domestic and international. As a country, we must be hungry for investment and the jobs that go with it. We need to think about how our workplace relations system can help attract that investment.

Let me make it clear — kick-starting industrial relations reform is once again not only in the national interest. It is very much in the interest of workers. Restricting the ability of companies to change work practices and adapt to changing market conditions restricts the ultimate capacity of companies to grow their businesses and employ more people.

Neither side of politics helps Australia’s employees or its employers by running scare campaigns on workplace relations — nor by running scared of workplace relations reforms.

It’s time to take workplace relations reform out of the deep freezer.

The Minerals Council of Australia is proposing this package of realistic measures as the starting point for putting Australia back on a balanced and fair path for essential workplace relations reform.

ENDNOTES

[1]Gerard Henderson, “The Industrial Relations Club”, Quadrant, 27(9), September 1981 pp 21-9; The Return of the Industrial Relations Club Minerals Council of Australia Policy Paper, MCA, December 2013.

[2] Peter Downes, Kevin Hanslow and Peter Tulip, The Effect of the Mining Boom on the Australian Economy, Reserve Bank of Australia, Research Discussion Paper 2014-08, August 2014.

[3] Australian Bureau of Statistics, Average Weekly Earnings, Australia, Nov 2016, ABS cat. no. 6302.0, released on 23 February 2017.

[4] Deloitte Access Economics, Mining and METS: engines of economic growth and prosperity for Australians, 29 March 2017. In this report, ‘mining’ includes exploration, minerals extraction and metal refining but excludes oil and gas.

[5] Australian Bureau of Statistics, Labour Force. Australia. Detailed Quarterlv. Mav 2017, ABS cat. no. 6291.0.55.003, released on 22 June 2017.

6 Australian Workforce and Productivity Agency, Resource sector skills needs 2013, Australian Government, 2013.

7 Boyd Hunter, Monica Howlett and Matthew Grey, The Economic Impact of the Mining Boom on Indigenous and NonIndigenous Australians, Centre for Aboriginal Economic Policy Research, Working Paper 93/2014, 8 August 2014.

8 Australian Bureau of Statistics, Labour Force, Australia, Detailed, Quarterly, May 2017, Catalogue No 6291.0.55.00 Department of Foreign Affairs and Trade, Composition of Trade, Australia, 2016. Released on 30 June 2017.

9 Department of Foreign Affairs and Trade, Composition of Trade, Australia, 2016. Released on 30 June 2017.

[10] Deloitte Access Economics, Mining and METS: engines of economic growth and prosperity for Australians, 29 March 2017.