Opening Remarks to Productivity Commission Hearing on Workplace Relations
11 September 2015
Business Council of Australia (BCA) Chief Executive Jennifer Westacott gave these opening remarks in her appearance at a Productivity Commission hearing on the Commission's Workplace Relations Framework Inquiry in Canberra on 11 September 2015.
Check against delivery.
I’m here today as the Chief Executive Officer of the Business Council of Australia.
The Business Council is made up of over 130 companies across all key sectors of the economy.
Collectively, Business Council members directly employ more than a million people across the entire country, of all ages, backgrounds and at all skill levels.
We are part of the broader large businesses community which employs 3.4 million people or 32 per cent of Australian workers, and contributes 44 per cent of Australia’s economic output.
The Productivity Commission’s inquiry comes at a time of significant economic, technological and social transition.
Across the country we are talking about the need for a whole suite of policy changes that will help us respond to disruption, grow our economy and preserve and improve our living standards.
Improving our workplace relations system is a vital part of this.
And while workplace relations has become a difficult and ideological topic to talk about, it’s one we must discuss.
As Glenn Stevens said at the recent national reform summit:
‘There is no avoiding the need to have the right labour market arrangements. The question is how to have suitable rules that offer basic fairness, but with minimum adverse effects on enterprises, employment, and the scope for free agents to come together in ways that mutually suit them – and that grow the economy. Whether we have that balance right is a question you might address.’
From the Business Council’s perspective, the Productivity Commission, with its long track record of considering difficult reform, is the right institution to consider this question.
You are able to rise above the ideology of the debate and focus on the public policy issue, rather than the politics.
You are also able to take a long-term and future-looking approach.
The Commission has undertaken a significant piece of work which extensively examines components of the workplace relations system.
In particular, I’d like to congratulate the Commission on its work and proposals relating to the:
• Minimum wage.
• Greenfields agreements.
• The suggestion of a no-disadvantage test in place of the BOOT.
• The appointment process for Fair Work Commissioners.
• Preventing restrictions on the engagement of independent contractors, labour hire and casual workers, and
• The focus on the behaviour of parties during the negotiation of an agreement.
While some of the recommendations have not gone as far as we have previously sought, I know that the challenge of good reform is finding the right balance.
Your recommendations on penalty rates are a good example of this.
We believe our proposal is more enduring, however businesses are at the point where they will accept any step forward on this vexed issue.
Your recommendation is a common sense step, and as a country we need to take it, and take it urgently.
The draft recommendations go a long way to answering the first part of Glenn Stevens' question.
They will deliver a set of rules that offer basic fairness. And that’s why we support them.
What I would like to focus on today is the second part of Glenn Stevens' question. How to have fairness while creating the minimum adverse effect?
And that also means, how do we position us for the future?
How do we give enterprises, large and small, the agility they need to create the conditions for the jobs of the future?
This is the area in which the Business Council would urge the Commission to do further work.
We believe you need to give substantive consideration to this, and build it into the architecture of the final report.
In particular, the Council believes additional work is needed on:
• The Commission’s approach to the legislation.
• Awards, and
• Agreement-making – that is, their function and scope.
Commission’s approach to the legislation
The Commission has devoted a great deal of attention to the regulator and how the rules of the system are implemented.
In your speech Chairman, you stated that ‘the workplace relations system of tomorrow is getting a restructured regulator.’
There’s no doubt we need a restructured regulator. But we also need to update the rules, so we have a workplace relations system of tomorrow. Fit for a modern economy, and modern agile workplaces.
Legislation is the primary policy lever for governments, and this legislation needs greater scrutiny.
The Commission notes that industrial action in Australia is at low levels.
While this is true, it doesn’t mean that the legislation is working well. After all, industrial action represents a form of end game failure.
Low levels of industrial action could point to the fact that the system encourages employers to give in to negotiations because of the time and effort involved in getting an enterprise agreement in place.
The legislation is so important because it creates the workplace relations system. It drives the culture. It drives the behaviour.
You simply can’t do better with sub-optimal rules.
The Commission needs to examine the cumulative effect of all components of the legislation.
What is the cumulative adverse effect of the minimum wage, penalty rates, Awards, and all the matters in agreements, on enterprises, employment and overall growth?
People can always cite examples of enterprises who work around the system, or succeed in spite of the system. And then they point to them to say the system is working well.
It’s true that enterprises can work around the system. But how is it good public policy to settle for a system that is complex and difficult to use, and needs to be worked around?
From a public policy point of view, good regulation is transparent.
It’s easy to understand and use. It’s predictable. And it’s enforceable.
Shouldn’t this be our aspiration for our workplace relations legislation?
In the draft report the Commission notes ‘as is always the case for regulation to be warranted, it must still be “fit for purpose”, minimise adverse side-effects and be able to pass a broad benefit-cost test.’
The Business Council believes that this set of tests has not been adequately applied to the legislation, particularly in the area of Awards and agreement-making.
Let me start with Awards.
The Council agrees with the Commission’s conclusion that Awards are part of the safety net.
We accept the Commission’s statement that ‘Awards should be retained to provide a safety net to address the imbalance of market power.’
However, the Council does not believe the Commission has taken the next step to assess whether Awards are serving this purpose of a safety net.
Awards have ventured into the territory of issues employers and employees should negotiate.
We have reviewed over 25 Awards to gather the evidence the Commission has asked for, to demonstrate that Awards are going well beyond the safety net.
Some include leave loading. Some detail when annual leave can be taken.
Some specify how and when higher duties should be paid or within what time frame a worker should progress to the next pay point.
Some say how rostered days off should be organised.
Some define occupations and, in effect, control how enterprises manage their workforce. And they go to job design.
Take the Health Professionals and Support Services Award 2010 as an example.
This includes a minimum pay rate of $96,127.20 per annum.
This is 181 per cent higher than the national minimum wage – clearly beyond a safety net. It would not pass ‘the person on the street’ test.
And when you unpack the role associated with that salary, it becomes clear the Award is venturing into job design territory.
To return to Glenn Stevens' point, Awards should offer basic fairness and minimise adverse effects on enterprises.
Job design is not basic fairness, nor is it the role of the safety net.
And restrictive job design is not how the modern workforce operates.
The modern workforce is about individuals taking on broader tasks, not being confined to a pre-determined list.
Skills, and the demand for skills, will continue to change. So too, will the jobs that people do.
We don’t know what the jobs of the future will be. But we do know that the more rigid the system is in defining job roles, the more difficult it will be for enterprises to adapt.
And we need to update our legislation so it supports our changing environment.
We have proposed that Awards be brought back to their core purpose, and for the number of Awards to be reduced.
The Business Council acknowledges that bringing Awards back to the core purpose of a safety net will not be easy.
It is a very difficult public policy problem to grapple with, but we believe it is imperative the Commission does it in the final report.
The Commission has argued that, from a public policy perspective, the role of regulation in workplace relations is to address the imbalance of market power.
This proposition, and the nature and extent of the imbalance, could be argued indefinitely.
To prevent academic arguments, the Business Council won’t contest that this is the role of regulation in workplace relations.
But, the Council will contest how broad the regulation should be to address the imbalance.
Awards cannot have carte-blanche in the employment relationship.
There are always trade-offs, and good regulation cannot have the costs exceeding the benefits and be open-ended.
We would urge the Commission to define the appropriate breadth of the safety net.
To assist, the Business Council proposes a set of five key principles to define the safety net, that I’ll table now and I’m happy to answer questions about at the end of my remarks.
Now to agreement-making.
The Commission’s draft report has made a number of recommendations that focus on the process during agreement-making, the behaviour of participants, procedural issues and the creation of greenfields agreements.
Reflecting my earlier comments, some of these recommendations do not go as far as the Business Council proposed, but we recognise the Commission is seeking to find balance between the parties.
So we support the recommendations as sensible and practical changes.
The Council’s greatest concern, however, is that we do not believe the report has considered the bigger issues in agreement-making.
Agreement-making is the fundamental issue for the Council.
And it’s because agreements can take so long to negotiate and use up resources of enterprises.
And the negotiations put the workers and enterprise in conflict.
And when they finally get settled, they set the rules for 3–4 years.
This is in direct contrast to the modern world in which enterprises operate. Business models can change overnight and enterprises can’t wait for an agreement to expire to change how they operate.
Resources need to be devoted to innovating, not negotiating an employment relationship.
And perhaps most importantly, workplaces need to be collaborative, not in conflict.
That is why agreements are so important to us. And why we are so firm in our view that the Commission needs to really agonise over how to improve agreement-making.
So firstly, on the content of agreements.
Enterprise agreements were meant to be about the unique circumstances of the enterprise and its workers.
But Awards are the starting point for agreement-making.
This means that before the parties even begin to negotiate, a whole set of arrangements have been pre-determined.
This interaction between Awards and agreements is another reason why they need to be returned to their safety net purpose.
The draft report states ‘apart from the employment of labour hire and contractors, further evidence is required to assess whether particular sorts of terms should or should not be permitted.’
An enterprise agreement is a form of regulation.
According to the Act, an agreement can include matters pertaining to the employment relationship, and the relationship between the employer and employee organisations.
If the regulation was fit for purpose, all enterprise agreements would be limited to these matters. This is not the case.
The draft report states ‘The FW Act deliberately moved away from the legislative prescription in previous regimes to reliance on jurisprudence about “matters pertaining”.’
The Business Council argued in our initial submission that:
‘an effective workplace relations system is one where all parties of the labour market have a clear understanding of the rules that govern the relationships, and can anticipate the decisions that will be made if a dispute arises.’
Allowing precedent to build and develop via common law, in place of defining a clear set of rules, fails to give all parties the certainty they need.
It is also an open door for regulatory scope creep. And the breadth of content in agreements today attests to that.
We have trawled through a sample of 20 EBAs – over 1700 pages – to look at clauses that go beyond the employment relationship.
19 of the 20 EBAs have clauses that limit an organisation’s ability to make staffing decisions.
19 have clauses that impact on how or when an organisation can operate.
12 have detailed descriptions of the tasks and duties a worker should perform.
13 have clauses that require consultation before the organisation can introduce production, program, organisation, structure or technology changes.
We will continue to gather this evidence for you and include it in our written submission.
We accept this issue has more impact on some sectors than others. But they happen to be sectors of large employers and parts of the economy in transition.
But on this issue, I would urge you to return to your first principles approach.
Rather than looking at each clause that has already been included in an agreement, you should define what constitutes the workplace relationship, from a public policy perspective, and what should therefore be allowed in regulation.
The public policy task is not to define what can’t be included.
The task is to define what can be included and why, and then update the legislation to reflect this.
In the Council’s submission to the inquiry we proposed seven categories, which I’ve included in my tabled document.
We urge the Commission to consider this proposal for its final report.
Optionality in agreement-making
Our second key issue in relation to agreement-making is the lack of optionality.
The Council recognises that the Commission has made a range of recommendations to improve the individual flexibility arrangements.
But, our members have very clearly told us that IFAs do not give them the flexibility they need.
They want to have individual contracts available in the system.
We struggle to understand why there is an objection to both workers and enterprises having this option.
If the safety net serves as the starting point and is protected – which it would be with the re-introduction of the no-disadvantage test – what is the rationale for denying this option within the regulatory setting?
The system is set up so that enterprises are forced to engage in negotiation.
Even if the enterprise doesn’t want to run their business under an EBA, they can be forced to engage in negotiation.
Given that an enterprise can’t opt out from this, then surely it’s incumbent on government to create a regulatory system that provides options.
Options for both the worker and the employer.
What is the justification for forcing an enterprise to engage in negotiation to develop an agreement, but not allow options as to the form of that agreement?
The rejection of individual contracts is ideological.
The ideology is clear in the legislation itself. The object of the Act states:
‘ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system’.
This is not public policy. This is ideology.
This review is an opportunity to move the workplace relations system away from ideology. To do that, ideology has to be removed from the legislation.
And not allowing individual contracts to be an option, because they are inherently unfair, is ideological.
This review is a once-in-a-generation opportunity to reform workplace relations.
Our workplaces are the key to our future productivity growth.
We need a workplace relations system that encourages, rather than stifles, innovation and productivity.
Labour productivity growth has accounted for more than 80 per cent of growth in hourly real wages over the past two decades.
And it will account for most of our productivity growth in the future.
Innovation happens at an enterprise level. It’s the people in an organisation who create change and productivity.
It’s managers and their teams working together to solve problems that supports risk-taking and leads to success.
We need to make sure our workplace relations system encourages this. It needs to encourage collaboration, rather than conflict.
The workplace relations system needs to find that balance between creating a safety net for workers and having sufficient flexibility, so enterprises and people can innovate.
Innovation benefits everyone – enterprises and workers.
The draft report has built in the safety net, but needs to go further to provide the flexibility enterprises need.
To again return to Glenn Stevens' point, the system needs to minimise adverse effects.
And it needs to be able to adapt to the challenges our workplaces will confront in the future.
Enterprises should not have to work around a complex, rigid and conflict-driven system. The system should facilitate success, not block it.
The Commission can contribute to building that system by reforming Awards and agreements.
I understand the Commission’s need to ensure that we don’t undertake reform for reform’s sake.
I also understand their concern about transition costs. But this is not reform for reforms sake. And the reform will provide benefits to all.
And although transition costs should be minimised, transitions costs are a one-off.
Failed enterprises, on the other hand, have more enduring and difficult implications for the people who invest in them, and the people who work in them.
The benefits from reform therefore are enduring.