Enterprise Bargaining on the Brink of Failure

This opinion article by Jennifer Westacott was published in The Australian Financial Review on 2 Febuary 2017

When a highly respected senior member of the Fair Work Commission such as vice-president Graeme Watson resigns and makes such a damning assessment of the workplace relations system, you have to stand up and say that something is truly wrong.

The changing ways in which we do business and produce things, the digitisation of everything, the changing habits of Australian families and when they choose to work is fundamentally reshaping workplaces. In the face of this, companies and their workers are not standing still, so why should our workplace relations system?

The current state of enterprise bargaining typifies the cracks appearing in our workplace relations system – a system that is becoming increasingly adversarial and regulated, and ultimately disempowering workers and employers.

Enterprise bargaining was introduced in the 1990s through the efforts of the Hawke and Keating governments and it remains a cornerstone of the workplace relations framework today.

When enterprise bargaining was established, its purpose was to agree wages and conditions that match the individual circumstances of employers and employees, while retaining the benefits of collective action for employees.

At its heart, enterprise bargaining should be about employers, employees and their representatives sitting down together and looking at current circumstances, what's good for workers and what's good for the company, and coming to a collective decision.

Despite its enduring role, it is clear that enterprise bargaining is at risk of becoming unworkable for enterprises and the more-than-40 per cent of workers employed under a collective agreement.

The content of agreements has now gone far beyond wages and conditions. Many agreements now encompass business and managerial decisions including hiring practices, shutdown periods, organisational design and changing mixes of worker categories.

Enterprises face each new bargaining process with a long history of agreements and clauses like these that have to continue to be built upon, regardless of prevailing commercial conditions. It is no wonder that vice-president Watson observed that enterprise agreements are increasingly limited to enterprises where protected action is a threat or variations to the award safety net are necessary for operational efficiency.

Even an agreement signed in good faith by an employer and union, to benefit the vast majority of average workers, is at risk of being scuttled through the appeal of a handful of employees, as demonstrated by the Coles decision. More than 90 per cent of employees who voted were in favour of making the agreement. Yet, the fate of wages and conditions were taken away from collective decision-making and put into the hands of a tribunal. This is hardly befitting of a modern workplace relations system and could not have been intended when the current test was legislated.

The construction and current interpretation of the Better Off Overall Test now makes agreements cumbersome, challenging and risky for enterprises with large workforces.

If this trend continues then I fear that Australian businesses will have no choice but to increasingly default to the highly regulated awards system. This is a system with 122 awards, many of which are complex, unclear and out of date.

This will leave business and workers worse off. Whichever way you cut it, workers on enterprise agreements earn on average considerably more than those on awards and the minimum wage.

Clearly, we need to find a way to get back to the fundamentals of what enterprise bargaining was intended to achieve, so that workers, employers and unions can work together to ensure that we can respond to commercial challenges while doing the right thing by workers.

If we don't do this then Australian companies simply won't be able to adapt their enterprise arrangements in response to global competitive pressures. And workers will forego the additional benefits including flexible work arrangements and leave entitlements that can flow from enterprise bargaining.

In the short term, we need to look at sensible changes that could be made to the framework to reverse the current trend. Chief among these is making the Better Off Overall Test more predictable and transparent for workers and employers by ensuring it is a truly overall assessment, and beginning to limit the scope of what can be included in agreements.

In the medium term, we need to modernise the enterprise bargaining system. This means working towards a system where agreement content is limited to a clearly defined list of issues, and workers and employers can focus on genuinely bargaining towards wages and conditions that match their individual circumstances.

The passing of legislation to re-establish the Australian Building and Construction Commission at the end of 2016 demonstrated that the parliament can work together to pass important workplace relations legislation that improves Australia's competitiveness.

In 2017, parliamentarians interested in promoting economic prosperity through better jobs and wages for the communities they represent should heed the warning signs for the future of enterprise bargaining and be open to supporting sensible solutions.

Jennifer Westacott is chief executive of the Business Council of Australia and has been a non-executive director of Wesfarmers since April 2013