Australia is facing a sustained productivity slowdown, while households are under pressure from inflation and rising interest rates. The cumulative effect of recent workplace relations amendments risks adding further cost, complexity, and uncertainty across the economy, and acting as a disincentive to business investment in Australia.
Productivity matters because of its impact on wages and living standards. The long-run determinant of real wages is productivity growth. This is supported by the Reserve Bank of Australia Treasury and the Productivity Commission. It also matters beyond the workplace. Wages decoupled from productivity becomes inflationary and affects all Australians through higher costs of living, mortgage repayment increases, reduced job security, declining living standards, and diminished long-term opportunities for Australian families.
When the BCA talks about labour productivity, we are not talking about working harder, but smarter and easier. We want jobs and living standards to improve, and to do this, we need flexibility in workplace regulation to allow businesses to innovate and adapt to local and global conditions, scale up quickly, and harness opportunities, and to ensure workers are best matched to jobs that suit their qualifications and experience. Workplace laws do not operate in isolation. When they increase compliance burdens, constrain flexibility, or increase scope for disputation, those costs are ultimately borne by businesses, which can, in turn, impact workers and Australian consumers.
Despite Australia’s many advantages, our economic and workplace settings are not delivering the levels of investment, growth and productivity required to sustain rising living standards. Key indicators point to a clear challenge:
- Inflation is rising;
- Economic growth remains below its long -run average of 2.8 per cent;
- Business investment, as a share of GDP, is near 30 -year lows;
- Labour productivity growth is the weakest recorded in six decades; and
- Household incomes have fallen more than that of other OECD economies.
This trajectory is not inevitable. With the right policy settings, Australia can strengthen its competitiveness for global capital and boost productivity growth that underpins wages, public services and long-term prosperity.
The Fair Work Act is meant to promote cooperative and productive workplace relations, yet industrial disputes are increasing while productivity stalls. The Closing Loopholes reforms have changed bargaining incentives in ways that reward delay and disputation over reaching agreements with mutual gains, and that is bad for wages in the long term, productivity and living standards.
The Closing Loopholes amendments were presented as a balanced reform agenda to enhance fairness, safety and job security. They were never about increasing workplace cooperation or reducing disputation. In practice, they represent a marked expansion of regulatory intervention, displacing enterprise autonomy with prescriptive rules, heightened legal risk and ongoing uncertainty. Far from enhancing cooperation and productivity or strengthening enterprise-level bargaining, it has shifted power away from direct employer-employee engagement, entrenched adversarial dynamics, and weakened the primacy of the enterprise as the centre of agreement-making.
In combination with the Secure Jobs, Better Pay amendments, these changes have embedded structural complexity into the system and created multiple new pathways for disputes to be initiated and escalated to the Fair Work Commission and the courts, increasing cost, delay and conflict across Australian workplaces. This does nothing to provide the legislative certainty required to increase business investment and improve Australia’s flailing labour productivity.
This submission does not accept the premise that Australia’s labour market was failing in a way that justified these reforms. What was required was policy stability and reform focused on enabling investment, innovation and cooperative bargaining.
Instead, the Closing Loopholes legislation has:
- Undermined enterprise bargaining by:
- expanding agreements negotiated at the workplace to third parties, irrespective of whether they had their own agreements in place;
- limiting the effect of the better off overall test via changes to intractable bargaining determinations that require them to be no less favourable than existing agreements on a line-by-line basis; and
- increasing dispute pathways;
- Replaced legal certainty, including in relation to who can be a casual employee or independent contractor, with uncertainty, ambiguity, legal risk and compliance costs through broad, burdensome and uncertain provisions, subject to significantly increased civil (and in some cases, criminal) penalties;
- Reduced operational flexibility, particularly in relation to labour hire, casual employment and independent contracting; and
- Diverted time and resources away from productive activity and towards disputation and compliance processes, and additional resources and benefits for union delegates.
The cumulative effect is a workplace relations system that is less able to support and encourage productivity growth and, therefore, less able to deliver sustained improvements in wages and living standards.
Rising numbers of industrial disputes suggest the Closing Loopholes reforms are driving conflict rather than the cooperative, productivity-focused workplace relations framework the Fair Work Act 2009 (Cth) (FW Act) is intended to achieve.
The review of the Closing Loopholes amendments is therefore not an abstract policy exercise. It goes directly to whether our workplace framework is supporting productivity and economic growth, consistent with the overarching object of the FW Act to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity, including by providing workplace relations laws that are flexible for business, promote productivity and economic growth.
This submission therefore does not address all of the changes made by the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) (CL1) and the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth)(CL2) (together the CL Acts). Rather, it focuses on several key areas where we consider the legislation has failed in meeting those parts of the FW Act’s objects as outlined above and are already having clear and material impacts on bargaining dynamics, productivity and compliance costs. We also make several recommendations for targeted amendments to address these concerns. The absence of comment on a particular measure should not be taken as endorsement or support for that change.
The central message is simple. If Australia is serious about lifting wages and living standards, workplace relations policy must support productivity, enterprise-level bargaining and workforce flexibility. It should provide legislative certainty to avoid deterring business investment, including in technology designed to increase labour productivity. Where amendments introduced by the Closing Loopholes amendments do not do so, they should be substantially amended or rolled back.
Key recommendations
- Amend Part 2-7A of the FW Act to provide that a regulated labour hire arrangement order (RHLAO) may only be made where the relevant labour hire employees are performing the same work, in substance and classification, as employees of the host employer and are working in embedded work groups with the host’s employees.
- Amend s 306E to require the Fair Work Commission to consider, as a mandatory factor, the likely impact of making a RLHAO on labour productivity and operational efficiency for the host enterprise before being satisfied that an order should be made.
- Amend Part 2-7A of the FW Act to provide clear, certain and unambiguous definitions of a “labour hire arrangement” and “service contractor”, including an express exclusion for genuine service contracting arrangements, to reduce uncertainty and prevent unintended capture of legitimate service contracting models.
- Amend the FW Act to provide that all workplace delegates’ rights are subject to an express statutory requirement that such rights be exercised in a manner consistent with the employee’s primary duty to perform their work and comply with lawful and reasonable directions of their employer.
- Require a federal entry permit for all rights of entry under the FW Act and WHS legislation. Strengthen the fit and proper person test required to obtain a federal entry permit.
- To ensure that the IBD framework is operating effectively and appropriately, having regard to its stated objectives, and to mitigate unintended consequences, s270A of the FW Act should be repealed.
- Section 272 of the FW Act should be amended to provide that an IBD cannot include terms providing for back pay.
- Sections 15AA ‘Determining the ordinary meanings of employee and employer’ and 15A ‘Meaning of casual employee’ should be amended to reflect the contract -led definitions set out by the High Court in the Rossato, Jamsek and Personnel Contracting decisions.
- Modern awards should be comprehensively reviewed to make them truly simple and easy to interpret, apply and understand.
- The FWC or Fair Work Ombudsman should create and share clear and unambiguous pay rules for all modern awards, including penalty rate, allowance and overtime clauses. This process could be informed by a tripartite organisation comprising government, business and worker representatives