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Howe, J; Mitchell, R; Murray, J; O'Donnell, A; Patmore, G --- "The Coalition's Proposed Industrial Relations Changes" [2005] UMelbLRS 1

Last Updated: 12 June 2008


Melbourne Law School
Research Series

[2005] UMelbLRS 1

The Coalition’s Proposed Industrial Relations Changes: an Interim Assessment

John Howe, Richard Mitchell, Jill Murray, Anthony O’Donnell and Glenn Patmore

(2005) 31(3) Australian Bulletin of Labour 189-209

The Coalition’s Proposed Industrial Relations Changes: an Interim Assessment

John Howe, Richard Mitchell, Jill Murray, Anthony O’Donnell and Glenn Patmore[∗]


The Prime Minister’s recent statement outlining the Coalition Government’s plans for industrial relations heralds a period of profound change in Australian labour regulation. Proposed alterations to the institutional landscape for regulation of wages and other minimum standards, including a diminishing of the role of the AIRC and further promotion of enterprise bargaining, represent a major regulatory shift and are likely to have a significant impact on working conditions and trade unions, The exclusion of businesses with 100 employees or less from the federal unfair dismissal regime will mean that statutory regulation of termination of employment is substantially reduced. And the Prime Minister’s plan for a national industrial relations system is the most radical restructuring of federal labour regulation in almost a century. The changes, however, do not represent a wholesale replacement of the collective system with institutionalised individualism. Among other things, key institutions of the conciliation and arbitration system will remain in place, although it will be some time before we can fully assess the nature and likely impact of the Government’s policy.

  1. The Prime Ministerial Statement

On 26 May 2005 the Prime Minister, John Howard, made a much awaited policy statement concerning the Coalition Government’s plans for the Australian industrial relations system. Prime Minister Howard labelled these plans ‘a historic modernisation of Australia’s workplace relations system’ and ‘one of the great pieces of unfinished business in the structural transformation of the Australian economy’.[1] The entire Workplace Relations Act 1996 (Cth) (‘WRA’) is being re-drafted to incorporate the policies in this statement along with other long-mooted changes, with a new Bill likely to be presented to Parliament by late October 2005.

The Prime Minister’s statement makes a number of general propositions about what the government is seeking to achieve with its policy. Referred to as ‘key principles’, these include the ‘simplification of an overly prescriptive award system’; balancing ‘freedom and fairness’; giving ‘greater freedom and flexibility to employers and employees to negotiate at workplace level’; providing people ‘with the choice of remaining under the existing award system or entering into workplace agreements’; and preserving ‘freedom of association’ and ‘the right of workers to have a trade union negotiate in the workplace on their behalf if they so wish’.

Underlying the rhetoric of the statement lies a clear desire to reduce labour costs and increase managerial prerogative, at least in parts of the economy. The Government expects that this strategy will bolster and sustain economic growth and, in turn, create more jobs and opportunities for Australian workers. Should this assumption prove incorrect and the economy stagnates or suffers a downturn, the main contribution of the new labour law regime may be to facilitate reductions in wages and conditions and aid job shedding.

It is important to emphasise that in no sense do the proposed changes represent a ‘deregulation’ of the labour market. We have simply reached another historical juncture in the evolution of the ‘contested terrain’ which is Australian labour law (Arup et al, 2000). Earlier junctures have seen fundamental changes to labour regulation, such as the establishment of the conciliation and arbitration system at the federal level in 1904. Other periods have been marked by ongoing incremental change. We suggest that this policy statement falls somewhere between these two extremes.

On the one hand, the statement suggests continuity with much of what has gone before, with long-established features of the federal system retained rather than abolished, for example, the federal arbitral tribunal, awards, a continuing role for unions and collective regulation of employment conditions. More recently introduced features of the federal system, such as legislated standards around redundancy and dismissal, non-union collective and individual agreements and the Office of the Employment Advocate (‘OEA’), also retain a place. There will continue to be compulsory determination of many aspects of the employment relationship, and voluntary workplace agreements will still attain the force of the law through a certification process overseen by the government. This is a far cry from the reform processes in both New Zealand and the State of Victoria during the early 1990s, which saw the wholesale abolition of existing collective institutions and their replacement with new regulatory structures giving preference to individual contracting (Anderson 1999; Pittard 1998).

On the other hand, the proposals certainly herald one of the most significant and radical shifts in policy for some time. New institutions, such as the Fair Pay Commission, will fundamentally alter the institutional landscape. New certification processes and a considerably enhanced role for the OEA means the balance between arbitrated awards and the negotiation of conditions through enterprise bargaining, fundamentally altered in the early 1990s by the Labor Government and further consolidated by the WRA, will further shift in favour of bargaining. Institutions such as the federal tribunal and awards will have a much diminished function, while the formal role of trade unions is likely to be reduced. The introduction of these changes will require prescriptive legal regulation.

Each wave of regulatory change in Australian industrial relations over the past two decades has tended to prompt debate as to whether the arbitral model is merely ‘evolving’ or facing imminent ‘death’ (see, eg, Mitchell and Naughton 1993; Dabscheck 2001; Forbes-Mewett, Griffin and McKenzie 2002). This comment on the latest proposed changes is based primarily on the contents of the Prime Minister’s policy statement. Whether the statement represents part of a continued evolution in Australian labour law or a radical new beginning representing the triumph of individualism over collectivism depends, in part, on how the proposals are translated into statutory form, and how the new statutory regime will operate in practice. These are matters upon which we can only speculate at this point in time.

There are several key elements to the policy statement around which the following discussion is structured. The most significant changes proposed by the Coalition will occur in the following areas of the current system: the regulation of minimum standards; the enterprise bargaining regime; unfair dismissal; and the proposal for a national industrial relations system. We give some explanation of the current system, identify the changes the Government is proposing, and try to anticipate what these changes might mean in terms of labour market regulation and outcomes.

2. Regulation of Minimum Standards and Wage Fixing

Currently, the specification of terms and conditions through awards establishes many of the minimum standards below which it is unlawful for an employer to employ labour at a given classification. These standards cover many aspects of the employment relationship, pre-eminently matters relating to rewards for labour (wage rates, loadings for overtime and shiftwork, allowances or special rates, and so on) and the quantity or quality of work performed (hours of labour, leave, work organisation, discipline and termination of employment). State legislation has also traditionally set out minimum standards with respect to annual and long-service leave and more recently federal legislation has established minimum standards in relation to a range of matters such as parental leave, superannuation, termination and redundancy. Employment contracts which offer less than award standards are unenforceable, and enterprise-specific collective agreements and individual agreements cannot be legislatively formalised if they disadvantage employees when compared with the relevant award (commonly called the ‘no disadvantage test’ or ‘NDT’: see further the discussion of bargaining in the following section).

The Government proposes to alter the regulatory framework for the setting of minimum standards in two fundamental ways. It wants to remove wage fixing functions from the Australian Industrial Relations Commission (‘AIRC’) and vest them in a new statutory body to be called the Australian Fair Pay Commission (‘FPC’). The FPC will set a single adult minimum wage on a periodic basis, guided by parameters in legislation. It will also adjust award classification wages. Further, the Government will introduce minimum conditions for annual leave, personal leave, unpaid parental leave and maximum working hours through legislation. The wage rates set by the FPC together with these legislated minima will form the Australian Fair Pay and Conditions Standard (‘FPC Standard’). It will be this FPC Standard that will underpin bargaining and, presumably, contractual terms of employment.

The setting of minimum wage rates has been popularly perceived as the most significant function of award regulation. The AIRC still operates in the paradigm established in the early years of the twentieth century, setting a framework of wage rates, based on particularised career structures, rather than a single minimum wage or floor. Current Australian safety net wage adjustments thereby directly effect all award-reliant workers (currently around 20 per cent of employees: ABS 2002), including the significant proportion of those above the lowest unskilled award rates, but earning well below average weekly earnings and who are low paid for their skills by comparison to most workers at that skill level who have concluded enterprise bargains. The AIRC has affirmed the maintenance of proper relativities so as to reflect skills as ‘an important determinant of the fairness of the minimum wage structure’.[2] Given that wage setting has been central to the functions of the federal arbitral tribunal for most of its history, the Government’s proposal would significantly alter the established institutional landscape of Australian workplace relations.

The AIRC is required to set award rates with an eye to macro-economic objectives such as high employment, low inflation, improved competitiveness and productivity, while its role in maintaining a ‘safety net’ for employees who have not entered the bargaining stream has seen a renewed focus on the needs of the low paid and concepts of fairness. The fixing of award wage rates is also required to facilitate bargaining at the enterprise level, presumably achieved through keeping safety net adjustments deliberately lower than the gains made in enterprise bargaining so as to provide workers with an incentive to bargain and to provide scope for trading on matters concerning workplace flexibility (see WRA ss 3(a); 88B(2)(b); 88B(2)(c) 3(d)(ii); 88B(2)(a); 3(b); 88A(d)(i)).

The requirement to address and somehow balance these varied and potentially contradictory objectives presents the AIRC with an unenviable task, but also reflects the fact that the functions of wage setting, pace neo-classical economic theories, cannot be reduced to a single logic, such as ‘market clearing’ (Rubery 1997). It is unclear what mandate the new FPC will be given, or what the promised legislative parameters that guide it will be.

A problematic aspect of the current proposals is that, on the face of it, the government has made clear its intention to retain award classification rates, yet the AIRC, not the FPC, will presumably continue to determine through arbitration the award classifications themselves and a range of other award conditions. The WRA currently mandates the AIRC to maintain an award safety net of ‘fair minimum wages and conditions(ss 3(d) and 88A(b)), and apart from its annual wage review, the AIRC has continued to extend or refine award conditions in relation to working hours, family leave, redundancy entitlements, casual conversion, classification structures and so on, both through test cases and through the conciliation and arbitration of disputes. The requirement that the FPC append wage rates to an award structure that remains largely within control of the AIRC appears a cumbersome regulatory outcome, as does the maintenance of a structure of award terms and conditions which, apart from pay rates, will have no bearing on the new FPC Standard.

The Prime Minister has suggested that rates set by the FPC will not fall below the money rates set in place by the 2005 Safety Net Review. Yet the Prime Minister’s has also foreshadowed a review, by a ‘special Task Group’, of existing award classification structures with a view to rationalisation. This raises the possibility of a radical reduction in the number of award classifications. Should the FPC restrict real wage rises to the lowest classification(s) in any new structure, this would result over time in a compression of award rates toward a de facto single minimum wage.

Such an outcome would appear consistent with the two-pronged critique of the AIRC’s safety net adjustments which the Commonwealth Government has maintained for several years: first, that the adjustments should be confined to the low paid (that is, those at or below the equivalent of the C10 (skilled tradesperson) rate in the Metal Industry Award); and secondly that the AIRC should take greater account of the impact of adjustments in potentially pricing the unskilled out of jobs. This has been linked to the desire for a more economically ‘rigorous’ approach to setting the minimum wage in Australia,[3] which presumably contrasts with a perceived undue emphasis being given to ‘fairness’ judged in the context of rising living standards in the Australian community more generally (cf WRA s 88B(2)(a)) and the maintenance of internal relativities between classification rates of pay.[4] In line with this, the Government has also consistently argued that safety-net wage adjustments represent an inappropriate instrument for alleviating household poverty or hardship, as most low paid workers do not live in poor households, and most poor households do not contain low wage workers. It would clearly be consistent with government policy for the minimum wage to fall below a level sufficient to protect full-time workers against poverty, allowing household poverty to be addressed through targeted welfare payments.[5]

Such an outcome would also be consistent with the approach embodied in Britain’s Low Pay Commission (LPC), often invoked as the preferred institutional model by the Coalition Government, which oversees a single national minimum wage rather than a structure of pay rates that underpins collective bargaining.[6] Established in 1997 as a tripartite body, the LPC advises the Secretary of State for Trade and Industry on setting and implementing a national minimum wage (NMW).[7] The Secretary is required, in setting the initial NMW, to consult with the LPC, but is not required to follow its recommendations. There is no provision for the automatic uprating of the minimum hourly rate by reference to prices or average earnings, so its raising is a matter for the discretion of the Secretary, who may make a reference on this question to the LPC but is not obliged to do so.

The overriding concerns of the LPC are apparent from its first report: it sought to set a NMW ‘without risking damage to the economy’, at a rate that should be ‘manageable to a wide range of business interests’, recognising the need to ‘avoid putting jobs or prices at longer-term risk’ (Low Pay Commission, 1998: paras 6.1, 6.3, 6.52). These concerns were reflected in the caution with which the initial rate was set. The first NMW came into force in April 1999, with an adult hourly rate of £3.60, and a slightly lower rate for those aged 18-21.[8] This was expected to affect 10 per cent of workers, but the LPC later revised down its estimates of the number of workers affected to 6.4 per cent in February 2000 and then to 5.5 per cent in March 2001.

The much vaunted rapidity with which the wages of the lowest paid have risen in Britain under the new regime therefore owes much to the initial caution with which the rate was set. Between 1999 and 2002 the uprating remained broadly in line with the average earnings index, but, emboldened by the lack of evidence of adverse impact on aggregate employment (Stewart 2003), the LPC in 2003 and 2004 recommended uprating double the predicted rise in average earnings. The 2004 rate stands at £4.85, and the LPC has recommended that the rate also rise faster than average earnings in 2005 and 2006. Because it is confined to such a small subset of workers, the introduction and uprating of the NMW appears to have had no effect on wage inequality, and the LPC has none of the capacity of the AIRC to maintain or alter wage relativities or address gendered pay inequities through work value judgements and so on.[9]

3. Enterprise Bargaining

The Prime Minister’s statement further reinforces the Government’s long-standing preference for a greater focus on enterprise bargaining as the dominant forum for the determination of employment rights, obligations and working conditions.

The Labor Government established a revitalised system for the negotiation and registration of collective enterprise agreements in the early 1990s, including the endorsement of non-union based collective agreements. The Industrial Relations Reform Act 1993 (Cth) included provisions designed to protect employees from reduction in employment conditions through bargaining, with the AIRC not permitted to register any enterprise bargaining agreement which disadvantaged employees when compared to an award ‘safety net’ and statutory minimum standards (commonly called the ‘no disadvantage test’ or NDT).

The Coalition Government took these changes further under the WRA, strengthening the collective enterprise bargaining provisions and allowing and encouraging the registration of enterprise-based unions. One of the more controversial aspects of the WRA was the introduction of individual enterprise bargaining agreements, called Australian Workplace Agreements (AWAs). AWAs are administered separately from other enterprise agreements by the OEA, a government agency established by the WRA. Once formalised, AWAs override the terms of any collective enterprise agreement or award that would otherwise apply to the employee. Take-up of AWAs across the workforce remains low, however, despite some growth in recent years (eg. Fetter and Mitchell 2003, p. 304).

The policy statement heralds significant changes to the institutional framework for collective enterprise bargaining. Currently, both union and non-union collective agreements must be certified by the AIRC. Under the changes proposed by the Prime Minister, jurisdiction over collective agreements will be transferred from the AIRC to the OEA. The Prime Minister argued that this will ‘deliver streamlined, simpler and less costly agreement making’, on the basis that the current process is preventing genuine workplace-level bargaining. We are likely to see far fewer administrative and procedural obstacles to the creation and formulation of agreements, both in the requirements made of employers in reaching agreements with employees and unions, and in the level of scrutiny of such agreements by the responsible authority.

We can also assume that the Government will also press ahead with ‘streamlining’ of AWA approval procedures, although there is no express reference to this in the Prime Minister’s statement. Such changes are likely to be based on the relevant parts of the Workplace Relations Amendment (Simplifying Agreement Making) Bill 2002 which the Coalition was forced to abandon in late 2004 due to opposition by the Senate.

Another potentially significant change to the WRA enterprise bargaining regime proposed by the Prime Minister is the abolition of the NDT. The NDT will be replaced by a new comparative standard, the FPC Standard, whereby all workplace agreements will be assessed by the OEA against just 5 minimum terms and conditions: annual leave, personal leave, unpaid parental leave, working hours and a minimum rate of pay. The NDT has arguably been the most important aspect of the legal regulatory framework applying to the enterprise bargaining process under the WRA (Mitchell et al 2005; Merlo 2000). The Coalition Government had expressed its intention to abolish both awards and the NDT when it came to power in 1996. However, under its compromise with the Democrats in order to secure passage of the WRA, it settled for the retention of awards as the basic standard wage and a weakening of the NDT by making it a ‘global’ test, in place of the previous ‘line by line’ comparison (Mitchell et al, 2005: 6-7).

Under the new regime outlined by the Prime Minister, all workplace agreements will be assessed by the OEA against the FPC Standard. The Government presumably expects that this will assist employers to use AWAs and non-union collective agreements to reduce labour costs by taking out of the equation a range of typical award conditions, such as penalty rates, overtime pay and entitlements to severance pay in the event of redundancy. Further, one matter which is still unclear is whether enterprise agreements will have to comply with statutory minimum standards outside the five statutory minimums to be enshrined in the FPC Standard, such as the entitlement to a minimum period of notice of termination of employment currently provided by the WRA. The Prime Minister’s statement only makes reference to compliance with the FPC Standard.

There are a number of observations to be made concerning this change. The first is that the NDT was by no means a guarantee that wages and conditions could not be reduced. A recent study of the application of the NDT suggests that while it has been reasonably effective at protecting wages, this has come at a cost to other aspects of working life. Evidence on the current utilization of AWAs and non-union collective agreements indicates that they are used to pursue cost cutting rather than high productivity strategies, especially as regards the removal of penalty rates and loadings and shifts to annualized salaries (Mitchell et al 2005; Fetter and Mitchell 2003). Many employees have experienced loss of conditions which previously regulated the quality of working life, such as limitation on working hours and restrictions on overtime. Further, there is very little evidence that enterprise bargaining has led to the development of ‘innovative’ strategies to reconcile work and family commitments.

If the Prime Minister’s proposals are fully implemented, the employer strategies already emerging under the current system seem certain to have an even greater impact on working conditions. It will be relatively straightforward for enterprises with no union presence, or where employees have relatively low collective bargaining power, to propose collective enterprise agreements or AWAs excluding award terms and conditions of employment which exceed the FPC Standard, although there remains some doubt on the relevance of other statutory minima insofar as enterprise agreements are concerned. On current experience, the excluded terms will most likely be those regulating job quality, such as control over rostering, control over hours, entitlements to penalty rates and so on. Furthermore, depending on the level of minimum conditions set by legislative fiat in an FPC Standard, conditions of employment could become a lot worse.

Finally, it should be noted that the important regulatory function of the AIRC in developing test case standards appears to be sidelined in the government’s proposals. A stark example of this is provided by the AIRC’s recent decision in the Work and Family Test Case 2005.[10] In its decision, the AIRC developed new award standards for parental leave and other arrangements, some of which were reached by consent between the ACTU and employer groups. Uncertainty surrounds the likely impact of this particular decision because, presumably, once the Government’s legislated minima are in place there will be no regulatory vehicle, apart from the parliamentary process, for the implementation of new standards. Just where progressive adjustments in the web of working conditions will come from in the future is not clear.

4. Unfair Dismissal

The government has been working towards reform of the existing unfair dismissal regime in the WRA for some time. The WRA itself represented a significant re-working of the original federal provisions established by the Labor Government in 1993 as part of an attempt to redress the perceived imbalance in favour of employees in that legislation (Chapman 1997).

A number of Government bills seeking to exempt ‘small business’ from the federal unfair dismissal protections were blocked by the Senate, with the most recent, the Workplace Relations Amendment (Fair Dismissal Reform) Bill 2004 (Cth), seeking to exempt employers with up to 20 staff from the federal scheme. The Prime Minister’s announcement that the Government now intends to exempt businesses with up to 100 employees is a substantial increase on previous proposals, and is perhaps one of the most unexpected elements of the policy statement. In addition, the government proposes to extend the probation period during which workers in firms of more than 100 employees can be dismissed without contravening the unfair dismissal provisions in the WRA from three to six months. The Prime Minister has indicated that the protection against unlawful termination will remain intact.

The Prime Minister labelled the original 1993 federal unfair dismissal laws as ‘job destroying’, and the government’s attempts to reform the WRA have been based on the claim that small businesses would employ more staff if they did not have to fear the unfair dismissal jurisdiction of the Act. The five-fold increase in the size of the businesses to be excluded from the unfair dismissal provisions of the WRA seems, by extension, to be based on the idea that even more jobs will be created ‘in small to medium businesses, the engine room of the Australian economy’ (Prime Ministerial Statement 2005).

Evidence that exclusion from the unfair dismissal laws would generate jobs is at best uncertain. The recent Senate Employment, Workplace Relations and Education Committee hearings into the Workplace Relations Amendment (Fair Dismissal Reform) Bill concluded that

A review of the evidence shows conclusively that the claims made by the Government and employer groups are fuelled by misinformation and wishful thinking rather than objective appraisal of the facts.[11]

The Government has not offered any additional evidence to support its five-fold increase in the size of firms to be excluded from the jurisdiction. Even if it were true that small firms would take on more staff in the absence of unfair dismissal laws, it is by no means clear that larger firms would also expand employment for this reason.[12]

The Government has framed its proposals as providing a simpler system, presumably believing that the current system represents an intolerable burden on business because of the complexity and cost. The WRA, however, already provides the Government and employers with a large measure of flexibility in relation to dismissal. The capacity exists under the current Act to exclude special classes of workers, including on the grounds that they work for small business. Many workers are excluded from the bottom end of the labour market (many casuals, probationers and others) and the top end (those beyond the salary cap, currently some $95,000). Even if a firm is faced with a claim, the AIRC must deal with it in ways which explicitly recognize the needs and interests of employers and particularly small businesses.

Further, the jurisdiction of the AIRC, while somewhat arcane and intimidating to people unused to dealing in the jurisdiction or doing so for the first time, is comparatively accessible for lay employers and employees. Legal representation is not necessary. The conciliation process provides a real filter and leads to settlement of many disputed dismissals prior to formal arbitration or court proceedings. The number of matters proceedings through the federal unfair dismissal jurisdiction has been in decline for some time (Senate Employment, Workplace Relations and Education Committee 2005, p. 18).

Whilst the change to unfair dismissal laws undoubtedly constitutes a fundamental shift in state regulation of business capacity to shed labour, it does not represent a total withdrawal of the state and law from the regulation of dismissal. Whereas the statutory schemes of the states and the WRA provide a measure of protection and certainty for both employers and employees, employers who are freed from the strictures of unfair dismissal laws will nevertheless discover that they are still subject to the common law rules of employment. How these might play out in the new environment is difficult to predict. On the one hand, many dismissals which would be found to be unfair under the WRA will be found to be lawful under contract law, and, even where employees are successful, the remedies available to them in the civil courts are quite limited. At the same time, we can be quite sure that many employees will be unwilling to commence proceedings in the more expensive and less predictable common law jurisdiction. On the other, there is the distinct possibility that in the absence of a statutory regime, the common law will evolve to meet modern workplace needs, with the emerging doctrine of mutual trust and confidence offering the vehicle for significant change. Yet this development will proceed on a case-by-case basis, which will often mean significant uncertainty. The significant extension to the size of businesses to be excluded from the WRA may, perversely, work against the Government’s stated aims for simplicity. Larger firms are more likely to employ middle and upper level managers who have the money and resources to pursue their rights in court. If anything, we might expect a greater flow of civil cases from middle managers who might in the past have tried to secure redress through the AIRC.

5. A National Industrial Relations System

The final element of the Prime Minister’s statement to consider is his proposal for a national industrial relations system to reflect ‘the competitive reality of the Australian economy in the year 2005’. The Prime Minister was particularly critical of the existence of thousands of different overlapping Federal and State awards as ‘too complex, costly and inefficient’ and limiting Australian productivity in the global market. The suggested solution to the complexity of the current system is a single set of national laws on industrial relations, in particular, for ‘minimum wages, conditions, awards and agreements’.

The Prime Minister’s plan for a national industrial relations system is the most ambitious attempt to alter the federal structure of labour regulation in Australia since 1929, when Prime Minister Bruce proposed the abolition of the federal system. Although various legal and political hurdles remain before the current Government’s objective can be achieved, the planned takeover, if successful, would be a major shift in the balance of power between States and the Commonwealth. Focusing in particular on the setting of minimum terms and conditions of employment, the coverage of the federal system has been estimated at 50 per cent of the workforce (DEWRSB 2000a, App. D). If the Government is successful in directly regulating minimum terms and conditions through the ‘corporations power’ in the Constitution, its coverage would most likely increase to somewhere between 70 and 80 per cent of the workforce.

The implications of this plan for State systems are likely to be mixed. Over the past 15 years, there has been considerable variation and fluctuation in the approaches of State governments to labour regulation. In the early 1990s, the election of non-Labor Governments saw all of the States restructure their industrial relations systems (Creighton and Stewart 2005). Victoria ultimately referred its industrial relations powers to the Commonwealth in 1996. With Labor Governments returned to power at State level, all of the States, aside from Victoria, have overseen a re-working of their respective systems based to differing degrees on collectivist principles. New South Wales, in particular, retains an extensive and robust industrial relations system that would be substantially affected by the Coalition Government’s plan.

Whatever the desirability of a national system based on the Government’s particular philosophy of labour regulation, more general concerns over the complexity and duplication inherent in the current system are persuasive enough to have led to previous calls for an expansion of federal jurisdiction over industrial relations (see, eg, Hancock Committee 1985). Yet such proposals inevitably raise three issues: the constitutionally validity of any Commonwealth ‘takeover’; the divisive nature of such a change in relation to State governments; and the likelihood that there would be ‘gaps in coverage’ as a result.

The nature of the conciliation and arbitration system was heavily influenced by its being based on the ‘industrial relations’ power in the Australian Constitution (s 51(35)). Subsequently, governments seeking to introduce significant changes to this system have relied on other sources of power under the Constitution. For example, the Keating Government relied on the ‘external affairs’ power to regulate termination of employment, and the introduction of enterprise bargaining drew upon the ‘corporations’ power(s 51(20)).

Two constitutional options for the introduction of a national system have been proposed. First, the Prime Minister said that the Government would ‘work towards a unified national system in a cooperative manner with the States’. Under a co- operative scheme, all States refer their legislative powers to the Commonwealth under s 51(37) of the Constitution, as did Victoria in 1996, making it feasible for the Commonwealth to introduce comprehensive national regulation in the private sector (Stewart, 2001: 149). This option, however, is not likely to be implemented in the near future. At the Council of Australian Governments meeting held in June 2005, the Prime Minister and the Premiers failed to reach agreement on State referral of workplace relations powers to the Commonwealth, with the Prime Minister unable to secure the support even of the leaders of some State Parliamentary Liberal Parties.

Alternatively, the Prime Minister has proposed that the Commonwealth rely solely on its legislative power with respect to corporations. This gives the government scope to create a national framework of minimum standards for the conduct of workplace relations in corporations, thus ending (at least in those workplaces) dual Federal/State regulation (see DEWRSB 2000b; Stewart 2001, p.152). Such federal statutory minimum standards might possibly oust equivalent state provisions.

Yet compared with a co-operative referral of State powers, such a system would be less ambitious, confined to corporations, and not applying more broadly to the entire private sector. The corporations power allows legislation ‘with respect to...foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’. Three questions necessarily arise: which incorporated businesses will be covered, what employment conditions can be regulated and will the Federal Parliament’s laws override State laws? None of these issues is conclusively settled, which means that there is considerable scope for legal challenges to any Commonwealth Government moves in this area.

The most common type of corporation is the company limited by shares. Other corporations include incorporated voluntary associations and state and local government incorporated bodies. Sole traders and unincorporated businesses including partnerships are therefore not covered. Whilst it is difficult to obtain accurate figures, in the past it has been estimated that up to two million workers may be employed in the non-corporate business sector (Stewart 2001, p. 155). Hence a significant proportion of the workforce will not be covered by new national standards.

Doubts also exist over what employment conditions can be regulated under the corporations power. The High Court has not directly defined the Federal Parliament’s power to make laws with respect to a constitutional corporation’s relations with its workforce, relations with its union representatives, and employment conditions generally (Stewart 2001, p. 160). In proposing a national system, the Government will also rely on the supremacy clause in s 109 of the Constitution, which provides that where there is an inconsistency between a federal law and a state law the federal law prevails to the extent of the inconsistency. While the High Court has, in the past, broadly interpreted the meaning of inconsistency, in some more recent judgments it has favoured a narrow interpretation.[13] The precise scope of the corporations power and the validity of any purported takeover of State systems will only be established if there is a challenge by the States to the Government’s new legislation. In considering any constitutional challenge, the courts will have regard to the constitutional principles and interpretive considerations rather than directly addressing the Government’s arguments concerning productivity and efficiency.

Even if the Coalition is successful in relying upon the corporations power to establish a national system of industrial relations, it is unlikely to create a ‘unitary’ system of labour regulation. It is more probable that a dual system of state and federal labour laws will remain, albeit with federal law increasing its coverage and state laws having a diminished role. This could be remedied by a co-operative arrangement between the Commonwealth and the States further down the track. It is worth bearing in mind that the Government’s initial proposal, while not successful in the short term, may create the kind of political pressure for its ultimate adoption in the longer term. Alternatively, State governments may seize the opportunity to pursue more innovative forms of labour regulation which avoid conflicts with Commonwealth law. In this regard, Victoria’s experimentation with incentive strategies such as ‘Partners at Work’ Grants, and the ‘Action Agenda for Work and Family Balance’ may provide a model for other States.[14]

Finally, while the Government has also been clear in its intention to have the Commonwealth ‘cover the field’ in terms of minimum standards and unfair dismissal regulation, we can only speculate on what other aspects of labour regulation currently administered by the States might be targeted by the Commonwealth. In the past the Prime Minister has signalled that there will be a review of other areas of labour law where the government will pursue a national approach, in particular health and safety standards and workers’ compensation (Howard, 2001: 42).

6. Concluding Remarks

We have suggested that while aspects of the Coalition Government’s proposals for workplace relations reform would introduce profound and substantial change to the regulatory landscape, some key elements of the Australian labour relations system will remain. The AIRC will continue to exist, albeit with a much less significant role. Awards will remain, although it remains to be seen how robust they will be once the Government’s ‘Task Force’ has finished reviewing them. Unions still have relatively straightforward access to legal recognition and a role to play in collective bargaining. State governments may develop innovative responses to any federal attempt to ‘cover the field’ of labour regulation in order to maintain social protection regimes within their jurisdictions.

Perhaps these elements of continuity are unsurprising. It is worth remembering that although the introduction of the conciliation and arbitration system at the federal level was far-reaching, it did not legally replace all those industrial institutions and relationships that preceded it. Rather, it was constructed upon existing industrial law concepts. Whilst the tribunal itself was a novel institution, existing trade unions, or federations of state unions, remained in place and were able to register under the founding Act.[15] Various common law rights and institutions continued in significance, and the rights and duties of the parties established by other statutes continued to apply. The system of compulsory arbitration was thus never an exclusive legal code for regulating industrial relations in Australia.

What we are seeing is further layering of regulation, with the introduction of new bodies such as the FPC and new sources of standards, such as the FPC Standard. And, despite the Government’s rhetorical emphasis on reducing complexity and duplication, this will inevitably further add to the degree of regulatory complexity that has always characterised the Australian system (Fetter and Mitchell 2004). One question we have pinpointed is the precise regulatory status of awards under the new system. Whereas awards set by the AIRC will dictate the terms and conditions of the 20 per cent of award-only workers, other workers will be governed by agreements measured against a much diminished safety net provided by the FPC Standard. For them, awards will be irrelevant except to the extent that the FPC Standard will set pay rates by reference to classifications found in awards. Arguably, some award workers could find themselves, paradoxically, with better terms and conditions, especially as regards overtime and penalty rates and the regulation of non-standard work statuses, than workers who are in the bargaining stream. On the other hand, if awards continue to be simplified, they may offer workplaces a useful, attractive ‘off-the-rack’ form of workplace regulation. Similarly, the AIRC has already shown a capacity to ‘re-invent’ itself as arbitrator even in the face of its potential marginalisation by the AIRC. For example, it is now the preferred arbitrator under many dispute resolution clauses in enterprise agreements (Sutherland 2005; see also Stewart 2004). A key question, then, which we cannot answer at this stage, is what purchase, if any, institutional forms such as the AIRC and awards will retain on the labour market and the conduct of industrial relations.

One of the key attributes of the Australian system for much of last century was its character as a unique model of ‘responsive regulation’, whereby the federal tribunal, a body that is relatively independent of government, set terms and conditions of employment with the involvement (at arms length) of regulated actors: government, employers and trade unions as the representatives of workers. The test case is a classic example. Notwithstanding that a rather emasculated version of this system will survive, the policy statement represents a major shift in the character of Australian labour regulation. The Prime Minister concluded his statement with a prediction that the ‘era of the select few making decisions for the many in Australian industrial relations is over’, harking back to previous Government criticisms of trade unions and the AIRC as being ‘third parties’ interfering in relations between employer and worker. This statement is somewhat disingenuous. As already noted, under this policy statement, the Government will effectively create at least one new ‘third party’ in the FPC, while creating a new and powerful role for the OEA. Further, the Government is quite at ease in regulating ‘unfair’ relations between businesses where it deems this appropriate (Riley 2005).

The statement clearly has significant implications for two of the key institutions of the Australian model: the federal tribunal and trade unions. With respect to trade unions, the Prime Minister’s concluding statement demonstrates that conciliatory statements, such as his assurance that the Government intends to ‘preserve the right of workers to have a trade union negotiate in the workplace if they so wish’, are somewhat hollow. The Government clearly hopes that Australians will not take up the option of having trade unions represent them. With non-union collective agreements and AWAs easier to certify, it is not difficult to predict that many employers will use these instruments to exclude trade unions. Although trade unions will apparently be represented on the tri-partite FPC, which at least gives unions a voice in the wage setting process, this will be a profoundly different role from the one they enjoy under the present system.

Existing independent regulatory structures and institutions of the Australian labour relations system are effectively having their influence reduced, while regulatory agencies subject to closer government control are given increased power. This in itself may lead to unexpected outcomes. Contemporary studies of regulation have suggested that more hierarchical models may be ineffective at eradicating social norms or conventions which themselves constitute and regulate the labour market (Deakin and Wilkinson 2005), or may suffer from a lack of coherence and legitimacy. Commentators have already suggested that we may see an increase in collective agreement making outside the formal system. Further, any attempt to nationalise Australian labour laws without the cooperation of State governments is likely to generate more incoherence and complexity.

It is appropriate to conclude with a note of caution. Although we have suggested that the policies outlined in the Prime Minister’s statement fall short of a revolution in Australian labour regulation, the impact of such policies on workers on low pay and in weak bargaining positions may well prove revolutionary insofar as they appear to withdraw a fundamental historical platform of Australian labour market regulation: that is, protection of the weak. The statement is in reality a preliminary sketch outlining broad principles and general policy directions. The detail will be provided by revisions to the statutory underpinnings of the Australian labour relations system. It is probable that a more complete and clearer picture of the Government’s changes will only emerge in stages and over an extended time period, given the complexity of the task it faces. Final judgment on the package, and its impact, must therefore be reserved until all these changes are in place.

Postscipt: WorkChoices

When we drafted the above article, based on the Prime Ministerial Statement of 26 May 2005, our view was that the policy heralded substantial change in the Australian labour relations system, but perhaps fell short of revolutionary change. In the absence of draft legislation, however, we concluded that it was too early to pass final judgement. With the release of WorkChoices[16], a more detailed outline of the federal government’s proposed industrial relations reforms has been made available, and a revised evaluation made possible. It now appears that the new industrial law is likely to bring about more revolutionary change to rights and entitlements of workers and the traditional processes of Australian industrial regulation than we initially anticipated. In this postscript, we draw the reader’s attention to five areas which suggest more radical outcomes.

First, with respect to awards, although the Government has clarified (at least to some extent) the status of existing award provisions which exceed its proposed FPC Standard, considerable uncertainty remains concerning the role of awards in the new system. Presumably to head off popular concern at loss of existing entitlements, the Government in WorkChoices has announced that certain award provisions will continue to apply where new agreements do not mention them. These are: public holidays, rest breaks, incentive-based payments and bonuses, allowances, penalty rates, shift and overtime loadings. Importantly, however, it now appears clear from WorkChoices that these award minima may nevertheless be traded away during bargaining, if there is explicit reference to this fact in the agreement itself.

Second, it appears that the FPC Standard is even lower than indicated in the Prime Minister’s May statement. For example, although the Prime Minister had made reference to a guaranteed 38 hour week, the new standard permits employers to average weekly ordinary hours over a twelve month period. This means, of course, that in any given week, hours in excess of, or below, 38 may be worked as ‘ordinary’. Once workers have left the old system and concluded some form of agreement under the new system, there will be no requirement to pay overtime rates, no legally regulated minimum or maximum hours of work per week, and no legal requirement to pay a constant wage in the context of fluctuating hours of work, unless the worker is able to bargain for these provisions.

Third, it now appears that the Fair Pay Commission will not be constituted on an explicitly tripartite basis, as is the case with the United Kingdom’s Low Pay Commission. Rather, WorkChoices indicates that the FPC’s membership will be selected on the basis of an individual’s qualifications and experience in business, economics, ‘community organisations’ and ‘workplace relations’. Further, the Government promises that the FPC will abandon the ‘legalistic and adversarial process’ for setting wages in Australia and adopt a ‘consultative approach with all interested stakeholders’, whatever this means. Taken together, these proposals represent a major shift in the constitution and function of formal institutions responsible for setting wages and conditions in the Australian labour market, especially with respect to the role of trade unions.

Fourth, it is now established that the process of certification of individual and collective agreements will be reduced to one of ‘lodgement only’. That is, there will be no institutional oversight of new individual and collective agreements by the Office of the Employment Advocate provided that employers submit a statutory declaration stating that the agreement complies with the FPC Standard minima.

Other changes to agreement-making go much further than was indicated in the May statement. Agreements made under the new system that have run past their nominal expiry date may be terminated with 90 days notice by either party. If not replaced by another agreement, workers will then revert to the FPC Standard only. This both increases the power of employers to terminate agreements (currently constrained by a public interest requirement), and makes the consequences for employees far worse (reversion to the FPC standard, not the award). The content of agreements will also be restricted by legislation. Here the government has gone much further than current High Court jurisprudence on ‘matters pertaining to the relationship of employer and employee’. Notable additions are prohibitions on agreements containing provisions of a remedy for unfair dismissals and clauses restricting the use of labour hire and contractors

Fifth, the role of the AIRC in compulsory conciliation and arbitration is, apart from certain tasks, over. The AIRC may make a ‘workplace determination’ where there is industrial action threatening the national economy, but any decision on wages will be constrained by determinations of the FPC. Trade union industrial action is heavily proscribed, with unions liable to deregistration if they take strike action outside the narrow boundaries of the proposed law. The Minister will also be granted power to stop protected industrial action in essential services.

WorkChoices shows that the government is engineering a fundamental shift in power from labour to capital. Despite the government’s rhetoric around choice, it is being highly prescriptive about what the parties to an employment relationship can and cannot bargain for. The award system, which currently provides a comprehensive web of minimum terms and conditions that underpin bargaining, will, in practice, be significantly eroded, with the FPC providing a greatly reduced set of default terms and conditions. There will be a major shift away from a bargaining system based on institutional investigation of agreements for compliance with minimum standards and safeguards to a purely administrative system. Public, independent institutions such as the AIRC, and the civilising collective ethos traditionally associated with the system of conciliation and arbitration will become, over time, relics of a past age. The new world of ‘reform’ promises a much colder climate for workers and their representative bodies.


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[∗] The authors are from the Centre for Employment and Labour Relations Law, University of Melbourne, except for Jill Murray, who is from the Law School, La Trobe University.

[1]Hon John Howard, Prime Minister, ‘Prime Ministerial Statement: Workplace Relations’, Commonwealth Parliamentary Debates, House of Representatives, 26 May 2005, 38.
[2] AIRC, Safety Net Review — Wages, 1997, Print P1797. However, the current practice of awarding flat rate safety net increases, rather than percentage increases, works to undermine such relativities and the position of those workers above the lowest unskilled rate but still reliant on awards (Peetz 1998).

[3] Prime Ministerial Statement, 26 May 2005.
[4] The latter was dismissed as ‘not a relevant consideration’ of the wage fixing process in Peter Reith’s ‘Second Wave’ reform proposals: (Reith 1999).

[5] This has been foreshadowed by the Prime Minister in a speech to the Sydney Institute, 11 July 2005, where he argued that ‘the best way to help those on low incomes is through the tax-benefit system. Questions of fairness in relation to income are best judged at the level of household or family income’: Text at

[6] Interview with Kevin Andrews, ‘Meet the Press’, Ten Network, 17 April 2005 <> , at 4 July 2005.

[7] Initially established in non-statutory form, the Commission was put on a statutory footing with the National Minimum Wage Act 1998 (UK) ss 5–8. The UK had no minimum wage prior to 1999 except for the rather ineffective Wages Councils, which set minimum wages for a number of low-paying sectors prior to their abolition in 1993.
[8] One noteworthy feature of the NMW is that it extends to any ‘worker’ including many independent contractors, with specific arrangements to rope in many agency workers and homeworkers: National Minimum Wage Act 1998 (UK) ss 54(3); 34; 35. This aspect of the British regime is unlikely to be replicated by the Coalition government given its stated intention to quarantine contracting arrangements from the reach of workplace relations legislation.

[9] In fact, there has been a deterioration in earnings relative to the median for British workers in the bottom half of the distribution who are not affected by the NMW (Dickens and Manning, 2002)

[10] AIRC, Family Provisions Test Case Decision, 8 August 2005, Print PR082005.

[11] Senate Employment, Workplace Relations and Education Committee (2005). This was the majority report prepared by Senators from the ALP and Democrats. The Government rejected the Committee’s findings.
[12] Mark Wooden has suggested the quota may even stifle jobs growth by deterring larger firms from expanding above the 100 employee mark: Sydney Morning Herald, ‘IR shake-up “may cost jobs”’, 3 June 2005.
[13] Telstra Corporation Limited v Worthing [1999] HCA 12; (1999) 197 CLR 61; Commonwealth v Western Australia (1999) 196 CLR 392.

[14] See the website of Industrial Relations Victoria:, at 15 September 2005. For a more detailed discussion of economic policy instruments as a form of labour regulation, see Howe (2005).

[15] Conciliation and Arbitration Act 1904 (Cth).

[16] Prime Minister of Australia, WorkChoices, <> at 9 October 2005.

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