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Labour Market Reform


The labour market has been undergoing significant reform since the early 1980's.  It first occurred within the structure of the highly centralised system of industrial relations that was underpinned by Awards, national wage cases and the conciliation and arbitration of industrial disputes.  Key features of the system in the 1980's were the prominence of peak bodies such as the ACTU and employer groups, the development of Accords (which were contractual agreements between the peak bodies and the government that set out the obligations of employers and employees) and the power of the Australian Industrial Relations Commission (AIRC) to determine Award wages at a centralised level.  


This system of industrial relations became more and more dated in light of Australia's poor productivity record and the fact that we were becoming more exposed to international competition.  In the early 1990's, these problems with the centralised system of industrial relations prompted the Labour government to amend the existing laws to facilitate the push to enterprise bargaining via collective agreements.  The aim was to improve flexibility and productivity in the workplace by increasing the extent to which wages and conditions were determined at individual workplaces.  This signaled a clear move away from a centralised approach, where the role of centralised wage decisions would now be to provide a safety net to those workers still covered by Awards.


In 1996, the push towards enterprise bargaining was further strengthened by the Liberal government's Workplace Relations Act.   The Australian Workplace Agreements (AWAs) were introduced, giving employers and employees the flexibility to negotiate individual contracts governing wages and conditions.  The existing Award system was further simplified (with only 20 allowable matters) and the role of unions in the bargaining process was limited (as they had to be invited to participate in negotiations).


By 2005, the Liberal government further decentralised the system with the introduction of the Workplace Relations Amendment Act (2005), more commonly known as Workchoices' (introduced in March 2006).  Some key features of the legislation were as follows:



Following heavy criticism of Workchoices during 2006/7, and in light of the 2007 federal election, the Liberal government felt that it needed to be seen to be protecting the interests of those workers who appeared to be disadvantaged under the new system.  Accordingly, in May 2007 it amended the Act by including a Fairness Test, that 'will guarantee that protected award conditions, such as penalty rates and public holiday pay, are not traded off without fair compensation'.  In addition, the government established the Workplace Authority (to police the Fairness Test) and the Workplace Ombudsman (to handle complaints and ensure that employers were complying with workplace laws).  These were signs that the government was keen to address the concerns of the electorate in an election year - an electorate that was expressing some dissatisfaction with how far the industrial relations system had moved to the right.


Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008.


Despite these changes to soften the impact of Workchoices, the Liberal government was voted out of office in November 2007 and replaced by the Labour government.  One of the Labour government's major electoral promises was to wind back and then eliminate 'Workchoices'.  It acted relatively quickly by introducing the Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008.  The major elements of this piece of legislation are as follows:



The Fair Work Act (2009)


The Fair Work Act (2009) came into force on 1 July 2009.  The Act comprises a 650 page document that provides the detail governing Australia's new industrial relations system and it represents the demise of the former Liberal government's Workchoices  legislation.  This new industrial relations system sees a further shift away from the highly deregulated labour market that was characterised by individual contracts and an erosion of worker 'rights' under Workchoices.  The 'balance of power' had firmly shifted to employers rather than employees or their representatives.  


While the government recognised the need to maintain a system that was underpinned by enterprise bargaining, it deliberately tried to create a system that achieved a better balance between equity and fairness on the one hand, and efficiency and economic growth on the other.


To quote the government:  


'The new workplace relations system is designed to balance the needs of employees, the unions and employers to ensure Australia is competitive and prosperous without compromising workplace rights and guaranteed minimum standards.'  

Source:  www.deewr.gov.au/WorkplaceRelations/NewWorkplaceRelations


Some key features of the new system include the following:



Despite the winding back of Workchoices, it is clear that both political parties have been in favour of a move away from the centralised Awards system to one where wages and conditions are determined at the enterprise level.  The Liberal government was much more aggressive in seeking to add flexibility and efficiency to labour markets, at the expense of fairness and equity. Workchoices, with the push towards individual contracts (via AWAs) as the key plank in wages negotiation, were unpopular and politically damaging because they moved the industrial relations system too far to the right.  In other words, they were seen to provide employers with too much power in comparison to employees in order to increase the flexibility of labour markets.  The focus on collective bargaining agreements (under the Fair Work Act) effectively returned some power to employees and provided added scope for union representatives to be a party to negotiations via a role as a bargaining agent.  


The Labour government could not afford to wind back the industrial relations system too far because it risked returning to an era where wage inflation (inflation driven by growth in wage costs) was always a huge risk.  The deregulated environment, underpinned by enterprise or workplace bargaining, was a major factor explaining why Australia did not experience a wages break-out in the mid to late 2000 period when the economic climate was characterised by tight labour markets, very low unemployment levels, high vacancy rates and an abundance of skills shortages.  


Increasingly, there has been discontent expressed by the business community, spearheaded by BHP, who in 2012 claimed that the Fair Work Act conferred too much power and influence on unions.  BHP argued that the current industrial relations system provided unions with excessive influence, which is constraining its ability to 'run the business' as it permits 'interference with managerial decision making'.  Over 2013, there was some criticism raised by smaller enterprises who are frustrated by a lack of flexibility within a system that forces them to pay prohibitive 'penalty rates' to weekend staff.  Many other Australian businesses have supported the argument that the government needs to review the current industrial relations laws to return greater flexibility in order to boost efficiency and encourage Investment.  


In a report to the government in late 2012, it was noted that to significantly encourage flexibility and productivity, the government needs to extend the role of Fair Work Australia and the Fair Work Ombudsman to:


'………actively encourage more productive workplaces, including through promoting best practice in the productivity enhancing provisions of agreements, developing model productivity clauses for awards and agreements, and sponsoring training workshops for employers and employees on how to enhance workplace productivity.'

Towards more productive and equitable workplaces - an evaluation of the Fair Work Legislation (www.deewr.gov.au)


The election of the new Liberal government in late 2013 should see the introduction of a number of labour market reforms over 2014 that seek to once more move the system ‘back to the right’, where a focus on a more efficient labour markets will tend to overshadow the need for equity or fairness.


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