Industrial Relations: Working together for reform

Australia’s system of industrial relations is more complex, more volatile, and more contested than most comparable systems around the world. It has long been a source of concern to policymakers who recognise a simpler and more harmonious system would be a boon to national productivity.

Among the options presented by the COVID-19 crisis is a consensus-driven chance to consider Australian industrial relations afresh. Seizing this initiative, the Minister for Industrial Relations is leading a process to bring employers, industry groups, unions, and government to the table to chart a practical reform agenda.  Central to the success of this initiative is reaching a shared recognition between all parties that problems exist with the current system.

KPMG is helping its clients to navigate the many challenges created by COVID-19, including in the always contentious area of industrial relations. Today, we’re presenting our assessment of the potential options available.

Employee share schemes

Employee Share Schemes seek to better align the interests of employers and employees. For employees, research suggests that Employee Share Schemes “reduce feelings of them and us”, “makes workers feel part of the company”.

International research indicates that Employee Share Schemes are linked to greater productivity. Studies in the US have confirmed that employee share schemes give rise to a higher return on assets, higher net profit and better operating cash flow. A survey in the UK conducted from 1992 to 2012 suggested that 10 percent or more employee ownership creates an average outperformance of the market by 10 percent per year. Limited research in Australia has indicated that broad-based employee ownership on average showed that companies outperformed the index by more than 5 percent, had better share price growth, better P/E ratios and higher dividend yield.

Whilst we have two regimes for employee share schemes at present, a special COVID-19 recovery scheme could provide valuable and much-needed productivity benefits. Such a scheme should not be a substitute for existing cash rewards but a flexible tool for supplementary rewards to employees and could use concepts in the existing provisions to minimise uncertainty and complexity.

Award simplification

Award compliance could be improved if the system was streamlined and simplified. In the immediate term, the Fair Work Commission (FWC) could be given specific powers to vary awards in response to COVID-19-affected circumstances; supporting work being carried out across the work day other than in one continuous period, for example.

A longer term option for reform would be moving core and common award terms to the National Employment Standards, thereby creating a wider, but simpler legislative safety net. Another possibility to improve compliance could be to include less cumbersome annualised salary options in awards for employees who are paid well in excess of the award safety net.

Enterprise agreement making

We consider that bargaining provisions standing in the way of genuine trade-offs should be removed. The practical application of the Better Off Overall Test (BOOT) has increasingly required enterprise agreements to feature provisions that are better than every award provision, instead of reflecting a bargain where the parties agree on a balanced approach.

This application of the BOOT has removed bargaining discretion and the benefit of bargaining at the enterprise level at all. Putting the ‘overall’ back into the test will address this constraint. Where the will of the parties is clear that a bargain has been genuinely achieved, the FWC should be given the discretion to overlook procedural defects and consider the overall benefits of the agreement.

Casuals and fixed term employees

The Fair Work Act has never included a definition of a ‘casual employee’ and a recent Federal Court decision has placed employers in the difficult position of not knowing whether they have a significant liability owing to ‘casual’ employees.

Bipartisan agreement on the definition of ‘casual employee’ is unlikely. The government might therefore consider addressing the practical issue posed by Federal Court, rather than the legal issue, by providing a clear statutory right in the Fair Work Act to offset casual loading paid to an employee if they are held not to be a casual employee and are therefore entitled to non-casual entitlements. This might avoid ‘double dipping’ situations where an employer who has already paid a casual loading to an employee is also required to pay that employee non-casual entitlements such as paid annual leave.

Compliance and enforcement

While deliberate wage underpayment demands strong sanctions many underpayment claims come about due to the complexity of the system. Terms and conditions can be negotiated without considering the effect on HR and payroll systems.

We consider modern awards should be capable of practical implementation. To support this outcome, payroll coding rules could be developed to deal with complexities, such as where multiple and overlapping penalties and loadings are triggered in a pay period.

Allowing a business, or industry body, to apply for a ruling in relation to ambiguous provisions within a modern award should also be considered. In addition, the Fair Work Ombudsman might be given the right to seek to apply a public ruling where there is uncertainty in the law.

Formal consideration could also be given to an enforcement regime that rewards voluntary disclosure of errors to incentivise businesses to take prompt action to rectify problems.

Greenfields agreements for new enterprises

In the current environment, measures to stimulate private and public investment in major projects need to be a priority. The current four-year maximum term of greenfields agreements, however, means there is a risk of cost blow outs and delays if industrial instability arises during a project.

We consider that greenfields agreements should last for the life of a project, or at least an extended maximum term. Government should also look to reduce the ‘notified negotiation period’ from six to three months to help drive more constructive bargaining behaviours and provide access to a circuit breaker if an outcome is not agreed within this period.

Furthermore, case law currently makes it possible for parties to lose the ability to enter into a greenfields agreement if project activities begin during the negotiating period. Making it clear that parties can make a greenfields agreement from the time negotiation commences would help prevent unnecessary delays.

Looking forward

In these challenging times, we believe the best approach to paying back our nation’s growing debt is to try to achieve higher productivity growth, flowing through to higher economic growth and increases in income and tax receipts (the rising tide effect). This is why it is so important for Australian businesses to lock in the innovation gains and different ways of working many have experienced during the shutdown. We must also hope the increased sense of togetherness in the crisis has created the basis for a new normal in Industrial Relations for this country, where the risk and upside is shared in a better way between employers and employees in a more flexible system.

Read the full report: Industrial Relations: working together for reform.

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