Industrious Conversations: The rebalancing of Australia's industrial relations system under Closing the Loopholes

Peter McNulty:
Hello and welcome to Ashurst Legal Outlook and the final episode in our Industrious Conversations series for 2024, bringing new insights into industrial relations developments in Australia from our leading Employment team here at Ashurst. My name is Peter McNulty and I'm a partner in Ashurst's Employment team. Today we'll be focusing on enterprise bargaining and the impact of recent changes to the Fair Work Act on bargaining. Our discussion will be informed by the results of our soon-to-be-released Bargaining Trends Survey. Today I'm joined to discuss this topic by Ian Humphreys, a partner in our Employment team based in Brisbane.

Ian Humphreys:
Hello Pete. It's great to be here with you.

Peter McNulty:
Ian, it's probably worth us starting off with a brief overview of the changes to bargaining that have been introduced over the last few years.

Ian Humphreys:
Sure. So there's been a range of really significant changes to the enterprise bargaining process over the last few years, as you say. That's in a host of differing areas. Can I touch on some of those?
Firstly, the ability of unions to require employers to effectively initiate bargaining where an existing agreement has passed its nominal expiry date without the need for a majority support determination, which was previously required. There have been changes to the agreement approval process and amendments to the Better Off Overall Test or BOOT for short. There have been changes to the ability for the Fair Work Commission to take bargaining out of the hands of the parties when bargaining becomes intractable.

There have also been recent changes to union delegate rights, and indirectly they will have a significant impact on bargaining. There's been changes and indeed a raising of the bar on the thresholds required for terminating enterprise agreements, which has had a very significant impact on the power relationships in bargaining between unions and employers. And of course there's been the introduction of multi-employer bargaining and compulsory conferences for the Fair Work Commission following applications for a protected action ballot order. Both of those developments have been covered in an earlier podcast in the series and I don't propose that we cover them today.

Also worth noting is that there are further changes to come with the Fair Work Commission reviewing model terms for flexibility consultation and dispute resolution in the new year.

Peter McNulty:
So Ian, there's been a significant number of changes. And the rationale for those changes was a concern that enterprise bargaining was dead or was dying, it was too hard and complex, it took too long, and a real desire to promote and prompt bargaining and increase wages. Are the changes having that effect?

Ian Humphreys:
Well, there's certainly been an increase in bargaining, and annual wage increases have increased and are hovering around 4%. However, sustainable wages growth and indeed a successful economy requires a commensurate increase in productivity. And it's very clear that Australia's productivity levels are in an appalling state and basic economics tells us that enhanced wages growth without commensurate increases in productivity is ultimately unsustainable and indeed inflationary.

Peter McNulty:
So if we unpack some of these changes in a bit more detail, the first change you mentioned was the ability of unions to request an employer to commence bargaining for a new replacement agreement.

Ian Humphreys:
Short answer is absolutely yes. Of course this is a bit of a slow burn as past agreements go past their expiry date. But in the past, there was a need for a majority support determination if an employer resisted bargaining. Now it's much, much easier and employers have lost control over the potential commencement of bargaining absent an MSD. And what it's done, of course, is given to unions much greater leverage against employers to initiate bargaining and indeed to do so regardless of the views of the majority of employees who may or may not want to enter into bargaining. Of course, a number of employers have provisions in their existing agreements which require renegotiation in advance of or upon the nominal expiry date. They're clauses which some people would be familiar with, a commitment to, say, commence bargaining within six months of the expiry of the nominal term of the agreement.

Our recent Bargaining Trends Survey, the outcome which will be released very soon and which is really instructive, shows that 26% of respondents noted that they had initiated bargaining because of such a clause. We are though seeing a number of employers caught on the back foot who are being forced to bargain by unions in circumstances where that would not have happened in the past. It's really, really important for employers to be cognisant of this and establish a positive agenda for their bargaining so they're not caught on the back foot. One of the other significant changes in the Closing Loopholes legislation was to allegedly at least simplify the approval process and the assessment of the BOOT.

Peter McNulty:
Interestingly, Ian, on that final point, most of the respondents to our 2024 Bargaining Survey indicated that they weren't overly concerned with respect to the Commission's new right to reassess the BOOT during the life of the agreement. Although one respondent did point out that the most fundamental benefit of having an agreement is the certainty with respect to terms and conditions that comes with having that agreement, and that this change regarding the ability of the Commission to reassess the Better Off Overall Test does create some concern in that regard.

Our 2024 Bargaining Survey results have shown a decrease in the number of respondents having issues at that agreement approval phase. That result peaked in 2019 when 54% of respondents identified having issues at agreement approval. That result has decreased most recently in our 2024 Survey whereby only 19% of respondents recorded having issues with agreement approval. So we can take from that that fewer employers are having issues at that agreement approval stage.

However, there is a question in our minds about how much of that is attributable to the most recent legislative changes. We think more likely, employers have become accustomed to the Fair Work Commission's approach to the BOOT and the technicalities required to ensure that genuine agreement is reached and those steps prior to a ballot are being complied with. A number of respondents pointed out in our 2024 Bargaining Survey that the most significant change that they'd seen with respect to the changes of the Fair Work Commission's approach, is a change in the forms they were required to fill out. What are your observations about those impacts, Ian?

Ian Humphreys:
Pete, in the real world, if the union is on side, then the process will be fairly smooth. The tricky issue is for an employer who achieves an agreement with their employees in circumstances where the union is not on side. In those circumstances, the approval process provides to the union a plethora of opportunities to challenge it with respect to matters which are often very technical. So an employer may easily find themselves in a circumstance where a failure to "dot an I or cross a T", if I can use that expression, would lead to a conclusion by the Commission that the agreement should not be approved. And as I say, because it is so technical and so detailed, there are any number of opportunities for a union to take a technical point. In that sense, the changes give real prominence to the views of trade unions, both in relation to the BOOT and the agreement approval process.

A failure to dot an I or cross a T won't necessarily be fatal, but clearly the easiest way is to ensure compliance with the Statement of Principles on Genuine Agreement and to do so in a very detailed and thoughtful manner. Ensuring that you have thought about those requirements in the Statement of Principles is important in a couple of key issues. Firstly, think about the new requirement that group voting is sufficiently representative and has a sufficient interest in the agreement. We've seen this come up including in circumstances where there might be corporate transactions pending. There are other circumstances where you might be considering a restructure or some significant change, and that might impact on the question as to whether those who vote are sufficiently representative and have a sufficient interest in the agreement.

It's also really important to ensure that any explanation that is given to employees on the agreement and the effect of the agreement not only covers changes between the new and old agreement, but under the Principles it's also necessary to explain any changes that have occurred to the modern award since the last agreement was made. And there've been a number of things like right to disconnect, union delegates rights and so forth. These explanation documents are increasingly becoming longer than the agreements themselves. And of course, as I've indicated earlier, unions who oppose agreements often focus on these explanation documents to find a technical point in order to challenge the genuineness of the agreement.

Also, the approach to the BOOT in our experience still remains somewhat dependent on the Fair Work Commission member and their personal approach to it, and employers need to be conscious of that and to carefully consider any requests that may be given for undertakings to be provided to the Commission.

Peter McNulty:
And certainly I think with some of our clients Ian, obviously the easiest path through remains to just provide the undertakings that are being requested by the Commission, often in very short periods of time. It's really important for employers to think carefully about what the consequences of those undertakings are and whether they are necessary having regard to the application of the BOOT, in particular with that clarification that this is a global test and not a line by line test.

Now one of the other, and I think one of the most substantive changes to the Fair Work Act, has been the introduction of the intractable bargaining regime. This is where the Fair Work Commission can effectively take bargaining out of the hands of the bargaining parties in circumstances where bargaining has reached a complete impasse.

Now, before an intractable bargaining declaration can be made, there must have been a minimum bargaining period of at least nine months. The Commission must have dealt with a dispute through a section 240 dispute process that the applicant has participated in. The Commission must be satisfied that there is no reasonable prospect of agreement being reached if the Commission doesn't make the declaration. And the Commission must be satisfied that it's reasonable in all of the circumstances to make that declaration taking into account the views of all of the bargaining representatives for the agreement.

Now, once that intractable bargaining declaration has been made, if the parties still can't resolve the dispute in a period of further bargaining, the Commission must then make an intractable bargaining workplace determination. And that determination will set the terms and conditions of employment that will apply in place of an enterprise agreement. Now any terms agreed between the parties during the course of bargaining and any post-declaration negotiating period will be included in that workplace determination, and then the Commission will determine those other terms and conditions with respect to the matters that remain in issue, having regard to a number of factors.

When this regime was initially introduced, those terms and conditions that the Commission was called on to determine could go either way. The Commission could decide to favour an employer's perspective on terms and conditions or the union or employee bargaining representative's perspective on those terms and conditions, which meant that there might be some terms that are favourable to employees and some terms which were less favourable to employees or more favourable to employers.

And so what we saw was there was a degree of reticence on both parties to go down this intractable bargaining path because both parties had something to lose, potentially, from that path. Subsequent amendments of the Fair Work Act have now meant that no term determined by the Commission can be less favourable to each employee than a term of the current agreement dealing with that matter.
And what that basically means is that employees can't go backwards. They have, as a starting point, and as a floor, the enterprise agreement which currently applies to them and they can only receive terms and conditions through a workplace determination that are more favourable than that floor. Now, that is obviously a change because in our bargaining system the modern award is intended to be that floor. So we're really seeing there an introduction of a staircase approach to bargaining where things can only get better for employees.

Now Ian, it is clear that those changes are having an effect because 30% of respondents to our 2024 Bargaining Trends Survey noted that the prospect of an intractable bargaining declaration had changed their approach to bargaining. And what are your thoughts about this?

Ian Humphreys:
In essence, this goes to the heart of what bargaining is meant to be all about. Enterprise bargaining is meant to be about give and take compromise, and at the end of the day, the system is meant to be driving productivity within the business and within the broader economy. But one has to just simply ask the question, "Why would a union compromise on anything of substance if ultimately in an arbitration they can't go backwards?" The answer is as clear as night follows day, they simply won't compromise on anything of substance because they know ultimately they can't go backwards.
And this is antithetical to the whole notion of bargaining. It's also antithetical to the propositions about productivity that I've been referring to earlier. The Productivity Commission in October 2022 published an interim report about a more productive labour market. And of course this preceded the Closing the Loopholes talkfests and ultimate legislation, and it focused on reducing labour market rigidities and barriers. And it said, amongst other things, in the key points section, that the workplace relations system should aim to support minimum standards of fairness while ensuring that opportunities to improve productivity are not eroded or destroyed by conflict, distorted incentives, or burdensome red tape.

Now unfortunately, the way in which the intractable bargaining process has been structured creates or incentivises conflict, it distorts incentives to reach a sensible compromise, and as we've touched on earlier, the agreement process including approval has imposed additional burdensome red tape. All of that is very much against the need to put in place enhanced productivity. It's unfortunate, but there it is.

Peter McNulty:
And perhaps another interesting observation about that, Ian, is one of the other things that was reported in our 2024 Bargaining Trends Survey, being an uptick in industrial action. And I think part of the reason for that uptick in industrial action is a result of that changing dynamic in bargaining, and unions considering that they will receive and obtain greater concessions, if not from employers possibly as a result of an intractable bargaining process if that pressure gets too much for employers. Now, what should employers be doing in light of this regime of intractable bargaining looming large?

Ian Humphreys:
A range of things. Firstly, prepare for bargaining early and apply the necessary resources. It's a very complicated, both legally and industrially, process, and planning is critical. I think where you're trying to make changes which might be seen as less favourable to employees, you need to obviously try and get that by agreement through the bargaining process, keeping in mind that there's no incentive of course for unions to agree to it. What that highlights is the need for real negotiating skills to try and achieve positive outcomes.

And employers need to consider what they're putting on the table and what they're getting for it. You certainly don't want to be making concessions and getting nothing for it, noting that improvements are going to be hard to come by in any event. And of course, in the context of intractable bargaining, you need to be very clear about what is an agreed term through the bargaining process and what is not an agreed term, which may subsequently be the subject of an intractable bargaining arbitration. There's an old saying that 'nothing is agreed until everything is agreed'. Sometimes that can inhibit good bargaining, but it's a principle which in the context of intractable bargaining arbitration is a very important principle to apply in my view. Certainly in most cases, no doubt there will be exceptions, but as a general principle, I'm sure that that will be a guiding principle for many employers.

Peter McNulty:
And then, Ian, there are still more changes to come as well. We've seen very recently an obligation now for employers to include a delegates rights clause in enterprise agreements. We're starting to see an uptick in the focus of unions in bargaining for delegates rights clauses, which go above and beyond that which is now included in modern awards and some real questions being asked about, well, what are reasonable delegates facilities for things like communication with employees, access to emails, how much time is reasonable for a delegate to be spending on their union duties during a working week. And I think we're going to see more and more of a push for those things to be codified in enterprise agreements, not simply with principles, but strict terms regarding the number of hours, the number of employees and the particular facilities to be provided by employers.

It's also probably worth noting that the Fair Work Commission is to review the model dispute resolution consultation and flexibility terms as well very shortly. That will also have an impact on what employers need in that space going forward. So there has been this huge change to the dynamic in bargaining. What are the key takeaways for employers?

Ian Humphreys:
I think firstly, employers have to recognise and face up to the fact that the balance in our industrial system, which has been in place now for well over a decade, has fundamentally altered. The balance has been skewed heavily in favour of trade unions and heavily towards intervention by the Fair Work Commission. This is not about Closing Loopholes. This is all about a complete rebalancing of the system, and any employer who doesn't recognise that fact and develop their strategies accordingly will be at risk. So that's the first thing.

The second thing that employers have to recognise is that the whole enterprise bargaining scheme is really no longer enterprise bargaining as that concept was first established. Historically, enterprise bargaining came into being during the Hawke-Keating years. It was designed to drive productivity and indeed was highly successful for many years in doing exactly that along with a range of other initiatives by the Hawke-Keating government, and subsequently the Howard government, ensured some 30 years plus of continuous economic growth.

The system which we now have takes us not back to the system which was introduced by the Hawke-Keating governments, but it takes us back more towards the 1970s and early 1980s. And again, employers have to recognise that, otherwise they'll be caught out.

There's a number of things that employers also need to take into account when they're planning their strategy. Firstly, recognise that an enterprise bargain is a set of legal rights and obligations with enormous practical and financial consequence. Let's just run the numbers. Let's assume a business has 1,000 employees and on average those employees earn $100,000 a year labour cost. Back of the envelope, that's $100 million a year wages bill. Let's assume the agreement runs for four years, so it's a $400 million contract. So employers need to devote the resources, the time, the care, the attention, the strategic planning to support such a big contract. And of course, leave aside the financial consequences in dollar terms, these contracts go to the heart of how an employer is able to or is not able to run their business.

The employer has to be prepared. They have to work through the strategy, work through their tactics for bargaining, ensure they've got the right skills in the room for bargaining and the right support for those in the bargaining room and they have to, in developing the strategy, think ahead. They have to develop an underlying bargaining narrative and have that prepared prior to day one, and that's to ensure that they have a consistency of approach so that if ultimately they get to, say, an intractable bargaining outcome, not only have they got a consistency of approach, a consistency of narrative, but they will also have built an evidentiary case to support whatever position they might adopt in that intractable bargaining determination. In short, the legislative environment is heavily stacked against employers.

Now more than ever, careful strategic planning is required and great care needs to be taken in the execution of that strategy. But ultimately, an agreement is a deal between an employer and the employer's employees. That's the key relationship. So to all employers, can I leave you with this thought? And that is that engagement with your people is the key to success. Despite the difficult legislative environment which now exists, with great engagement with your people, you'll be able to navigate that regulatory environment much more successfully. So now more than ever, employers need to focus on, engage with, and develop positive relationships with their employees. To do so is not just morally and ethically the right thing to do. There are fundamentally good business reasons for doing so, and that will reduce the risks that arise out of the current so-called Closing the Loopholes Amendments to the Fair Work Act.

Peter McNulty:
Thanks, Ian, for joining me today and for those fantastic insights. It's clear there's still more to come and a lot for employers to be doing to be preparing for bargaining in this new environment.

Ian Humphreys:
Been great talking with you, Pete.

Peter McNulty:
Thank you for joining us on this final episode of our Industrious Conversations series for 2024, as part of the Ashurst Legal Outlook Podcast. To hear more Ashurst podcasts and to ensure you don't miss any future episodes, please subscribe now on Apple Podcasts, Spotify, or your favourite podcast platform. Also, please do reach out to our Employment team if you'd like to discuss this topic more. It's one that we are following closely and have a really keen interest in. Thanks again for listening and goodbye for now.