Labor Senators' Report
Labor senators on the committee oppose this legislation on
three grounds. First, its provisions tip the balance in unfair dismissal claims
in a way which undermines employee safeguards., because the use of the
corporations power as a constitutional basis for the legislation will lead to
legal uncertainties, and because the use of such power cannot, by itself, be
regarded as anything more than a temporary expediency to secure limited and
short-sighted legislative ends.
It should be noted that the bill will not achieve the
government’s stated aims. There will be no increase in jobs, the bill will
actually increase the industrial relations costs borne by business because many
who choose to use the state system will now be forced to operate in two
systems, a unitary system will not result, and workers will be discouraged from
working for small businesses because it offers them less security and fewer
rights.
Minority reports of this committee (being those of Labor
senators) have on three previous occasions dealt with issues centering on
unfair dismissals, and the merits of making special concessions to the small
business sector in regard to reducing to rights of employees. This report will
deal only with new aspects of this issue which arise in this bill.
Unfair dismissal revisited
This committee has been dealing intermittently with unfair
dismissal for years. As one submission stated:
The Federal Government has failed to justify there is any
problems with the operation or application of the current state unfair
dismissal systems.[1]
Another constant theme in Government policy has been to
place small business proprietors in a privileged position in regard to
determining conditions of the employment they offer. While Labor senators
acknowledge that small business has particular characteristics which affect
employment practice, there has never been a strong case made for the
proposition that employees in the small business sector should possess fewer
rights and legal safeguards than people who work in other employment sectors.
The inquiry by the references committee into small business employment, tabled
in February 2003, found that the preoccupations of small business differed very
little from those of large and medium business, having to do with business
cycles, taxation, regulations and general economic conditions. Small business
employs to the extent that business levels and business growth strategies
determine. For reason that will be dealt with later, any connection between the
fear of unfair dismissal claims and the rate of overall small business
employment is extremely tenuous.
Small business employment concessions
The committee received much evidence on the privileged
treatment of small business that is proposed in this bill. The Government appears
to believe that small businesses are especially sensitive to the ‘burdens’
imposed by this the Workplace Relations Act. Implicit in the Government’s
position is a presumption that small business proprietors may also be more
prone to act in ways that provoke claims of unfair dismissal. This has never
been conceded, although it is generally acknowledged that small businesses are
usually without corporate management support. Labor senators believe that for
an employee who is dismissed, the size of the business should not be the
determinative factor. To argue otherwise is to argue for an inequality of
rights. The Government claims that it seeks more ‘balance’ in the legislation
than currently exists, but in arguing for differential legal rights for employees
it will achieve the opposite outcome.
In opposing the concept of differential rights, Labor
senators note the strong argument that small business may have compensating
advantages that undermine any argument for concessional treatment in regard to
employment laws. As one submission stated:
There is a wide variety of forces at work that determine the
‘make-up’ of the economy between small and large business. Some of these favour
large businesses and others small businesses. The oft-cited importance of small
business in the overall economy is of itself evidence that by no means all
advantages lie with bigness. If the unfair dismissal law is relatively
disadvantageous to small business, this is but one of a myriad of factors
operating on both sides. It is an aspect of the economic environment with which
all businesses have to come to terms. There is no suggestion that large
businesses should be compensated to offset advantages of small business, such
as the close contact with customers that is possible for (say) small retailers
and local plumbers.[2]
Labor senators consider this to be a ‘balanced’ description
of the circumstances of small business in the context of the wider economy, and
they commend this comment to the Government. They will continue to oppose this
legislation for the reason that it is a response to false perceptions about the
extent of the problem confronted by employers.
The Harding report
Critics of previous bills dealing with unfair dismissals
have regarded survey results produced or commissioned by employer organisations
showing high levels of concern and anxiety amongst small business proprietors
to be highly questionable. The efforts that have been made to establish the
veracity of such opinion have been listed in an appendix to this report, but
can be regarded as having historic interest only.
Labor senators note that the Government, having belatedly
acknowledged the need to produce new and irrefutable evidence of the connection
between employer fears of current unfair dismissal laws and their readiness to
employ, has commissioned research intended to put the matter beyond doubt. The
Government claims that the Melbourne Institute Report, the work of Don Harding,
is final and authoritative evidence of the need for unfair dismissal legislation
changes.
The methodology underpinning the Melbourne Institute report
was several times described and defended by witnesses at the committee’s Melbourne
hearing. Questions put to employers asked what influence unfair dismissal had
on their processes and practices in such a way as to suggest answer affirming
some degree of influence. This approach was favoured because employers might
otherwise overlook the issue. A number of submissions made scathing comment on
the methodology of the Harding survey and, in a variety of ways, described the
conclusions as badly flawed. Criticism was directed in particular at
conclusions drawn about the effect of current laws on, first, the loss of
employment, and second to the related issue of labour costs.
On the issue of employment loss, Labor senators note the
evidence provided by the ACTU in identifying the flawed reasoning behind some
of the report’s conclusions:
For example, employers with no employees, but who had previously
employed staff, were asked if the unfair dismissal laws had played a part in
their decision to reduce staff. Even with the leading question, only 11 per
cent of employers said that this had been the case, with only 4.6 per cent
saying that the laws were a major factor. In an extraordinary feat of reasoning,
Harding concludes that the unfair dismissal laws caused the loss of 77,482
jobs.[3]
The ACTU submission then quotes from the report:
Firms that previously had
employees, but currently do not have employees, were asked what was the maximum
number of people they had employed. Factoring this up to the population as a
whole results in the conclusion that there were 77,482 job losses in which UFD
laws played a part. Of these there were 34,812 job losses in which UFD laws
played a major role, 17,100 job losses where UFD laws played a moderate role
and 25,572 job losses where the laws played a minor role.[4]
Labor senators note the assumption that where a business
once employed five people, and now has none, this reduction may be attributed
not only to economic or trading circumstances, but to the existence of unfair
dismissal laws. The claim that without the unfair dismissal laws there would be
77,000 more people employed in small and medium sized firms must be regarded as
absurd. It is, as Professor Andrew Stewart has remarked in his submission
describing this figure as ‘an estimate based on a series of estimates’ and a
‘curious exercise providing a weak foundation’ for Government pronouncements on
the benefits of the legislation.[5]
It is also noted that the assumption underlying the Harding
conclusion in relation to the employment cost of unfair dismissal laws rests on
his view that employment levels are determined solely by labour costs. This has
not been a view shared by the Australian Industrial Relations Commission. For Harding,
as apparently for the Government, the economic rational for changes to unfair
dismissal laws is as follows: reduced labour costs lead to higher employment;
compliance with unfair dismissal laws represents a cost on labour; therefore,
repealing unfair dismissal laws will lead to higher employment.[6]
As the ACTU has pointed out, the same could be said about superannuation and
occupational health and safety laws.[7]
On the issue of costs, criticism of the Harding methodology
was made in the submission for the Government of Western Australia. This
commentary sums up the views of Labor members of the committee.
The main conclusion that unfair dismissal laws impose a cost of
$1.3 billion is itself a statement based on what is described as ‘opportunity
cost’. Employers were asked to compare a situation where there were no unfair
dismissal laws and to indicate the degree to which ‘unfair dismissal laws
increase my business costs’.
Harding then took these ‘reported costs’ and ‘factoring them up
to the population of small and medium businesses yields an estimated $1329
million ...’[8].
There are several defects with this methodology. Firstly, for example, it is
not explained in the report what exactly “factoring them up” actually means and
medium size businesses are also included in this calculation. Secondly, the
figure reached appears to be based on the difference in casual and permanent
rates of pay. Thirdly, it may also include the amounts expended by firms
surveyed in responding to unfair dismissal claims made against them. However,
whether this is the case is not clear from the report.
It can therefore be properly concluded that this report
announces a figure of $1.3 billion based on the presumption that if employers
were not subject to unfair dismissal laws, they would employ all their casual
labour force as permanent employees. However, this does not take into account
other reasons for employing on a casual basis, such as to allow more
flexibility to meet business needs and to simplify the administrative
requirements in calculating wages and entitlements.[9]
Small business employment in perspective
While the onus of proof must always remain with those who
desire to strip employees of legal rights to fairness, the references committee
did conduct an inquiry into small business unemployment in 2002 which provided
some insights into the relative importance of the issue to small business. The
committee’s findings on unfair dismissal were as follows:
Consistent with survey rankings of small business concerns,
unfair dismissal did not arise as a major issue during the inquiry: other
issues such as the need for improved business management, problems with
recruiting suitable employees, the compliance burden associated with the New
Tax System and the total framework of employment obligations were far more
prominent. Where unfair dismissal laws were raised as a concern, the main
issues were a lack of understanding in how to dismiss staff consistent with the
law, the costs and complexity of the current processes for determining claims
and the uncertainty of outcomes.[10]
In
its small business employment report the committee also pointed out that
changes to the processes and requirements for unfair dismissal have made a
difference. following the introduction of the Workplace Relations Act 1996,
unfair dismissal cases in the Commonwealth jurisdiction fell from 14,499 for
the twelve months ending 1996 to 8,631 for the twelve months ending September
1997; following changes to procedures and requirements in August 2001, the
number of cases fell from 8,287 for the twelve months prior to September 2001
to 7,298 for the twelve months prior to September 2002.[11] The annual
number of cases is now half of what it was six years ago. The Government has
chosen not to be influenced by this trend. It is also selective in reading the
evidence of its own research.
The references committee
noted from the evidence that there was a serious unaddressed need for personnel
management skills in the small business sector. The committee noted that small
business concerns about unfair dismissal indicated the need for more training
and support, including clear information materials on hiring staff and the
dismissal process disseminated through the small business network. The
committee agreed that proposals for providing a simplified and cheaper process
for resolving unfair dismissal claims also had merit.
Employer organisations (whose information is apparently
accepted without question by the Government) often refer to particular
instances of employee recalcitrance or of the disruption of business as a
result of employers having to attend tribunal or court cases. Labor senators do
not deny that such problems have arisen from time to time, and point to 2001
amendments to the Workplace Relations Act which have served to eliminate misuse
of the unfair dismissal provisions. What was presumably an acceptable balance
of rights two years ago has now become a burdensome imposition on business.
Labor senators do not believe that the problems presumed by
the Government to exist have any basis in fact. If anything, the situation has
improved as the importance of sound management practice, for the sake of
profits, is gradually affecting the thinking of the wide spectrum of small
business proprietors. For such employers the looming problem is the shortage of
skilled labour, rather than fears of vexatious litigation by employees.
Use of the corporations power
The major new element to this bill is the use of the
corporations power (section 51(xx)) of the Constitution to override state
legislation. Over a number of years several planks of the Constitution have
been used to underpin industrial relations laws. It has been recognised for
some time that the use of the corporations power in such cases as this
legislation presents certain difficulties, most obviously that around 20 per
cent of employers cannot be covered because they are not employed by
constitutional corporations. The bill as it stands is both a limited and blunt
instrument of legislation. It leaves a small but significant group of workers
beyond its ambit, and it creates legal complications in cases where current
state legislation covers regulatory matters affecting unfair dismissal. It is a
measure of the Government’s preoccupation with short-term political goals that
it has persisted with measures demanded by its industry supporters, but which
will create legal and administrative difficulties for them over the long term.
This view is widely supported in submissions from the
states, which are naturally affronted by the Commonwealth’s attempts to
override properly functioning laws enacted in state parliaments. The Government
asserts, without explanation or justification, that the proposed Commonwealth
legislation will be ‘better balanced’ than current state laws which, according
to the Explanatory Memorandum contain ‘inequalities’, which are not identified.
Several state submissions expressed strong opposition to any
attempt by the Commonwealth to make overriding legislation without consultation
with the states, especially in attempting to graft federal laws onto state
systems. The bill before the committee shows all the signs of failure to deal
cooperatively with the states. It also shows that the complexities and
confusions that the Government alleges to arise from having conflicting and
overlapping jurisdictions would be made even worse if this bill were to pass.
The submission from the Queensland Government points out that far from
resulting in improved legislation, as the Government claims, the bill establishes:
- two different sets of federal laws and procedures governing
unfair dismissal matters, depending on the size of the respondent;
- different federal and state unfair dismissal regimes for
incorporated and unincorporated entities;
- different federal and state unfair dismissal regimes for
incorporated entities, depending on whether they meet the definition of a
‘constitutional corporation’;
- concurrent but separate federal and state jurisdiction over
different aspects of workplace relations in the one business, for example a
federal regime governing a business’ unfair dismissals and a state regime
governing workplace harassment and industrial disputes; and
- concurrent but separate federal and state jurisdiction over
different aspects of the one employee’s claim (for example, the federal regime
for unfair dismissal and the state regime for insufficient notice or unpaid
entitlements).[12]
Therefore, a state award employee of a constitutional
corporation with a claim for unfair dismissal and withholding of wages would
need to lodge claims in both federal and state jurisdictions, one for the
unfair dismissal component, and the other for the wages component.[13]
Employers, who complain now about time wasted in court under the current law
will find the regime proposed under this bill to be even more onerous.
The arguments of state governments are supported by Professor
Andrew Stewart. In his submission, Stewart make it clear that while he has
always supported the principle of unitary industrial relations laws, he is
opposed the proposal in this bill on the following grounds.
The first is that they seek to override state unfair
dismissal laws in favour of a federal regime that is inferior in both design
and operation. Second, the proposed amendments would not in fact contribute to
the goal of simplifying the coverage of federal and state labour laws. Third,
and most importantly, the predominant effect of the amendments will be to
reduce the overall national coverage of unfair dismissal laws and exclude many
workers who currently have access to a remedy from being able to challenge
their dismissal. Labor members of the committee believe that Stewart’s argument
needs to be reported in some detail.
On the point of the defective design of this bill, Stewart
points to the inordinate complexity of the Workplace Relations Act, its
attendant regulations, and the unduly prescriptive nature of its provisions.
Further to this, Stewart writes about the provisions of the Act:
They are very hard for ordinary workers or managers to
understand, necessitating legal advice for even the simplest procedures.
Instead of simply empowering the Australian Industrial Relations Commission
(AIRC) to deal with certain claims and providing broad guidance as to how to do
so, as most State laws do, the legislation seeks to regulate each step of the
process in ever-increasing detail. As is generally the way when Parliament
tries to anticipate and counter every eventuality, this level of detail simply
creates potential gaps and uncertainties for litigants and their lawyers to
exploit.[14]
Stewart’s second point, on the false claim of simplifying
the coverage of federal and state labour laws, makes it clear that while
matters would be simplified for some employers, it would also take many
employers who are currently covered solely or predominantly by state awards or
agreements and expose them to the federal system, with all its added complexity
and cost, for unfair dismissal purposes. If the Government had been serious
about simplifying the coverage of labour laws it could, according to Stewart,
have extended the federal unfair dismissal system to cover all employees
covered by federal awards and agreements, not just those employed by
constitutional corporations, and confined the state systems to workers who are
either covered by state instruments or award-free.
Perhaps the most glaring omission in the bill, in the view
of Labor senators, is the exclusion of many workers who now have access to a
remedy for unfair dismissal from being unable to challenge their dismissal. This
is a limitation in the use of the corporations powers which does not appear to
concern the Government unduly. When Labor senators refer to the corporations
power as a ‘blunt instrument’ it is in such matters that the truth of this
observation can be made. It goes further than this as Stewart has observed.
Exclusions under federal laws apply more widely than under most state laws, and
many workers will be effectively deprived of a right to challenge their
dismissal.
Accordingly it is highly misleading for the Minister to claim,
as he does in his second reading speech for the Bill, that ‘the percentage of
employees covered by Federal unfair dismissal provisions should rise from about
50 per cent to about 85 per cent’. Many of those employees would be ‘covered’,
yes, but only to the extent of denying them a remedy against unfair dismissal![15]
The Government’s proposal to overcome this anomaly is that
the states should transfer powers to enable the Commonwealth to cover the
field. That would require a degree of cordiality and compromise which does not
appear likely given the lack of consultation that has marked Commonwealth-state
relations in the field of industrial relations over the past seven years.
On the issue of Commonwealth-state consultation, the views of
the Australian Chamber of Commerce and Industry are of interest to the
committee and should be instructive for the Government. ACCI, in common with
other employer organisations, has favoured the introduction of a unitary
industrial relations system. It has been acknowledged on all sides of the
argument that the required constitutional rearrangements present a formidable
obstacle to this change, and the use by the Commonwealth of other ‘heads of
power’ upon which to frame legislation present the kinds of difficulties which
Labor senators have identified in this report.
ACCI has acknowledged all of these difficulties in its
report, but its proposal for an orderly process of change is particularly
noteworthy in the context of this inquiry:
The case for moving toward a harmonised national workplace
relations system could be assessed in a nine-step orderly development phase.
The objective would need to focus on exploring the concept with the maximum
possible bipartisan national support, and in a constructive non-political
manner. An open-minded approach would need to be adopted, particularly by
governments (federal and state), with a recognition by all parties of the
legitimate role each jurisdiction has historical (sic) had and currently
exercises in the system. The initial focus would have to be on confidence
building and an objective analysis of options and models for change, without
requiring any interested party to commit a position or formulate definitive
policy during the development phase. At the end of the day, the content of the
system will determine whether it has acceptance by employer and employee
interests.[16]
This statement from ACCI echoes to some degree comments made
by industrial legal academic Professor Ron McCallum, who has argued that if a
robust national industrial relations mechanism is to be created, governments
must refrain from seeking short-term political advantages. They should instead
focus on long-term consultative strategies for bringing about a robust national
labour law regime.[17]
It may be said that the ideas expressed both by ACCI and by Professor
McCallum suggest an idealistic way forward, but in recognising the stubborn
existence of entrenched political interests they cannot be regarded as naïve.
While ACCI may be regarded as a special interest group with axes of its own to
grind, it also represents a strong community view that progress and fair
dealing are unlikely to derive from entrenched positions and ideological
campaigns, which have been the characteristics of Government policies over
seven years. If the Government does not heed advice from the Senate, it should
at least listen to its industry supporters.
Conclusion
Labor senators regard this bill as implementing a basically
flawed policy of creating two classes of employees: those who work for small
business, and those in more privileged employment sectors. This is
fundamentally wrong in a country with perhaps the strongest tradition of
legally entrenched fairness and equity practices anywhere in the world. This
flaw is compounded by the use of a constitutional power which will have the
effect of creating legal confusion. In the view of Labor senators, this is one
of the least defensible amendments to the Workplace Relations Act which the
committee has so far had to deal with.
Labor senators recommend the Senate oppose this bill
in its entirety.
Senator George Campbell Senator
Kim Carr
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