2.1
The committee considered a range of views on the Fair Work Amendment (Pay Protection) Bill 2017 (the bill). Whilst stakeholders generally supported ensuring that employees are adequately protected and remunerated, significant concerns about the proposed bill were nonetheless raised.
2.2
The bill seeks to amend the Fair Work Act 2009 (the Act) to require that enterprise agreements must contain penalties, overtime rates and loadings found in relevant modern awards. It is important to note that the bill 'does not address the present issue of reduced penalty rates.'
2.3
Key problems with the bill identified by stakeholders are outlined below.
Awards as a safety net, not a replacement for enterprise agreements
2.4
Australia's modern awards provide a safety net of minimum conditions, while enterprise agreements enable freedom to address issues specific to individual organisations. This means that, rather than being tied to rigid requirements, employers and employees can agree a balance between conditions and remuneration which suits both parties.
2.5
The historic move towards a growing reliance on enterprise agreements stems from a growing recognition by policymakers of Australia's potential in the competitive international market. This recognition heralded a series of industrial relations reforms introduced by successive governments in the 1980s and '90s:
The focus shifted toward the creation of a system where decisions about wages and conditions of employment could be increasingly made in the workplace where the mutual interests of employers and employees would be paramount, and awards would play a safety net or protective role, underpinning a system with bargaining and agreements at its core.
2.6
The Australian Chamber of Commerce and Industry (ACCI) reports that the reforms of the 1990s were a decisive step towards making enterprise bargaining the driving force in how people work. The safety net, comprised of compulsorily arbitrated awards and arbitrated wage increases was only ever intended to be that, a safety net:
The safety net would not be intended to prescribe the actual conditions of work of most employees, but only to catch those unable to make workplace agreements with employers.
Over time the safety net would inevitably become simpler. We would have fewer awards with fewer clauses.
The bill would further impede enterprise bargaining
2.7
JobWatch, an employment rights community legal centre, expressed concern that the bill might carry the unintended consequence of undermining the collective bargaining system.
2.8
This view was echoed by others, such as the Australian Retailers Association (ARA), which has already identified a marked decline in enterprise bargaining across the retail industry, and warned against introducing legislation which risks accelerating this decline:
…the amendments proposed in the Bill would substantially accelerate this. Retail employers would have no incentive to bargain under a system where there was no opportunity for them to drive productivity gains by having more employees working at the times when more customers are seeking access to their stores.
2.9
The National Retail Association reports that almost two thirds of surveyed members believe that their employees fare better under their enterprise agreement than they would be under the relevant modern award. This is because agreements are negotiated in a way that 'provides greater flexibility with ordinary hours of work and therefore, greater take home pay.'
2.10
It stands to reason that awards which impose rigid pay levels, particularly penalty rates on weekends and public holidays, force many businesses to reconsider operating during those hours, or to employ fewer staff at those times:
This was a recurring theme in our survey responses: that employees are likely to receive significantly less hours and therefore less take home pay, due to the business closing on weekends and public holidays, or business owners needing to work to reduce overheads.
2.11
Evidence also suggests that employers may seek to employ only junior staff on weekends, in order to reduce labour costs. This suggests that the bill would fail to achieve its purpose:
It will not offer protection to the most vulnerable workers, who are arguably the lowest paid employees with responsibilities, bills and loans to repay.
2.12
Unlike awards, enterprise agreements allow administrative flexibility and predictable labour costs, in turn allowing employers to hire more staff.
2.13
The benefits are particularly pronounced for small business employers, who are able to reduce the regulatory burden imposed by modern awards by negotiating enterprise agreements which allow flexibility for:
Reduced minimum shift engagement for casual and part-time employees;
Altered break entitlements;
Altered rostering requirements;
Arrangements which provide administrative flexibility for employers;
Arrangements which provide flexibility for employees; and
Cashing out annual leave entitlements.
2.14
Small businesses employ millions of Australians, and they benefit greatly from the ability to negotiate enterprise agreements with their employees, particularly when they begin operating in sectors such as retail, fast food or quick service. The figure below illustrates the share of total employment in Australia by size:
2.15
Submitters noted that, if enacted, the bill would be a backward step and encourage the entrenchment of outdated award conditions instead of fostering enterprise bargaining:
The amendments proposed to the Bill would provide further disincentive to bargain and would constrain innovative approaches to bargaining and prevent employees from enjoying non-monetary benefits of value to them in exchange for award conditions that may be of lesser relevance and value to them.
2.16
Worryingly, peak retail associations warned that the bill had the potential to have a particularly detrimental effect on small businesses and warned against its enactment:
Based on our survey responses, it is likely that large employers will continue to operate under an EA, however, small businesses are unlikely to bother negotiating an EA with the ongoing costs and labour required to implement an EA, should these changes come into effect.
As a result, this Bill is most likely to impact small businesses and those which are just beginning within the retail environment.
Given the vital contribution that small businesses provide to the Australian economy, the NRA submits that the Bill should not be introduced as it likely to have a devastating impact on small businesses.
2.17
The ARA added that the risk to employees presented by this bill were considerable, reminding the committee that employees in the Australian retail industry are currently among the highest paid in the world, with access to rates of pay equal to or greater than rates available to employees with trade qualifications. Passing this bill, the ARA warned, could easily result in a reduction in retail employees' overall position.
2.18
ACCI similarly concluded that regulatory barriers to flexibility and productivity improvement should be avoided. If it is to deliver on wages and conditions linked to productivity, as has been the aim of Australia's industrial relations system for over twenty years, our bargaining framework must promote, not impede, flexibility. The bill, ACCI noted, takes 'steps in the wrong direction.'
The bill would foster uncertainty
2.19
Ai Group explained that the provisions of the bill would, if passed, require employers to continuously check relevant awards for changes to entitlements relating to allowances, loadings and penalties, creating perpetual uncertainty:
Such uncertainty regarding the entitlements due under an enterprise agreement is undesirable for employers and employees. It would create a considerable additional regulatory burden for employers.
2.20
This view was echoed by other submitters such as the NRA.
2.21
The ARA further noted that the bill lacks appropriate consideration of its potential impact in the long term, and would require substantial further amendments to the Act if passed, including:
(a)
Section 3(f) would need to be amended to remove the word “productivity”.
(b)
Section 171(a) would need to be substantially rewritten to remove reference to flexible and to remove the words “that deliver productivity benefits”.
Better protections for employees already exist
2.22
Instead of imposing rigid rates of pay and thereby rendering the enterprise agreement process too inflexible to allow genuine negotiation, the Act clearly encourages bargaining whilst ensuring that employees benefit from any agreement they reach. To this end, enterprise agreements are subject to the 'better off overall test' (BOOT) when lodged for approval by the Fair Work Commission (FWC). The Act sets out when a non-greenfields agreement passes the BOOT:
An enterprise agreement that is not a greenfields agreement passes the better off overall test under this section if the FWC is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.
2.23
The BOOT allows employers and employees to negotiate terms and conditions specifically tailored to their particular needs and preferences, requiring that employees be better off than the relevant award as a result. How conditions and pay are negotiated to create a 'better off overall' result was articulated by the NRA:
[T]he BOOT is a global test, meaning any reduction in terms and conditions under the modern award must be remedied, in an overall sense, by more beneficial provisions in the EA.
2.24
The Fair Work Commission describes its assessment of whether employees are better off overall under an agreement than they would be under the relevant award in the following way:
The application of the BOOT…requires the identification of the terms of an enterprise agreement which are more beneficial for an employee than the relevant modern award, the terms of the agreement which are less beneficial for the employee than the relevant modern award, and then an overall assessment of whether the employee would be better off under the agreement than under the award.
An enterprise agreement may pass the BOOT even if some award entitlements have been reduced, as long as overall those reductions are more than offset by the benefits of the agreement.
2.25
The committee notes that by prescribing a substantially raised 'floor' to underpin bargaining, the bill would undermine both employers' and employees' ability to tailor and secure desirable agreements:
It [the bill] would remove many opportunities for employers and employees to reach agreement on terms and conditions that are meaningfully tailored to suit the needs of the enterprise and of the employees. Many “win-win” outcomes would no longer be possible. Therefore, enterprise bargaining would be undermined.
2.26
The committee also notes that the Productivity Commission delivered a comprehensive report on the Australian workplace relations framework in November 2015, which found that current protections for employees were sufficient. Instead, the Productivity Commission concluded that the enterprise agreement-making process—whilst protecting employees—was needlessly burdensome for employers, and urged that superfluous burdens be eased.
Retrospective application
2.27
The committee understands that serious stakeholder concern exists regarding the potential for the proposed measures to apply retrospectively. That is, if enacted, the bill may make existing enterprise agreements, negotiated and agreed to fairly and in good faith by employees and employers, unlawful. The Queensland Law Society warned against introducing retrospective rights or liabilities:
[T]he Society generally opposes the introduction of provisions that impose retrospective rights or liabilities on a person on the basis that these may create unjust and unforeseeable outcomes and may be contrary to section 12(2) of the Legislation Act 2003.
2.28
The committee sought clarity on this. The Department of Employment (the department) confirmed that a significant number of employees could suffer a loss of conditions if the bill were enacted; that is, rather than improving their conditions, the bill would take them backward:
Yes, that is correct. That's because the bill specifies that the amendments proposed in the bill would apply to enterprise agreements made before, on or after the day that the legislation comes in. So, if this bill came in and it said it was going to start on 1 October, it would apply to enterprise agreements made before that day. When we analysed it, we thought that meant the amendments would apply to existing agreements, so people who have negotiated agreements lawfully under the framework that existed at the time would potentially lose conditions negotiated in their agreement.
Better ways of protecting vulnerable workers
2.29
The committee notes the bill's objective of bolstering protection for workers. It should also be noted that the government has already introduced significant legislative changes in this Parliament to protect vulnerable workers. Most notably, the government's recent Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, which this committee inquired into and which is currently before the Senate, seeks to address shortcomings in the Fair Work Act 2009 by:
introducing a higher scale of penalties for 'serious contraventions' of payment-related workplace laws;
increasing penalties for record-keeping failures;
making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought to have reasonably known of the contraventions and failed to take reasonable steps to prevent them;
expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash); and
strengthening the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.
2.30
Although the bill before the committee seeks to protect workers, there is little to suggest that its passage would in fact achieve that aim.
Conclusion
2.31
The committee notes serious concerns raised by submitters and witnesses about the consequences that the bill might have, particularly on small businesses. The bill is essentially seeking a move to a highly centralised industrial wage fixing system, with no concern for individual workplace realities or employees' and employers' preferences. The committee is firmly of the view that imposing rigid, centralised payment rates on business is counterproductive and risks impeding economic growth and job creation.
2.32
On the basis of the evidence presented, it is clear that the bill would serve only to impose rigidity in enterprise bargaining, impede employees' freedom to negotiate agreements which are tailored to their circumstances and preferences, and create a climate of uncertainty for employers. Policymakers cannot, in the committee's view, help create jobs by making it increasingly difficult to employ people. The committee acknowledges that the intention of the bill may be to protect workers, but notes that evidence shows that the proposed measures run counter to achieving this aim. The committee therefore sees no reason to support legislation which would undermine enterprise bargaining, the foundation of our modern industrial system.
2.33
The committee recommends that the Senate reject the bill.
Senator Linda Reynolds CSC
Chair