Is Enterprise Bargaining Really Dead?

Recent political and even Reserve Bank commentary remarks upon how wages growth has stalled, although the causes attributed to it  vary. What is clear is that low wages growth is not limited to the Australian economy, but is a feature of many advanced economies, including the US. Recently, Judith Sloan in The Australian has given a broadbrush overview of many of the factors at play adding to the low growth outcome, including immigration, technology, growth of the services sector, end of the mining boom, rise in under-employment amongst others.

Labor has seized on the relatively recent FWC decision to reduce penalty rates in many service sector awards (retail, fast food, hospitality etc) as adding to the problem, however the fact that the decision has yet to be substantially implemented (due to phasing) shows that this is not the cause, just another consideration. Bill Shorten recently just stopped short of giving unions licence to start industrial campaigns to force up wages, saying at a recent National Press Club luncheon -

"The wages system is not delivering, and it's not just cuts to penalty rates, or the exploitation of labour hire. Enterprise bargaining is on life support....Labor would 'put the bargaining back into enterprise bargaining' ".

If wages growth is not feeding bargaining, what other factors are at play?

Try googling the article heading (i.e. is Enterprise Bargaining dead?) and you will find a wealth of articles over the last 6 to 12 months asking this very question. Our own website traced a dismal spiral of decisions involving the Fair Work Commission's (FWC) application of the BOOT - the Better Off Overall Test. See our article list here for our recent commentary, including the observation that business efficiency was suffering due to the current BOOT and its application by the FWC.

As mentioned above, the proportion of the population engaged in the services sector has grown to now be at least 61.1% of GDP and almost 80% of total industry output. So when services sneezes, the Australian economy gets pneumonia.

Our recent experience in the services sector is that the application of the BOOT continues to be a major impediment to new agreements, with more and more employers willing to revert to award conditions - or near to them (see recent Dominos Pizza vote to approve a new agreement). The less variation that can be made to award conditions in order to pass the BOOT, then the less motivated employers will be to go through the hardwork of doing an agreement to begin with.

The one major benefit of an enterprise agreement is that it prevents industrial action being taken during its life, but with low levels of industrial action in the Australian economy, that benefit has a reduced value.

Access to advanced, cost effective cloud-based payroll software programs also allows many employers to avoid much of the administrative workload in ensuring they are paying employees correctly, which previously was achieved by enterprise agreements and 'loaded rate' agreements (i..e where penalty rates are exchanged for higher weekly base rates).

Security Sector remains a problem

Our firm has been involved in seeking approval of many enterprise agreements for smaller security sector employers and sub-contractors. We are being told they need to have an enterprise agreement in order to win new work, or to keep existing work, from the major security organisations. This requirement appears to be a reaction by the security majors, to action by the Fair Work Ombudsman seeking to hold them accountable for underpayments to sub-contractor employees, a few years ago.

However, there is a total log jam of these agreements as the FWC has continually altered decisions as to what it will accept for an agreement to be approved. It appears that the only agreements that will be approved will be almost identical to the award, as the FWC continually rejects agreements based on a line-by-line analysis.

The irony of the situation is that the failure to approve new agreements pushes business towards security firms with "expired" (or near to expiry) enterprise agreements that continue to operate and thereby reduces upward competitive pressure for labour. As security work is in most cases not skilled work, foreign workers are competing with Australian residents in a scramble for the available work.

Hardly a recipe for wage equity, or preventing a further drag on wages growth in the security industry.

The way forward?

With little likelihood of the current Federal Government wanting to take on an industrial relations agenda, the BOOT is unlikely to be changed, meaning more and more workers previously covered by enterprise agreements are likely to revert to award conditions. In an economy with reduced levels of industrial activity and union membership, industrial action is less likely to become an issue, as a result of not having unexpired enterprise agreements.

The easy way out for the Federal Government will be to reduce income taxes as a way of increasing expendable income for employees, whilst reducing what is available to spend on welfare recipients. However, this is likely to continue to increase the relative difference between the "haves" and the "have nots", or alternatively have the effect of increasing inflationary pressures as government spending increases as a share of the economy. 

The other softer option perhaps, is to put a further break on immigration, to reduce labour market competition with 'local' workers (Australian residents and citizens).

What is clear is that the current level of political debate, and the sort of thinking that got us to where we are at present, isn't going to solve Australia's problems of economic and social uncertainty.