Qantas' EBA dispute - Should we let the umpire decide?

The Qantas Dispute

Many people have asked how such an iconic national employer could hold the Australian population to ransom to achieve its own business needs? Surely a circuit breaker is needed so that any party to a protracted bargaining dispute – or indeed the federal government – could take the dispute to Fair Work Australia (FWA) to have the issues resolved in a reasonable fashion?

Until 2006, we had an industrial relations system that allowed FWA’s predecessor, the Australian Industrial Relations Commission, to arbitrate certain types of disputes under laws made under our Federal Constitution’s conciliation and arbitration power. For historical and legal reasons these disputes had to extend beyond the limits of a single state.

That constitutional power to make laws to settle national disputes provided by our nation’s fore parents, was a direct result of our experience in the decade prior to establishment of our nation in 1901. During the 1890s, workers and employers in our major industries – coal, wool shearing and maritime industries - violently slugged it out with each other over extended periods (sometimes years), ultimately to the detriment of the workers involved.

Under the Conciliation and Arbitration Act, there would have been no technical barrier to the AIRC getting involved in sorting out the Qantas dispute, or any other dispute of similar national significance.

So what is the problem in going back to such a system of involvement of the outside umpire, either to bump a few heads or ultimately resolve the issues if the parties directly involved couldn’t?

To answer that, we need to revisit some of the history of what that previous system delivered to the Australian economy, and why successive governments, both Liberal and Labor, ultimately felt compelled to dismantle such a system.

The Move Away from Arbitrated Outcomes

During my halcyon undergrad uni days back in the late 1970s, we were taught that ‘striking’ (excuse the pun) characteristic of the Australian industrial relations system was the tendency towards many short stoppages, rather than the far fewer, but sometimes more entrenched disputes in comparable western countries.

Australia was a rarity in the world in having a system of compulsory arbitration of industrial disputes as a final remedy where the parties could not resolve it themselves (See footnote 1). The ability of both sides in disputes, or the Government for that matter, to take the matter to the industrial tribunals of the day, created an escape valve for dealing with disputes and which tended to guarantee any strike or other industrial action damaging to the employer, need not be of extended duration.

However, as any parent who rewards a child for poor behaviour will know, this tends to encourage the poor behaviour more.

The practical reality was that the ability to take disputes to the umpire meant unions just had to ask for more to get more. After all, the role of the tribunal was ultimately to resolve the disputes that arose, much more so than to guarantee business profitability or efficiency.

Even the convention of avoiding interfering with managerial prerogative, for many years an accepted principle of our system of industrial relations, has in more recent decades become open to review. The High Court recognised that change in Re Cram as far back as 1987, when it said (at par.24) –

‘... it was the prerogative of management to decide how a business enterprise should operate and whom it should employ, without the workforce having any stake in the making of such decisions ... Over the years that climate of opinion has changed quite radically ... Many management decisions, once viewed as the sole prerogative of management, are now correctly seen as directly affecting the relationship of employer and employee and constituting an "industrial matter" ’.

In my experience, there is also an impact from the umpire her or himself, because sitting in judgement of what is right or fair, has its own 'corrupting' effect. I say corrupting because - industrial relations is inherently a political area and I am no doubt displaying an economic rationalist view here - eventually the role is perceived to be about finding a middle ground in all matters and correcting inequities, rather than was it best for employers and their businesses. In a highly competitive world economy, that eventually did not auger well for business flexibility and efficiency when taken on a long term basis, to the point that the power for FWA to make awards or orders to 'settle disputes' has been seriously constrained, firstly by Work Choices, but also under the Fair Work Act.

The lesson of history is that expanded access to compulsory arbitration of disputes (outside of the limits of individual rights matters such as unfair dismissals), weakens the discipline of competitive markets, is not conducive to efficient industries or business operations, and ultimately will undermine the strength of our economy.

We only need look towards the current financial difficulties in Europe to see what many years of inefficiency - created in the name of fairness and equity - can create. Is it a fair thing to then have to drastically wean a population off the benefits provided by a society that can no longer afford them?

Changes to the Umpire’s Role in Disputes

The major change brought about by Work Choices in the area of disputes was to significantly curtail the tribunal’s ability to intervene in them. They could only impose a binding decision by agreement of the parties, or where the dispute was causing significant distress to the economy or an important part of it.

Industrial action, whether by unions in support of collective bargaining or by employers in response, had to pass stringent tests to be approved as “protected action”. By this means, the role of the umpire came to be about refereeing the rules of the fight, rather than having the power to determine the outcome, except in limited circumstances mainly involving essential service industries - see our separate article on this point.

In that article, we reported that Commissioner Smith of Fair Work Australia commented [in February 2011] on the principles governing the taking of industrial action under the Fair Work Act in a recent case -

"The processes contained in the Act are designed to permit employers and employees to engage in industrial action in support of their bargaining positions without the fear of external legal action. In other words, the resort to industrial action by either the employer or the employees is a legitimate and proper exercise of economic power provided that a particular process is followed."

The Fair Work Act has added some additional limitations on the parties, including an obligation on the parties to “bargain in good faith”, with a failure to do so enabling FWA to intervene to compel that party negotiate, or in the case of repeated or ongoing breaches, to ultimately determine the dispute outcome.

There are also special provisions providing for the active involvement of the umpire in “Low Paid” industries without a history of enterprise agreements, including arbitrated outcomes across the industry where FWA considers that appropriate.

The Fair Work Act also loosened the rules relating to what terms could be sought by unions in collective bargaining, including removing the prohibition against agreements providing for matters outside the strict employment relationship, such as limits on the ability of the employer to outsource work using contractors.

Strikes and the Role of FWA in Significant Disputes

Whilst compulsory arbitration might not be a good idea across all industries, could it be a useful tool in certain industries, such as essential services like public utilities, or alternatively our national airline? Assuming a business has good, objective reasons not to agree to a union’s claims, should that not be a good enough reason to permit it to take the issue to FWA?

In considering those questions, I think it needs to be recognised that some people’s philosophical belief in the dominance of capital over labour, particularly in industrial disputes, has severe limitations. Unions can and do cause considerable damage to some employers by taking industrial action against them. Qantas has claimed the impact of the industrial action and its resultant close-down at $194 million and that ongoing action would have caused an additional $85 million in losses per month. Whilst these figures are contested by unions, the impact of the dispute can hardly be said to be other than significant.

As most companies are interested in profitability, it is natural to ask - what drove Qantas to either fail to negotiate an agreement with the unions, or alternatively, not go to FWA earlier in the dispute?

At the heart of the dispute were union demands for increased guarantees of job security and to prevent Qantas from outsourcing work overseas. With an International Airline Division whose share of the international market (to/from Australia, as measured by the number of international passengers) fell by almost 15 percentage points from 34 per cent in 2000 to 19 per cent in 2010, Qantas felt compelled to fight these claims, even though an analysis of the claims and what was agreed in the period before the close-down appears to indicate it had been negotiating on additional restrictions but had not been able to conclude an agreement with the unions involved. [See footnote 2]

Given Australia's historical experience with arbitration of disputes, the problem with an employer inviting Fair Work Australia to arbitrate the differences between the parties (rather than FWA intervening on its own part), is that an employer will need to demonstrate clear reasons why the tribunal should not agree to endorse some part of the union’s claims. Given most employers operate in commercial environments which can change rapidly (for example, Qantas’s loss of the international traveller market share), any additional restrictions on their ability to operate their business flexibly will eventually reduce their competitiveness.

So much so, that Qantas was ultimately prepared to take the high risk, high cost strategy it did, one born out of desperation, to end the industrial action against it. CEO Alan Joyce must have been reasonably comfortable that FWA wouldn’t hand down a more negative outcome than it was prepared to accept, based on his clear understanding of the threats to the business future of Qantas.

The matters at the centre of the Qantas dispute – issues about job security and outsourcing - were not open to protected action for inclusion in enterprise agreements under Work Choices. In my view, this is the key issue that needs to be debated if we want to prevent a repeat of the action taken by Qantas in its recent dispute.

Should unions be able to bargain over matters that restrict the ability of their employer to remain competitive in a tough environment? Ultimately allowing them to do so will be self-defeating, no less so than European countries dialling up a desired standard of living, without the ability to afford it.

Conclusion

Providing easier access to arbitration, even in the context of industries of significant economic importance or essential services, will be a retrograde step. As Ron McCallum, Sydney University Emeritus Professor of Law, hardly an economic rationalist but someone renowned for his views on matters of equity, said in a recent speech, "I think that would be a great pity if because of one dispute we were to alter the law so radically.

Importantly, the issues at the heart of the dispute were not wage increases or other financial benefits for the employees involved. They ran to the heart of how Qantas would be able to conduct its future business in a challenging business environment. These were not matters that were capable of being lawfully negotiated under Work Choices – a point lost in the debate and all the disruption in the aftermath of the dispute.

Notes About the Author

Director Steve Champion has 30 years experience in helping employers to meet their legal obligations as well as to run their businesses better. His company Employee Relations Strategies (ERS) provides consulting services to employers on all aspects of industrial and employee relations strategy and implementation. ERS has a separate website (www.enterprisebargaining.com.au) dealing exclusively with enterprise bargaining issues.

Steve is a Certified Professional of the Australian Human Resources Institute, has a bachelors degree in Economics from the University of Sydney and a Master of Business Administration (Exec.) from the AGSM.

Footnotes

1. Footnote 1 - the Freedom of Association Committee of the Governing Body of the ILO (CFA) says that recourse to compulsory arbitration in cases where parties do not reach agreement through collective bargaining is permissible only in the context of essential services in the strict sense of the term (i.e. services the interruption of which would endanger the life, personal safety or health of the whole or part of the population). Perversely, this position is taken on the grounds of a particular concern expressed over the use of compulsory arbitration that results in a binding award, since this approach makes it possible to virtually prohibit all strikes or end them quickly.
2. Footnote 2 - some of the claims were identified in “Qantas wrap-up: Arbitration "favours employers"; Greens seek lockout limits; and the clauses Qantas rejects’, Workplace Express, 3 November 2011.

BIBLIOGRAPHY

1. The gods must be crazy: chronology of and issues in the Qantas industrial dispute 2011, Background Note, Steve O'Neill, Economics Section, Parliamentary Library, November 24, 2011.
2. Russell Lansbury, Workplace Change and Employment Relations Reform in Australia: Prospects for a New Social Partnership?, The Drawing Board: An Australian Review of Public Affairs, Vol.1, No. 1, University of Sydney, July 2000.