IR system hits workers and business

David Marin-Guzman
June 26, 2019
AFR

Former Fair Work Ombudsman, Natalie James, has called out the complexity of the workplace relations system, saying it needs to be examined in the wake of huge underpayments among major employers.

Ms James, now a partner at Deloitte, said on Tuesday that the complexity of the system was costing businesses, employees and taxpayers and meant many workers were not being paid their correct entitlements.

Natalie James says it’s time to look at the complexity of the workplace system. Ryan Stuart

Her comments come as business is urging the Morrison government to simplify enterprise bargaining and other parts of the workplace system in its flagged review of industrial relations laws.

“The sheer number of different pay rates and payments triggered by a range of factors makes it very challenging to capture and systemise those events and ensure that workforces are appropriately paid,” Ms James told the Victorian Industrial Relations Society last night.

“While complexity is no excuse for non-compliance, especially by large and established businesses, surely we must ask: if the system is so complex that large organisations are unearthing these legacy underpayments, is it not time to really take a look at the system?”

Companies such as Super Retail Group, Beaurepairs and the ABC have recently uncovered millions of dollars in underpayment errors going back several years.

Ms James said employers were underpaying workers due to “fundamental misunderstandings” about awards and enterprise agreements, which can operate simultaneously in a workplace and have intersecting legal requirements.

Extra EBA commitments surge

Prime Minister Scott Morrison said on Monday the government will take a fresh look at the workplace system with an eye on changes that will deliver shared gains for both employers and employees.

Employers want the government to prioritise reforms to the strict test for approving enterprise agreements, which they blame for a significant decline in bargaining over recent years.

Business wants new bargaining test

The latest Fair Work Commission data shows a record 68 per cent of all enterprise agreements approved in 2017-18 were only given approval following extra commitments to workers from employers, up from 35 per cent in 2015-16.

The surge in employer undertakings, which address the commission’s concerns that an agreement does not leave workers better off than the award minimum, is a dramatic reversal for an instrument that was previously treated as an exception.

Wait times for agreement approvals have also been pushed out to an average 76 days, far in excess of the commission’s 32-day target, while employers withdrawing agreement applications have almost tripled, from 294 in 2011-12 to 794 in 2017-18.

Employers have blamed the complexity of the approval test and the stringent approach of the commission, which they say often requires employers to respond to unlikely hypothetical scenarios.

“Technical problems associated with the enterprise agreement approval process have no doubt made agreement-making a lot less attractive to employers,” Australian Industry Group chief executive Innes Willox said.

“Legislative changes late last year are useful, as are some changes that the FWC has made to its approval process, but more needs to be done.

“The Fair Work Act needs to be amended to enable the Better Off Overall Test to be applied by the FWC to logical groups of employees, and not every individual employee.”

An Australian Mines and Metals Association briefing note to Industrial Relations  Minister Christian Porter said employers complained the commission engaged in “fishing exercises” over whether agreements were genuinely agreed to.

Employers also complained about having to explain every condition in an agreement that might be worse than the award.

‘Structural problems overlooked’: ACTU

Both employers and unions agree the enterprise bargaining system is broken but they disagree on how to fix it.

The ACTU wants greater rights to bargain at an industry level to extend collective agreements to parts of the economy where enterprise bargaining has failed.

Employers want a new test because they argue the current one deters bargaining by requiring each individual employee, whose incomes can vary depending on rosters, is better off than the award.

The strict approach, introduced in 2016 after the commission’s landmark decision that Coles’ agreement paid some workers below the award, led to bargaining limbo among retail and fast-food giants for several years.

The commission has taken steps to improve the approval process but has not shied away from its rigorous approach, with vice president Joe Catanzariti recently noting the law gave the commission no room for shortcuts.

Unions are resisting calls to change test due to the risk of underpayments.

“What some in business are arguing for is the ability to negotiate agreements that go below the legal minimums in awards,” ACTU secretary Sally McManus said.

“The fact that enterprise bargaining is failing is a much bigger problem that needs to be tackled with much more thoughtful solutions.

“A failure to rebalance and upgrade our bargaining system will lead to a continuation of low wage growth and will not improve productivity. These are structural problems we have that are continually overlooked to the detriment of everyone.”

Agreements in the private sector have halved since the Fair Work Act was enacted in 2009, with most of the decline taking place in the last five years.

At present, just 10.7 per cent of the private sector workforce is covered by a an enterprise agreement.

The ACTU-aligned Centre for Future Work forecast in a report last year that, without changes, agreement coverage could fall below 2 per cent of private sector employees by 2030.

The report by economist Alison Pennington found about half the decline in EAs was due to the Fair Work Commission’s Coles’ decision.

Another driver was small business, which experienced the most rapid decline in agreements since 2013.