Productivity CommissionDraft ReportWorkplace Relations FrameworkAugust 2015This is a draft report prepared for further publicconsultation and input.The Commission will finaliseits report after these processeshave taken place. Commonwealth of Australia 2015 ExceptfortheCommonwealthCoatofArmsandcontentsuppliedbythirdparties,thiscopyrightworkis licensedunderaCreativeCommonsAttribution3.0Australialicence.Toviewacopyofthislicence,visit http://creativecommons.org/licenses/by/3.0/au.Inessence,youarefreetocopy,communicateandadaptthe work, as long as you attribute the work to the Productivity Commission (but not in any way that suggests the Commission endorses you or your use) and abide by the other licence terms. Use of the Commonwealth Coat of Arms For terms of use of the Coat of Arms visit the Its an Honour website: http://www.itsanhonour.gov.au Third party copyright Whereverathirdpartyholdscopyrightinthismaterial,thecopyrightremainswiththatparty.Their permission may be required to use the material, please contact them directly. Attribution Thisworkshouldbeattributedasfollows,Source:ProductivityCommission,WorkplaceRelations Framework, Draft Report. If you have adapted, modified or transformed thiswork in anyway, pleaseuse thefollowing, Source: based on Productivity Commission data, Workplace Relations Framework, Draft Report. An appropriate reference for this publication is: Productivity Commission 2015, Workplace Relations Framework, Draft Report, Canberra Publications enquiries Media and Publications, phone: (03) 9653 2244 or email: maps@pc.gov.au The Productivity Commission TheProductivityCommissionistheAustralianGovernmentsindependentresearchand advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community. TheCommissionsindependenceisunderpinnedbyanActofParliament.Itsprocessesand outputsareopentopublicscrutinyandaredrivenbyconcernforthewellbeingofthe community as a whole. FurtherinformationontheProductivityCommissioncanbeobtainedfromtheCommissions website (www.pc.gov.au). OPPORTUNITY FOR FURTHER COMMENTDRAFT REPORT iii Opportunity for further comment Youareinvitedtoexaminethisdraftandcommentonitbywrittensubmissiontothe Productivity Commission, preferably in electronic format, by 18 September 2015. Further informationonhowtoprovideasubmissionisincludedontheinquirywebsite http://www.pc.gov.au/inquiries/current/workplace-relations. Thefinalreportwillbepreparedafterfurthersubmissionshavebeenreceivedandpublic hearings have been held, and will be forwarded to the Australian Government by the end of November 2015. Public hearing dates and venues LocationDateVenue Bendigo, VICFriday 4 September 2015TBC Hobart, TASMonday 7 September 2015The Old Woolstore 1 Macquarie Street Melbourne, VICTuesday 8 September 2015Rattigan Room Productivity Commission Level 12, 530 Collins Street Canberra, ACTFriday 11 September 2015Hearing Room Productivity Commission Level 2, 15 Moore Street Perth, WAMonday 14 September 2015Hotel Mercure Perth 10 Irwin Street Adelaide, SATuesday 15 September 2015Stamford Plaza Adelaide 150 North Terrace Sydney, NSWThursday 17 September 2015The Grace Hotel 77 York Street Ipswich, QLDMonday 21 September 2015TBC Commissioners Forthepurposesofthisinquiryanddraftreport,inaccordancewithsection40ofthe Productivity Commission Act 1998 the powers of the Productivity Commission have been exercised by: Peter HarrisPresiding Commissioner Patricia ScottCommissioner ivWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Terms of reference WORKPLACE RELATIONS FRAMEWORK Productivity Commission Act 1998 I,JosephBenedictHockey,Treasurer,pursuanttoParts2and3oftheProductivity CommissionAct1998,herebyrequestthattheProductivityCommissionundertakean inquiry into the workplace relations framework. Background TheAustralianGovernmentbelievesthatitisfundamentallyimportanttomakesurethat the Fair Work laws work for everyone. Workplaces are important to our economy and society. Higher living standards, better pay andmorejobsalldependonhavingfair,productive,andeffectiveworkplaces.The prosperity of tomorrow is driven by what happens in our workplaces today and this is why itisinournationalinteresttomakesurethattheFairWorklawsarebalancedand effective. The Australian Governments objectives in commissioning this Inquiry are to examine the currentoperationoftheFairWorkLawsandidentifyfutureoptionstoimprovethelaws bearinginmindtheneedtoensureworkersareprotectedandtheneedforbusinesstobe able to grow, prosper and employ. Scope of the Inquiry TheProductivityCommissionwillassesstheperformanceoftheworkplacerelations framework,includingtheFairWorkAct2009,focussingonkeysocialandeconomic indicators important to the wellbeing, productivity and competitiveness of Australia and its people. A key consideration will be the capacity for the workplace relations framework to adaptoverthelongertermtoissuesarisingduetostructuraladjustmentsandchangesin the global economy. Inparticular,thereviewwillassesstheimpactoftheworkplacerelationsframeworkon matters including: unemployment, underemployment and job creation fairandequitablepayandconditionsforemployees,includingthemaintenanceofa relevant safety net TERMS OF REFERENCE DRAFT REPORT v small businesses productivity, competitiveness and business investment theabilityofbusinessandthelabourmarkettorespondappropriatelytochanging economic conditionspatterns of engagement in the labour market the ability for employers to flexibly manage and engage with their employees barriers to bargaining red tape and the compliance burden for employers industrial conflict and days lost due to industrial action appropriate scope for independent contracting. In addition to assessing the overall impact of theworkplace relations framework on these matters,thereviewshouldconsidertheActsperformanceagainstitsstatedaimsand objects, and the impact on jobs, incomes and the economy. The review should examine the impact of the framework according to business size, region, and industrysector.It should alsoexaminetheexperienceofcountriesintheOrganisationforEconomicCo-operation and Development. TheworkplacerelationsframeworkencompassestheFairWorkAct2009,includingthe institutionsandinstrumentsthatoperateundertheAct;andtheIndependentContractors Act 2006. The review will make recommendations about how the laws can be improved to maximise outcomes for Australian employers, employees and the economy, bearing in mind the need toensureworkersareprotected,theneedforbusinesstobeabletogrow,prosperand employ, and the need to reduce unnecessary and excessive regulation. TheProductivityCommissionwillidentifyandquantify,asfaraspossible,thefullcosts and benefits of its recommendations. Anoverarchingprincipleforanyrecommendationsshouldbetheneedtoensurea frameworktoservethecountryinthelongterm,giventheleveloflegislativechangein this area in recent years.Inconductingthereview,theProductivityCommissionwilldrawonthefullspectrumof evidence sources including, but not limited to: Australian Bureau of Statistics data and publications data sources maintained by other relevant Government bodies, including but not limited to the Department of Employment, Fair Work Commission and Fair Work Ombudsmanemployers or their representatives employees or their representatives viWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT academia special interest groups. Thereviewshouldalsoidentifygapsintheevidencebasewherefurthercollectionmay assist in the analysis of the overall performance and impact of the system.Process TheCommissionistoundertakeanappropriatepublicconsultationprocessincluding holding hearings, inviting public submissions and releasing a draft report to the public.The final report should be provided to the Government in November 2015. J. B. HOCKEY Treasurer [Received 19 December 2014] CONTENTSDRAFT REPORT vii Contents Opportunity for further commentiii Terms of referenceiv Abbreviations and explanationsxiii Overview1 Draft recommendations, findings and information requests45 1Introduction63 1.1The inquiry terms of reference64 1.2Australias workplace relation system67 1.3The past and the future cannot be ignored71 1.4The Productivity Commissions conceptual framework75 1.5Considerations for assessing policy proposals80 1.6Conduct of the inquiry83 1.7Guide to the draft report84 2Developments in Australias labour market87 2.1A snapshot of the Australian labour market89 2.2Who works? Participation and the composition of the labour force91 2.3Not just full-time employees more variety in forms of work99 2.4Job tenure and turnover109 2.5Can people who want to work get a job? Labour utilisation114 2.6Some measures of flexibility in labour markets119 2.7Wages121 2.8Workplace relations and the furture of work125 2.9The bottom line128 viiiWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT 3Institutions129 3.1The current system131 3.2How are the institutions performing?140 3.3Reform options147 4National Employment Standards163 4.1Some economic aspects of job conditionsand entitlements167 4.2Long service leave172 4.3Public holidays182 4.4Sick and annual leave for casual workers195 5Unfair dismissal199 5.1The institutional setting200 5.2The incidence and costs of unfair dismissal cases in Australia209 5.3Impacts on employment and productivity213 5.4How does Australia compare internationally?217 5.5The performance of the current system220 5.6Reform options229 6The general protections241 6.1Key features of the general protections242 6.2Adequacy of current arrangements249 6.3Further reforms to the general protections259 7Anti-bullying267 7.1Anti-bullying protections268 7.2Evidence on prevalence and cost272 7.3How well is the current jurisdiction performing?278 7.4A further review?283 CONTENTSDRAFT REPORT ix 8Minimum wages285 8.1Australias minimum wages287 8.2What effect does the minimum wage have on employment?291 8.3What effect do minimum wage requirements have on workers incomes and living standards?310 8.4The future of the minimum wage327 9Variations from uniform minimum wages335 9.1Geographical variations in minimum wages336 9.2Junior pay rates351 9.3Arrangements for apprentices and trainees359 10Measures to complement minimum wages373 10.1Earned income tax credits375 10.2Other policies to enhance the wellbeing of low paid workers and jobseekers386 11Role of awards391 11.1Introduction to modern awards392 11.2Coverage and application of awards395 11.3History of awards401 11.4Awards in the modern era the shift to a safety net413 11.5What role do awards play?416 11.6Is there another way?420 12Repairing awards427 12.1Award assessments within the Minimum Standards Division428 12.2Making awards easier to use436 12.3Assessing the complex and critical issues439 12.4Assessments of minimum wage rates and classifications in awards441 12.5Assessments of conditions and entitlements in awards451 xWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT 13Penalty rates for long hours and night work457 13.1Current regulation of long hours and night work460 13.2The prevalence of long hours and night work466 13.3Assessing long hours and night work regulation473 13.4A case for reform?481 14Regulated weekend penalty rates for selected consumer services483 14.1Weekend penalty rate arrangements486 14.2The shift to a seven-day consumer economy493 14.3The effects of working on weekends for employees and their families499 14.4The implications of the higher value people place on weekends503 14.5What does the evidence suggest about the level of penalty rates?507 14.6The impacts of change516 14.7Change is warranted526 14.8Other industries528 14.9Holiday pay532 15Enterprise bargaining533 15.1Collective bargaining in Australia534 15.2Current rules around enterprise bargaining537 15.3Patterns in the use of enterprise agreements549 15.4Adequacy of current arrangements and possible reforms551 15.5Is enterprise bargaining suited to changing ways of working?587 16Individual arrangements591 16.1Why employers and employees use individual arrangements592 16.2Forms of statutory individual arrangements596 16.3Issues with individual flexibility arrangements600 16.4Retained safeguards611 CONTENTSDRAFT REPORT xi 17The enterprise contract615 17.1The gap in employment arrangements616 17.2Could common law contracts fill the gap?619 17.3A better option to bridge the gap the enterprise contract620 17.4Possible implementation impacts625 18Public sector bargaining629 18.1Some features of public sector bargaining631 18.2Bargaining with the decision maker639 18.3Good faith bargaining in the public sector641 18.4Productivity in the Public Sector642 18.5Performance management in the public sector644 18.6Other public sector concerns646 19Industrial disputes and right of entry649 19.1Bargaining disputes can lead to industrial action650 19.2How well are the current arrangements performing?660 19.3Reform possibilities to improve the framework671 19.4What are the likely impacts of these reforms?700 19.5Right of entry702 20Alternative forms of employment711 20.1Some characteristics of alternative forms of employment713 20.2Sham contracting721 20.3Limitations on the use of subcontractors and labour hire employees729 20.4Other forms of work733 21Migrant workers741 22Transfer of business751 22.1The effects on employment754 22.2Transfers of business between state and national system employers756 22.3The nuisance cost when workers change work voluntarily758 xiiWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT 23International obligations761 23.1International Labour Standards761 23.2Preferential trade agreements766 24Interactions between competition policy and the workplace relations framework769 24.1How does competition policy currently interact with the WR system?770 24.2Competition policy and the WR system have commonalities and divergences772 24.3Competition policy cannot subsume the WR system776 24.4Are there gaps in the WR system that allow anti-competitive conduct778 25Compliance costs785 25.1Sources of compliance costs786 25.2Compliance costs were expected to be transitional in nature788 25.3Are compliance costs an ongoing concern?789 25.4Addressing unnecessary compliance costs798 26Impacts801 26.1Impacts of changes to employment protection802 26.2Impacts of changes to minimum wages and conditions808 26.3Impacts of changes to bargaining regimes811 26.4Impacts of making it easier to form agreements818 26.5Fiscal impacts819 26.6Summary820 AConduct of the inquiry825 BUnfair dismissal data837 CAustralian empirical studiesof wage employment effects843 DEmployment arrangements881 EStatistical overview of employment arrangements901 FPenalty rates921 References939 ABBREVIATIONS AND EXPLANATIONS DRAFT REPORT xiii Abbreviations and explanations Abbreviations ABCCAustralian Building and Construction Commission ABSAustralian Bureau of Statistics ACASAdvisory, Conciliation and Arbitration Service ACCCAustralian Competition and Consumer Commission ACCIAustralian Chamber of Commerce and Industry ACOSSAustralian Council of Social Service ACREWAustralian Centre for Research in Employment and Work ACTUAustralian Council of Trade Unions AHA Australian Hotels Association AHRIAustralian Human Resources Institute AIRCAustralian Industrial Relations Commission ALAEAAustralian Licenced Aircraft Engineers Association AMMAAustralian Metal and Mines Association AMWUAustralian Manufacturing Workers Union ANAOAustralian National Audit Office ANZSICAustralian and New Zealand Standard Industrial Classification APPEAAustralian Petroleum Production & Exploration Association APSAustralian Public Service APSCAustralian Public Service Commission AWAAustralian Workplace Agreement xivWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT AWALIAustralian Work and Life Index AWRSAustralian Workplace Relations Study AWUAustralian Workers Union BCA Business Council of Australia BOOTBetter Off Overall Test BRICSBrazil, Russia, India, China and South Africa BRITBendigo Regional Institute of Technical and Further Education CEPUCommunications,Electrical,Electric,Electronic,Energy,Information,Postal, Plumbing and Allied Services Union of Australia CFMEUConstruction, Forestry, Mining and Energy Union CGEComputable General Equilibrium CMS Case Management System COAGCouncil of Australian Governments COATCouncil of Australasian Tribunals COSBOACouncil of Small Business Australia CPIConsumer Price Index CPSUCommunity and Public Sector Union CURFConfidentialised Unit Record File DEEWRDepartment of Education, Employment and Workplace Relations DETDepartment of Education and Training DFATDepartment of Foreign Affairs and Trade DIBPDepartment of Immigration and Border Protection EAEnterprise Agreement EBAEnterprise Bargaining Agreement EITC Earned Income Tax Credit EPLEmployment Protection Legislation ABBREVIATIONS AND EXPLANATIONS DRAFT REPORT xv FWA Fair Work Australia FWAFBFair Work Australia Full Bench FWBCFair Work Building and Construction FWC Fair Work Commission FWCFBFair Work Commission Full Bench FWO Fair Work Ombudsman GDPGross Domestic Product HILDAHousehold, Income and Labour Dynamics in Australia HRHuman Resources HSUHealth Services Union IFAIndividual Flexibility Arrangement ILOInternational Labour Organization IRIndustrial Relations IRCIndustrial Relations Commission LITOLow Income Tax Offset MBAMaster Builders Australia MUAMaritime Union of Australia NAIRUNon-Accelerating Inflation Rate of Unemployment NATSEMNational Centre for Social and Economic Modelling NBERNational Bureau of Economic Research NCC National Competition Council NCOSSCouncil of Social Service of New South Wales NESNational Employment Standards NTEUNational Tertiary Education Union OECDOrganisation for Economic Cooperation and Development xviWORKPLACE RELATIONS FRAMEWORK DRAFT REPORT OLSOrdinary Least Squares PAYGPay As You Go PCProductivity Commission PIRPost-Implementation Review PISA Programme for International Student Assessment PPPPurchasing Power Parity QUT Queensland University of Technology RBA Reserve Bank of Australia SACESSouth Australian Centre for Economic Studies TCFTextile, Clothing and Footwear TCFUATextile, Clothing and Footwear Union of Australia TRYMTreasury Macroeconomic TWUTransport Workers Union UNSWUniversity of New South Wales VECCIVictorian Employers Chamber of Commerce and Industry WAIRCWestern Australian Industrial Relations Commission WHS Workplace Health and Safety WRWorkplace Relations WTOWorld Trade Organization Explanations BillionThe convention used for a billion is a thousand million (109). OVERVIEW OVERVIEW DRAFT REPORT 3 Key points A workplace relations (WR) framework must recognise two features of labour markets.Labour is not just an ordinary input. There are ethical and community norms about the way in which a country treats its employees. Withoutregulation,employeesarelikelytohavemuchlessbargainingpowerthan employers, with adverse outcomes for their wages and conditions. The challenge for a WR framework is to develop a system that provides balanced bargaining powerbetweentheparties,thatencouragesemployment,andthatenhanceseconomic efficiency. It is easy to over or under regulate. Set against that framework, Australias WR system is not dysfunctional it needs repair not replacement.Toxicrelationshipsbetweenemployersandemployeescansometimessurfaceduetopoor relationship management rather than flaws in the WR framework. Contrarytoperceptions,Australiaslabourmarketperformanceandflexibilityisrelatively goodbyglobalstandards,andmanyoftheconcernsthatpervadedhistoricalarrangements havenowabated.Strikeactivityislow,wagesareresponsivetoeconomicdownturnsand therearemultipleformsofemploymentarrangementsthatofferemployeesandemployers flexible options for working. Nevertheless, several major deficiencies need addressing. While the Fair Work Commission (FWC) undertakes many of its functions well, the legalistic approach it adopts for award determination gives too much weight to history, precedent and judgmentsonthemeritsofcasesputtoitbypartisanlobbyists.Apreferredapproachto award determination would give greatest weight to a clear analytical framework supported by evidence collected by the FWC itself. ThereisalsoconcernthattheappointmentprocessforFWCmemberscanleadto inconsistenciesinsomeofitsdecisions,aproblemthatanewfitforpurposegovernance model involving all Australian jurisdictions could resolve. The Fair Work Act 2009 (Cth) and sometimes the FWC can give too much weight to procedure and too little to substance, leading to compliance costs and, in some cases, poor outcomes someminorproceduraldefectsinenterprisebargainingcanrequireanemployerto recommence bargaininganemployeemayengageinseriousmisconductbutmayreceiveconsiderable compensation under unfair dismissal provisions due to procedural lapses by an employer.These problems could be easily remedied without removing employee protections. Minimumwagesarejustified,andtheviewthatexistinglevelsarehighlyprejudicialto employmentisnotwellfounded.However,significantminimumwageincreasesposearisk for employment, especially when set against a weakening labour market. Minimum wages are also often paid to higher-income households.Complementarypoliciesthatprovidein-workbenefitssuchaswagesubsidiesoranearned income tax credit might support higher incomes for lower paid employees, while not damaging employment. However, there are challenges in developing effective policies of this kind. (continued next page) 4WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Key points (continued) AwardsareanAustralianidiosyncrasywithsomeundesirableinconsistenciesandrigidities, but they are an important safety net and a useful benchmark for many employers. The FWC shouldaddressspecifiedtroublesomehotspotsonathematicbasis,ratherthancompletely replace them. Penalty rates have a legitimate role in compensating employees for working long hours or at unsociabletimes.Theyshouldbemaintained.However,Sundaypenaltyratesforcafes, hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates. Enterprisebargaininggenerallyworkswell,althoughitisoftenill-suitedtosmaller enterprises. However,the better off overall test used to assess whether an agreement leaves employees better offcomparedwiththeawardcansometimesbeappliedmechanically,losingsome benefitsofflexibilityforemployeesandemployers.Switchingtoano-disadvantagetest with guidelines about the use of the test would encourage win-win options. The same test should be used for individual arrangements bargaining arrangements for greenfields agreements pose risks for large capital-intensive projectswithurgenttimelines.Alimitedmenuofbargainingoptionswouldaddressthe worst deficiencies, while taking account of the different nature of greenfields projects. Individualflexibilityarrangementshavemanypossibleadvantages,buttheirtakeupis relativelylow.Inpart,thisreflectsignoranceoftheirexistence.Butthereareperceptions (sometimes not well based) of defects that also constrain their use. These could be resolved, includingbyprovidinginformationontheiruse,extendingtheterminationperiodofthe arrangements and by moving to the no-disadvantage test. Thereisscopeforanewformofagreementtheenterprisecontracttofillthegap betweenenterpriseagreementsandindividualarrangements.Thiswouldoffermanyofthe advantagesofenterpriseagreements,withoutthecomplexities,makingthemparticularly suitableforsmallerbusinesses.Anyriskstoemployeeswouldbeassuagedthrougha comprehensive set of protections, including the right to revert to the award.Industrial action in Australia is at low levels. Only some minor tweaks are required: processes for secret ballots can be overly complex abortedstrikesandbriefstoppagesaresometimesingeniouslyusedasbargaining leveragebyunions,butafewsimpleremediescanaddressthiswithoutaffectingthe legitimate use of industrial action there may be grounds to give employers more graduated options for retaliatoryindustrial action other than locking out its workforce. Itseemstobetooeasyunderthecurrenttestforanemployertoescapeprosecutionfor sham contracting. Recalibrating the test may be justified. Migrantworkersaremorevulnerabletoexploitationthanareotheremployees,andthisis especially true for illegally working migrants. This may require more proportional penalties to deter exploitation and further resourcing of the Fair Work Ombudsman to detect it. OVERVIEW DRAFT REPORT 5 Overview Despitesometimessignificantproblemsandanassortmentofpeculiarities, Australiasworkplacerelationssystemisnotsystemicallydysfunctional.Many featuresworkwelloratleastwellenoughgiventherequirementinany systemforcompromisesbetweenthesometimesconflictinggoalsoftheparties involved. Thesystemreflectsthatlabourdiffersfromotherinputs,andthatasound workplace relations system must give primacy to the wellbeing of employees (and would-beemployees),andtakeaccountofcommunitynormsaboutthefair treatmentofpeople.Whiletherearehotspotsthatjustifiablyattractmajor concerns, the day-to-day life of most employees and employers is harmonious and productive, with a reasonable balance between the relative powers of the parties. Thekeymessageofthisinquiryisthatrepair,notreplacement,shouldbethe policyimperative.Theadaptedsystemneedstogiveprimacytosubstanceover procedure, rebalance some aspects of the system that have favoured some parties overothers,andrevitaliseitsprincipalregulator.Animprovedworkplace frameworkmustinvolvedecisionmakingthatisnotunnecessarilybeholdento precedentortodatedlabourmarketstructures.Itmustrelymuchmoreon evidence as a basis for its future direction, including information on the relevance ofnewdevelopmentsinlabourrelations.Theframeworksbroadermenuof bargainingarrangementsandthemorecoherentwagesettingcapacityofitskey institution will underpin greater responsiveness to emerging social and economic developments(forexamplegreaterdemandforflexibleworkarrangementswith sharedchildcare,anevengreatershifttothe24/7economy,andfurther automation of services). Thisbroadstrategywillimproveproductivity,increaseemployment,andaid flexibility for employees and employers, without destabilising the system. Theworkplacerelations(WR)frameworkcomprisesacomplexarrayoflabourlaws, regulationsandinstitutions.Alongwithmarketforces,acceptedpractices,culturalnorms andthecommonlaw,theseshapepeoplesbehaviour,thenatureoftheirworkplacesand their working lives.ThenationalsystemdirectlyaffectsmillionsofAustralianworkers.Inmid-2015,around 11.8 million people worked in more than 2 million workplacesaround Australia. Of these people, around 70 per cent were covered directly by federal workplace laws (figure 1), and others are indirectly affected. For instance, an owner-manager of a small firm must comply 6WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT withWRlaws,whilethechoicesofpeopletobecomeself-employedarestrongly influencedbythealternativewagesandconditionsthattheycouldreceivebybeingan employee. There are also more than 700 000 unemployed whose job prospects are affected by the system. Even employees outside the national system (some state public servants and someemployeescapturedbytheseparateWesternAustraliansystem)findthattheir arrangements are shaped by the nationalarrangements. Further, to theextent that the WR systemembodies community expectations about fairness or influences national prosperity and productivity, all Australians have a stake in its effectiveness. The premise of any WR system is that, absent specific workplace legislation and oversight, employeeswouldparticularlysufferfromunequalbargainingpower.Moststakeholders recognisedthis.Ofcourse,bargainingpowerisnotalwaysinthehandsofemployers. AspectsoftheFairWorkAct2009(Cth)(theFairWorkAct)andtheCompetitionand ConsumerAct2010(Cth)seektoaddressexcessiveuseofbargainingpowerbyunions. Onceasystemisinplacetoregulatebargainingpower,therewillalwaysbequestions abouttheefficiencyandeffectivenessofthesystem,andwhetherthesystemhasoveror under shot in remedying any prior imbalances. Figure 1Employment arrangements, 2015 OVERVIEW DRAFT REPORT 7 In trying to produce a balanced system, WR legislation, institutions and regulation are now highly elaborate and broad ranging (figure 2). However, market forces play a larger role in most wage outcomes and, in the longer term, have a strong impact on conditions. Figure 2The main elements of the current workplace relations arrangements Forexample,wagegrowthisstronglyinfluencedbythebusinesscycle,long-run productivity and sectoral changes. 8WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT TheregulatoryarrangementshavegrownfromalimitedCommonwealthroleindispute settlement one hundred years ago to a position today where the Commonwealth through its statutorybodiesregulatesthebulkofindustrialawards,resetsminimumwages,mediates disputes,providesinformation,registersagreements,checkscompliancewiththelawand adjudicates on key matters of WR law.Itisabusyinstitutionalspace.Threebodies,theFWC,theFairWorkOmbudsmanand FairWorkBuildingandConstruction,arethekeynationalregulators,whiletheFederal Courtistheprincipaljudicialbody.Variousotherinstitutionsstateandterritorywork safety regulators, anti-discrimination bodies and the Australian Competition and Consumer CommissionalsohavespecialistrolesinpartsoftheWRsystem,forexamplein relation to regulation of secondary boycotts.Initsroughly900pages,theFairWorkActcoversmostaspectsofthewayinwhich parties should dealwitheach other in their employmentrelations,and insettinga variety ofminimumstandards.Anextensivebodyofcommonlawsitsbesidethestatutory framework. Reflecting the regulatory underpinning of the system, wages and conditions for most national employees must be at, or above, the safety net of those set in 122 awards. Notwithstandingcomplaintsfromsomeemployers,thereisconsiderablescopefor flexibility through independent contracting and employers capacity to negotiate individual and firm-specific outcomes. In fact, award wages are less important now than at any other time in the last 100 years. Nevertheless, the clunkiness of the system, concerns about the complexity of forming enterprise agreements, inconsistencies and lack of clarity in awards, barrierstoformingindividualflexibilityarrangements,andtheunpredictabilityofFWC decisions on a range of matters deters firms from using some of the available avenues. TheFairWorkActcitesobjectivesthatarediverseandasisoftenthecasewithsuch diversityinevitablysometimesinconflict.TheFairWorkActisintendedtodeliver outcomesthatarefair,flexible,co-operative,productive,relevant,enforceable, non-discriminatory,accessible,simpleandclear.Thelegislationiscomplexandthereare meaty pickings for lawyers and workplace practitioners on all sides.People are confused by the system, and some parties that should have a bigger voice in it consumers, the unemployed and underemployed have marginal influence. There are unquestionableinefficiencies,remnantunfairness,somemischiefandabsurd anachronisms.In this messy context, there is an understandable tendency to imagine that there must be a much neater and coherent system, and that it would be desirable to start with a clean slate. The view from the bulk of stakeholders and from this inquirys analysis is that such a view would be misplaced. The system needs renovation, not a knockdown and rebuild. Moreover,someoftheProductivityCommissionsrecommendationsinthisdraftreport arenotnew.The2012reviewoftheFairWorkActidentifiedarangeofworthwhile reforms,someofwhichwerenotactedonatthetime.Butthisinquirydoesnotsimply OVERVIEW DRAFT REPORT 9 traversetheterritoryofthepreviousreview.Thetermsofreferencerequirethe ProductivityCommissiontocoverallthoseaspectsofworkplacerelationsthatimpinge upontheabilityofthesystemasawholetoadapttolonger-termstructuralshiftsand changes in the global economy. 1Australias recent labour market performance does not suggest a dysfunctional system There are several myths about Australian labour markets that suggest that some of the key concerns voiced by stakeholders on all sides are of dubious validity. The prevalence of independent contracting has remained an important source of labour and has been stable over the last decade.Securityofworkappearstohavechangedrelativelylittleinrecentyears.Whilethe proportion of casual jobs increased throughout the 1990s, this trend tapered off during the 2000s,particularlyforwomen.Mostpeopleworkingincasualjobsmoveintopermanent jobs in later stages of their lives.Thelabourmarkethasaccommodatedwelltolargeshiftsinlaboursupply.Manymore women, more mature age workers and large numbers of skilled migrants have entered the labourmarket.Forexample,thecurrentlevelofskilledmigrantintakeisalmostthree times higher than levels of the late 1990s. Most people who experience unemployment do notdosoforlong.Theshiftawayfrommakingsolidthingstoserviceshaslargelybeen achieved without growing unemployment.Weekendworkisnowcommon.ThetraditionalMondaytoFridayweekisnotdead,but nor is it as predominant as in the past. Some 4 million employed people more than one in three in the workforce work at least a Saturday or Sunday each week.There are several indicators that the labour market has become more flexible, most notably throughagreatertendencytoadjusthoursratherthanemploymentduringdemand downturns,andtheunresponsivenessofinflationtostronglabourdemandinleading sectors.Economywidewagebreakoutsandassociatedstagnationthehorrorofthe 1970sseemasdatedasfloppydisks.Theresourcesboomledtostronggrowthin miningwages,butnotwagesingeneral(figure 3).Thereislittleevidencethatlabour market mismatch has changed. Surmise aside, there is little robust evidence that the different variants of WR systems over the last 20 years have had detectable effects on measured economywide productivity. This does not mean there are no effects, but simply that they apply at the enterprise and industry levelandarehardtoidentifyintheaggregateeconomygiventhemyriadofotherfactors shaping productivity. 10WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT However, there are some potentially concerning trends. In particular,youth unemployment is rising,andbymorethanthegrowthintheunemploymentratesofprime-agedpeopleinthe labour market. Underemployment and long-term unemployment has also risen in recent years. Figure 3The end of wage contagion Growth in the mining wage index compared with all industries 2Institutional reform TheperformanceofAustraliasworkplacerelationssystemreliesstronglyonthe capabilities and functioning of its main institutions. Discretion and judgment exercised by competent and independent bodies are as critical as statute in an efficient and fair system. The Fair Work Ombudsman is performing well, adopting targeted and innovative approaches tocomplianceandinformationprovision.Itishighlyregardedbymanystakeholders.Itis essential to the credibility of any future systemic reforms that it receive sufficient resourcing as new hot spots emerge (such as for emerging problems for 417 visa holders). Likewise,theFWChasadoptedefficientconciliationprocessesinunfairdismissalcases, andhasintroducedavarietyofinnovationsmoregenerally.Itsapproachtothecurrent Modern Award Review acknowledges some of the glaring problems that still beset awards (but do not go far enough). While there are concerns about the FWCs use of evidence (see below), its expert panel on annual wage reviews does consider some empirical evidence in its annual wage case determinations, particularly information on current labour market and macroeconomic conditions.1 2 3 4 5 6 7 Sep-1998Sep-2001Sep-2004Sep-2007Sep-2010Sep-2013 Annual growth rate (%) Mining All industries OVERVIEW DRAFT REPORT 11 Thatsaid,someperceivetheFWCinlesspositiveterms,althoughinpartthisisthe inevitableaccompanimenttothediverse,complex,andcontroversialnatureofits functions. However, there are three flaws in the structure and operation of the FWC.The heavy weight of history History and precedent play too biga role in some of the FWCs key economic and social functions, particularly award determinations. In effect, the past is assumed innocent unless foundguilty,embeddingold,butoutdated,featuresoftheWRsystem.Oneawardstill providesemployeeswiththeoptionofanX-rayeverysixmonthsiftheyworkina tuberculosishomeorhospital(thelastofwhichclosedin1981).Thesurvivalofthis provision is benign, but is nevertheless telling about the weight of history.Adistinguishedformerhighcourtjudgehasnotedthepowerofthepastinindustrial relations: The past is another country. It is a place safer for people like me to dwell than in the industrial presentorthefuture.Judgeslivewiththepast,surroundedbyitsstoriesintheirbooks,from which they seek to derive logical analogies and the great streams of principle that will promote consistency and predictability in decision-making. (Justice Kirby 2004) Thisbackwards-lookingperspectiveisanecessaryfeatureofthelegaljudgmentsofthe FWCasatribunal.Pastdecisionsassistininterpretingthelaw.Althoughnotformally boundbytherulesofevidenceusedincourts,theFWCspracticesalsotendtogive greatest weight to the evidence put by the contesting parties, rather than on better evidence thatithasactivelysought.TheseapproacheshavecarriedovertotheFWCswage determinationfunctions,whichrequireadifferentmindset.Wagedeterminationis inherently an economic, statistical and social matter that needs to give most weight to new evidenceontheconsequencesofregulatorychoicesincontemporarysociety.Asnew evidence or analytical approaches emerge, its economic decisions should be re-framed.TheimplicationisthattheFWCshoulddevelopcleareranalyticalframeworksand proactivelyundertakeitsowndatacollectionandsystematichigh-qualityempirical researchasthekeybasisforitsawarddecisionsandwageadjustments.(WhiletheFWC doesinitiatesomeresearch,muchofitisoflimitedspecificrelevancetoitsactual decisions.)TheFWCshouldnotjustimpartiallyhearevidencefromparties,butalso engagewithpartiesthatdonotusuallymakesubmissions,suchasthoserepresenting consumers and the jobless.The virtue of consistency WhiletheFairWorkActsometimescompelsmembersoftheFWCtogivetoomuch weighttoprocedureoversubstance(asdiscussedlater),theattitudesofindividual members also play a role. Guidelines issued by the FWC about statutory interpretation and performance assessment of members should curtail this. 12WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Governance The governance of the FWC needs reform. Some of the primary causes of inconsistencies in its determinations reflect thechoices made bysuccessivegovernments, particularly the emphasis on appointing persons with perspectives oriented more to one side or the other of industrialrelationsdebates.FWCmemberswillaccordinglyreachdifferentjudgments evenininstanceswherethecircumstancesaresimilar.Thisisnotsomuchtheresultof bias, but rather a reflection of the fact that they come with different mindsets, are obliged toweighuptheoftencompetingobjectiveslaiddownbytheFairWorkAct,andmust deliberateonmattersthatareinherentlysubjective.Asanillustration,thereisgood statisticalevidencethatthefindingsinunfairdismissalcaseshaveallowedsome inconsistenciestocreepintojudgments.Giventheirdifferentperspectives,itisnot surprising that memberswith an employerassociation backgroundare more likely to find infavourofanemployercomparedwithothermembers,whileonaveragethosewitha union background produce outcomes in the opposite direction.Bettergovernancepracticesareessentialforabodywithdeterminativepowerson economicallyimportantmattersoperatinginapoliticallysensitiveandhighlytechnical area. Two main reforms are required.First, the FWC should have two distinct divisions. A Minimum Standards Division would haveresponsibilityforwagedetermination,andwouldundertaketheannualwagereview andmakeawarddeterminations.Itsmembersshouldprimarilyhaveexpertisein economics,socialscienceandcommerce,notthelaw.ATribunalDivisionwouldbe responsible for the quasi-judicial functions of the FWC, such as decisions relating to unfair dismissals, adverse actions, approval of agreements, rights of entry and industrial disputes. Itsmembersshouldhavebroadexperienceandbedrawnfromarangeofprofessions, including the law, commercial dispute resolution, ombudsmans offices and economics. Second,theprocessesforappointingmembersoftheFWCalsorequirereform.The Australian,stateandterritorygovernmentsshouldcreateanexpertappointmentspanel, whichwouldprovideamerit-basedshortlistofcandidatesforthetwodivisions.The relevantAustralianGovernmentministerwouldthenchoosemembersfromtheshortlist for a fixed tenure (with the potential for renewal). Both the panel and the relevant minister would need to be satisfied that the person would be widely seen as having an unbiased and credible framework for reaching conclusions and determinations. These changes would align governance within the FWC more closely with that observed in many other contemporary decision-making bodies.Structural changes of this nature will take some time, but action on some fronts is needed, andcanbetaken,now.TheFWCalreadyhasthecapacitytoappointmoreexpertsas advisorstoitsmembersandtotakeanactivistandevidence-basedapproachtoan assessmentofawards.Achangeinmindsetrequiresnolegislation,andamoveinthis direction under the strategic guidance of the President would be a major step. OVERVIEW DRAFT REPORT 13 3The safety net The safety net comprises three main instruments that set floors to wages and conditions for employees:thenationalminimumwage,theNationalEmploymentStandardsandawards (including penalty rates).Minimum wages Minimum wages in Australia are set by an FWC Expert Panel, taking into account changes in economic conditions and representations, especially from the government, business and unionstakeholders.Itgenerallyawardsmodestrisesinminimumwages,andits predecessors have occasionally suspended increases during downturns. Acommonly used measure of the comparative level of the minimum wage is its ratio to the median wage rate, whichalsoenablesmeaningfulcomparisonswithothercountries.Whilethe minimum-to-medianwageratioremainshighinAustraliacomparedwithmostother countries (France and New Zealand being the notable exceptions), it has declined over the pastdecade.Indeed,nootherOECDcountryhasshownsuchastrongtrenddecline (figure 4).There are several rationales for minimum wages: Minimumwages(ifnotsettoohigh)mayaddressthestrongerbargainingpowerof employers.Thereisreasonableempiricalevidencethatmanyindividualfirmshave somemarketpowerinhiringemployees.Thisreflectsthevariousfrictionsassociated with job search and matching. As well as having distributional effects, this means that unregulated labour markets can suppress wages below their efficient level and, in some cases, may actually reduce employment.Minimumwagesincreasethepaylevelsofthelowlypaidsolongastheyretaintheir jobs and can work the desired hours.However, even accepting such rationales, the question of the impacts on (and the risks they posefor)employmentandearningsisanempiricalmatter.Unfortunately,whilesome confidentlyassertthematterisdecidedononesideofthedebateortheother,thevast international evidence and the (more limited) Australian evidence is not so definitive. Much ofitisbesetbydataandmethodologicallimitations,ormisinterpreted.Thatsaid,the evidencesuggestssomepatterns.Ifsetbelowamodestlevel,theemploymenteffectsof minimumwageswouldbelikelytobenegligibleorevenpositive.Smallincreasesinthe minimumwageareunlikelytohavereadilymeasurableeffectsonemployment,butthe larger they become, the more likely that the hours available to existing workers will fall and jobopportunitiesfornewworkers(andsometimesforexistingworkers)willbelost.The effectsalsodependonthecharacteristicsofthelabourforce.Particularlylow-skilledor disadvantaged people have poorer prospects of employment at any feasible minimum wage. 14WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Figure 4Minimum to median wages for several OECD countries Theriskofjeopardisingemploymentisjustoneconsideration.Theeffectsonhousehold income of annual wage reviews depend on: howthosepayincreasesaffectallotherwagesintheeconomy.Australiasunique systemofawardscreateshundredsofwagefloorsfordifferentjobswhoseannual growth rates are linked to changes in the adult minimum wage the overall income of households where some people are paid at the minimum wage or whosewagelevelisstronglyrelatedtoit.Manyemployeeswithwageslinkedtothe minimumwagearenotinlow-incomehouseholds.In2013-14,around30 per centof suchwageearnerswereintherichest40 per centofworkinghouseholds(figure 5). Thisreflectsthatmanyhigher-incomehouseholdshavesomefamilymembersinlow paid jobs.thedegreetowhichitreducesemploymentandhoursworked.Unemploymentisnot onlystronglyassociatedwithlowerincomelevels,buthashighlyadverseeffectson peoples wellbeing. As emphasised throughout this report, labour market outsiders tend to have little voice in the current WR system, a defect that requires correction possible dynamic effects. On the one hand, people facing the risks of unemployment at highminimumwagesmayacquireskillstoavoidthis.Ontheotherhand,formany people,minimumwagejobsareatemporarypartoftheirworkinglives,andindeed such jobs can be a stepping stone into the world of work and higher paid jobs later. 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Ratio France New Zealand Australia United Kingdom Netherlands Canada United States OVERVIEW DRAFT REPORT 15 Figure 5Many people receiving wages around the minimum wage are from middle income households Nevertheless, there is strong evidence that the minimum wage(and awards) tend to assist thoselowerpaidhouseholdsthatretainjobs,withahighshareoflow-incomeworking households on the minimum wage. In 2013-14, the likelihood that an adult employee in the lowestdecileofworkinghouseholdswasatorclosetotheminimumwagewasaround seven times higher than that for the top decile of households (figure 6).Policy implications Againstthatbackground,whilesomeminimumwageisjustified,theFWCfaces Goldilockss dilemma of determining the level that is just right.Thatlevelhasalong-runandshort-rundimension.Ontheformerscore,itcouldbe expectedthatlong-runminimumwageswouldgrowapproximatelyinlinewith economywide productivity levels and maintain a roughly fixed ratio to median wages. That long-runratiomightsometimesshiftwiththeskillsandcapabilitiesofthejoblessand thoseemployeespaidclosetotheminimumwage.Forexample,iftheaverageskillsof existingjoblesspeopleimprovedoverasustainedperiod,therewouldbemorescopeto increaseminimumwageswithoutsignificantadverseeffectsontheiremployment prospects.Overtheshorterrun,anothersetofconsiderationscomesintoplay.Giventhehighly adverseoutcomesofunemploymentforpeopleswellbeing,whenevertheeconomyis weakening (as appears to be the case now), there are grounds for the FWC to temporarily adoptaconservativeapproachtominimumwagesetting.Thisdoesnotrequirethat 9 8 14 14 12 12 9 8 8 6 2 3 5 8 10 12 13 15 16 16 0 5 10 15 20 12345678910 Share of economywide employees by income decile (%) Equivalised income decile Paid close to the minimum wage Paid above 110% of the minimum wage Poorest 10% of households Richest 10%of households 16WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT minimumwagesfall,butratherthattheygrowatlessfastapacethanduringnormal economictimes.Notably,reallabourproductivityinthemarketsectorincreasedby 13 per centoverthefiveyearsfrom2008-09to2013-14.Werethistrendtocontinue,it would be possible to increase the real incomes of the low paid, but set real minimum wage increasesjustbelowtheproductivitygrowthrate,therebysimultaneouslyencouraging employmentofpeoplecurrentlypricedoutofthelabourmarket(andassuaging underemployment). In improved economic circumstances, minimum wages would catch up to restore their long-run ratio to median wages. Figure 6But an employee in a low income group is much more likely to be paid around the minimum wage rate Some have suggested that Australia should follow the example of some other countries that havegeographicalvariationsinminimumwages.Currently,Australiahastwominimum wages a national minimum wage applying to most employees, and a Western Australian minimum wage applying only to the employees of unincorporated enterprises in that state. The difference in wage rates is very modest. Incontrast,somecountrieshavemultiplegeographicallyvaryingrateswithlarge disparities between rates across regions. For example, Canada, Japan and the United States havedifferentminimumwagesbystate(andindeed,insomeUSstates,evenvariations betweencities,LosAngelesbeinganexample).Inprinciple,suchminimumwage variationslookattractiveastheycouldbesetatlevelsthattookaccountoflocallabour marketconditions,thusreducingunemploymentrisks.However,therearemanypractical difficulties in an Australian context, including doubtful constitutionality, interactions with modernawardsandthetaxandtransfersystem,andcomplexityfornationalemployers. (Notably,fewemployershavecalledforgeographicallyvaryingrates,eveninregions 51 37 34 26 19 18 13 10 9 7 0 20 40 60 12345678910 Share of employees in each income decile close to the minimum wage (%) Equivalised income decile Poorest 10% of households Richest 10%of households OVERVIEW DRAFT REPORT 17 wherethelabourmarketsarerelativelyweak.)TheProductivityCommissiondoesnot propose their introduction. Complementary measuresAcriticalquestionisthedegreetowhichtheregulatedwagessystemcaneffectively achieve its re-distributional and social equitygoals. Minimum wages were developedat a timewhenitwastypicallyonlyamanwhoworkedinahouseholdandwhenthesocial welfare system was weakly developed both of which have now changed. However, the welfaresystemitselfhasalimitedcapacitytoalleviateincomeinequalitybecauseitcan stigmatise people, also discourage employment and embed social disadvantage.Thatinvitesthequestionofnewwaysofprovidingincomesupplementationtothelow paid,whilemaintainingemploymentincentives.Oneapproachisanearnedincometax credit (EITC), which many countries use to top-up the incomes of the low paid, typically asacomplementtominimumwages.Forexample,initscountryreportfortheUnited States, the OECD has recommended that as the Great Recession recedes, it should expand itsEITCandraiseitsminimumwage,indicatingthathybridpoliciesareseenas appropriate.By design, EITCs encourage labour force participation, and the evidence usually suggests that they do this, especially for single parents, though their effectiveness depends on their exactdesign.However,theydohaveseveraldrawbacks,includinghighlevelsof overpayments (around one quarter of the funds in the United States), reduced incentives to work for second earners in some households, and barriers to working above a certain level of hours as household income rises. They must also be financed through taxes, which have their own adverse economic effects. In an Australian context, any EITC would also interact with a well-developed tax-transfer system, which is also intended to improve the incomes ofthelowpaid.TheinteractionsbetweenthatsystemandanEITCwouldneedtobe carefully assessed.Reducing these incidental impacts is one reason why significant attention must be given to thedesignofanyinstrumentandtheeconomiccontextinwhichitsits.TheOECDhas highlighted that the impacts of in-work benefits depend on their design and the institutional settings of each country. In its study of 15 European countries, it found that the efficiency costs from in-work benefits were highly variable. The results were highly positive in some, but questionable in others.Some have claimed that there may be constitutional constraints for an EITC that extended to single people as well as families, but this a complex area of law and is untested in this context. (If this was an obstacle, the EITC might have to be narrower in its application or state cooperation would be required.)TheProductivityCommissionisseekingviewsonwhethertherearegroundsforgiving further consideration to an EITC as a complement to minimum wages. 18WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Governments should not neglect other policies that are complementary to minimum wages. Thesecouldincludemeasuresthatimprovetheemployabilityoflessskilledpeopleand wagesubsidies,butonlywherethesearedesignedcarefullyandproperlytargeted. Inevitably,improvedsocialandeconomicinclusionrequiresmorethanasinglepolicy, which is why governments should seek to use minimum wages as part of a policy suite. Wages for juniors, apprentices and trainees The FWC sets out minimum pay rates for younger workers, apprentices and trainees. Wage ratesforjuniorsareashareoftheadultminimumwageandincreasewithageuntilthe person reaches 21 years old (although some awards vary this). Similarly, trainee wage rates alsohaveanage-basedstructure,withratesdependingonthetimeelapsedsinceleaving school.Apprenticewagesvaryacrossawardsandaresetasaproportionofaqualified tradespersons wage and increase the closer the apprentice is to completion. Australiaisoneofaroundthefiftyper centofOECDcountriesthatsetyouthwagesasa share of the adult rate. Indeed, notwithstanding the high ratio of the adult minimum wage to median wages, Australian youth wages start at comparatively low levels relative to those inmanyothercountries.Forexample,afastfoodlevel1employeeagedunder16years could have more than a year of experience, but would get $7.59 an hour (44 per cent of the adultminimumwage).InmanystatesintheUnitedStates,manysuchemployeeswould receiveatleastUS $8.Thedecisivetestinsomecountriesisnotageperse,butalso experience, with substantially lower wages for someone with short experience in a job. In the United States, the federal minimum wage is around 60 percent of the adult minimum for a person aged under 20 who has worked with their employer for less than 90 days. New Zealand has a similar system, with no minimum wage for people aged less than 16years, andadiscountedwagefor16-and17-yearoldswithlessthansix monthsjobexperience with their employer.TheProductivityCommissioniswaryaboutmakinganyprecipitatechangestothecurrent systemofyouthwagesifthatwastoputatrisktheemploymentofmorevulnerablepeople withlowerskills.Thetransitionfromeducationtoworkisoneofthecriticalpathways,and changesthataffectedemploymentofthelessacademicallyablecouldhaveadverse generational impacts. That said, the Productivity Commission is exploring a hybrid option that recognises that experience or competency might sometimes justify a higher minimum wage. The training system, of which apprenticeships and traineeships are a component, involves a complexsetofinterlockingissues.TheFWChasincreasedawardwagesforapprentices, while the Australian Government also provides incentive payments to employers and wage top-ups.Theseaffecttherelativeattractivenessofapprenticeshipstoemployersand would-be apprentices, with unknown impacts.Thesecomplexissuesgobeyondthescopeofthisinquiryastheyalsoinvolveconcerns abouttheadequacyofskillformationandcompetency-basedtrainingandpay arrangements.TheAustralianGovernmentshouldundertakeacomprehensivereviewof OVERVIEW DRAFT REPORT 19 Australiasapprenticeshipandtraineeshiparrangements.Thisreviewshouldprovidean assessmentoftheappropriatestructureofjuniorandadulttrainingwages,aswellas government incentives. National Employment Standards TheNationalEmploymentStandards(NES)specifyminimumrequirementsfor10 conditionsofemploymentincludinghoursofwork,variousformsofleaveand redundancy pay. Awards, enterprise agreements and employment contracts cannot exclude any elements of the NES, or provide ongoing employees with less favourable employment conditions.TheNEShaveattractedlittlecontroversymainlybecausetheirprime aspects(likeannualleave)havealongandacceptedrolebyallstakeholdersandaccord withcommunitynorms.Thereisalsoconsiderablescopeforflexibility.Forexample,an employee can be required to work more than the standard hours if reasonable.Nonetheless,thereareconcernsaboutseveralaspectsoftheNationalEmployment Standards.The Standards specify eight national public holidays on which people are entitled to a paid day of leave (and penalty rates of typically 250 per cent if they work). Public holidays can yield community benefits by enabling coordinated social activities, particularly on days of majorculturalorspiritualsignificance.However,manypeopletreatsomenationalpublic holidaysasjustnormaldaysoff,whichthrowsdoubtontheircommunityfunction.The FW Act allows awards and enterprise agreements to include terms that allow an employer andtheiremployeestoobserveapublicholidaygazettedbygovernmentonadateother thantheoneprescribed,butnotallawardscontainsuchprovisions.Allawardsshould includetheprovisionssothattheoptionofswappingholidaysisavailabletoall workplaces. Moreover,theStandardsalsorecogniseanypublicholidaydeclaredbyastateorterritory government.(Inabizarretwist,everySundayisapublicholidayinSouthAustralia thoughthereisatacitagreementtoignorethisbymostemployersandemployees.)So,by declaring new holidays(say Grand Final Eve holiday), state and territorygovernments can unilaterallycreateobligationsundertheNationalEmploymentStandardsforanynational employer in their jurisdiction to provide further leave days with pay. The 2012 review of the FairWorkActrecommendedlimitingthetotaldaysthatwouldattractpenaltyratestojust 11. However, employers would still have to pay employees absent on additional state public holidays.Shouldtheywantanemployeetoworkonapublicholiday,theywould,for commercial reasons, have to pay them significantly more than 100 per cent of their base pay (since 100 per cent is what the employee would get if they did not go to work at all).State and territory public holidays represent a policy conundrum in a national WR system, giventhatasubstantialgoalofthenewsystemwastoavoidinterstatevariations.The AustralianGovernmentshouldamendtheNationalEmploymentStandardssothat employersarenotrequiredtopayforleaveoranyadditionalpenaltyratesforanynewly 20WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT designatedstateandterritorypublicholidays.(Existingstateholidaysshouldbe grandfathered.) Of course, employers and employees could still negotiate pay for any new state-declared public holiday, but that would be at their discretion, not state governments.Longserviceleave(LSL)isanAntipodeanidiosyncrasy.Itwasinventedinthemid-19th centurytoallowcitizenstosailtoandbackfromEnglandeverydecade.Despiteits peculiarorigins,itnowhasstrongcommunitysupport.However,theNational Employment Standards do not prescribe any consistent national LSL arrangements, so that there are relatively complex interstate variations. This means that national employers must dealwithadiversityofqualifyingperiodsandentitlementsforLSLacrossthedifferent armsoftheirnationaloperations.Thishasbeenalongstandingcomplaint,andthelast reviewoftheFairWorkActrecommendedauniformnationalapproach.Anychange would produce winners and losers, and this may explain why there has been little appetite bystatestochangethestatusquo.Overall,thereremainssomeuncertaintyaboutthenet benefitsofmovingtoauniformsystem,theappropriatetransitiontoanysuchstandard, and the scope for some more minor simplification of the current system.Awards Awards are the regulations that describe various floors on wages and conditions for a wide varietyofskilllevelsacrossmultipleindustries.Relativelyfewpeopleonindividual contractsareexactlyonanawardpayment.Awardsstillinfluenceotheremployment contracts because some conditions (such as the span of hours or penalty rates) are derived fromthem,thewagesandconditionsofsomeemployeeswhoarepartofanenterprise agreement largely reflect those in the relevant award, and because they form the regulatory benchmarkagainstwhichtotestwhetherotheremploymentcontractsgenuinelymake people better off. AwardsarealongstandingpartofAustraliasworkplacerelationsframework,withthe FWCanditsvariousquasi-judicialpredecessorsdeterminingawardsformorethan100 years.TheyareuniquetoAustralia(andNewZealanduntil1991),andsometimesthisis seenasanindicationthattheyareunnecessary.However,othercountrieshavedevised alternativewagedeterminationsystemsthatoftenalsoembodyrigidrulestoprotectthe lowpaid.And,whiletheyarerigidandhistorybound,awardsandtheprocessesfor determining them have adapted over time (though not by enough): For many years, awards were determined in response to industrial disputes, while now reviewsarescheduledasastipulationoftheFairWorkActandareprimarilyusedto reassesstheirrelevance,ironoutanomalies,andensurethattheModernAwards ObjectiveoftheFairWorkActismet.TheModernAwardsObjectivecomprises various unobjectionable, but often competing, goals. Awards must take into account the living standards of the low paid, the need to promote social inclusion through increased workforceparticipation,theneedtoprovideadditionalremunerationforworking duringunsociablehours,onshifts,oronpublicholidays,andthelikelyimpactof OVERVIEW DRAFT REPORT 21 awards on business, productivity, regulatory burden, employment growth, inflation and the performance of the economy.Withtheadventofenterprisebargainingin1993,theprimaryroleforawardsshifted frombeinganinstrumentforsettingactualwagesandconditionstocontributingtoa broadersafetynetcontainingvariousfloorsforwagesandconditions(thatis,froma keydriverofthesystemtoasafetynet).Aspartofthissafetynet,awardshelpto balancetheunequalbargainingpowerofemployeesandemployersandincreasethe wagesandconditionsforsomeemployeesabovethosethattheywouldbeableto negotiateontheirown.Awardshavebeeneffectiveinthisrolebyreducingthe dispersion of pre-tax employment income (especially in the lower half of the household wage distribution) and increasing the wages of low-wage workers. Through the award modernisation process, thousands of awards were collapsed to just 122, so the system is simpler than earlier.Itisthereforelikelythatmodernawardsarelessrigidandcostlythantheirhistorical predecessors.Nevertheless,theyremainrelativelyinflexibleandareoftenambiguous, imposingcostsforemployersandemployees.(EventheFairWorkOmbudsmanis sometimesunclearabouttheinterpretationofclauses.)Insomeinstances,theyaremore historicalrelicsoftherelativebargainingstrengthofpastprotagoniststhanacarefully thought out way of remunerating employees.However,fewstakeholdersrecommendedtheirelimination,butrathersuggestedreform andtheeasieravailabilityofalternativeoptionsforemploymentcontracts.Mostconsider that the (uncertain) benefits of eliminating awards might be outweighed by the cost of any transition. All parties suggested that the costs of transitioning to the modern awards between 2009 and 2014 were considerable (nightmarish according to some stakeholders). Any major shiftawayfromawardsaltogetherwouldtriggercostsofahighermagnitudeagain. Removing awards would also require re-assessment of many other features of the WR system.Forexample,whatbenchmark,ifany,wouldbeusedfortestingwhetheran enterprise agreement really met some reasonable wage standards? A no-disadvantage test is meaningless without a benchmark.The current system does not appear to be producing highly adverse outcomes.The tax-transfer system, while already highly developed, would need to further extend its reach to emulate the re-distributive effects of awards.Someofthedistortionscreatedinlabourmarketsarebeneficialsincetheyaddress unequalbargainingpowerandreducethetransactioncostsofformingemployment contracts for small business.Nevertheless, there are strong grounds for improving the award system.Onerelativelystraightforwardstepalreadypartlyunderwayrelatestotheformof awards,ratherthantheircontent.Awardsshouldbeeasiertounderstandandnomore 22WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT complexthantheyneedtobe.AstheBusinessCouncilofAustralianotes,manyawards are unclear on penalty rates and overtime requirements. Awards should be in plain English andbewrittentoavoidthemistakesandmisunderstandingsthatarisefromthepresent ambiguities of awards.Amorefundamentalchallengeishowtoaddressthemoresystemicflawsinawards, withoutrepeatingthetransitionalcostsofawardmodernisation.Afterthecompletionof the current fouryearly award review (whose scope is considerably constrained), the FWC should adopt a different approach to its amendments to awards. It should undertake careful empirical analysis into the aspects of awards that are the source of the greatest problems hotspots. It should then consider how it might vary awards to address these on a thematic basis.Thosehotspotscannotbedeterminedaheadofanalysis,butanyanalytical frameworkwouldattempttoidentifytheawardvariations(suchasinallowances,wage rates,penaltyrates,andspansofhours)thatweregenuinelyproblematic,ratherthan merely untidy.TheFWCshouldalsomakechangestoawardswherethereareeasygainsfromadding consistency or where anomalies become apparent.However, there is no need for the FWC to review all aspects of awards, term by term. That would be an ambitious task, with diminishing returns and high costs for stakeholders. Once thecurrentfouryearlyreviewhasbeencompleted,theseperiodicreviewsshouldcease. Future assessments should be undertaken on a needs basis.Regulated penalty rates for shift, overtime and weekend work should stay ManyAustraliansworknon-standardhourseitherbyworkinglongerthanthe38 hour norm under the National Employment Standards or by working at non-standard times, such as at night or on weekends. They are compensated by regulated premiums on normal wage rates (sometimes generically categorised as penalty rates). Penalty rates are stronglydependent on when work is undertaken and the total time spent working. The three principal time-related wage rates are:shift loadings, and weekend and evening pay premiums. These are requirements placed on employers to pay additional wages at certain times of the day or on certain days of theweek,andarenotdependentonhowmanyhoursintotalapersonhasworked during the weekovertimerates,whichrepresenthigherwageratesforhoursworkedgreaterthanthe usual ordinary hours listed under an award or an agreementpayments for working on public holidays. There are compelling grounds for premium rates of pay for overtime, night and shift work: OVERVIEW DRAFT REPORT 23 Long hours of work involve risks not only to an employees health and safety but also for the community. (Long working hours are not rare. In mid 2015, around 2.8 million Australianemployeesreportedworkingmorethan40 hoursperweekandover 1.5 million reported working 50 hours or more per week.In 2012, around one third of employees worked overtime.) There are proven adverse health effects from night shift and rotating shift work. Bydefinition,publicholidaysareintendedtoencouragesharedcommunityactivities. As such, there are strong grounds for deterrence against their use for working, but with some flexibility to provide some services on these days. The appropriate rate for public holidays would need to account for (a) the fact that as is normal for other leave, public holidaysaregenerallypaidatordinarywageratesdespitethefactthatpeoplearenot working,and(b)theadditionalrequirementtodeteractivitiesthatunderminethe intended goal of such holidays.Regulatedminimumpenaltyratesrecognisetheimpactsofsuchworkandthatabsent regulation,theweakerbargainingpowerofemployeesmaynotleadtoadequate compensation.TheProductivityCommissionhasnotrecommendedanychangesinthese rates.Thisisalsoinlinewiththeviewsofparticipantsinthisinquiry,whodidnotraise any significant concerns about penalty rates for overtime, night or shift work. Sunday penalty rates in the cafes, hospitality, entertainment, restaurants and retailing industries In recent years, there has been intense debate about penalty rates for just one type of work weekendworkinthehospitality,entertainment,retailing,restaurantsandcafes industries. The same controversies have not occurred for other industries. The community, employers and customers have long accepted weekend work and associated high penalty rates in other partsoftheeconomy(agriculture,transport,utilities,thosepartsofmanufacturing requiringcontinuousproduction,healthandemergencyservices).Notably,inNew Zealand,whereregulatedpenaltyratesnolongerapply,employersstillpaypenaltyrates commensurate with Australian rates for many of these industries.However,formanyyears,thecommunitydidnotacceptweekendworkwhereseven-day operationswerenotessentialforthecommunityorfortheefficientoperationofthe economy. The crucial development in the past few decades has been the growing demand for the weekend supplyof certain services, precisely in the industries where penaltyrates havebecomeacontroversialissue.Increasedfemaleworkforceparticipationrates,the reductioninreligiousobservance,changingsocialnormsaboutshoppingtimes,the softening of trading hour restrictions, and the emergence of international online commerce will have contributed to this. 24WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT However, the quid pro quo to growing consumer demand on weekends is the requirement thatsomeonemustsupplythelabourtoprovidetheseservicesatthesetimes.Australian surveysshowthatmostemployeesvalueweekendsmorehighlythanweekdays.Inan unregulated well-operating market, it could be expected that penalty rates would be needed to elicit sufficient labour supply on weekends. But labour markets are not perfect (which is whyworkplacerelationssystemsexistinthefirstplace).Individualbusinessespossess somebargainingpowerinrespectofthelabourtheyhire,withtheriskthatmarket-set penaltyrateswouldbelowerthantheyshouldbe.Communitystandardsaboutthe reasonable rates for working on weekends in such industries are also relevant. The question is then whether regulated weekend penalty rates are set at the right level. In the controversial industries, the average skill levels are low, job tenure short, much of the work is part-time and casual, the average age of employees is low and award dependence is relativelyhigh.Thefrictionsfrommovingfromjobtojobdonotappeartobehigh.The overallevidencesuggeststhattheemployersinsuchindustriesarenotlikelytohavethe samelevelofbargainingpowerovertheiremployeesasinmanyotherindustries,and accordingly,thatthebusinessesarelikelytohaveaweakercapacitytodepresswageson weekends. Large premiums in wage rates for such employees are more likely to elicit reductions in the demandforhoursandemploymentthaninmanyotherindustries.WhiletheFWCandits predecessorshavealways(legitimately)arguedthatthesocialcostsfromworkingasocial hourswarrantsomepenaltyrate,theyhavegenerallynotconsideredtherelevanceofthe strength of bargaining imbalances and the type of employee in determining penalty rates.Moreover,onaverage,awardmodernisationraisedaveragepenaltyratesintherelevant industries. This is notwithstanding that one plank underpinning regulated weekend penalty ratesthenotionofdeterringweekendworkisnowacknowledgedbytheFWC, unions and businesses as irrelevant. Theresultissomesurprisinganomalies,particularlyinrelationtoSundaypenaltyrates. Underthepresentaward,aninexperiencedlevel 1pharmacyassistantwithlimited qualificationswhoworkedordinaryhoursonaSundayispaidaround40 per centmore thantheusualweeklyrateforanexperiencedpharmacist(whorequiresfouryearsof undergraduatetraining,aone-yearinternshipandongoingprofessionaldevelopment).In effect, the return to skills are much lower than the returns from working at a different time of the week and by a large margin. Moreover, rates for Sundays (usually around 200 per cent of base pay) appear particularly at odds with rates for times that are also important for social activities (evenings), and to an evengreater degreefor times that pose clearly demonstrated health risks(night shifts and rotating shifts). Evening/afternoon shift penalty rates can be as low as 10 per cent and night shiftloadingsaslowas15 per cent(figure 7).Surveyevidenceshowsthattheoverall socialcostsofdaytimeworkonSundaysaresimilartoSaturdays,andconsistentlylower than evening work (figure 8). OVERVIEW DRAFT REPORT 25 TheProductivityCommissionrecommendsthatSundayratesinthehospitality, entertainment,retailing,restaurantsandcafesindustriesshouldbebroughtintolinewith Saturday rates.EmploymentandhoursworkedonSundayswouldriseafterthechange.Lowerregulated penaltyratesarelikelytoincreasetheopeninghoursofbusinessesandencouragehigher staffingratios,withthejobopportunitiesthatthispresentsforpeople.Itwouldalso provideagreatercapacitytoemploymoreexperienced,oftenpermanent,employees (whosehourlylabourcostsareparticularlyhighundercurrentpenaltyrates).Lower penaltyrateswouldalsobelikelytoreducetheincidenceofweekendworkbysmall business owner-managers, who often work long hours to avoid high labour costs.ReductionstoSundaypenaltyrateswillparticularlyaffecttheincomesofpeoplewho workSundaysonly.Whiletherearerelativelyfewsuchworkersinthehospitality, entertainment,retailing,restaurantsandcafesindustries,theProductivityCommission proposes a lag before any change occurs, allowing people to adjust their lives and working patterns. Moreover, there will be positive outcomes for people who cannot currently obtain jobs in the relevant industries. Inthelongerrun,businesseswouldnotbethebeneficiariesofderegulatedpenaltyrates giventhehighlevelsofcompetitionintherelevantindustries.Instead,consumerswould benefitfrommoreconvenientaccesstoservicestheyvaluehighlyand,insomecases, lowerprices(forexample,throughtheendingofSundaysurchargesinrestaurantsand cafes).FailuretorecognisethecurrentimpactsofhighSundayratesintherelevant industrieswillalsohavelonger-runeffectsbyfrustratingnewbusinessmodels(andthe employmenttheycanbring).Forexample,therearecomplementaritiesbetweenonline supplyandopeninghoursofsomebricksandmortarstores,asinclickandcollect services.ChangestoSundaypenaltyrateswoulddesirablyoccuraspartofthecurrentfouryearly review. 26WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT Figure 7Effective penalty rates by day and time of the week Permanent and casual employees in the hospitality industry Figure 8The social disabilities of working on Sundays are always less than evening work and sometimes less than Saturdaysa

a The results control for other factors that affect social disabilities, such as having young children. 100 110 115 125 175 125 135 140 150 175 100 150 200 250 Weekday dayWeekday evening Weekday nightSaturdaySunday Penalty rate (%) Casual Permanent 4 2.8 -4.1 4.6 -2.9 10.9 -2.7 8.2 6.3 13.2 -9.5 12.9 -15 -10 -5 0 5 10 15 Feels rushedInterferes with outside activities Satisfied with life balance Interferes with family/friends Percentage points difference from standard hours Saturday Sunday Evening OVERVIEW DRAFT REPORT 27 4Protecting employees Australia has a range oflaws that protect employees from discrimination, bullying, unfair treatmentanddismissal.Whilesometimesdepictedasonerous,complexand overprotective,objectivemeasuresofsuchemployeeprotectionarrangementsaroundthe world suggest that Australia has one of the more light-handed suites of arrangements. Unfair dismissal AustraliasWRsystemprovidesremediesforworkerswhoaredismissedinaharsh, unjustorunreasonablemanner.TheFWCmayordertheunfairlydismissedemployeeto be reinstated, or paid compensation where reinstatement is not feasible. Unfair dismissal arrangements reflect that employees and employers are not always angels. Employeesmayunderperform,bedisruptiveorbehavebadly.Firmsandlabourmarkets can only function efficiently if managers have the power to demand behavioural change by poorlyperformingemployeesand,absentthat,todismissorotherwisepenalisethem.On theotherhand,employersmaybullyworkers,makeunreasonabledemands(suchas working longer without pay or overlooking safety issues) or may dismiss people based on prejudice,whimsyorwithoutdueprocess.Accordingly,thereisaneedforsomebalance betweentheprerogativeofbusinessestomanageandtherightsofemployeestofair treatment. Theprevalencestatisticsshowthatunfairdismissalclaimsremainrelativelysmallin proportional terms across the Australian labour force and that employers only infrequently encounter unfair dismissal cases. It appears that even where employees are dismissed with cause,around90 per centmakenoclaims,andofthosethatdo,aroundhalfreceive compensation.Perceptions aside, there is little evidence that unfair dismissal laws are a major obstacle to hiring,especiallygiventherelativelylongprobationaryperiodsthatexemptanemployer from any claims (six months for an employer with 15 or more employees and one year for smallerbusinesses).Conciliationprocessesmaysometimesberoughjusticeinthatthe fullcircumstancesofacasearenottestedmeticulously.However,onceunfairdismissal claimsgotoarbitration,theoutcomescanbeveryuncertain(andfarmorecostlythan conciliation) and, as observed earlier, some inconsistency is evident.Thecostsofprogressingcasesthroughconciliationandarbitrationprovideincentivesfor businessestopaygoawaymoneytoemployeeswhoclaimemployershaveunfairly dismissed them. While it no doubt occurs, there is insufficient data about the extent of go awaymoney,andhowitcanbedistinguishedfromcaseswheretheemployerandthe employee agree that the justification for dismissal is not clear cut.The most problematic aspect of the current legislation is that an employee who has clearly breachedthenormalexpectationsofappropriateworkbehaviourmayneverthelessbe 28WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT deemed to have been unfairly dismissed because of procedural lapses by the employer. For example,inonecaseabusinessdismissedtwoemployeesaftertheyassaultedtheir supervisor.1TheFWCconcludedthattheirphysicalassaultwasavalidreasonfor dismissal,butthattheemployersfailuretofollowcertainproceduresmeantthatthe dismissals were unjust, unreasonable and therefore unfair.Moderateandincrementalreformscanaddressthecurrentflaws,whileleavingmuchof the existing legislation and its legitimate protections intact: The Fair Work Act should be amended so that procedural errors alone are not sufficient to award compensation or restore employment in what would otherwise be regarded as avaliddismissal.Nevertheless,proceduralerrorsbyanemployershould,atthe discretionoftheFWC,leadtoeitheradvicetotheemployer,orwhereseriousor repeated, financial penalties. There should be more upfront filters that focus on the merits of claims.Somewhathigherlodgmentfeesmayalsoassistinlimitingtheautomaticrecourseto the FWC, but these would likely have to be tailored to an employees income, and vary dependingonwhetherconciliationorarbitrationwasbeingsought.TheProductivity Commission is seeking more views on this. Toreducesomeofthepresentinconsistencies,thegovernanceoftheFWCshouldbe reformed along the lines discussed earlier. Theemphasisonreinstatementastheprimarygoaloftheunfairdismissalprovisions shouldberemoved.Goodlegislationshouldnotgiveprimacytoagoalthatisrarely achieved and not necessarily even in the interests of the parties involved.Theabovereforms,complementedbyfurthertargetedprovisionofinformationand regulatorengagementwithsmallbusiness,willdealwithmanyofthecurrentissues experienced by small businesses. Subject to implementation of these reforms, the Small Business Fair Dismissal Code should be removed. The basic premise of assisting small businesstonavigatethecomplexitiesofunfairdismissallegislationisreasonable,but the Code does not achieve that outcome and provides a false sense of security.The general protections ThegeneralprotectionsprovisionsoftheFairWorkActcomprisealengthy(sometimes relativelytechnical)setofprohibitionsagainstconductbyemployersandindustrial associationsthatbreachesanemployeesworkplacerightsadverseaction.For example, adverse action might comprise discrimination against employees because of their union membership (or in some cases because they are not union members). There are very stronggroundsforsuchprotections,asemployeesshouldnotbesubjecttodisadvantage for reasons unrelated to their actual work performance. 1Sheng He v Peacock Brothers & Wilson Lac v Peacock Brothers (2013) FWC 7541. OVERVIEW DRAFT REPORT 29 However, there are some deficiencies in the current arrangements.TheGeneralProtectionsarebroadandsometimesambiguous.Unlikethespecificunfair dismissalprovisions,theyprovideuncappedcompensation,whichprovidesincentivesto usethemasamorelucrativeavenueforcompensationfordismissals.Moreover,an employeedismissedforunderperformanceorbreachingworkplacecodesofconducthas strong incentives to claim that some other non-permitted reason was the true basis for the dismissal (for example, because they had complained about some aspect of management), evenifthisclaimwasconfected.Thesefactorsmayhavebeenoneoftheaccelerantsfor therapidgrowthofdismissalcasesundertheGeneralProtections.(Dismissalcases account for nearly 80 per cent of total General Protection cases).Thisisnottosaythatmanycasesarenotgenuine.However,awell-functioningsystem should be designed to limit perverse outcomes, not just because this avoids inefficient and unfair outcomes, but to shore up its integrity. Regulations that lack credibility do not serve the interests of employees with a strong basis for their claims.Afurtherissueisthatbusinessrestructuring(forexample,movingtolabourhire arrangementsoradoptinglabour-displacingtechnology)sometimeshasadverse consequencesforexistingunionisedemployees.Someemployersclaimthatsuch consequencesmaybedepictedasadverseaction,whichcouldstymieefficient transformationofbusinesses.However,whiletherearesomeinstanceswheretheadverse actionprovisionsmayhavehamperedanemployerslegitimateprerogativetomanage theirbusinessestomaximiseproductivityandminimisecosts,thereislittleevidencethat unions have systematicallyfrustrated structural change. Accordingly, any response to this apparent problem has to be circumspect. One notable feature of the General Protections is that the onus is on the employer to prove that adverse action has not occurred. Since employees cannot be in a position to acquire the informationtoproveintent,thereisreasonablejustificationforsuchareverseonus. However,somestakeholdersclaimedthatthereverseonusofproof,whileofitself unproblematic, can nevertheless trigger a discovery process that allows a union or court to siftthroughpotentiallyhundredsofthousandsofdocumentsinsearchofintent(andthis hasoccurred).Doingsomaynotonlybecostlyinitsownright,butmaydisclosemany aspects of a business that would be unreasonable to expose to third parties. Moreover, the courtprocessesthataccompanyadverseactioncasesareslow(yearscanpass),creating large administrative and legal costs and frustrating business plans. However, in its Access toJusticeinquiryreport,theProductivityCommissionfoundthatmanysuperiorcourts, particularlytheFederalCourt,havetakensignificantstepstocurtaildiscovery.Thishas generally reduced costs and timelines.Courtsarenowalsosuccessfullyaddressingapreviouslyidentifiedprimeproblem.Some key High Court cases have established legal precedents that an adverse action case will not succeed because of some coincident possible breach of a workplace right (such as dismissal of a union official who has performed poorly). To the extent that the precedent is observed in 30WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT othercases,adverseactionwouldrequirethatsuchabreachwas,onexaminationofthe subjective intentions of the decision maker, the main reason for the dismissal. Other modest reforms can address the other limitations: Thecurrentlyquiteuncertaincomplainttriggerforprotectionofaworkplaceright needs to be better defined. Consistent with reform in judicial processes in several jurisdictions, the Fair Work Act shouldbeamendedtomakethediscoveryprocessusedinadverseactioncases proportional to the issue at hand.Thesemeasureswouldnotthrowthebabyoutwiththebathwater.Strongprotections should remain in force.Anti-bullying Bullyingcanhavedevastatingconsequencesforpeople,whichiswhyvariouslawshave attempted to discourage it by penalising those who engage in it or who permit it to happen, andbyprovidingcompensationtovictims.Therearemultipleavenuesforaddressing bullyingsuchasthroughvariousanti-discriminationandworkforcehealthandsafety laws, and since January 2014, as an addition to the Fair Work Act.The Fair Work Act accords a key role to the FWC in overseeing this new jurisdiction. As is thecaseforunfairdismissal,theFWCisthemediator,conciliatorand,asalastresort, adjudicator.TheFWCcanmakeanyorderitconsidersappropriatetostopthebullying. However,itcannotmakeordersrequiringpayment.Workersmaybeabletoseek compensationthroughothermeans,includingworkerscompensation,workplacehealth and safety, andcommon law claims. A failure to comply with FWC orders would expose the employer and/or the relevant bullying party to civil penalties. Whilesomehavequestionedwhetheranti-bullyingprovisionsneededtobeincorporated intotheFairWorkActgiventheotheravenuesforaddressingtheissue,theexpected barrage of claims has not materialised.In fact, over 2013-14, the FWC received only 197 applications for an order to stop bullying (FWC 2014), with 21 finalised by a decision. Of these, only one application resulted in an order to stop bullying. However, the provision is resource intensive for the FWC as evidence provided by applicants can be extensive, if not always substantive. Overall,whiletheFWCscurrentapproachappearstobeconsideredandeffective, sufficienttimehasnotelapsedtoreachafinaljudgmentontheeffectivenessofthe provision.Apost-implementationreviewisalreadyscheduled,andthiswouldprovidea timely opportunity to assess the operation of the jurisdiction. OVERVIEW DRAFT REPORT 31 5Enterprise bargaining Followingalmostonecenturyofcentralisedconciliationandarbitration,Australia introducedenterprise-levelbargainingin1993.Enterprisebargaininginvolvesemployees working together to reach an agreement with their employer over the terms and conditions oftheiremployment.Enterprisebargainingcanpotentiallyyieldefficienciesthrough negotiatingandusingone,ratherthanmany,individualarrangements.Itisalsoavehicle foradelicatebalancebetweenthepartiesinterests.Ontheonehand,itprovidesa counterweighttothebargainingpoweroftheemployer(theadversarialaspectto bargaining),and,ontheotherhand,thescopeforcementingcooperationbetweenparties thathaveamutualstakeintheefficiencyandperformanceoftheindividualenterprise. Enterprisebargainingprovidessomeflexibilitytotakeintoaccountthespecial circumstancesofanyonefirm.Thiscontrastswithcollectivebargainingacrossmultiple enterprisesandindustries(thearrangementspreceding1993),whichdidnothaveafocus on the individual enterprise.TheFairWorkActhasdetailedrulesaroundenterprisebargaining.Whilethebulkof agreementsappeartobeformedwithnodifficultyandwithbenefitsforallparties,there are several flaws in the current arrangements. Where a staple can undo an agreement PeabodyMoorvalePtyLtd2providedthreepagesstapledtogethertoallofthe employees to be covered by a proposed enterprise agreement. Some bargaining ensued, an agreement was struck and the agreement was lodged with the FWC. However, by attaching thethreedocumentstogether,theemployercontravenedrequirementsabouttheformof noticetobegiventoemployees.TheFWChadnorealdiscretioninthematter,andwas obligedbytheFairWorkActtorejecttheagreement.So,absurdly,theemployerhadto recommence the agreement process. There is a convincing variety of similar examples. While there are often good reasons for imposing procedural requirements (for example, to prevent employers including extraneous and potentially misleading information in a notice to employees), substance rather than form should prevail, which is a recurring theme in this inquiry. In this type of instance, the solution is that the FWC should have the discretion to overlookaproceduraldefect(thatposesnoriskstoemployees)withoutrequiringan undertaking by the employer. Good faith bargaining The good faith bargaining requirements appear to be working relatively well. While some haveadvocated for timelimits on bargaining, this would reduce the incentives for parties 2Peabody Moorvale Pty Ltd v Construction, Forestry, Mining and Energy Union [2014] FWCFB 2042 (2 April 2014). 32WORKPLACE RELATIONS FRAMEWORK DRAFT REPORT to agree among themselves. A central tenet of the shift to enterprise bargaining was to step awayfrom third partyarbitration. TheFWC alreadyhas sufficient powers to step in, as a matter of last resort, when there are repeated breaches of the requirements. The good faith bargainingrequirementsshouldalsobeappliedtogreenfieldsnegotiations,as recommended by the 2012 review of the Fair Work Act. The better off overall test (BOOT) The application of theBOOT is creating uncertainty during the bargaining processand at theagreementapprovalstage.Themainsourceofconfusionlieswithhowtoassess whethertherelevantgroupsofemployees(orprospectiveemployeesinthecaseofa greenfieldsagreement)arebetteroffoverallcomparedwiththerelevantaward.A particularlyvexingissueforbothenterpriseagreementsandindividualflexibility arrangementsishowtotradeoffnon-monetarybenefitsagainstotherbenefitsofan award. WhiletheBOOTisnot inprincipledefective,inpracticeithassometimeslentitselftoa line by line approach, which involves assessing whether the relevant class of employees are made better or worse off by each individual term in the agreement when compared with therelevanttermintheaward.TheintentionoftheBOOTwasthatitshouldbeaglobal test,whichtakesintoaccountthesumofallthebenefitsofanagreementandteststhose against the overall benefits of the award. Shifting to a new no-disadvantage test is likely toassistinsupportingthatintention.Itwouldstillensurethatemployeeswerenot disadvantagedcomparedwiththeawardanessentialrequirementwhileallowing employeesandemployerstodevelopagreementsthatrepresentwinsforbothparties. Changing to this test should be complemented by more detailed, practical guidance on the new no-disadvantage test from the FWC (in concert with similar advice given by the Fair WorkOmbudsmantoemployersandemployeesdevelopingindividualarrangementsor enterprise contracts see later). Greenfields agreements pose major dilemmas in regulatory design Theuniquecircumstancesofbargainingforagreenfieldsagreementwarrantadifferent regulatory approach. Such agreements are struck between a union and a new enter