AGL case highlights need for bargaining reform

Analysis

AGL case highlights need for bargaining reform

An energy company's attempt to terminate an enterprise agreement has highlighted the need for reform in enterprise bargaining, writes employment lawyer Anthony Wood.

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By Anthony Wood

Last week, AGL – the owners of Victoria’s largest base load power generator – applied to the Fair Work Commission (FWC) to terminate the 2012 Loy Yang Power Enterprise Agreement.

The agreement had passed its nominal expiry date in December 2015 and the employer has been bargaining with employees and unions since then to replace it. If the application is successful, workers would revert back to coverage by the industry award until a new enterprise agreement is negotiated.

The Fair Work Act 2009 regulates these applications. Until recently, employers found little success in applying to terminate expired agreements. However, the landmark Aurizon decision in 2015 changed this by exploring the public interest benefits of terminating an enterprise agreement with unsustainable terms and conditions.

The full bench rejected the notion that it would be inappropriate to terminate an enterprise agreement during bargaining and held that termination of an agreement might actually promote the objects of the Act.

The Aurizon decision was overdue and, on one view, simply reflected the overall objective of the Fair Work Act to promote national economic prosperity and social inclusion.

Nevertheless, legally an enterprise agreement continues in perpetuity even after it reaches its nominal expiry date, unless it is replaced by a new enterprise agreement, terminated on application or terminated by agreement between the parties (and approved by the FWC).

Scope must be widened


There are sound reasons to amend the Fair Work Act to remove the default position, or to at least widen the scope for such applications. This default position does not incentivise unions and employees to agree to more sustainable terms and conditions. Instead, it encourages the pursuit of unsustainable demands, without productivity gains offsets.

It’s no secret that many enterprise agreements contain entrenched terms and conditions of employment that are uncompetitive and out-of-sync with prevailing market conditions. Take for example the slow decline of the Australian manufacturing sector.

In the vehicle industry, a series of entrenched terms and conditions contributed to the desperate position whereby Toyota, Holden and Ford were no longer able to compete against the international market, and manufacturing cars in Australia became unviable.

It’s little wonder Loy Yang is now taking steps to seek the termination of its cumbersome enterprise agreement. It inherited legacy conditions from the Victorian public service that were unproductive and inhibited workplace change.

In May 1997, Loy Yang was privatised by the Victorian government. The result of the process of privatisation was that private power generation sector employers inherited legacy employment conditions which were hugely unproductive, including fixed manning levels and prohibitions on forced redundancies. Without any mechanism to ‘reset’ these terms and conditions, there was minimal opportunity to ensure that the power generators were sustainable following privatisation.

It’s not hard to appreciate the impact this must have on foreign investment decisions.

Although the decision in Aurizon has given hope to business, it cannot be relied upon by most employers. The Aurizon case was based on exceptional circumstances where the terms and conditions contained in the relevant enterprise agreement were uncompetitive and restrictive.

Because of its unique public sector heritage, Loy Yang is a good example of the type of employer that could expect the FWC to apply the Aurizon decision favourably to its circumstances. The company itself has claimed that it requires more modern, competitive and rational terms and conditions in an industry undergoing significant change. But what about other employers in similar situations?

Reset the default position


There is one abundantly clear solution to this predicament – reset the default position, so that enterprise agreements automatically terminate either three months or six months after their nominal expiry date, unless the parties agree to extend the operation for a further period (or periods).

Now that modern awards and the fair work safety net operate to protect Australian workers, arguments that were previously made against this reform drop away.

Resetting the default position in this way will deliver productivity benefits and lead to more sustainable terms and conditions, for the following reasons:
  • Firstly, setting a ‘time limit’ on the duration of an enterprise agreement will encourage employers and unions to bargain proactively and effectively to ensure that a new enterprise agreement comes into operation before the expiry (and termination) of the old one. This will inevitably give rise to harder and faster disputes. However, it will ultimately encourage the parties to work efficiently to come to an agreed position.
  • Secondly, limiting the period of operation of an enterprise agreement will likely re-set employees’ expectations about their terms and conditions, and encourage them to be realistic about their terms and conditions of employment.
  • Thirdly, adopting this solution will enable the bargaining parties to effectively wipe the slate clean and agree to terms and conditions that are appropriate for the workplace, in line with industry practice and relevant to the work undertaken by the relevant employees.
The automatic termination of an enterprise agreement would not impact on the current good faith bargaining regime. Nor does altering the status quo mean that employees will not be able to employ the mechanisms under the Act to ‘flex their industrial muscle’ and exert economic coercion to pressure employers to meet their demands.

There is no basis upon which to suggest that terminating an enterprise agreement will lead to the blanket curtailment of employee terms and conditions. In fact, resetting the default position may in fact do the opposite. An employer that is experiencing buoyant times would be more inclined to share the benefits with employees when good times permit, without holding back in fear that once a generous term is incorporated in an enterprise agreement, the employer will be effectively shackled in perpetuity by the entitlements.

Resetting the default position will not only lead to more productive, competitive and sustainable workplaces for employers, it would strengthen Australia’s economic position.
 
Anthony Wood is an employment partner at Herbert Smith Freehills and section head of the Melbourne Employment Team.
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