20 years of regulatory failure?


20 years of regulatory failure?

How do the four major changes to IR legislation over the past 20 years measure up against each other? Despite frequent recent media references to ‘falling productivity’, evidence suggests that such a trend is not attributable to the Fair Work Act or any previous industrial relations legislation.


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How do the four major changes to IR legislation over the past 20 years measure up against each other? Despite frequent recent media references to ‘falling productivity’, evidence suggests that such a trend is not attributable to the Fair Work Act or, for that matter, to any previous industrial relations legislation. Nor does the significant fall in industrial disputes over the past 20 years appear to be directly related to any legislative change.

Andrew Stewart, Professor of Law at Adelaide University, the keynote presenter at the Workplace Relations Centre’s 2012 Labour Law Conference, held in Sydney on 13 August 2012, provided his assessment of the impact of each of the four major changes to legislation over the past 20 years. 2012 marks the twentieth year this conference has been held.

Four major legislative changes
Prof Stewart described the past 20 years as a very turbulent period for industrial relations reform, with four major changes to legislation occurring in 1994, 1996, 2006 and 2009. His comments coincide with the long-awaited review of the Fair Work Act 2009 released last week. However, he questioned whether the whole period could be summed up as ‘20 years of regulatory failure’, commenting that the majority of proposed changes misfired in some ways and/or had unintended consequences.

Stewart said that ‘productivity’ is not falling, instead its rate of growth has been very low for more than a decade. This trend began to emerge between the changes made in 1996 and 2006, suggesting it is unrelated to any specific law changes. It does, however, coincide with a trend for the share of wealth to become tilted more towards profits than wages — a gap that has opened up substantially since then. Since the Fair Work Act commenced, the rate of productivity growth has actually increased, although only slightly.

The shift towards enterprise bargaining, arguably the biggest change to occur in the past 20 years, began in the early 1990s, much earlier than the trends in productivity, disputes and share of wealth, so it too appears unrelated to those trends.

Although industrial disputes have increased very recently, this is off what is now a very low base and appears caused by factors unrelated to federal legislation (eg New South Wales attempted public sector reforms). Also, there tends to be a spike in disputes every three years as this is typically when many major agreements are renegotiated, as is happening in 2012.

Ratings of each major law change
Stewart presented his personal ratings of the impact of each of the four major law changes, comparing actual outcomes to the objectives of each change and the government’s agenda when it introduced them.

Industrial Relations Reform Act 1993
This Act marked the first significant move towards collective bargaining, using a single-enterprise bargaining model. It also introduced the very controversial ‘unfair dismissal’ protections, although similar provisions had already existed in state legislation for many years.

Stewart said that the Act succeeded in encouraging direct enterprise-level bargaining, although there has been little increase in that activity since then. It also improved many provisions of the legislation in areas where Stewart claimed that ‘any change would be an improvement’. However, it is doubtful whether it improved business competitiveness and productivity, even though the latter did improve during its existence, simply because it is hard to determine cause-and-effect when measuring productivity changes.

Stewart argued that the Act failed to achieve its objectives in the following areas:
  • Statutory requirements to comply with international standards. Many, such as parental leave, already existed, and in general international law in areas such as collectivism, industrial action and union issues has had little impact on Australian law since the early 1990s. Also, the equal pay provisions were never used.
  • Instead of reversing the decline in union membership and influence, this Act actually encouraged it.
  • The ‘unfair dismissal’ provisions were too close to international wording. They had to be revised due to extensive criticism, and when this occurred they moved away from compliance with international standards.
Workplace Relations Act 1996
This Act featured the first use of the Corporations Power to separate agreement-making and industrial disputes, and also introduced the option of individual contracts in the form of Australian Workplace Agreements (AWAs).

Stewart’s opinion was that this Act ‘did well’ in many respects, achieving its following objectives:
  • providing freedom both to join and not join unions
  • more effective industrial action compliance provisions
  • enhanced management prerogatives
  • reduced union power and influence.
However, it failed in the following respects:
  • AWAs mainly became a forced ‘sign or else’ template, were seldom initiated by employees and covered less than 2% of the workforce (mainly in the public sector).
  • Simplifying awards: very slow progress and only minor changes resulted.
  • Encouraging greater choice of unions: few if any enterprise unions appeared.
  • Decreased award/tribunal regulation: many large employers returned to the Australian Industrial Relations Commission.
  • Productivity and employment growth: productivity improved initially, but then the rate of growth slowed as described above.
  • Implementing the government’s preferred industrial relations model: apart from Victoria, all the state systems continued to operate.
WorkChoices (2006)
Stewart described this system as ‘the obvious example of regulatory failure’, although it only operated for about three years and was heavily amended during its second year.

However, it did succeed in some respects: enshrined minimum conditions, greater choice about how to resolve workplace disputes, dismissal provisions less onerous for business and further enhancement of managerial prerogative.

It had some unintended, but arguably positive consequences:
  • Enhanced compliance, notably after the 2007 amendments, because the Workplace Ombudsman was well-resourced and was able to oversee greater enforcement in small businesses.
  • Wage levels increased, until the Australian Fair Pay Commission’s final (2009) decision imposed a wage freeze.
The list of ‘failures’ however, is much longer:
  • Failed to create a single national system: the States declined to refer their powers, and there were various gaps in the Corporations power that caused complexities. However, the Act did move closer towards a single system than before.
  • Productivity growth rate did not increase and work–life balance was not enhanced. Unemployment levels fell, but this was unrelated to the Act.
  • ‘Simpler, fairer, more flexible system’: provisions such as those for ‘prohibited content’ of agreements thwarted this.
  • Protection of award conditions: it was too easy to get around them.
  • ‘Simplify and rationalise awards’: this proved too difficult. Nor did the Act succeed in reducing the role of awards, particularly after the no-disadvantage test was (re)introduced.
  • ‘Reduce union power and influence’: it was the only legislation to oversee an increase in union membership numbers, although the long-term downward trend has since resumed.
  • Direct bargaining between employers and employees did not increase, much of what did occur was unilateral.
  • The role of the Australian Industrial Relations Commission was marginalised, but to a lesser extent than hoped for.
Overall, it could be argued that WorkChoices, instead of deregulating and simplifying workplace relations, added new levels of prescription and complexity to it. If it had lasted longer, it may have provided employers with scope to take advantage of some of its provisions when the global financial downturn occurred in 2008–09, but by that time the original Act had needed to be heavily amended.

Fair Work Act 2009
Stewart claimed that this Act has been successful in achieving its following objectives:
  • A unified national system: almost there except for Western Australia, and with progress towards harmonisation of occupational health and safety legislation and early developments towards a similar approach to equal opportunity legislation.
  • A wider safety net, via the National Employment Standards.
  • Modernised awards.
  • Good faith bargaining was on balance considered an improvement, but the changes have been less dramatic than hoped for.
  • In general, a more balanced approach to industrial relations regulation with a more level playing field for the various parties.
However, he regarded the following objectives as not being achieved:
  • Fair Work Australia has not become a ‘one-stop shop’ for dealing with all matters.
  • Collective bargaining at the enterprise level has not really increased, despite the Act focusing on it much more. Non-union collective bargaining has shown a slight, but not significant increase.
  • There has been very little interest by employees, unions or employers in Individual Flexibility Arrangements. ‘Mandatory flexibility’ is a contradiction in terms.
  • The dismissal provisions are more efficient, but still not flexible or informal enough. Payouts to settle matters at conciliation stage have become the standard outcome. The general protection provisions are too complex and have become a legal minefield. Forthcoming test cases may clarify the situation to some extent.
  • In general, the Act contains too many compromises to be regarded as the government’s prepared model.
Where to from here?
A review of the Fair Work Act has just been released and is awaiting the government’s official response.

Stewart offered the opinion that the Act’s fundamental provisions would ‘maybe’ survive a change of government. There are some members of the Coalition who would ‘like to do WorkChoices properly’ but this is not a unanimous view within the parties.

A panel session at the conference expressed the opinion that many industrial relations and HR practitioners ‘just want the changes to stop’ after 20 very turbulent years, acknowledging that no system will be perfect and preferring to leave the fundamentals of the current one in place for a while. Overall, industrial relations legislation has less impact on workplaces than issues such as organisation culture, management style, attitudes and education and training.

Overall impact of changes
Another presenter at the conference provided an overall assessment of what the changes of the past 20 years have actually achieved, and the implications of how things are currently changing. These issues will be covered in a further article.

Further information
More information about this conference is available from the Workplace Research Centre.
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