The government’s draft IR reforms need proper safeguards to ensure businesses aren’t at risk

The Albanese government tabled its new Secure Jobs, Better Pay Bill (2022) last week stating that the intent was for the bill to be rushed through the Parliament before Christmas, following a review by a Senate committee to be completed on November 17, 2022.

The bill was developed in response to the outcomes of the National Jobs and Skills Summit held in early September 2022 — which had been convened to explore opportunities to increase productivity and share the dividends of this productivity between businesses and their employees to promote wage growth.

The three key aspects of the draft bill that are of most interest to SMEs relate to the proposed changes to workplace flexibility, changes to the legal test of acceptability for new enterprise agreements (known as the Better Off Overall Test or the BOOT), and proposals to shift from single enterprise bargaining to whole-of-industry bargaining.

Much of the early media relating to the proposed new laws (made prior to the bill being made public) openly criticized the proposed changes to workforce flexibility. The new law proposes to make it easier for an employee to seek arbitration via the Fair Work Commission when an employer has refused their reasonable request for more flexible working arrangements to accommodate family care responsibilities.

Closer examination of this proposal, however, suggests that these arrangements are already in place in most modern awards. In effect, the proposed change involves making the existing appeal arrangements applicable in all workplaces by changing the umbrella legislation — the Fair Work Act (2009) — and slightly expanding eligibility to accommodate other forms of family care arrangements.

The proposed changes to the legal test for the acceptability of new enterprise agreements are welcome. The sharp decline in the use of Enterprise Bargaining Agreements (EBAs) by large and medium businesses over the past decade has been rightly attributed to changes made by the Gillard government in 2012, that made it harder to secure approval of new enterprise agreements. 

The result was that no one was able to get EBA’s approved because the ‘bar was set too high’. Businesses were effectively forced to allow their EBAs to lapse and revert to the standard pay and conditions in the relevant industry award. This reduced the opportunity to negotiate productivity improvements and left nothing in the bank for businesses to pay wage increases — which is why wages have only been going up in accordance with movements in the national award wage in recent times.

And so, if we stop at this point, the first two of the three major changes proposed in the new bill involve one that is simply standardising an appeal practice that already exists (i.e. for employees seeking flexible work arrangements) and making a long overdue improvement to the bargaining mechanism that, of itself, would facilitate the delivery of business productivity improvements and employee wage increases.

The risks of whole-of-industry bargaining

But all of this good work risks being undone, several times over, as a result of proposed changes to the way that businesses and unions bargain to establish new EBAs — although the exact extent of this risk is unclear.

The proposed laws seek to allow unions that have initiated a new bargaining process with one business — typically a large business with some union membership — to rope in all businesses that have similar workplace environments, regardless of whether they have union members or not. While this particular form of bargaining (referred to as ‘Supported Bargaining’) will be initially constrained to low-wage industries, the new laws create a precedent that could potentially be expanded to other industries in the future.

This raises all sorts of serious issues and risks the creation of unnecessary inflationary pressures at a time when the Australian community — and in fact, the global community — is dealing with economy-destroying levels of inflation.

While there are perhaps some situations where multi-employer bargaining may work effectively, there remains a degree of interpretation about which industries will likely be affected by the more extensive forms of multi-employer bargaining that are proposed in the draft laws. In fact, the rushed preparation of the bill and the limited consultation with business and industry to date gives rise to concern that the draft legislation fails to properly guard against potential serious negative consequences.

No two businesses are the same

The first of these relates to the fact that all businesses in a given industry are different. Australia’s 8000 service stations, for instance, are operated by around 3980 businesses. These businesses range from national subsidiaries of global energy companies to large national organisations, to medium and small family-owned businesses. All of these businesses have different business models and therefore different capacities to realise productivity improvements through workplace changes.

Any action that results in applying identical workplace changes across all these businesses reduces business diversity and potentially weakens the capacity of small businesses to compete with larger businesses. The resultant marginalisation of small family-owned businesses risks ceding competition to a smaller number of large businesses and a reduction of price competition intensity in the national fuel retail market.

The potential forced participation of all businesses in a given industry also raises a question about what happens if the businesses roped into a multi-employer bargaining mechanism already have an EBA in place. While the draft Legislation suggests that businesses with existing agreements would be excluded, it does not guarantee it and leaves the decision to the Fair Work Commission -— effectively jeopardising any unrealised benefits that may have been negotiated under the existing agreement.

Most significantly, the proposed bargaining legislation appears to fail the core objective of the National Jobs and Skills Summit in that it prioritises the goal of lifting wages above the equally important goal of delivering the business productivity gains needed to fund such wage increases.

The implied suggestion in the reforms that small and medium businesses could realise the same productivity gains of big business, is just plain wrong.

In an industry like fuel retail, where the gross profit margins are already very skinny (i.e. less than 2%), some of the more extreme forms of multi-employer bargaining that compel the participation of businesses risk increasing wage costs to a level that cannot be funded by wage productivity improvements.

Wage increases forced by industry-wide bargaining in the fuel industry, for example, without offsetting productivity improvements, will ultimately have to be funded by putting up prices at a time when Australia’s fuel retail prices are just starting to steady for Australian motorists.

It is therefore vital that the Albanese government take all necessary steps to advance reforms that will deliver wage increases and the productivity improvements needed to fund them to reduce inflationary risks. Great care should be taken to ensure that appropriate safeguards are put in place with respect to the proposed compulsory multi-employer bargaining and that business is given sufficient time to assess and provide feedback on the proposed reforms.

Mark McKenzie is the chief executive of the Australasian Convenience and Petroleum Marketers Association and a former board chair of the Council of Small Business Organisations of Australia (COSBOA).