‘Repair, not replacement’: Productivity Commission releases draft report on workplace relations framework

The Productivity Commission has released its draft report on the workplace relations framework, as part of its inquiry into the current performance of Australia’s system and scope for improvement. This article provides a high-level overview of the key proposed changes.

On 4 August 2015, the Productivity Commission released a draft report in relation to its inquiry into Australia’s workplace relations framework.

• The draft report considers that whilst overall the system is ‘working well’, there are some changes necessary to ensure that it provides flexibility to all parties.
• For employers, the proposed reforms flag some encouraging, albeit limited, changes in respect of enterprise bargaining and unfair dismissal/general protection claims.
• The reforms, if ultimately implemented, will provide some gains for employers in an otherwise challenging environment and will see the extension of greater discretion to the Fair Work Commission to moderate parties’ industrial behaviour and manage claims.
• Further written submissions have been invited by 18 September 2015 (with public hearings held that month), and the final report is due in November 2015.
• Together with the findings of the Heydon Royal Commission, the final report will likely to form a key plank of the Coalition’s workplace relations policy for the 2016 election, and a mandate for legislative reform.

Key proposed changes

The draft report released on 4 August 2015 proposes reforms to address some of the current flaws in the workplace relations framework, including constraints on the current bargaining regime, restrictions on the capacity of the Fair Work Commission (FWC) to moderate union conduct and the need for improved outcomes in unfair dismissal and general protections claims.

The PC proposes some substantial structural reforms to the FWC, including splitting its operations into two separate divisions (tribunal and minimum standards) and recalibrating the process for appointing new members to ensure greater ‘consistency’ in outcomes.¹

In addition, the PC has lauded the recent performance of the Fair Work Ombudsman in ‘safeguarding the system’, and has recommended that it be allocated further resources in order to continue to target ‘hot spots’ such as the use of 417 visas.² In a move which is likely to see increased prosecutions of employers, the PC has noted that the current test to prove sham contracting is a ‘high hurdle’, and should be revised.³

Enterprise bargaining

The PC notes that whilst ‘the bulk of agreements’ are "formed without difficulty and with benefits for all parties",⁴ there is room for improvement, including the following:

• removing procedural defects as a bar to approval of agreements,
• extending good faith bargaining requirements to greenfield agreements,
• extending the operation of greenfields agreements to match the life of a project and introducing ‘circuit breaker’ measures for stalled negotiations,
• introducing ‘enterprise contracts’ for small and medium enterprises as a stopgap measure for a 12 month period,
• scrapping the better off overall test (BOOT) in favour of a ‘no-disadvantage’ test,
• imposing new limits on protected action ballot orders, bargaining representatives and right of entry and permits,
• increasing maximum penalties for unlawful industrial action,
• reducing the threshold test for suspension or termination of industrial action (employee claim action) by FWC in circumstances of significant economic harm,
• moderating strike pay rules and providing greater scope to stand down employees, and
• amending the FW Act to exclude transfer of instruments where a change is at the employee’s instigation.

Whilst the PC has accepted the recommendation that restricting the engagement of contractors, labour hire or casual workers should be ‘unlawful’ under the Fair Work Act 2009 (Cth) (FW Act), it has resisted calls for the introduction of ‘productivity’ terms.

Importantly for employers, the PC is seeking feedback on a range of additional measures under consideration, including limiting the granting of a protected action ballot to circumstances where enterprise bargaining has commenced, streamlining ballot procedures, graduated options for retaliatory industrial action (a lock out being seen as too ‘nuclear’ by employers)⁵ and an enhanced role for Fair Work Building and Construction in prosecuting secondary boycotts (in conjunction with the Australian Competition and Consumer Commission).

Unfair dismissal

The PC has identified as a major concern the number of employees who engage in misconduct but are still awarded compensation due to procedural lapses by an employer.⁶ To address current deficiencies, the PC recommends:

• no compensation or reinstatement where procedural error alone (other remedies may be appropriate, such as advice or financial penalties),
• ‘filtering’ applications to determine merit at an early stage,
• increasing filing fees to limit access (and introducing means testing),
• removing the emphasis on ‘reinstatement’ (which is rarely granted),
• improving consistency of outcomes by changing the method for appointing members to FWC (as outlined above), and
• removing the Small Business Fair Dismissal Code.

General protections claims

The PC does not propose any significant change to the current ‘rapidly growing’ regime,⁷ and has resisted business and industry calls to amend the ‘reverse onus’. The PC has however recommended that:

• complaints be assessed at the initial stage to ensure that they are made in good faith,
• compensation be capped,
• expensive and time consuming requests for discovery be aligned with Court processes, and
• what constitutes a ‘complaint’ for the purposes of demonstrating a ‘workplace right’ should be clarified.

Penalty rates and minimum terms and conditions

In respect of minimum standards, the PC has recommended:

• ‘rebalancing’ penalty rates for weekend work in retail, hospitality and other non-essential services,
• no leave or additional penalty rates for newly designated public holidays,
• implementing flexibility terms in awards regarding public holidays, and
• considering extension of annual leave entitlement and ability to cash out.

Current regime (largely) here to stay

Despite business groups lobbying for substantial changes to the current system, the PC has not embraced the case for wholesale reform. No changes have been suggested in relation to:

• the bargaining framework, including the need to impose time limits on bargaining, add further criteria to the test of ‘genuinely reaching agreement’, reduce the scope of matters subject to negotiation, impose a ‘pre-qualifying’ test for employee claims in respect of protected industrial action and address issues in public sector bargaining,
• the operation of the current modern award system (the PC suggests 4 yearly reviews are unnecessary and future assessments should be limited to an as-needed basis),
• the need to introduce a national long service leave scheme for consistency, and
• the increasing use by employees of the new Anti-Bullying regime (the PC notes that the ‘expected barrage of claims has not materialised’).⁸

Impact on employers

Whilst the suggested reforms are an encouraging sign for employers, they will not translate into changes to the FW Act at this stage.

It is anticipated that recommendations contained in the final report (scheduled for release in November 2015) will form a key plank in the Coalition’s election policy for 2016, and a mandate for legislative reform, in the context of a Federal election where workplace relations is shaping up to be a hot issue.

Employers wishing to express support for the draft recommendations or make further comment (particularly in relation to the feedback sought regarding bargaining changes) can provide a written submission by 18 September 2015.

Herbert Smith Freehills can assist with the preparation of a submission or appear at the public hearings scheduled for September 2015 on behalf of your business.

We will keep you updated on the progress of the inquiry.

Endnotes

1. See Productivity Commission Draft Report Overview, at page 12.
2. See Productivity Commission Draft Report Overview, at page 10.
3. See Productivity Commission Draft Report Overview, at page 42.
4. See Productivity Commission Draft Report Overview, at page 31.
5. See Productivity Commission Draft Report Overview, at page 41.
6. For example an employee physically assaulted a supervisor but the dismissal was found to be unjust or unreasonable because the company failed to follow a proper investigation process, See Productivity Commission Draft Report Overview, at page 28.
7. See Productivity Commission Draft Report Overview, at page 29.
8. See Productivity Commission Draft Report Overview, at page 30.