Behind the IR Battleground

This article was first published in the Australian Financial Review.

In one important policy area at least, there is sharp contrast between the positions of the major parties. Labor has committed to abolishing the Australian Building and Construction Commission (ABCC) while the Coalition has promised to double the maximum penalties that courts can apply when the ABCC takes action against building industry participants under the Building and Construction Industry (Improving Productivity) Act 2016.

One could be could be forgiven for thinking that this issue is a perennial political football. The Senate’s rejection of Building Industry Bills that re-established the ABCC were a trigger for the 2016 double dissolution election. The Bills were passed by the new parliament later in 2016.

The construction industry is a critical part of the national economy. The Australian Industry and Skills Committee recently observed that the industry generates over $360 billion in revenue, producing around 9% of Australia’s Gross Domestic Product, and has a projected annual growth rate of 2.4% in the next five years. Most businesses in this industry are either sole traders, or very small, employing less than 20 people. They also tend to be Australian owned, with sales occurring in the domestic market.

However, the construction industry is a serial productivity underperformer. As a labour intensive industry, construction productivity relies heavily on labour productivity.

Since 2016 the ABCC has been very active - consistent with its legislative mandate. Its latest quarterly report revealed 112 open investigations - including 58 concerning wages and entitlements, 24 right of entry, 11 unlawful industrial action, 10 coercion, 4 freedom of association and 2 sham contracting. In 2020-21 the ABCC was successful in 16 of the 17 cases it took to court, resulting in penalties of almost $3.5m.

The ABCC has been subject to some judicial criticism, for example, that some court pleadings have been unnecessarily inflammatory.

But on any view, this pales into insignificance compared to criticism of CFMMEU industrial conduct. The table of contraventions recently placed before the Federal Court ran to 85 pages and 182 cases spanning two decades. The court found that the penalties in these cases had little if any deterrent effect. Justice Katzman said:

“The Union adduced no evidence to show that it has any system in place to ensure compliance or prevent or reduce the risk of its officials or employees breaking the law. It has adduced no evidence to indicate that it has taken any corrective action. It appears to have no culture of compliance. If anything, the evidence suggests it has a culture of non-compliance. While it insists on employers complying with the law, it behaves as if it is above the law.”

The High Court has recently confirmed that courts can take account of this context in fixing penalties for contraventions of laws so that the penalties operate as a deterrent against future breaches. As this decision overruled the prevailing Federal Court approach, we can expect that penalties will increase in future cases.

Indeed, there is some evidence that previous increases in statutory penalties for some building industry offences have led to less breaches of the conduct subject to increased penalties.

It is this context which will magnify the impact of the major parties’ policy proposals. If the ABCC is to be abolished, what will deter unlawful behaviour in the industry in the future? And on the other hand, are the increased penalties proposed by the Coalition necessary and sufficient to deter unlawful conduct? Importantly, there are also proposals to criminalise systemic and negligent underpayments of employees in all industries and the civil penalties applying to the most serious underpayment cases.

The elephant in the room is the overall approach to the enforcement of laws that constrain traditional union activity in the industry. Inevitably, this is what the policy debate and an incoming government must address.

There is agreement that underpayments and sham contracting rules should be enforced. But there is no agreement that unions should be prosecuted when officials visit worksites, threaten disruption, harass and abuse management, flout occupational health and safety protocols, demand the use of union approved contractors and discriminate against non-union members.

The argument advanced by the unions is that such constraints on their activities undermine safety performance - in an inherently unsafe industry - because union involvement is ultimately directed towards the safety, welfare and benefits of employees.

Employees in the industry are often the meat in the sandwich. The benefits at union sites are a margin above non-union sites, but work in the union sector requires employees to fall in behind the union at every turn. Rigid, union driven building industry non-working days, for example, undermine flexibility that many employees prefer. Such restrictions are also an obvious productivity inhibiter.

Perhaps all parties can agree that the building industry code of practice is not perfect and should be revised to fairly address important safety and productivity measures.

But stakeholders deserve more on the obvious compliance issues. Given the sharp divide between the positions of the major parties, each side should be pressed to address the consequences of their respective policies and provide assurances on their impact on wages, safety and productivity in this crucial industry.