Enterprise bargaining: resurgence or further decline?

It has been almost 13 years since the Fair Work Act 2009 (Cth) (FW Act) was passed, further developing a model which proclaimed enterprise bargaining as a major driver of economic prosperity. Now the centrepiece of the FW Act appears on life support. The refrain that enterprise bargaining ‘is broken’ has gained volume. Yet, as we head to the fifth Federal Election since the making of the FW Act, is anyone interested in fixing it?

Apparently, yes! Both major parties in fact. However, the view that the enterprise bargaining system is in decline and not meeting the needs of key stakeholders is where the consensus ends. The parties have different perspectives on what is wrong and what needs to occur to fix it. Attempts by the Coalition Government to create the support needed for reforms in 2021 came to little and business and union stakeholders continue to have radically different approaches.

The long term decline of enterprise bargaining is clear. The proportion of the workforce covered by enterprise agreements continues to drop. Recent reports revealed the percentage of the private sector workforce covered by enterprise agreements is less than 11%[1]. At the same time, while unemployment is low, wages growth is also low (2.3% per annum in the December 2021 Quarter[2]).

Where they have real choice, many businesses are choosing not to participate in the enterprise bargaining system at all. Whilst one can be compelled to bargain, there is no compulsion conclude enterprise agreements. Far more common than formal enterprise bargaining are discussions, consultations and negotiations of a variety of forms directly with employees about all manner of workplace issues. From annual salary reviews to the introduction of workplace policies, changing work arrangements and rosters, parties engage with each other outside of the formal statutory system.

There are a number of reasons for this. Some reflect a fundamental shift away from collectively organised arrangements. Many recognise intrinsic shared interests. Across our economy, direct communication, co-operation and compromise, to achieve mutually beneficial outcomes is frequently the desired approach. In most situations, employees and their employers do not have a predilection for conflict, nor to threaten, or actually inflict, economic damage upon one another.

However, a significant driver is the reality that, in most workplaces, enterprise bargaining is simply not worth the effort.  

Enterprise agreements generally do not deliver the much vaunted efficiencies or productivity benefits and negotiations are characterised by employers fighting off the imposition of artificial restrictions, and limiting wage increases to economically sustainable levels. The system imposes multiple technical requirements that can make enterprise agreements difficult, in terms of content and the formal processes for bargaining and approval.  

While the approach varies from case to case, in many instances the Fair Work Commission (FWC) takes a bureaucratic, technical and cautious approach to assessing proposed enterprise agreements for approval, making the approval process itself slow, cumbersome and unpredictable for many businesses. Then there is the significant matter that the FW Act requires that every employee is better off overall than under the modern award and the FWC then necessarily reviews agreements through the lens of how an individual can be worse off.   

That process involves analysing the position of every conceivable potential future employee, working on theoretical arrangements which may have no precedent or value to the business. For example, the test requires consideration of a theoretical employee who might be required to work every weekend and public holiday throughout the year, but no other days. Many businesses find such an exercise to be wholly superfluous, often because there is no benefit to them in rostering an employee in that way – they have never done it before and there is no evidence that they would, furthermore no employee would likely agree to work such an arrangement in any event. The system can consume itself from the inside.

For all the effort, the only consistent reward for business is protection against legally protected industrial action during a nominal term – which barely compensates for exposure to lawful industrial outside of it.  

The prospect of an enterprise agreement is therefore simply not attractive to all participants. Increasingly, businesses are addressing their needs, and the needs of their workforce, through other means. In many cases modern awards contain greater flexibility than what can be achieved by enterprise bargaining and often underpin direct engagement with employees through individual contracts and regular remuneration reviews. The role of workplace policies has blossomed during the period enterprise bargaining has been regulated. They are reviewed regularly and often in a consultative way, to achieve shared objectives.

In other cases, employers are happy to sit on so-called ‘zombie agreements’ without the drivers present to renegotiate – most notably, the pressure of protected industrial action.   Others have preferred to engage with alternate labour models – increasing the use of outsourcing, labour hire or directly engaging with independent contractors to provide flexibility for their business. In all cases, however, support for enterprise bargaining is waning.  

So against this background, what is the future of enterprise bargaining beyond the Federal Election? Of course, much will depend on the verdict of the electorate. We consider the alternative scenarios below.

A Coalition Government

If the Coalition is returned, we can broadly expect more of the same. Despite the well-reasoned battle cry of business that the ‘time for reform is now’, the prospect of the Coalition having a majority of both Houses to implement wide-ranging and significant reform in this area appears remote. Instead, their agenda is limited and targeted – indeed, some might say “small targeted”. Perhaps the Coalition is still scarred by the ‘WorkChoices’ scare campaign that is widely regarded as instrumental in losing them the 2007 Federal Election?

At its heart, the Coalition policy is based on what they were unable to achieve through the lengthy consultation leading to what became known as the ‘Omnibus Bill’ in late 2020.  Those aspects of the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 aimed at improving the enterprise bargaining system failed to pass through the Parliament. Some other aspects of the Bill, such as the rules relating to casual employment, made their way into law.

The Coalition has said they remained committed to those reforms, however have moderated them in important respects.  

Chief amongst the changes is a ‘stand alone’ proposal for ‘life of project’ Greenfields Agreements for up to six years (down from the earlier proposed eight years) for major projects (involving capital spend of at least A$500 million). It identifies this proposal as a ‘vote winner’ in the “major project” states such as Western Australia and Queensland.  The Coalition have now proposed that, in recognition of their extended life, the agreements must provide for annual wage increases that are the equivalent or better than increases awarded in the FWC’s Annual Wage Review.

The proposal, and its announcement, follows comments by former Australian Labor Party (ALP or Labor) Leader Bill Shorten during the last election campaign, who supported life of project Greenfield Agreements – although he did not release any detail of the proposal.

The shift from eight years to six years, together with the guaranteed wage increases, responds to some of the criticism made during the consultation for the Omnibus Bill.  Further, it appears the Coalition is no longer seeking to enable the Industrial Relations Minister to declare projects valued at A$250 million as major projects, able to access the extended Greenfields Agreements provisions. However, if the details reflect the detail in the Omnibus Bill, the six-year term only commences upon a predetermined event e.g. the commencement of works. Hence, it is a meaningful and important change for major projects.  

Another aspect of the Omnibus Bill that has attracted considerable attention relates to proposed changes to the ‘Better Off Overall Test’ (BOOT). Under the Omnibus Bill, the Government had sought to revise and simplify the BOOT so that only current or reasonably foreseeable working patterns would be assessed (rather than every theoretically possible working pattern), and overall benefits (including non-monetary) must be weighed in the assessment. It was also proposed that the FWC would be required to ‘give significant weight to the views of the parties who are covered by’ the agreement, on the question of whether it passes the BOOT.

The Omnibus Bill also proposed the FWC to approve agreements, where the FWC was satisfied it is not contrary to the public interest to do so, taking into account:

• the views of the parties to the agreement and their circumstances, and those of any unions seeking to become bound by the agreement;
  
  
• any impact of COVID-19 on the enterprise; and
  
  
• the extent of employee support for the agreement.

These proposals were dropped by the Government as part of the extensive consultation process and during the election campaign they have strongly refuted suggestions that the proposals will be revised.[3] Emphatically, the Minister for Industrial Relations has stated:

“The Morrison Government is not changing the Better Off Overall Test (BOOT) – full stop.”[4]

But one expects Labor will continue to agitate the issue as part of their attack on the Coalition’s position and stirring of the ghost of WorkChoices past.

Other proposals from the Omnibus Bill that the Coalition promise to implement, include:

1. Changes to the FWC approval process, intended to speed up approvals by limiting the intervention of external parties (e.g. a union that was not a bargaining representative). Other proposed reforms included allowing the correction of minor errors in agreements and enabling the FWC to take a more flexible approach to assessing whether employees have ‘genuinely agreed’.
   
   
2. Providing the capacity for new employers in the same franchise network to seek to be covered by an enterprise agreement covering multiple employers within the same franchise.
   
   
3. Certain collective agreements which were made before the FW Act commenced operation would automatically cease operation. The theory is that this would prompt a new round of bargaining. 

Across business these were widely regarded as sensible and relatively modest reforms. Would they reverse the long term decline in enterprise bargaining? Probably not; there are bigger and more fundamental issues at play. But where businesses need or choose to enter into the enterprise bargaining system, they would provide much needed and sensible improvements to the system.

An ALP Government

If the ALP is elected we can expect more focus on reforms to the workplace relations system generally, aimed at addressing perceived structural inequities, low wage growth, casualisation, the use of labour hire, etc. But for all that, changes directly to the bargaining provisions appear to be only a small part of the ALP agenda at this stage.

What we know about the Labor proposals to date are principally derived from their ‘Secure Australian Jobs Plan’; and the ALP National Platform (adopted in 2021), together with various statements from senior Parliamentarians.

Pulling these various information sources together, the ALP has expressed support for:

1. Developing stronger good faith bargaining principles and improving access to arbitration of disputes. The spectre of having a much stronger role for the FWC in bargaining can fundamentally change the bargaining dynamic, with the prospect of parties holding out on claims with a view to having the FWC determine the outcome, often by granting part of the claim.
   
   
2. The related proposal to extend the powers of the FWC to include employee-like forms of work, and in particular the proposed FWC power to inquire into all forms of work and determine what rights and obligations should apply, potentially opens the door for enterprise bargaining to occur amongst independent contractors. The extension of the FWC’s powers into the domain of independent contractors could force traditional independent contractors – such as tradespeople in the building industry – into collective bargaining.
   
   
3. Broader access to collective bargaining generally, including the possibility of ‘multi-employer agreements’. Previously, Labor have supported “industry bargaining”; a concept recently adopted in New Zealand. If Labor are not adopting a policy of permitting ‘industry bargaining’, it is unclear what is meant by ‘multi-employer’ agreements, beyond what the FW Act presently has in place.
   
   
4. Preventing unilateral termination of collective agreements where this reduces employee entitlements. The effect of this proposal is potentially significant – returning enterprise agreements to an ‘evergreen’ status and having the existing enterprise agreement set the ‘starting point’ for negotiations. This policy reflects a criticism unions’ have levelled against employers terminating enterprise agreements during bargaining, with the effect of shifting the balance of power in bargaining.
   
   
5. Ensuring agreements can only be made by a ‘representative cohort’ of employees. This is squarely directed at eliminating what have become known as ‘small cohort’ agreements, when a relatively small number of employees approve an agreement that later applies to a much larger workforce.

The detail of how these very broad principles will be applied is not clear; at this stage we can only speculate. Probably the issue that could have the biggest impact would be enhancing access to arbitration in the FWC. We anticipate this will lead to provisions that allow unions, even where they have minimal membership levels, to apply strong pressure on businesses to bargain, and to do so following enhanced and stronger good faith principles. It also potentially expands the reach of enterprise bargaining to ’employment-like’ work, which would capture a range of relationships that are currently considered to be independent contractors under the common law.

The Senate

Whoever wins will of course need to get any legislative changes approved by the Senate. The Coalition found the current Senate, with various minor parties and independents holding the balance of power, to be unpredictable and challenging. The balance of power senators who rejected the Coalition’s proposals on previous occasions did so after the very public urging of Labor, suggesting that Labor may have better prospects of getting its agenda through.

It is also possible that either the Coalition or Labor will form a minority government and be required to govern without a working majority in the House of Representatives. This would add further to the challenge of implementing any reform. If nothing else, we expect either party to have to compromise and haggle to get any substantial reforms approved.

So what?

As we have described, some businesses have moved away from the enterprise agreement system – they have chosen to rely on common law contracts, underpinned by awards, or long expired (but still operating) enterprise agreements, or other models.

The reasons why businesses have moved away from the enterprise agreement system include those legal and bureaucratic obstacles that the ‘Omnibus Bill’ was aimed at addressing. The Government withdrew these parts of the Bill during the heated parliamentary process and it seems unlikely that Labor will reinstate them, at least in the same form.

In our experience, the business community that participates in bargaining does so mainly because there is an expectation amongst their workforce for this, and/or there is a strong union presence that demands it. They continue to advocate for reforms to make the system more accessible, less bureaucratic, and the approval process less onerous.

If Labor wins, expect reforms that will put more pressure on businesses that don’t wish to enter or to remain in the bargaining system and to substantially engage with unions, to do so. If the Coalition wins, expect a slightly altered version of the status quo to continue. In anticipation of either outcome, having strong engagement with your workforce, and providing competitive terms and conditions (not dependant on the enterprise bargaining system) will remain key to maintaining a productive workplace relations environment.