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STANDING COMMITTEE ON EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
30/04/2009
Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009

CHAIR (Senator Marshall) —I open this public hearing. On 9 March 2009 the Senate referred to this committee an inquiry into the provisions of the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 for report to the Senate by 7 May 2009. This bill is the first of two bills which make transitional and consequential provisions in relation to the new workplace relations system set out in the Fair Work Bill 2008. The bill repeals the Workplace Relations Act 1996 other than schedules 1 and 2. It makes transitional provisions to move employees, employers and organisations from the old Workplace Relations Act system to the new system and makes consequential amendments to Commonwealth legislation essential to the operation of the Fair Work Act.

Witnesses appearing before the committee are protected by parliamentary privilege. This gives them special rights and immunities because people must be able to give evidence to committees without prejudice to themselves. Any act which disadvantages a witness as a result of evidence given before the Senate or any of its committees may be regarded as a breach of privilege. I thank witnesses for their understanding and accommodation of the changes made today so that Senators were able to attend the funeral of the former deputy clerk yesterday afternoon. I welcome the witness from the Australian Chamber of Commerce and Industry. Is there anything you wish to add about the capacity in which you appear today?

Mr Anderson —I register an apology on behalf of Mr Daniel Mammone, our manager of workplace relations, who was scheduled to attend by teleconference. He is ill with influenza—not the swine flu but pure Australian influenza—and is not able to be here.

Senator ABETZ —We wish him a speedy recovery.

CHAIR —We have your submission. Do you have any additions or alterations to make?

Mr Anderson —No, there are no alterations to make.

CHAIR —We invite you to make some opening remarks to the committee, to be followed by questions.

Mr Anderson —As senators would be aware from both our submission on this bill and earlier submissions on the Fair Work Bill, employers, through ACCI, have had a number of significant concerns with the government and the parliament on the policy frameworks and content of the fair work system. Although a few of these concerns were remedied in the legislative and prelegislative processes, many remain in whole or in part. As strongly as many in industry hold those views, it is equally our view that the new system, which is a reality, should be given every chance to operate in as smooth a manner as possible. That would be in the interest of the economy. In itself, that would be no small challenge given the dimensions of the recession impacting our economy and the labour market and given the terms of the new IR system. Communication and information programs by governments and business organisations such as ours and our members’ have an important role to play, and the government’s recent announcements in this regard are welcome. But for the fair work system to commence with a minimum of fuss, self-evidently rules need to be set as to the status of industrial arrangements in place immediately prior to the operation of the fair work system, and those rules need to be fair and practical. This is where the Senate comes in. This is the focus of the bill, and we believe a transitional bill needs to be enacted.

The bill before us is complex, in some cases necessarily so—for example, because there have been so many system changes in the past, because some past systems were too complex, because we are still trying to integrate state industrial relations systems into a national system and because rules need to be made for many different forms of past industrial instruments that exist in the economy. In other cases, though, the bill is unnecessarily complex. Perhaps the most avoidable complexity is that, under the bill, we face, indeed, two transitional periods: a set of rules for the six months from July to December 2009 and then a different set of rules from January 2010. This is a direct consequence of government deciding to bring large parts of the fair work system into operation six months earlier than the originally intended date of 1 January 2010. We consider that this was a mistake in policy terms. Bringing forward labour market re-regulation in a time of recession is hard to fathom. In operational terms it adds to the complexity I mentioned, and we believe that the Senate ought provide one common operative date that would be easier in terms of implementation: the first full pay period on or after 1 January 2010.

Notwithstanding that issue, the bill has been the subject of some consultation. Some of its provisions are agreed and agreed by us; however, we differ from the government in a number of areas, and the Senate should amend the bill accordingly. None of the amendments we seek through our submission affect in any way the integrity of the government policy. They would make the transition fairer and smoother. Unless the transition is fair and smooth, the system will get off on the wrong track with many employers, even those amongst our own membership and those who more generally take no interest in the policy debates we have in this place or the political debates that senators have. Our submission provides details on the variety of matters we raise. I will simply refer to three major points for the purposes of this opening statement.

Firstly, we do not agree with the terms of lawful existing agreements being retrospectively varied on wages or conditions by new wage rates in modern awards or the legislated conditions, called the National Employment Standards. We believe that this is unfair as this proposed arbitrary rule would alter the balance of negotiations on wages and conditions that employers, unions and employees settled on for the duration of those agreements. If the Senate does not agree with the primary amendment we suggest to cure this problem, we have proposed a number of lesser amendments. Our attempt is to provide a constructive way through. These matters are addressed in paragraphs 22 to 68 of our submission.

Secondly, we believe it is necessary that both of the ministerial directions—that the new modern awards protect employee disadvantage and that they are not intended to increase employer costs—be legislated. The bill proposes to legislate only the employee guarantee through take-home pay orders, and that has been a focus of this committee’s hearings in a number of previous days of hearing. In doing so, we believe the legislation is unbalanced and unfair. This is no small or hypothetical problem. As the committee has been informed by some previous witnesses and as we know from the draft modern awards, some key industry sectors with many small business characteristics will face significant indirect and direct labour cost increases simply as a consequence of what was meant to be a regulatory clean-up. Even many past consent awards between unions and employer bodies are to be set aside through that process. Those businesses expect the honouring of the ministerial commitment and the protection of their parliament as much as employees do. In some cases that will occur, but in many cases it will not. These issues are expanded in paragraphs 71 to 96 of our submission, with paragraph 94 again setting out some alternative positions.

Thirdly, representation orders should be able to be made in advance of a demarcation dispute actually arising. Agreement-making processes and commercial contracts completed or largely completed prior to 1 July should not have to be repeated or renegotiated. These are some practical matters upon which the Senate too should focus. To require renegotiation or the repetition of process would be a waste of time and resources and will create uncertainty where none need exist. The bill generally applies this principle quite well but fails to do so adequately in two areas—the bargaining rules and the rules on the transfer of business. Paragraphs 113 to 119 and 128 to 133 of our submission address this point. In each of those areas of concern the Senate can prevent the transitional rules for the fair work system adding their own extra compliance and start-up costs beyond those that would be imposed as a consequence of the substantive bill. Unless we fix some of these problems, an unnecessary degree of angst is likely to be felt by many employers despite the government’s intention to start the system off on the right note and despite the best endeavours of the business organisations to do so. That concludes my opening statement.

Senator JACINTA COLLINS —I want to pick up on one of the points that you have just covered. We discussed this yesterday. There are a few different employer positions, but in your case it is that the take-home pay order should be complemented by some type of arrangement to deal with an increase in employment costs for the employer. I have gone to your submission and the section we are dealing with, take-home pay orders, but what we were asking for yesterday and have yet to receive is something a bit more concrete about how that might occur. In the take-home pay orders case you have a discrete unit—as in one individual—a discrete set of circumstances, which is much more difficult to assess than the case of an employer and a claimed increase in employment costs across their workforce or across their circumstances. I am wondering if ACCI has given any consideration to how Fair Work Australia might apply such a test.

Mr Anderson —Since the development of the submission we have given some more thought to that, and ultimately that type of concrete conclusion or consideration needs to be made as a consequence of any consideration of the submission we make. Before coming to a specific suggestion, I will just clarify one aspect of your question—that is, take-home pay orders can be made in respect of a class as well.

Senator JACINTA COLLINS —I understand, yes.

Mr Anderson —and I suspect in many cases the applications that will come before Fair Work Australia will relate to classes of employees.

Perhaps one of the best suggestions we have assessed is to introduce a further element into the exercise of the discretion by Fair Work Australia. In assessing the terms of a take-home pay order, rather than Fair Work Australia just considering the matters that relate to employee disadvantage or employee disadvantage within the group they could also consider, in making the terms of that order, the impact on the costs of employers in that group of making that order. In other words, there are some circumstances here where there are going to be some trade-offs. The difficulty the Senate has, and the difficulty we all have, is that giving effect to the proposition that no employee will be disadvantaged comes into conflict with the proposition that no employer’s costs will rise, because it is axiomatic that the employee disadvantage being cured almost inevitably involves the raising of the employer cost. It is the employer cost that flows from curing the disadvantage but also from the operation of the modern award in different terms to what previously applied.

So either you create a separate stream where orders can be made curing the employer cost—and that would be our preferred position because that would give clear expression to the ministerial direction; but it will have the flow-on consequence of then asking, in making those orders, what you do with employees who are disadvantaged as a consequence of those orders, which is the flip-side problem of what we are trying to determine here—or you deal with the employer cost issue in the context of deciding what the terms of any take-home pay order will be. Whilst that is not the preferred position because that almost puts employers in a position where they would have to be carrying the onus of arguing that you should moderate the take-home pay order because of our costs, that would at the very least be consistent with the way in which the government has framed this legislation, because it has obviously decided not to go for the former option that I mentioned, our preferred option. But at the moment there is no exercise of discretion which goes to the question of employer costs in the terms of making the take-home pay order, and we think that is, at the very least, where the Senate can try to cure this problem.

Senator JACINTA COLLINS —But there are other elements of the act that do take into account employment costs.

Mr Anderson —There are some broad objects of the act that will go to questions of productivity and economic application, but those objects are all, in their own terms, balanced against other objects which will ensure that modern awards operate as a fair safety net and the like. Where you have a specific jurisdiction created—that is, the making of a take-home pay order—the capacity to try and use a very generic object as the leverage to say you must moderate your take-home pay order because of that object is a very difficult argument to put because it is an argument easily defeated by reference to other objects which will counter that economic or commercial object.

Senator JACINTA COLLINS —Let us just explore for the moment a potential assessment along these line. I will go back one step first, though. Yes, you are right—to try and ensure that there is no disadvantage, the obvious trade-off now is take-home orders as opposed to guaranteeing someone’s complete set of conditions. That is one trade-off on that end. From the employer’s point of view I do not think it is fair to say that there has been no accommodation, because there is the allowed five-year phase-in period as well in terms of shifts in modernising award processes. That is obviously an element designed to try and phase-in the impact of shifts in employment costs.

Let us just explore a particular situation. Let us say employer A has an increase in their hourly rate of pay for a particular class of employees but a decrease in their casual loading. How do you apply that balance of their employment costs to a take-home pay order for a particular employee who may not be a casual?

Mr Anderson —This is precisely the sort of thing that has been the product of determination by the AIRC when it has come to determine some of these award provisions in the first place where it has conducted merit hearings on those very issues. The determination of whether or not you may, for example, provide for a higher rate of pay in an award in return for a reduction of a penalty rate—

Senator JACINTA COLLINS —No, no—I understand those situations.

Mr Anderson —involves those trade-offs, and those trade-offs are not unknown to the industrial relations area.

Senator JACINTA COLLINS —Yes, I know. You and I know them well.

Mr Anderson —In fact, in a past life I was involved in some very worthy agreements where we did that. So there are going to be some trade-offs. But where you are—as I suspect we will be—dealing primarily with groups of employers and groups of employees, when we come to the question of take-home pay orders, then inevitably there are going to be winners and losers inside even that category of employees, in respect of the take-home pay orders, because not all employees work the same roster and, at certain points in a working roster, there are higher remuneration entitlements than at others.

Senator JACINTA COLLINS —Yes, and rosters will change.

Mr Anderson —And so there will be some averaging factor that Fair Work Australia will apply in any event when it deals with take-home pay orders, even under the legislative proposal we have before us. What I am saying is that the fact that there is going to be some averaging factor applied in respect of determining the orders, as the government would propose in the legislation, means that it is not a great leap to say that you have to average a range of other considerations in the terms of the order, and those other considerations are the costs that are going to flow through to employers as a consequence of the operation of the modern award.

Senator JACINTA COLLINS —I am sorry—in the example I gave you I probably gave you the wrong example of where the casuals should be. Say that, for a class of full-time employees, there were a change to their penalty for working Saturdays, so their take-home pay would be reduced under the new arrangements, whereas the penalty rate for the casuals in that workplace has risen from 20 per cent to 25 per cent. The employer, across its workforce, would now have additional employment costs. But the full-time staff, who would previously have been paid X amount, now face a drop in their pay unless they receive a take-home pay order. I do not think it is envisaged that Fair Work Australia would say, in relation to their claim for a take-home pay order, ‘Because the casuals are getting more now, we are not going to grant you the amount that preserves your previous rate of pay.’ I do not think that is envisaged at all.

Mr Anderson —No—on that example, I do not think that is envisaged. That identifies one of the unfair aspects of the way in which this proposition would work through, because it would allow a union to, effectively, just narrowly construct a specific class of employees—in your example there, the full-timers who would receive a lower remuneration—as the class in respect of whom the take-home pay order should apply.

In assessing that question, no regard under the current framework would be given to the fact that a member of Fair Work Australia could receive material or be influenced by the fact that the employer is paying higher costs for retail workers or the other workers on a Saturday. The application by definition only narrows in on that one form of employment category in the workplace that is disadvantaged, that is the subject of the take-home pay order, and the issue of the employer costs cannot bear any relationship to the making of that order. It is very much directed at ensuring that those individuals are not worse off, notwithstanding the fact that the employer is worse off in respect of the total employment by that employer.

Senator JACINTA COLLINS —Yes, and I think that is probably where we will have to conclude on a difference of opinion because I think the phasing arrangements in the system are what accommodate those concerns.

Mr Anderson —Phasing is not something that industry opposes, but I think we need to be really clear about this. To a certain degree, phasing allows industry to prepare for the higher cost and it delays the impact of the higher cost, but it does not prevent the higher cost applying. We have to go back to the proposition that if this is not intended to increase employer costs then phasing does not cure the inconsistency between the ministerial direction and what will ultimately be the outcome as a result of the modern award process in some industries. I am not saying in all industries, and I think I should be clear about this too. The real problems that are occurring here are in the industries where there has been a heavy award reliance on the old state award system. Many of these problems arise from trying to remove state differentials. Some of these problems arise from then trying to take those industries and put them into mega-industry descriptors—the restaurants industry is an example of that. But it is not all industries where this is insoluble. Where you fundamentally had industries operating under a national structure the problems are less acute. Where the problems occur—

Senator JACINTA COLLINS —In part, the problems are less acute because they have been dealt with in bargaining over the last five to 10 years.

Mr Anderson —Some of the more heavily unionised industries have been dealt with through bargaining. The industries that come from the state IR system tend to be lower unionised industries, service industries, and, critically for this process, they are the industries which are very labour-intensive and very award reliant.

CHAIR —We have had evidence that there is a lot of advantage to employers too. In fact, the AiG yesterday were happy with some of the outcomes employers have received through the award modernisation process. Are you saying that award modernisation has resulted in across-the-board extra costs or are you saying it is more balanced than that?

Mr Anderson —I will follow on from my last answer to Senator Collins. There are some industries, particularly where they have traditionally operated under a national structure, where they will be able to achieve satisfactory results or results which do not impose acute new costs. But we cannot try and discount the impacts in those industries where there are some acute new costs by the fact that in other parts of industry they may be able to manage this process. The ministerial direction did not say that we are going to trade one industry sector off against another. More particularly, in the industrial relations area we never have said, ‘Because in manufacturing X outcome has been achieved with satisfaction, we will flow that outcome onto the service industries.’ We have never done that in the industrial relations system. We have conducted hearings on the merit in the service industries and examined what the appropriate impact of new or changed award provisions will be on employees in those industries.

Ultimately that is the right thing to do, because the fact that you may not be imposing extra costs, costing jobs or putting some employers at risk in one industry does not make things any easier in the other industries. I think that we are looking at award structures which are independently operating inside industries, and they have to be examined that way. That is the way the industrial relations system has always done it.

CHAIR —You would have preferred, then, not to have the award modernisation process.

Mr Anderson —No. I think what has occurred is that the award modernisation in some of these industries is biting off more than it can chew at the one time. It is trying to do three things. It is lifting the safety net to what the government says the appropriate award safety net should be, including some matters that were removed from awards in the past and adding some new things. That is relatively straightforward.

The second thing it is trying to do is to remove state differentials, and this is where it gets complicated and where the costs start to flow, because when you start dealing with those service industries that have traditionally had very different state award structures—in retail, hospitality, tourism and leisure industries—the removal of state differentials, by definition, is going to involve some very significant cost issues depending on where you pitch the new award. That will not be the case in those industries that have been operating under national awards, because they have not got state differentials to remove; hence, they will still be able to get through that door reasonably satisfactorily.

The third thing it is trying to do is to create a national award structure for larger groups of industries—in other words, to try and reduce the total number of awards—so restaurants get tied with hotels into a hospitality award. So you have industry sectors that have always been either differently or largely differently analysed for the purposes of their award provisions brought together—more particularly, industries with some very different trading and financial circumstances—and that involves real problems in trying to marry costs as well.

So, in doing all those three things at once, we will have problems in the service industries. We are not opposed to the process of creating modern awards, but the process in those service industries has been too ambitious and too truncated. It fundamentally has not allowed some of the merit-based issues to be dealt with, and that is, I think, part of the angst that we see—not just the draft outcomes but the fact that these industries have not been able to have proper hearings conducted with the evidence that is required, particularly in the stage 1 process, on some of these issues.

Senator ABETZ —I think that is a good starting point. I had a grab bag of questions to ask you, but allow me to start with the modern award process. As I understand it, there will be a review every four years and an interim review after two years. The suggestion has been put to this committee that there may well be, because of the ambitious project that it is, unforeseen errors or consequences and that, as a result, there should be an opportunity to revisit or reopen the modern awards prior to the two-year interim period. I understand that there are sections in the legislation dealing with issues of ambiguity and, of course, you have the problem of potentially opening the floodgates with everybody saying that every issue that they want changed was an unforeseen consequence. Is that something that has exercised ACCI’s mind and, if so, what is your solution to getting a sufficiently tight definition of unforeseen or unintended consequences?

Mr Anderson —It has exercised our minds, and there does need to be a mechanism for some variation to deal with either unintended consequences or consequences which are of such a serious nature that there is damage to the interests of the industry or the employees in that sector. The first thing I would say about that, though, is that you really do not cure a problem by saying, ‘We’re likely to have a problem, but let’s make the modern awards and then after the event try to cure the problem.’ It is much more difficult to alter an established instrument than it is to get the instrument in the right shape in the first place. We think that in some of the areas it is self-evident that the ministerial direction is not able to be given proper effect to because of the issues that we have already discussed this morning. It would be unwise for those awards to come into operation, for those higher costs to be imposed to cover those additional payments, some of which are windfall gains for employees. It has to be understood that this is not the product of working differently or the like; these costs are imposed simply as the product of changes in the mix and the nature of regulation. It is much harder and much more difficult to take those issues away or to rectify those issues later in the day, because you then have to ask, ‘Do we need transitional provisions or some measures to ensure that people who have been relying on those additional forms of income are not themselves disadvantaged?’

Senator ABETZ —I agree with all that you are saying. I have a hunch that we will not necessarily be able to do anything about that in the sense—

Mr Anderson —I understand that. The business organisations are working in the commission to bring about as best outcome as they can by 1 January 2010. But there is no flexibility in the ministerial direction in its current terms in that regard and we believe there ought to be.

Senator ABETZ —That can be remedied then just by a ministerial direction, not necessarily by an amendment to the legislation?

Mr Anderson —It can be remedied in both ways. The commission is acting on the basis of a ministerial direction. A ministerial direction could indicate that where there are significant costs to industry or a sector that would arise from the operation of a proposed modern award then that proposed modern award not come into operation on 1 January and that an existing award structure operate until such time as Fair Work Australia creates a proposed modern award that meets the terms of the ministerial direction.

Senator ABETZ —Of course, there would have to be a two-way street as well whereby if employees suffered a huge loss that was unforeseen then they could also make application?

Mr Anderson —Absolutely. This is the dilemma. The stage 1 process, particularly, which dealt with some of these very significant awards, did not allow for what we would see as merit based hearings that are necessary to properly analyse the balance of interests. To come back to your question about postoperative provisions, the risk we must avoid is providing such a gate for a review which involves Fair Work Australia dealing with substantive issues about award content rather than simply the so-called unintended consequences. My dilemma, though, is that the phrase ‘unintended consequences’ is a very narrow term in this context. Some of the consequences we have been talking about this morning are, at the very least, foreseeable. We are foreseeing them right now. So if unintended consequences means things that you could not have foreseen at the time that the awards came in then it is hardly unintended to say that there will be some cost increases. In fact, a number of commission decisions in these critical award areas have clearly said, ‘Yes, we understand there will be some costs to employers that flow from the consequences of our decisions.’

Senator ABETZ —Time is limited, so if I can quickly ask about representation orders. As I understand the current legislation, the new power can only be exercised in relation to a dispute. A suggestion has been put to us that that should be expanded. In fact, if you look at the explanatory memorandum on page 129, you will see there is a cameo or an example in a box of Spokey Dokes, which, interestingly, Senator Fisher, the government put in its own explanatory memorandum: ‘aware there is a longstanding enmity between two particulate unions’. So the government acknowledges this actually exists in real life, which is interesting. I do digress. It says that in circumstances such as that you should be able to get an order, yet the legislation says ‘only in a dispute’. Professor Stewart suggested to us that it might be worth while to include the words ‘a threatened, impending or probable dispute’ to cover the Spokey Dokes example that exists in the explanatory memorandum. I wonder whether you have any views to offer in relation to that?

Mr Anderson —That would be a proposal that we support. I am aware of that suggestion. We support it because, in looking at this part of the bill, we have to be as pragmatic and as practical as possible. I think the government in a number of areas has tried to be practical in a way in which it has dealt with some of the transitional issues. This is an area where I do not think you can just sit on the proposition and say, ‘We will allow the full effect of individual choice to apply, irrespective of what the consequences will be, irrespective of what is just about to hit.’ The government has put some public interest considerations into some other aspects of both the substantive bill and what we have before us. This is one of those areas where you need to be aware that there are some broader interests that can flow and be affected by a demarcation dispute of this type or other types. I think the language that has been suggested to the Senate committee is language known to the industrial relations system. The Australian Industrial Relations Commission’s past generic jurisdiction over industrial matters related to not just disputes but threatened, pending or probable disputes. That would at least provide a capacity for those issues to be brought before Fair Work Australia. It does not automatically deny the rights that individuals would have to associate themselves as they would wish. Ultimately, the impact of those associations would be a matter that Fair Work Australia would determine. That has been the way in which the former commission has in the past dealt with many demarcation disputes. I do not think it is a particularly controversial proposal, given the history of the industrial relations system in Australia.

Senator ABETZ —The CCIWA, the Chamber of Commerce and Industry, Western Australia have put in a submission. On page 8 they point out one of the difficulties with a no detriment rule:

In the health industry, union and employee collective agreements often contain terms that provide an employee 6 weeks annual leave whereby 2 weeks constitute leave in lieu of public holidays.

Currently, under the proposed no detriment rule, they are asserting that an employee would continue to receive six weeks annual leave because it is more favourable than four weeks annual leave provided by the National Employment Standards. But the public holiday requirements will also be imported, making life very difficult. I wonder whether you had read that, whether you share those concerns and whether you can suggest any remedies. As I understand it, time is limited, we are not getting the Western Australian Chamber of Commerce and Industry to appear before us, and there is no criticism of that.

Mr Anderson —Through the chair, the Western Australian Chamber of Commerce and Industry have been a party to the development of our submission. They are a very substantive business organisation in the country, with strong membership, including in the health sector. We share the concern and the issue they have raised and mirror that issue in broad terms, without using that specific example, in paragraphs 43 onwards of our submission. Paragraph 49 in particular is the core of what we say about that matter. The legislation proposes the no detriment test to be a line by line test, not a global test. If it is applied as a line by line test then precisely that consequence arises, and that is a very unfair consequence.

Again, it is that very sort of thing that, if you had a merit based assessment before the commission or Fair Work Australia, would invariably get factored in by the commission. The commission does not have a history of just wanting to provide windfall gains. Where the commission does provide a variation to awards in these sorts of circumstances, the commission has made it clear why it is doing so. And, where a particular benefit in an award is provided almost as a quid pro quo for another provision, it is extremely unfair to be providing a no-detriment test which is a line-by-line test which will result in the employer effectively providing the benefit but also having to no longer get the benefit of the quid pro quo.

Senator ABETZ —I have one final question before Senator Fisher asks her questions. Can I ask you about the impact, particularly on small business, of award modernisation in relation to an example that I am personally aware of—let us say, the pharmacies in Western Australia. What impact will they encounter?

Mr Anderson —The small business impacts will vary across the economy—for the same reasons that Senators Collins’s and Senator Marshall’s questions to me indicated—depending how the system would apply broadly. We know that small businesses in Australia are predominantly in the service industries and we know, for the reasons I have explained in my evidence, that the service industries have historically been operating under state industrial relations systems and have exactly the industrial relations history and characteristics that will make them very susceptible and vulnerable to cost increase as a result of the creation of modern awards, at least in the way in which the process of creating modern awards is currently going. So there will be significant cost increases in some small business sectors of the Australian economy, and they tend to be the labour intensive industries.

Senator ABETZ —Such as the pharmacy sector which, faced with those sorts of imposts, may well limit their hours of opening, which of course will reduce a very important community service. But I say that more by way of comment.

Mr Anderson —Can I just respond simply to that one proposition. The award system has never been designed to try and change the way the economy should operate and it should not be designed to do that. The award system should be there to provide a safety net for people who are working in the economy. If the effect of a modern award is that the way a business has to open or close and provide services in the economy is changed, that is a perverse outcome and should be of concern to the Senate.

Senator FISHER —Mr Anderson, regarding award modernisation you have said, ‘you don’t cure a problem by delaying it’. Can you explain why ACCI is suggesting that? I understand your first proposal is that the bill be amended so that no modern awards increase costs for employers, but then you go on to say that, where they do, employers should be able to obtain an order from Fair Work Australia to delay the effect of the award or certain provisions of the award if delaying does not fix it. Why is that part of your solution?

Mr Anderson —Delaying does not fix, and I said that in response to Senator Collins’s question. The reason we have included that there is we want to ensure employers have the best possible capacity to get what we would see as some fairness or outcomes out of this process, without the potential negative outcomes—where they are going to occur—occurring all in one hit at one time with the major adverse impact on their businesses and the economy in which they operate.

Senator FISHER —So it is pretty much a last—

Mr Anderson —I want to be clear about our position. Our position is not that you can simply address the ministerial request insofar as it relates to no costs on employers by transitional provisions.

Senator FISHER —Yes.

Mr Anderson —That does not address the ministerial request. The ministerial request will not be met as a consequence of transitional provisions. The transitional provisions will delay and in some cases allow for costs to be prepared for, but they will not mitigate against the introduction of those costs.

Senator FISHER —So that part of the ACCI recommendation is a last resort relief to the problem.

Mr Anderson —It is there to say that we ultimately will not oppose transitional provisions but transitional provisions will not address the application of the ministerial request.

Senator FISHER —Earlier on, in your answer to Senator Abetz you were talking about an amendment in respect of the unintended consequences to the ministerial directive and the legislation. If it is arguable that the commission has not complied with the spirit of the ministerial directive thus far, why would an amendment to the ministerial directive suffice?

Mr Anderson —It is because the ministerial directive tells the commission that it must create these modern awards by 1 January 2010 and they must come into operation by 1 January 2010.

Senator FISHER —Thus far it has not forecast modern awards that do not increase costs for employers, so why would you have faith in it being complied with?

Mr Anderson —It is not a question of having faith. We would like to see the legislation clearly indicate that where there are cost increases to employers modern awards should not come into operation, because those are the terms of the ministerial direction. But if the legislation does not do that we have to look at what other ways we can try to achieve that.

Senator FISHER —Have you put to the minister the proposition that the legislation be amended to so provide?

Mr Anderson —We put the proposition to the government and we are putting the proposition to the Senate, yes. That is precisely what we have done.

Senator FISHER —Have you had discussions about that with the minister?

Mr Anderson —The government has framed its legislation. The government’s legislation is in the terms that we have before us, and that proposition is not accepted.

Senator FISHER —Has the minister said it is not doable?

Mr Anderson —The government has said publicly and to business organisations that it believes that the commission and soon-to-be Fair Work Australia is able to address these issues. The evidence that has come from the process so far is that in some industry sectors the commission is able to address these issues, but in some of these critical areas it is not able to do so. The commission has made it clear in its decisions that there are cost increases to employers in those sectors. On the face of it, if the commission has clearly said, ‘We intend to do this notwithstanding the cost increases,’ our only recourse is to seek amendment to legislation. Legislation should be amended or the direction to the commission should make clear that those awards do not come into operation until such time as those cost increases are removed.

Senator FISHER —To the extent that there are provisions in the bill that allow employers to seek some relief from Fair Work Australia if the viability of the business is threatened, what are ACCI’s views of those provisions? Is it possible that there could be problems caused for a business that stop well short of threatening the viability of the business itself which are not addressed in the bill? How do you see the viability provisions operating with an employer having to prove that the viability of his or her business is being threatened? Perhaps you could take that partly on notice.

Mr Anderson —We do not consider those provisions for the potential cases on viability before Fair Work Australia go anywhere near curing the problems that employers will experience in those service industries with cost increases. There are two completely different propositions here—one for business viability, one for increases in labour costs. A business can still suffer substantial increases in labour costs but may for other reasons be viable, and one cannot simply say, ‘We’ll allow those labour cost increases to flow simply because it could still be viable.’ Those were not the terms of the ministerial direction and would not be true to it.

Senator FISHER —Can you—perhaps on notice if you are not able now—provide some comment about how, if an employer is forced to the wall because of these costs, the employer would be placed to prove so before it becomes a prophecy realised in fact?

Mr Anderson —Past experience of employers in respect of the application of those sorts of provisions in the commission has been deeply fraught and deeply flawed, because those employers effectively have to tell the entire market they are about to go under. That is almost a guarantee that they will go under.

Senator FISHER —So it is a recourse without relief.

CHAIR —I have to bring this to an end. Thank you for your submission and your presentation to the committee today.

Mr Anderson —Thank you.

[9.55 am]