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The Workplace Relations Act 1996, American Chamber of Commerce in Australia luncheon, Sydney, Wednesday, 7 May 1997: speaking notes for an address

I am very pleased to be here to-day, midway through Australia-America Friendship Week, to talk to the American Chamber of Commerce in Australia about the Government's labour market reforms.

When I spoke to you last November the Government was awaiting the final passage of its legislation through Parliament. The Workplace Relations Act is now in place.

As Australia's foremost international business organisation, with more than 30 years standing, the Chamber has played a valuable role fostering business links for both small and large businesses between our two countries.

The US is Australia's second largest trading partner. Two-way trade in goods alone was just under $A23 billion in 1996 accounting for close to 15 per cent of our total trade.

Small exporters, especially niche marketers and marketers of innovative products, dominate Australian exports to the US. The Government's labour market reforms are specifically tailored to the special needs and circumstances of small business. Larger businesses also benefit significantly from the new legislation.

Direct investment between our two countries is also significant - the US is the largest single nation source of direct foreign investment into Australia. Together with the outlook for solid economic growth over the next 12 months and the continuation of low inflation and historically low interest rates, the industrial relations reforms should provide a significant impetus for foreign investment in the Australian economy.

The Act is producing good results across the entire industrial relations spectrum; in award simplification, in wage fixing principles (given the recent decision by the Australian Industrial Relations Commission in the Living Wage case) and in the area of unfair dismissals.

Today I want to focus on two other areas where the new system is producing good results; the prospects for a greater degree of compliance with the rules of the system and the establishment of more flexible arrangements at workplaces.

Looking at compliance first, the new Act has clarified the distinction between sanctioned and unsanctioned industrial action. Whilst under the previous system there was a technical distinction between the two, the inadequacy of compliance measures meant that the rules were habitually flouted.

The new system does provide for the right to engage in protected industrial action and to lock out during bargaining for an agreement. But it also provides that industrial action prior to the expiry date of an agreement is unlawful.

The Australian Industrial Relations Commission (AIRC) may suspend or terminate a bargaining period on a number of grounds such as where bargaining is not genuine, a party is not complying with the Commission's directions or the dispute is threatening to endanger life, personal safety, health or welfare, or to cause significant damage to the economy.

Where unprotected industrial action is happening, or is threatened, impending or probable, employers may seek enforceable Commission orders under Section 127 of the Act directing the industrial action stop, or not occur. And if the unions fail to heed such orders, companies can obtain Court injunctions to enforce the orders. The Court can award damages and sequester funds where injunctions are not complied with. Powers under Section 127 apply to any matters within the Commission's jurisdiction, including inter-organisational disputes such as demarcation disputes.

At least 60 applications have been lodged under Section 127. Eight applications have been withdrawn and most of the remaining applications have precipitated a return to work without the need for a Commission direction being given.

Of the 60 applications lodged, nine resulted in Commission orders banning industrial action, including those of industrial action at Shell's German Creek mine in Queensland, Mobil's Altona Refinery project and Metro Meat's operations in South Australia.

And just last week, in one of the more significant tests of the new legislation, Section 127 proceedings played a major role in ending industrial action by striking power workers in Western Australia. This was the first occasion in which the Federal Court issued an injunction compelling obedience to orders made by the Commission.

Of particular interest to foreign companies trading with Australia, union boycotts affecting overseas trade are prohibited, as are secondary boycotts. Heavy penalties are attached to such activities. The new law also introduces tough new penalties for breaches of obligations under awards or agreements.

Together, these stricter compliance measures will promote better standards of industrial conduct and lessen industrial conflict, with consequential benefits for Australian industry and its customers at home and abroad.

Turning to examples of increased flexibility in agreements, one of the principal objects of the Act was to promote greater productivity and therefore sustainable increases in real wages through the provision of greater flexibility in the workplace.

The Government wants to see a sustained improvement in what, historically, has been Australia's dismal productivity performance. According to the OECD, between 1979 and 1995 Australia's annual rate of growth in labour productivity averaged a meagre 1.4 per cent.

The pick-up in our productivity performance to the extent that we have had it in recent years with the introduction of enterprise bargaining goes to show the enormous potential gains which will flow from a genuine program of labour market reform such as ours.

The Government believes that the potential for a significant improvement in productivity is crucially linked to establishing more direct co-operative relationships between employers and employees. At the core of this process agreed improvements in pay and conditions can be arrived at based on a shared appreciation by employers and employees of the circumstances, including the economic imperatives, of their particular enterprise or organisation.

The framework put in place under the Workplace Relations Act supports a more direct relationship between employers and employees, with a much reduced role for third party intervention. Changes to the award safety net, enterprise bargaining arrangements, the industrial compliance regime, freedom of association and unfair dismissal provisions are all enhancing labour market flexibility.

Crucial to the parties achieving this flexibility is the new No Disadvantage test. As I said during my 21 November 1996 Third Reading Speech on the legislation:

... the legislation makes it clear that the No Disadvantage test is a global one. That is, the test is whether an agreement would result in a reduction in the overall terms and conditions of employees to be covered. The Government's intention is that apart from this overall assessment flexibility not be constrained. Subject only to the global test employers and employees are now at liberty to strike genuinely innovative agreements without any contrivances or artificial restrictions.

It would be up to the Employment Advocate or the Commission to weigh up the respective elements of the different components of a proposed agreement in deciding whether there was any disadvantage to employees in their overall terms and conditions of employment. Different sorts of considerations might be relevant in different contexts. As such any term or condition of employment may be negotiated and dealt with by agreement, provided it is consistent with the Act.

The global test means that any award or State legislative condition can be varied. There is no single condition that is not open to variation - every condition is open to variation to tailor it to the needs of the enterprise subject to the statutory minima.

The only exception is that Federal agreements remain subject to provisions in State law that deal with OHS, workers' compensation and apprenticeship and non-prescribed federal legislation. For an agreement to be approved it cannot be inconsistent with the federal termination of employment provisions or union right of entry provided for in the Workplace Relations Act.

The increased flexibilities provided by this No Disadvantage test open a whole range of new possibilities for agreements. Employers now have the opportunity to think through more profound and far-reaching workplace change to fully realise the benefits of the new system.

For example, a certified agreement might cash in paid sick leave while maintaining access to unpaid leave as part of a strategy to address absenteeism. Or in negotiating an Australian Workplace Agreement (AWA), an employee might choose to trade off carer's leave if they do not have family responsibilities.

The new Act provides two new types of agreement: non-union (Section 170LK) certified agreements - which are direct agreements between employers and their employees - and AWAs.

Up to 1 May 1997, twenty five Section 170LK agreements had been made. Five of these totally replaced the award and none of them involved unions. Three quarters of the Australian private sector workforce are not in unions, so Section 170LK has particular significance.

Labor's equivalent, the discredited Enterprise Flexibility Agreement (EFA) stream, were subject to union interference. Few EFAs were concluded and those that were frequently generated controversy and extensive proceedings in the Commission: examples include the cases of Toys R'Us, the Deer Park Hotel and Tweed Valley Fruit. In contrast, the Section 170LK process is working smoothly and effectively.

Some innovative employers have been developing agreements which challenge the accepted ways of doing things while providing benefits for both themselves, their businesses and their employees.

For example, the PTE Hydraulics Ltd Enterprise Agreement 1997 introduces 'Make-up Time' in the event of absences for which no paid leave entitlement exists. Where sick leave credit is exhausted, or the sick leave is taken without a required medical certificate, employees may make up the time they were absent. While an employee may voluntarily elect to make-up time for absences, the working of make up time in the event of an unpaid absence is linked to a monthly production bonus system. The month's production bonus will be lost where an employee does not elect to make up time for a full day's absence or more and a medical certificate is not produced.

A situation where, under the award, the employee would not have been paid for their absence and the employer would have lost productive time, has been changed to one where both parties win - the employee has the option to be paid for an otherwise unpaid absence and production is maintained.

The inherent inflexibility of the system of penalty rates has long been of concern to business - particularly small businesses. With the possible exception of the previous Government's unfair dismissal scheme, I have received more adverse comment on penalty rates than practically any other industrial relations issue. But the fact of the matter is that, subject to the no disadvantage test, the new system allows businesses to dispense with penalty rates.

This is a message employers need to get loud and clear. You no longer have to bemoan penalty rates. The means to abolish them are in your hands.

The South Western Community Care Enterprise Agreement 1996 introduces a package of innovations developed around the introduction of annualised ordinary hours of work of between 1 and 2600 hours in any 12 months.

The notional hours worked are expected to be around 2080 hours annually. Ordinary hours can be worked at any time in a seven day period without attracting a penalty. No overtime is to be paid under the agreement. Actual hours worked will be determined by funding and service priorities and the needs of clients. Recreational leave accrues on the basis of 9.6% and long service leave accrues at the rate of 16.5% of accumulated annualised working hours.

A couple of examples of how these hours arrangements compare to standard working arrangements will give you some indication of the flexibilities provided in this agreement. Based on a standard 38 hour week, this agreement allows up to 12 hours overtime to be worked every week for 52 weeks without penalties or overtime being paid. If the maximum 2600 annual hours were worked, the employee would accrue approximately six and half weeks annual leave and in excess of eleven weeks long service leave after ten years of continuous service.

Varying the ordinary hours of work has been an almost universal feature of s.170LK agreements. The parties have demonstrated their desire to increase the flexibilities available to both employers and employees in determining what constitutes ordinary hours. If you want to extend your ordinary hours of work to span a seven day period, then you can. Such an arrangement has been negotiated in the Art of Advertising Agreement 1997, which allows for ordinary hours of work to be performed on any five days of the week, including Saturday and Sunday, without the payment of penalty rates.

In other cases, the Hunter Aerospace Corporation Certified Agreement (Townsville) 1997 allows for ordinary hours of work to be performed on any or all days of the week, including Saturday and Sunday, without the payment of penalty rates. The relevant award specifies that ordinary hours of work may only be performed Monday to Friday.

The Netafim Pty Ltd Production and Stores Employees Certified Agreement 1997 allows for ordinary hours of work to be performed on any or all days of the week, including Saturday and Sunday, without the payment of penalty rates. The relevant award specifies that ordinary hours of work may only be performed Monday to Friday.

The Hertz Australia - Queensland Quality Inspectors Workplace Agreement 1997 increased the working week from 38 hours to an average of 40 hours per week and a pay increase to compensate employees for the increased working time is incorporated into overall wages and conditions package.

The Pioneer Building Products (Toowoomba) Enterprise Agreement 1997 introduces a multi stage productivity improvement program. Stage One improvement targets undertake to: hold rejects below 0.75%; change RDO frequency from 1 per 4 weeks to I per calender month (employees lose approximately 8 hours per year); employees lose paid exercise time of approximately 20 hours per year and paid wash up time of approximately 20 hours per year. In total there is a trade off of approximately 48 hours per year.

In exchange employees gain a 3% wage increase from the approval of the agreement and a further 2% will be available to employees after 6 months provided all the targets of Stage One of the productivity improvement program are met.

Stage Two productivity improvement targets are identified for improved change over times for mould changes and potential wages increases identified.

The new system also provides for a more flexible approach to be taken to the payment of overtime.

The Art of Advertising Agreement 1997 introduces the option of taking overtime as time off in lieu at single time by mutual agreement providing decreased costs to the employer and increased flexibility for employees in balancing their work and non-work responsibilities and interests.

The Hunter Aerospace Corporation Certified Agreement (Townsville) 1997 allows for hours worked beyond 38 hours and up to 44 hours to be treated as accrued hours at ordinary time rates. This means that standard working week remains 38 hours. However, hours worked in excess of that 38 up to 44 hours may be used by the employee to contribute towards an averaged 38 hour week or may be taken as part of their pay package at ordinary time rates. Pay rates under the agreement are set by the Aircraft Engineers (General Aviation) Award 1982; however, as part of the package of the agreement, employees have access to additional regular payments through the production reward and incentive scheme. The relevant award rate accrues penalty rates after 38 hours (at a rate of one and a half time for the first two hours and double time after that).

Similar flexibilities are being achieved in the provision of annual leave and sick leave.

The Hertz Australia - Queensland Quality Inspectors Workplace Agreement 1997 decreases annual leave from five weeks to four weeks per annum for seven day shift workers to standardise leave entitlements across the workforce. A pay increase to compensate shift work employees for the decreased annual leave is incorporated into to overall wages and conditions package.

Many companies have introduced a range of strategies to address absenteeism in their workplaces. In some cases those strategies combine penalties for poor attendance practices with incentives for improved attendance. For example, the Ace Gutters Enterprise Bargaining Agreement 1996 introduces an attendance payment of $10 per week. The payment is not made if the employee is: three minutes or more late for start times; finishes 3 or more minutes early; fails to Bundy on or off; fails to work previously committed overtime; or is not at work for any reason during a part of or a whole day.

Alternatively, some companies rely simply on incentive-based schemes. The Leigh- - Mardon-Highett (Personalisation and Base Stock) Agreement 1996/97 introduces a voluntary employee improved attendance scheme. On 1 December each year, employees who have accrued in excess of 25 days sick leave, may opt to have up to five days paid out. In addition employees may opt to have RDOs in excess of three days paid out on a monthly basis. In similar cases,

The Prestige Colour Pty Limited Enterprise Agreement 1997 introduces a one-off payment of $200 for the first year when no sick leave is recorded. For each subsequent consecutive year when no sick leave is taken, an extra 5% will accumulate on top of the $200.

The Hertz Australia - Queensland Quality Inspectors Workplace Agreement 1997 introduces a sick leave buy out system. Employees who take less than three days sick leave per year may elect to cash out up to three days of their sick leave.

Some companies are seeking to improve their employees' commitment to shared company goals through participation in profit sharing models. The Leigh-Mardon-Highett (Personalisation and Base Stock) Agreement 1996/97 introduces a gainsharing model providing access to additional one-off taxable payments where gains are achieved.

The Prestige Colour Pty Limited Enterprise Agreement 1997 introduces a performance rewards incentive system based on a menu of criteria including the profitability of the company, overtime

worked, years of service and individual employee performance as measured by the level of customer complaints.

These new agreements are also allowing employers to setting benchmarks for performance.

The Netafim Ply Ltd Productions and Stores Employees Certified Agreement 1997 initiates the introduction of work area performance indicators based on criteria including absenteeism, tardiness, observance of OHS practices, commitment to complete jobs within time and budget, respect for company materials and equipment, flexible working arrangements, error rates, wastage, downtime and levels of customer satisfaction.

Some also address the issue of higher duties.

The Hunter Aerospace Corporation Certified Agreement (Townsville) 1997 introduces payment for higher duties only after continuous acting in excess of five continuous days rather than the award standard of payment for all acting duties. Pay rates under the agreement are set by the Aircraft Engineers (General Aviation) Award 1982; however, as part of the package of the agreement, employees have access to additional regular payments through the production reward and incentive scheme.

The other new form of enterprise agreement, Australian Workplace Agreements, have only been available for a few weeks, so I am not yet in a position to cite similar examples of greater flexibility achieved in this stream. However, discussions with parties negotiating or intending to negotiate AWAs suggest that this will be the case.

I have been informed by the Employment Advocate, Mr Alan Rowe, that there has been an encouraging degree of interest in AWAs on the part of employers and employees throughout Australia.

The Office of the Employment Advocate has received AWAs covering 33 employers and around 650 employees since the relevant provisions commenced.

A number of AWAs have already been approved by the Employment Advocate, while the remaining agreements are being processed by the Office of the Employment Advocate in preparation for approval. As part of this process, the Employment Advocate is writing to each employee who is to be a party to an AWA to ensure that they genuine]y consent to the agreement.

In addition, there have been over 7,000 requests for copies of the AWA information kit by workplaces interested in making such agreements.

All the above will promote a climate of much greater industrial certainty and provide the basis for more reliable supply of Australian raw materials and agricultural and manufactured products to the US, more efficient delivery of American manufactured exports into Australian markets and more flexible and productive operation in US-owned Australian manufacturing plants. It will also provide the basis for higher quality and more accessible services in areas such as tourism and higher education for American visitors to Australia.