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Keeping the momentum of industrial relations reform. South Australian Farmers Federation Industrial Association General Meeting, Adelaide, 4 September 2000






Keeping the Momentum of Industrial Relations Reform


Richard Calver, Director Industrial Relations NFF


South Australian Farmers Federation 

Industrial Association General Meeting


Adelaide 4 September 2000


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Lachie, ladies and gentlemen, thank you for inviting me to speak today.  

I welcome the opportunity to talk about the necessity for a continuation of industrial relations reform in this country. It is an important subject because of the benefits that reform will bring to the Australian economy and to Australian agriculture. NFF policy is quite clear: industrial relations reform must continue if Australian agriculture is to maintain its competitive position in world markets. It sounds a fairly simple proposition but it reflects a firm position in one of the fiercest debates that will be held in the lead up to the next election. 

The political battle lines have been drawn, with industrial relations shaping up as an area where the starkest policy differences between the parties will be on show. Because NFF has a clear policy view, I want to speak to you today about the Labor Party's proposals not only to stop the reform process but to "roll back" some of the initiatives introduced by the present Government. I want to stress that the NFF vision for industrial relations is for reform that abandons the current system, including the reliance by employers and employees on Awards, and this vision and the ALP vision is a world apart. In making that statement, it should be absolutely clear that NFF is not taking political sides - we are advancing policy and it is the rationale for that policy that I want to explore with you.  

The NFF Vision for Industrial Relations  

The NFF vision for industrial relations is one based on a unitary system that has as its underlying employee safety net a series of minimum statutory conditions. We believe in a unitary system because it is just a plain nonsense for a country with fewer than 20 million people to have six different, overlapping and complex systems of industrial relations. Businesses need to operate across State borders and increasingly into international markets and the structure of legal arrangements about something as fundamental as labour management should be of assistance rather than act as a hindrance. As an example, the recent report on the Harvest Trail found that the duplication, inconsistency and complexity of the various Federal and State Awards that apply in horticulture cause a number of difficulties for the industry, and are clearly an impediment to growth. 

The statutory minimum conditions could take the form of a Schedule along the lines of current Schedule 1A of the Workplace Relations Act 1996 (Cth) (the Act) which sets out minimum terms and conditions of employment for Victorian employees not subject to Federal Awards. Above those minimum standards, agreement should be reached between employers and employees about conditions that suit the enterprise. Implicit in the advocacy for a simplified and unified system (whether it takes the preferred NFF form or another form) is the notion that there is nothing sacrosanct about Awards. We should not hold them up as the holy grail of employment, especially not farm employment. The essential principle that will fuel growth and make for better workplaces is the need to empower employers and employees so that appropriate agreements designed for particular circumstances (especially the meeting of export orders) can be put in place. I will elaborate on this idea later. 

Awards not the Answer  

For the moment, I want to concentrate on a line of argument that is important in the reform debate. NFF understands that some farmers support the Award system. The reasons for this support appear to rest on some arguments that, frankly, don't hold water. The view seems to be that because farming is characterised by numerous small operations, the practicalities of farming prevent individual arrangements being negotiated with employees, particularly as those arrangements might need to be signed off by a Government agency such as the Office of the Employment Advocate, a State Commission or the Federal Commission. The shearing industry is often cited as a good example of an area where farmers would be faced with difficulties if they could not turn to an award. 

The argument to the contrary is that farmers and workers have been reaching agreements for years, agreements that do not necessarily fit with the rigid Award prescriptions that might apply to their enterprise. 

When I was acting as solicitor for Victorian farmers, a great deal of my work came in defending cases where, on termination of the employment contract, the strict Award conditions fell foul of an agreement that had been working successfully for years - until something went wrong and the employee got advice that despite the agreement that had operated, the law would force the employer into retrospective compliance with a strict Award standard. The most common scenario was for an amount to have been paid by the farmer in addition to the legal hourly rate in order to compensate the employee for overtime that may or may not have been worked, depending on seasonal factors. These informal agreements could not be enforced in the face of prescriptive Award conditions. Often farmers were flabbergasted when penalty rates were imposed on the higher hourly rate that had been set to compensate for overtime - the Award requirement that overtime be paid at time and a half or double of the normal hourly rate meant it was added to the higher base rate.  

Time and again, farmers would tell me that they wanted to be guided by a minimum industry rate, and then to be permitted to reach appropriate arrangements with their employees about other issues, such as the example about overtime. This fits in with the NFF vision. 

It should be clear that no one is advocating that you should be a lawyer in order to design an agreement that is suitable for your workplace. All that should be needed is for there to be a legal guideline on the base rate of pay, the community standards for such things as annual leave and sick leave and the rest can easily be the subject of a fairly simple and straightforward agreement.  

At the VFF, common law agreements have been drafted for farmers since the Kennett Government changed the Victorian system away from Awards in 1993 to the establishment of a set of minimum standards. Those common law agreements have not been costly to implement and are part of the VFF handbook service that costs an additional $55.00 per year on top of the normal subscription. So, not only do you get a handbook, and thereby an industrial update service, but you also have a common law agreement drafted free of charge. I did hundreds of those agreements from 1994 to 1998 and I commend the work of David Griss and his team who continue that work, with approximately 400 agreements having been drafted in the first six months of 2000.  

The point is that farmers have not really embraced the Award system. They want some guidance as to the appropriate going rate for wages and around that notion they generally construct appropriate agreements. In the shearing example they just use the Pastoral Industry Award flock shearing rate as a guideline even where the local State rate might be lower, as in South Australia.  

The Australian award system has meant that most of the relations between agricultural employers and their workers have been and continue to be detailed with a large measure of prescription. Managers of labour have operated in a framework where they have been told exactly what wages, work place standards and other employment related conditions they must provide to their workers. They have been told the minimum rates of pay which must be paid, because there has always been an Award minimum rate applicable to labour, and they have been given a vast bundle of complex, sometimes onerous, provisions to apply in the workplace. If they fail to meet an Award standard, they are faced with a civil liability no matter that an agreement has been reached about a different standard. Farmers don't want such a system. What they want is an indication of what the safety net levels are so that when they, say, engage a shearer they have a starting point to the contract rather than numerous prescriptive conditions. The wide combs dispute made that abundantly clear - where there is an Award prescription that is counterproductive, it will be ignored.  

James Ferguson made the same point as I have been making as follows: 

"Despite having one of Australia's oldest industrial Awards…the Pastoral Industry Award (1907), employers and employees in agriculture have an older tradition, still maintained today, of reaching mutually satisfactory arrangements without the involvement of third parties. Driven principally by necessity borne of isolation and mutual dependence in scarcely populated regions, common sense has generally prevailed over arbitrary rules formed in tribunals far from the workplace, and the agreements reached have been to their mutual benefit in terms of wages, conditions and job security."  

Part of the NFF vision is translating the tradition that is mentioned in the quotation to a legal reality. If you like, we want to make what occurs now at the informal level, the formal reality. This is different from a "romanticised notion of the US labour market experience" or some other ethereal idea of where reform should take us. These ideas are firmly fixed in the reality of what now happens in agricultural employment. 

International Competitiveness  

There is another, potent reason for further decentralising industrial relations, for the system to legally permit what farmers have been doing for decades, and that relates to the idea of international competitiveness that I mentioned in the beginning of this talk.  

Australia has a long history of closely regulating the labour market. There has been a traditional disconnection between labour productivity and remuneration in that the hallmark of the system has been to provide workers with a wage that meets their needs despite any lack of profitability in the employing entity or industry. The linkage between a "fair and reasonable" wage for the ordinary Australian worker with an exemption for an employer from the payment of excise duties was established at the turn of the century. The famous Harvester judgment made a clear link between the payment of wages which were sufficient to provide "reasonable conditions of human existence" with exemption from the excise established under the Excise Tariff Act 1906 (Cth). In other words, from Australia's early days, the system sought to ignore pressures on both employers and employees from the world market by protecting wages within a wall of import barriers thereby redistributing wealth from the mining and agricultural sectors. That approach to economic management leads to disaster and has long been abandoned by both political parties, and is an issue that NFF has addressed full-on since its inception.  

The OECD has summed up the structure of economic institutions that have impeded the agricultural sector in particular: 

"For much of this century, economic institutions in Australia developed around the idea of redistributing rents from the rich primary commodity sectors to the rest of the economy. Key features of these arrangements were high import protection, notable for the manufacturing sector, and a centralised wage setting system that fixed a multitude of legally-binding minimum terms and conditions for employment relationships."  

The issue of historically poor productivity in the labour market has been partly addressed by the Coalition Government's utilisation of a more flexible statutory instrument in the Workplace Relations Act 1996 (Cth). This Act assists Australian businesses to face up to the challenge of world markets by permitting enterprise level agreements to take priority over industry wide agreements. Fuelled by this change and other structural reform, at present, Australia's productivity growth, the major contributor to rising per capita incomes, is at historically high levels. The Productivity Commission has noted that in the 4 years from 1993-94, productivity growth in the market sector of the economy reached 2.4% per year, significantly above the previous long-term average of 1.2%.  

The power of the organised labour movement to demand the establishment of industry-wide standards of regulation that have consistently provided a false market for labour has been challenged by the current Federal legislative regime. The OECD has appropriately encapsulated this movement: 

"The Workplace Relations Act 1996 (WRA) has clearly given the industrial relations reform process a fresh impetus and thus constitutes an important reform step towards labour market deregulation. But there is still a long way to go to arrive at an entirely decentralised and highly flexible industrial relations system. The WRA has expanded the opportunities for enterprise bargaining, as reflected in the rapidly rising uptake of non-union (collective and individual) agreements."  

As expressed in this quotation, the WRA has gone some way to introducing labour market reform and flexibility but the process is far from complete. The Government's reform agenda has been compromised by the position of the Australian Labor Party and Democrats. The very important issue of, for example, the statutory abolition of meat industry tallies is still clouded in uncertainty because of the opposition parties' current lack of commitment to that reform. This lack of commitment is a real concern to NFF, given that industrial relations reform is currently only a half-baked cake. Reform must continue so Australia may successfully compete in world markets. 

The Australian agricultural sector is no different from any other part of our economy that must be devoted to a global outlook. In fact, Australian farmers export close to 80% of their production so an export orientation is even more vital. As part of this focus, management education about industrial relations is a very high priority for the sector, a matter generally borne out by the Karpin Report:  

"Australia's problems with its current account and terms of trade has placed long-term structural pressures on macroeconomic settings. In this environment, developing an outward or global orientation amongst greater numbers of Australian managers is necessary to improve trade performance and sustain the nation's standard of living. Moreover, this orientation should be broader than a simple exhortation to export. It encompasses all forms of international business and it also includes a willingness to set world best practice as the target for all Australian enterprises and managers to meet or exceed. Even enterprises whose strategies and managers are domestically focussed should be fully cognisant of, and striving for, competitiveness in world terms:"  

The nub of the Australian farm manager's challenge is to be internationally competitive. In the farm sector, Australia's unsubsidised farmers compete on a corrupt world market exposed to the blowtorch of unfair competition. They compete in a world market where, for example, the EU subsidises its farmers to the tune of $A60 billion per annum, and the US $A28 billion per annum - and yet Australian farmers succeed. It makes it harder for them when they have to find $2,300 per farm to prop up other Australian industries that are subsidised.  

However, both here - for the motor vehicle and textile industries - and for EU and US agriculture, retaining subsidies only prolongs the inevitable. The answer does not and cannot lie with subsidies. Uncompetitive farmers disappear and the attrition rate for EU and US farmers is much the same as for Australia - around five per cent per annum. In every aspect of management, and especially people management, the internationally competitive focus must drive action or will force extinction. It is therefore imperative that labour is managed productively, to continue to achieve this internationally competitive outlook. 

Why is the productive management of labour tied up with further decentralisation? The economic imperative to be world competitive means that farmers and their employees must be flexible in their workplace arrangements with uniform, prescribed sets of centralised conditions inappropriate to changing needs. In agriculture this need for flexibility is more evident than in other sectors, with seasonality, the catering to peaks and troughs of overseas markets and the need to tend to livestock, all factors that prevent "one size fits all" industrial solutions. 

One other important issue is that the current evidence is that workers have been benefiting from the move to enterprise agreements. A recent paper by Dawkins postulates that enterprise bargaining in Australia has supported strong growth in real wages because a large proportion of the country's productivity growth has gone in higher wages. NFF has consistently argued that higher wages can only be paid out of productivity growth and that the annual wage case mechanism is just not sustainable. Ironically, it is only because of higher overall labour productivity that the economy has been able to afford the real wages growth engendered by the national wage case outcomes. 

Labor's Platform - More than a Halt to Reform  

In the face of the indication that much of the prosperity has flowed to workers, it is a battle to understand the Labor party platform. It contains policies that will take one giant leap backwards rather than a gentle roll-back. The recently issued Labor policy promises a prohibition on individual employer and employee bargaining in that an individual contract of employment will be unenforceable if it is different from an Award or union collective agreement applying in the industry. That is a complete change from the prior Labor Government's own policy. It was a Labor Government that in 1990 advocated "greater labour market flexibility, award re-structuring and a form of enterprise bargaining" .  

In addition, Awards would be given new life by a Labor Government and would become 'comprehensive'. This re-regulation of the labour market through the strengthening of the Award system goes against the increased flexibility derived from a focus upon workplace outcomes rather than upon the rulings of third parties and the deleterious decisions sometimes imposed on agriculture by those third parties. It goes against tailoring flexible agreements to meet the peaks and troughs of export industry. And it goes against the grain of permitting flexible and relevant agreements to be tailored to individual workplaces. 

In addition, Labor wants to extend the reach of the industrial relations system to some contractors who will be deemed to be employees, along the lines of the Queensland legislation that AgForce and NFF are actively fighting now with AFFF funding. There are other aspects of the Labor platform that concern us, like again changing the trade practices law to remove the prohibitions on secondary boycotts and sympathy strikes. This law was essential to us in our waterfront strategy. 


In a rare move, three of Australia's leading employer organisations NFF, Business Council of Australia and Australian Chamber of Commerce and Industry recently issued a joint statement criticising this move towards greater IR regulation by the ALP. We called for a forward looking approach to labour relations, which enables Australian business and industry to compete in international markets and improve productivity and efficiency. We singled out for criticism the decision by both unions and ALP to embrace industry-level bargaining in some circumstances and to reject individual contracts. We pointed out that both the unions and ALP supported enterprise bargaining when the IRC introduced it in October 1991. Any backward step on this issue could have very serious adverse consequences for the Australian economy and the Australian standard of living based on the increased productivity I referred to earlier. One size does not fit all. Industry level prescription is not the best approach. Industrial relations reform must continue to deliver a prosperous Australia. 


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