Address to Industrial Relations Society of Victoria Annual Convention

8 October 2010

The Fair Work Act: Is it fair? Is it working?

I acknowledge the traditional owners of the land on which we meet – the Kulin Nations – and, in a spirit of reconciliation, pay my respects to their elders past and present.

With the passage of the Fair Work Act 2009, Australia’s modern system of workplace rights came into partial effect a year and a quarter ago and with full effect at the beginning of this year.

The Australian Government is very proud of its achievements in establishing a fair and balanced workplace relations system for the nation’s future economic prosperity and supporting Australians to balance their work and family responsibilities.

The ‘fair go’ approach is deeply embedded in Australian culture and underpins this Government’s Fair Work System.

As with any major reform of Australia’s workplace relations system, stakeholders however want to test their interpretation of the new provisions.

So in a sense we are still bedding down the new Fair Work framework.

Having said that, decisions by the new independent industrial umpire, Fair Work Australia (FWA) have covered a range of issues – and it is perhaps reflective of how well the new system is working that there has not been much controversy flowing from any FWA decision thus far.

The bedding down will continue over the next year or so, as employers and employees across the country become more familiar with the new system.

The main purpose of my presentation today is to give a view on the progress to date of this implementation phase.

Ensuring that the Fair Work Act is implemented, as intended, is a key item in the Gillard Labor Government’s second term agenda in workplace relations but there are other key measures to be progressed as well.

We will legislate to establish the Fair Entitlements Guarantee. This employee entitlements scheme will protect redundancy pay (up to four weeks per year of service), annual leave, long service leave and up to three months unpaid wages for employees who do not receive these entitlements due to the insolvency of their employer.

We will legislate to implement our response to the Wilcox Review of the building and construction industry.

And we will continue to participate in major Fair Work Australia reviews such as its review of junior and training wages.

1 January 2010 saw the commencement of a uniform national workplace relations system for the private sector.

All states, except Western Australia, are participating in the new national system via referrals of workplace relations matters to the Commonwealth.

Transition to the national workplace relations system has seen an end to the overlap and duplication of State and Federal workplace relations systems that have caused inefficiency and uncertainty throughout the Australian economy for decades.

It is estimated that, as a result of state referrals, the federal workplace relations system now covers approximately 96% of all private sector employees.

The Department of Education Employment and Workplace Relations (DEEWR) commissioned an economic analysis on the costs and benefits to businesses, and the economy more broadly, of moving to a new single national system.

The report, prepared by Access Economics, found that the total net benefit to business and government of moving to a single national workplace relations system for the private sector is estimated to be $4.83 billion over 10 years.

This historic move to a national workplace relations system is an important step in achieving a productive, streamlined national economy.

Collective bargaining at the enterprise level, conducted in good faith, is central to the Fair Work system.

The bargaining framework of the new workplace relations system began on 1 July 2009 and is operating as intended.

In the twelve month period to June 2010 there were nearly 7,000 applications for approval of enterprise agreements.

A significant feature of the new bargaining framework is the introduction of good faith bargaining. If bargaining is not occurring in good faith, parties can apply to FWA for bargaining orders, which must specify the actions that must be taken by the representatives of the parties, to remedy the particular problem.

So far, FWA’s involvement in the bargaining process has not been as significant as many expected. There were only 117 applications for bargaining orders and 23 bargaining orders issued in the first ten months’ operation of the new system.

The vast majority of agreements are being negotiated from start to finish without parties requiring recourse to FWA to enforce good faith bargaining.

The Act also provides for majority support determinations which can be sought if an employer is refusing to bargain.

In the first twelve months of the Act there have been around 107 applications for a majority support determination and only about 23 issued, indicating that the vast majority of bargaining is undertaken voluntarily.

The Fair Work Act’s focus on collective agreement making at the enterprise level can deliver higher productivity and lead to higher employment growth over the longer term.

In fact, employment data released yesterday by the Australian Bureau of Statistics (ABS) showed 49,500 jobs were created in September, the strongest monthly employment growth since January this year and more than double median market expectations.

The strong labour force figures also saw the seasonally adjusted unemployment rate remain steady at 5.1 per cent.

These figures are a testament to the Government’s successful economic management which has seen Australia emerge from the global financial crisis in a very strong position.

The unemployment rate is around half that of major economies such as the United States and Europe where the jobless rate is around 10 per cent.

The labour figures also reveal an increase in the participation rate from 65.4 percent to 65.6 per cent, reflecting strong growth in the number of people entering the workforce.

The new enterprise-focussed system provides opportunities for developing more flexible working arrangements without disadvantaging employees.

The Act provides for flexibility by providing for Individual Flexibility Arrangements (IFA) which allow employees and employers to make flexible arrangements to vary agreement and certain award terms to suit the genuine needs of individual employers and employees.

Strict protections ensure that IFAs can never be used to disadvantage employees.

Every IFA must be genuinely agreed to and must make the employee better off overall than under the relevant modern award or enterprise agreement.

And, more importantly, the Act provides that an employee can terminate an IFA at any time by giving 28 days’ notice.

An employer cannot require a prospective employee to agree to an IFA as a condition of employment. This is a critical point compared to how agreements in the past were imposed.

TheFair Work Regulations 2009prescribe a model flexibility term that bargaining representatives may choose to adopt in an enterprise agreement. If the agreement does not include a valid flexibility term, the model term is taken to be a term of the enterprise agreement.

Of the agreements analysed thus far, around 61.3 per cent, covering 64.9 per cent of affected employees, contain the model term or a term with greater flexibility than the model term.

At the heart of the Fair Work system is a set of National Employment Standards (NES).

The NES provides a range of flexible working conditions designed to assist employees balance their work and family responsibilities.

The NES provides a right for eligible employees with responsibility for the care of a child under school age or a disabled child under the age of 18 to request flexible working arrangements, such as part-time work or flexible working hours.

The NES also provides eligible parents with up to 12 months of unpaid parental leave at the time of the birth or adoption of a child under 16 years of age, with a parent having the right to request an additional 12 months leave.

The right to request is purposely designed to promote genuine discussion between employers and employees about flexible work arrangements for parents to meet their family commitments while also meeting the needs of the business.

This entitlement is applied equally to full-time, part-time and eligible casual employees with 12 months’ continuous service.

The commencement of the NES has also brought some other significant improvements to help workplace flexibility.

Employees are entitled to 10 days paid personal/carer’s leave for each year of service and personal leave is now able to be accumulated from year to year.

The NES also provides two days of paid compassionate leave ‘per occasion’ in the case of a death or serious illness or injury of a family or household member.

For the first time, casual employees are now eligible for two days unpaid compassionate leave ‘per occasion’, as well as two days unpaid carer’s leave ‘per occasion’.

With permanent employees able to access two days of unpaid carer’s leave ‘per occasion’ if their paid carer’s leave has been exhausted.

Another area of importance for the Government is addressing the pay equity gap.

The Australian Services Union (ASU), with other unions, has lodged an application with Fair Work Australia for an equal remuneration order for workers in the social and community services sector.

The ASU’s application is the first under the enhanced equal remuneration provisions in the Fair Work Act.

The Act has broadened the scope of the previous equal remuneration provisions to include the right to equal pay for work of comparable value, as well as equal value, reflecting the approach already taken in some states.

Federal workplace relations law has contained provisions relating to equal remuneration since 1993 but no case to date has been successful using these old provisions.

The Government will be lodging a written submission to assist Fair Work Australia and the parties to the case through the presentation of research and evidence on matters including the history of relevant awards and labour market features of the social and community sector.

The Government’s goal is to close the gender pay gap.

TheFair Work Act 2009has an important role to play in addressing the undervaluation of women’s work.

Under ‘Work Choices’, the Australian Fair Pay Commission was given responsibility for applying the principle of equal remuneration for work of equal value in making wage-setting decisions.

A report into equal pay commissioned by the Queensland Government in 2007 observed that Commonwealth legislation did not provide any real opportunity to correct the undervaluing of feminised work or skills as it was limited to a very narrow test, that being work of equal value.It was a fair comment and one this Government has taken to heart.

TheFair Work Act 2009has addressed this problem by widening the test used in the equal remuneration provisions to include the right to equal pay for work of equal or comparable value, thus enhancing the scope and effectiveness of these provisions.

In addition to the new pay equity provisions, theFair Work Act 2009includes several other benefits that will help to address pay inequity.

These include:

• new criteria to guide minimum wage increases;
• the new low paid bargaining stream; and
• new opportunities for collective bargaining, as I have already touched on earlier.

The 2009-10 Annual Wage Review marked the first minimum wage review conducted under theFair Work Act 2009.

On 3 June 2010, Fair Work Australia’s specialist Minimum Wage Panel released its decision to set the new National Minimum Wage at $569.90 per week, or $15 per hour.

This decision represents a 1.4 per cent increase in real terms since the last minimum wage rise in 2008.

The decision also increased classification and adult minimum wages in modern awards by $26 per week.

By comparison, ABS National Accounts data show that real wages increased by 1.1 per cent over the year to the June quarter 2010.

The Government provided a submission in support of a considered rise in minimum wages which delivered a real increase in pay for low income workers.

The submission noted that considered increases in minimum wages can allow low income working Australians to share in the benefits of economic growth while ensuring employment growth can continue.

The submission also noted that minimum wage increases have an important role to play in ensuring relative living standards and the needs of the low paid are provided for.

Under the Fair Work system low paid employees who have not had access to the benefits of, or who face substantial difficulty undertaking, enterprise-level collective bargaining can seek assistance from Fair Work Australia to facilitate multiple-employer bargaining.

This may help employees working in areas like child care, aged care, community services, security and cleaning, who are often paid the basic award rate.

The Government recognises that in the past some employees in these sectors have been unable to negotiate above minimum award rates and conditions because the conditions are effectively set by a third-party (such as a head-contractor), not their direct employer.

The multi-employer bargaining stream for the low-paid provides employees and employers with the option in these circumstances, and in turns provides the benefits and flexibilities that come through enterprise bargaining.

In May 2010, the Liquor, Hospitality and Miscellaneous Union (LHMU) lodged an application with Fair Work Australia seeking a low-paid bargaining authorisation in the aged care sector. The application was joined with another application by the Australian Workers Union (AWU) Queensland Branch in June 2010.

The application covers some 300 aged care employers in Queensland, South Australia, Western Australia and the Territories.

This is the first time that the new low-paid bargaining provisions of theFair Work Act 2009have been used.

The matter will be heard by a Full Bench of Fair Work Australia in Sydney on 22-26 November 2010.

Another area of high priority for the Government has been to modernise and simplify the awards system.

The former Australian Industrial Relations Commission delivered a new modern award system in accordance with the timetable set by the Government – modern streamlined and simplified awards commenced on 1 January 2010.

Some 3715 federal and state industrial instruments were reduced to 122 modern awards.

This meant a reduction from approximately 197,000 pages of regulation to just over five and a half thousand.

The Government, in establishing the award modernisation process, made available to the Commission a full five-year phase-in period (from 1 January 2010) to enable employers and employees to gradually transition from old state/federal award minimum conditions to the new terms and conditions in modern awards.

The Commission elected to spread cost increases and decreases over the full five-year period available to it.

The Fair Work Ombudsman has recently released (1 June 2010) a guidance note on how pay rates in modern awards will be phased in over the five year period, which will greatly assist employers navigate through this transitional phase.

In an important decision on modern awards (25 July 2010), a full bench of FWA ruled that overtime is not subject to phasing, and has clarified the circumstances in which employers are permitted to absorb modern award increases into employees' over-award payments.

The full bench ruled that employers were permitted under the transitional arrangements to absorb into existing over-award payments any increases flowing from the modern awards when the employer is not otherwise obliged to maintain the over-award payment.

To make sure workers don’t lose income, the Government enshrined in law the principle that no employee can lose take-home pay as a result of award modernisation.

Take-home pay orders ensure that an employee whose take home pay is reduced as the direct result of award modernisation will have a remedy available – through an application to Fair Work Australia.

Orders can also be sought before a reduction in pay occurs or where it is likely to occur.

To date Fair Work Australia has made three take home pay orders. This demonstrates that award modernisation has been hugely successful in improving the pay and conditions of most employees and that FWA will act to prevent losses in take-home pay where necessary.

The Fair Work system has also established clear and simple new protections against unfair dismissal with special arrangements applying to small businesses.

Small business employers are catered for by the Act establishing:

• a minimum employment period of 12 months instead of 6 months (employees can’t make an unfair dismissal claim in this 12-month period);
• a specialist service for small and medium sized businesses operating in the Office of the Fair Work Ombudsman; anda simple Fair Dismissal Code to help small business
• employers understand their procedural obligations when it comes to dismissing an employee.

On 16 July the Government announced improvements to the supporting documentation and check list accompanying the Code to ensure that they are working as intended in assisting small business employers comply with their procedural obligations when dismissing an employee.

Process outcomes under the new unfair dismissal provisions have been very encouraging.

As at 18 June 2010 there were around 10,751 unfair dismissal applications – about a 35 per cent increase on the 7,994 applications lodged in 2008-09.

The most obvious reasons for the increase are that:

• under the Fair Work Act, the vast majority of Australian employees now have access to unfair dismissal protections once they have served a qualifying period – 12 months for small businesses and 6 months for others;
• an increase in the number of claims was therefore expected given that 4.5 million more Australians potentially have access to unfair dismissal protections under the Fair Work Act; and
• the difficult economic climate. There was a 31 per cent increase in cases from 2007-08 to 2008-09. This shows that the number of unfair dismissal claims can be affected significantly by external factors such as the global economic slowdown.

There is no substantiated evidence that businesses are paying “go away” money to unmeritorious claims.

Statistics indicate that the new measures are working as intended.

Under the Fair Work Act, more claims are being resolved through informal measures, such as telephone conciliation, and claims are being finalised more quickly.

In the first eleven months of the operation of the Fair Work Act, 83 per cent of matters that were conciliated were resolved at conciliation. This compares with a settlement rate of 75 per cent in 2008-09.

In the 2009-2010 financial year, the Fair Work Ombudsman:

• finalised 21,070 investigations, with 75% of investigations finalised within 90 days;
• finalised 3,402 workplace audits;
• recovered over $21 million on behalf of employees;
• commenced 53 court proceedings for contraventions of workplace laws;
• entered into 5 enforceable undertakings with wrong doers;
• had 55 legal decisions handed down by the courts;
• obtained just under $2 million in court-ordered penalties; and
• received over 600 complaints regarding workplace discrimination, and commenced legal proceedings in one of these cases.

Fair Work Online is the main website entry for advice and education on the workplace relations system. The website received around 3.65 million visitors in the 2009-10 financial year.

In the 2009-10 financial year, the Fair Work Infoline:

• answered 862,442 calls, of which
• 33% were from employers and/or their representatives;
• 59% were made by an employee and/or their
• representatives; and
• 8% were by other parties.
• recorded that the majority of calls related to wages and conditions; and
• dealt with 35,421 online chat inquiries and 21,169 email based inquiries.

Analysis of the ABS industrial action data shows that the incidence of industrial action has not increased under the Fair Work Act.

What the data sequence clearly shows, despite the quarterly fluctuations, is there is a continuing long-term trend of very low levels of industrial disputation (contrary to recent media reports).

Under the Fair Work Act, the right to take industrial action is governed by clear rules.

Employees may take protected industrial action to support or advance claims during collective bargaining.

However, significant penalties apply to individuals or corporate bodies who flout industrial action rules and the Fair Work Ombudsman will pursue parties if the law is not adhered to.

ABS data published for the June quarter 2010 show that the number of working days lost per thousand employees decreased over the quarter to 2.5 compared with 3.0 in the previous quarter.

Importantly, the data shows that there is a continued long-term trend of very low levels of industrial disputation and working days lost.

Over the year to the June quarter 2010, the industrial dispute rate fell to 13.3 working days lost per thousand employees, down from 15.8 working days lost per thousand employees over the year to the March quarter 2010.

The strike rate in the June quarter of 2010 is half that compared with the June quarter of 2009. (That is 2.5 working days were lost per thousand employees in the June quarter of 2010 compared with 5 working days lost per thousand employees in June quarter 2009.)

To date what is clear is that the trend of industrial disputes has been on a continuous decline.

The Government has every expectation that this long term trend of low-levels of industrial action will continue.So overall, the new system appears to be working well, and reflects the intended operation of the Act.

The Government believes that the Fair Work Act has delivered an efficient, fair and balanced national system with a stable and orderly regulatory framework.

The Government also believes that we have a fair and flexible system that provides workplaces with practical opportunities to enhance productivity and to become more competitive, without undercutting decent working standards and established workplace rights.

In most elements of the new system discussed today, the evidence – such as in relation to bargaining and disputes – and the lack of significant controversy in FWA’s decisions to date, do, I think, suggest that the first year of implementation of the new framework has worked remarkably well.

Thank you for your attention.