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COVID-19: People: Time to consider IR reforms for the post COVID economy (Australia)

08 May 2020 | Australia
Legal Briefings – By Anthony Wood


Over the last month, the federal parliament acted promptly to enact bipartisan reforms to the Fair Work Act in response to the COVID-19 pandemic. At the same time, the federal IR Minister, Christian Porter, varied the regulations to the Fair Work Act and the Fair Work Commission changed its Rules and unilaterally proposed changes to a number of modern awards. Not to be outdone, the Fair Work Ombudsman has proved to be an exemplary regulator throughout the pandemic – it has exhibited a very even handed approach to the predicament faced by many employers. 

The three central pillars of Australia’s industrial relations system have proved that they can act decisively when they have to. But when we ultimately return back to normal, our IR laws will go back to where they were. Anyway, who can tell what will be ‘normal’ in a year’s time?

It’s a pretty fair bet that many businesses won’t reopen again. From local bars and restaurants to national airlines, the impact on our economy is massive. At the macro level, Australia may well be in recession for the first time in over 30 years. And we’re likely to be in the midst of a generational re-ordering of the global economy. At the micro level, who knows? Early signs are that many employers and employees will want to adopt more flexible working arrangements.  Some jobs won’t be needed any more, or will be filled by an expanding casual and gig workforce. It’s clear that to succeed, our economy will need to be flexible and responsive to change.  

To address this future, it’s neither opportunistic or unreasonable to start thinking about what our employment and IR systems should look like.

Australia’s IR system is genuinely unique.  Thanks to the Keating/Brereton reforms in 1993 our system became more flexible and encouraged bargaining. But apart from the disastrous overreach of WorkChoices, there’s only been one truly celebrated IR reform in the past two decades – namely, the creation of a broad legislated safety net called the National Employment Standards. Howard created it and Gillard enhanced it.  Essentially it ensures that Australian workers must receive minimum conditions of employment: a 38 hour week, a national minimum wage, four weeks’ paid annual leave, sick and personal leave, and so on. The NES has been a revelation. It’s fair, well respected and easily understood.

And whilst many calls for IR reform have focused on the red tape and inflexibility of our enterprise bargaining system (and the Better Off Overall Test in particular), the elephant in the room is Australia’s anachronistic system of industrial awards, known as ‘modern awards’ since consolidation reforms in 2010.

Awards have been an intrinsic feature of Australian employment laws virtually since federation. They prescribe minimum conditions of employment for employees in particular industries or trades and professions. They were designed in the days of compulsory arbitration of workplace disputes, long before today’s enterprise bargaining and legislated safety net.

Awards are blunt instruments. They are prescriptive, arbitrary, inflexible and often impossibly complicated to interpret. It’s frequently difficult to know whether certain employees are award-covered or not, or even to assess which award or might apply.

Award conditions vary, often inexplicably based on historical custom and practice. If you’re a clerk covered by the Private sector clerks award, you might be entitled to different wages and conditions of employment than clerks in other sectors. And work value assessments have been conducted to determine how much a tradesperson should earn, compared to, say, an engineer, an academic or a scientist, and so on. It’s ridiculous really, when you consider that in most cases the market primarily determines what someone gets paid above the minimum wage.

The overall objects of the Fair Work Act are to provide a fair, flexible, accessible system. Specifically, the Commission is required to ensure that awards provide a fair and relevant safety net which is simple and easy to understand. In reality, the award system is arbitrary and inflexible. It’s red tape wrapped in more red tape. As recently as March 2020 the Commission introduced a new annualised wages system for a wide range of award covered employees. A full bench of the Commission devised a system so complex and prescriptive that many employers and even their legal advisors are still struggling to understand and navigate it. There has to be a better system than this, but which still preserves employee entitlements without stifling innovation.  

According to the Economist in 2019, Australia has the world’s highest minimum wage. Removing awards should not, must not, allow this to change.  Replacing awards with an expanded safety net must be considered. The existing ten minimum conditions can be expanded, with appropriate exclusions for high income earners. Employers may need to accept that gig economy workers deserve protections too. Fairness considerations dictate that careful thought will need to be given to the transitional mechanics away from awards. It will require give and take. It won’t be simple, and will need some courage from government to come out from the WorkChoices shadows and talk about reform.

This article was written by Anthony Wood, a Partner in Herbert Smith Freehills’ Employment, IR and Safety team, based in Melbourne. The opinions expressed in this article are the author’s alone and do not represent the views of HSF.

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