The damaging costs and risks of doing business under the Fair Work Act:

The Experience of the Resources Industry

SCOTT BARKLAMBExecutive Director – Industry

Australian Mines and Metals Association HR Nicholls Society XXXIII Conference

Melbourne, 8 July 2013

OVERVIEW Context

• Industry challenges

• Focus on 2 challenges:

- Productivity

- Migration

Fair Work Act

• Right of Entry

• Agreement Content

• New Project Agreements

• General Observations

CONTEXT

CRITCIAL INDUSTRY FOR AUSTRALIAN INDUSTRIAL RELATIONS

• Very relevant industry to understanding Australia’s IR journey

• Crucible of Australian trade unionism

• Key battleground for historical strikes (including 1890s strikes)

• Central to spread of arbitration / development of C+A power

• Led change from the1980s – Robe River, Bell Bay etc

• Changed from worst industry culture to one of the best

• Dual effort: Used the law + changed hearts and minds / cultures

• At forefront of (for example) AWAs, non-union agreements

• Now going backwards as IR system goes backwards.

THE AUSTRALIAN RESOURCES INDUSTRY

• 1.1 m Australians employed

• 9.75% of total employment (2012) ( X 2 from mid-2000s)

• 18% of Australia's gross value add

• Approx $250 billion of the nation's annual output

• Industry reaching a peak around 2013/2014

• A further $350 bn in viable but uncommitted projects:

– Some cancelled / delayed = need to reverse this.

– Need to continue to encourage exploration + new projects.

INDUSTRY CHALLENGES

• Considerable and mounting challenges:

– New competitors = Emerging + OECD countries

– Increasingly difficult + expensive place to do business

– Falling productivity, high labour costs, slow approvals etc.

– Compete both for investment $$, and to sell products.

– Are seeing project cancellations + delays (End of the boom?)

– (But still damaging Skills shortages.....)

MRRT

CARBON

TAX

MIGRATION CHANGES

FAIR WORK ACT

…ARE ACTUALLY IN THE MIDST OFA WIDE RANGING POLICY ATTACKON THE AUSTRALIAN RESOURCES

INDUSTRY

SO, THE GOVERNMENT IS HELPING, RIGHT………..?

FOCUS ON PRODUCTIVITY

PRODUCTIVITY

• Resource industry productivity

- Declining since 2001.

- 45% off its peak.

• Don’t buy the 7 +ve quarters argument (from Bill Shorten)

- short term only, not trend

- Rapid increase in capital investment not efficiency

Multifactor productivity: Australia vs. Canada

Mining Industry

PRODUCTIVITY

• Labour policy is critical to our productivity decline / trajectory.

• Labour productivity “a disaster” in mining industry – BIS Shrapnel

• Australia’s labour market efficiency:

– 7th in the OECD in 2009-10

– 18th in the OECD in 2012-13

• Need wide range of reforms to productivity

• Not solely labour reform, but must include labour reform.

• Growing consensus “…industrial relations regulation is arguably the most crucial [area of regulation] to get right. Whether productivity growth comes from working harder or working ‘smarter’, people in workplaces are central to it” – Gary Banks

PRODUCTIVITY – SITUATION CRITICAL

Most problematic factors for doing business in Australia

PRODUCTIVITY – SITUATION CRITICAL

Australia’s ‘hit and miss’ rankings on international competitiveness

‘Top 10’ rankings ‘Situation critical’

Efficiency of corporate boards

4thFlexibility of wage

determination123rd

Stability of banking system

5thHiring and firing

practices120th

Intensity of local competition

6th Pay and productivity 80th

Quality of scientific research institutions

7thCo-operation in labour

relations67th

Financial market development

8thOverall labour market

efficiency42nd

FOCUS ON SKILLED MIGRATION

MIGRATION POLICY – 457 VISAS

• Recent government changes to the 457 visa system:

– Reintroduce labour market testing

– application fees - inspectors – new hotline

– Administrative ‘go slow’ in government.

• Resources not a major user of migrant / 457 labour

• But, international skills are vital when we require them

• Expect delays, costs, over-inspection (Which is what CFMEU and MUA wanted all along!)

MIGRATION POLICY – 457 VISAS

• Pushed by rich unions

• Reversal of Gray, Ferguson, Bowen paradigm.

• Exemplar of attack on the industry by Gillard/Swan:

– Opportunistic + poll driven.

– Rushed, contrary to independent reviews/advice.

– No evidence of massive rorts at any stage

– Politics first, policy justification later (if at all)

• Policy by prejudice + supposition – not evidence

• Last days of Rome / Russians crossing River Oder into Berlin

MIGRATION POLICY – MIGRATION ZONE

Crazy Incongruity

• Extending our migration zone contrary to international law

• At the same time – we are excising the mainland for humanitarian migration.

Australia for Employment Migration

Australia for Humanitarian Migration

MIGRATION POLICY – 457 VISAS

• Most concerning.... Flirting with Industrial Xenophobia

– Deeply rooted in Aust. union & labour politics

– Direct line from White Australia > Current union campaign

– White Australia = Supported by arbitration + protectionism

– Language of gov and unions = verging on our ugliest past

• When the dust settles – various people will not be proud of what they have said in recent months. (Although the left writes history......)

________________________________________________________

• Interestingly for HR Nicholls Society – Higgins was a strong supporter of White Australia, with trade unions.

• Underpinned his social experiment with compulsory arbitration

This isn’t a joke…..

Asia and the rest of the world is listening…….

BUT THERE IS THE OCCASIONAL LAUGH IN THIS…..

MIGRATION POLICY – 457 VISAS

John McTiernan Media Adviser to ex PM Gillard

3 TWU Media Advisers

457 Visa

457

Visas

“Slavery... Human

Trafficking”

FAIR WORK ACT 2009 COSTS AND RISKS

FAIR WORK ACT 2013 – PROBLEMS

Myriad problems with Fair Work Act, but 6 specific industry priorities:

1. Right of Entry

2. Greenfields / New Project Agreements

3. Agreement / Strike Matters

4. Individual Agreement Options

5. Rules on Industrial Action

6. Adverse action claims

Address first 3

RIGHT OF ENTRY

• Union entry into workplaces is a major employer concern.

• Was fixed prior to WorkChocies – had balance pretty right.

• DPM Gillard realised this, promising to retain the then existing laws:

“I’m happy to do whatever you would like. If you’d like me to pledge to resign, sign a contract in blood, take a polygraph, bet my house on it, give you my mother as a hostage, whatever you’d like … we will be delivering our policy as we have outlined it.”

• Then Leader of the Opposition Rudd promised the same.

• These promises were not kept.

• Entry laws were deliberately skewed to favour trade unions.

RIGHT OF ENTRY – The Consequences

• Now based on union coverage rules, not being party to an award or agreement applying at the workplace.

• Unions competing for members in our workplaces.

• Unwarranted disruptions due to excessive visits for recruitment (hundreds per year in some cases)

• Very difficult to ascertain which unions are entitled to enter, and which employees they are entitled to meet with.

• Unions use enterprise agreements to broaden entry or overcome legislative rules governing entry.

• Costly, Complex, Uncertain, Union aggression, Being “Gamed”

RIGHT OF ENTRY – The Solutions

• Simple =

– Just do what Rudd/Gillard said they would do in 2009.

– Restore the pre-WorkChoices / pre-FWA system.

– Make ROE a matter that cannot be undone in agreements.

– Effective sanctions against union officials / their permits.

• Area of clear policy difference – ALP and Coalition

• ALP 2013 Amendments make bad situation worse

– Resource projects / lunchrooms as default meeting places

RIGHT OF ENTRY – More fundamentally

• Do we need a more fundamental discussion.....

• Is this is an historic relic of the early 20th Century?

• May need a more fundamental discussion.....

• Should there be right of entry in the future (esp. for recruitment)?

– Have new technologies to contact unions / Members

– Unions are a service and should market themselves.....

– If “clients” are interested – they contact the trade union.

• See: New AMMA Paper on our website

RIGHT OF ENTRY – The Problems

[2013] FWC 2498 Bechtel (WA) Pty Ltd v CFMEU DP McCarthy, 26 APRIL 2013

• Abusive language + Racist language

• Ignoring lawful employer instructions + breaching the Act

• Inciting / inviting violence

• Existing law, but shows the conduct we deal with.

BUT IN FAIRNESS TO THE UNIONS…..

GREENFIELD / NEW PROJECT AGREEMENTS

• Major concern for our industry – New projects > require new staff

• Unique situation – needs special arrangements:

– No IR benchmark – no legacy of workplace arrangements

– No staff to approve an agreement

– Need IR arrangements in place for final investment approval + before we start hiring.

• Pre FW Act

– Could make greenfield agreements for12 months (employer)

– Up to 5 years with a union

GREENFIELD / NEW PROJECT AGREEMENTS

• Under FWA, employers can only make a GF agreement with union(s) entitled to represent majority of employees, max 4 years.

• Caused delays and complications + unions compete + invites unions into new projects + new rights of veto.

• Unions well aware employers need investor approval to proceed. And they play it for all its worth.

• Problem often not wages – its union clauses on disputes, consultation, contractors and flexibility.

• Bargaining is being gamed by unions that have been dealt into these projects by the FW Act.

• Clear case to look again at the Act to fix these problems....

GREENFIELD / NEW PROJECT AGREEMENTS

• But government wanted to head 180° the wrong direction

– 2013 amendments allow unions to initiate arbitration.

– Reward unions for not doing business with employers.

– Recipe for project delays and investor reticence

– Should be extraordinary, but sadly not. Not passed

• Coalition policy better:

– Must be completed within 3 months

– If not employer can have FWC make / approve agreement.

GREENFIELD / NEW PROJECT AGREEMENTS

• Longer term and more fundamentally....

• Why do we need to bargain with unions, meet additional standards, or impose limits on these agreements?

• The employer should set the wages for new projects:

– If we meet the relevant tests/minima, that should be enough.

– If we get the market rates wrong, the skilled staff will not come.

– That should be the risk calculation we take.

– Perhaps should be time limited – could be explored.

AGREEMENT / STRIKE MATTERS

• Seen a loosening of what can be included in agreements .

• Similarly - what can be subject to union claims / strike threats.

• Provided unions with:

– New options to manipulate in bargaining – i.e. new claims.

– New clauses – pro union provisions

– Capacity to undo / limit flexibility – IFA provisions

• Objection is the clauses, but in addition....

• Unions are deliberately “gaming” or “playing” the system through creative use of agree clauses.

AGREEMENT / STRIKE MATTERS

• Need:

– Employment agreements limited to employment matters.

– (Plus) Previous WR Act prohibited matters restored

– Rigorous + ongoing policing of “objectionable terms”

– Continuous regulation making power

– Prohibit a list of objectionable clauses (and update the list)

– Don’t allow unions to undo leg. intent through bargaining

• Recall: System protects employees from themselves on wages.

Should similarly protect employers on various issues.

GENERAL OBSERVATIONS

• Spent last 3 years in Geneva

• Worked with labour relations experts / laws in many countries

• Have some concluding perspectives coming back into our system

• Australia has “unique” labour market regulation

• Not in good ways

• We have uniquely world’s worst practice in many areas (at least compared to many comparable OECD countries).

GENERAL OBSERVATIONS

1. Vastly over-regulated – with no gain for either party.

– Very pervasive and spreading regulation.

– Have pursued labour market regulation more comprehensively that other nations – we regulate more of working relations than comparable countries / perhaps any country.

2. Fair work architecture is flawed.

– Took some very poor legislative directions in WorkChoices.

– 2009 FW amendments made this worse.

– But........... both leading parties would retain it!

GENERAL OBSERVATIONS

3. Increasingly regulate too many “what ifs”.

– Can’t protect everyone from every exigency in work.

– Fundamentally misguided goal, not attempted in other systems.

– No sense of shared risk / endeavour

4. Other systems either regulate processes or outcomes

– We are over-regulating both.

– Why have both good faith barg + strong agreement tests?

– Far too much regulation of processes and obligations to notify, consider, consult etc.

– Keep it simpler – what we must pay or provide, do or not do.

GENERAL OBSERVATIONS

5. Less capacity for flexibility than 20 years ago

– NES less flexible than previous NDT.

– Can deliver less in bargaining than in previous EBAs

– Bargaining fatigue + Productivity increasingly “off the table”

– Our WR system doing nothing to productivity

6. Very strong personal property rights in employment

– Unfair dismissal, adverse action, now bullying.

– We mix regulation of the individual and collective.

– Largely unknown in other systems. FWC a hybrid.

GENERAL OBSERVATIONS

7. Compliance and enforcement is completely OTT

– Financial punishment + moral opprobrium.

– High penalties for simple obligations, or lower for complex ones – we have worst of both.

8. Signed on to far too many ILO Conventions

– Our system is still unique, badly unique – but unique

– It is not sufficiently taken into account in most ILO standards

– Need the US approach of low ratifications

– e.g. Recent Minimum age matter.

GENERAL OBSERVATIONS

9. Put unions at the centre of the system:

– System predicated on union bargaining, but <14% members, and > 90% workplaces no union.

– That’s not unique,

– But its unique to make a system more reliant on trade unions when their membership and support is in sustained decline.

– Unique to have a system that pulls in contradictory directions on regulation v deregulation, centralism v decentralism, and collectivism vs individualism.

10. The costs and risks are too high. Discourages job creation, investment.

GENERAL OBSERVATIONS

• Leave you with some final data that is very telling...

• Compare how Australian management ranks our performance on regulating doing business in this country, against our international peers.

• Clearly makes the case for labour market reform and fixing the problems with the Fair Work Act.

• The international investment market is well aware of this.

• Makes it increasingly hard to attract international investment to Australian resource projects.

PRODUCTIVITY – SITUATION CRITICAL

Australia’s ‘hit and miss’ rankings on international competitiveness

‘Top 10’ rankings ‘Situation critical’

Efficiency of corporate boards

4thFlexibility of wage

determination123rd

Stability of banking system

5thHiring and firing

practices120th

Intensity of local competition

6th Pay and productivity 80th

Quality of scientific research institutions

7thCo-operation in labour

relations67th

Financial market development

8thOverall labour market

efficiency42nd

The damaging costs and risks of doing business under the Fair Work Act:

The Experience of the Resources Industry

SCOTT BARKLAMBExecutive Director – Industry

Australian Mines and Metals Association HR Nicholls Society XXXIII Conference

Melbourne, 8 July 2013