HR Nicholls Speech: Industrial relations reform in a post Work Choices world

HR Nicholls Speech: Industrial relations reform in a post Work Choices world

Good evening all and thank you for the honour of asking me to deliver the third Ray Evans Memorial Ovation.

I didn’t know Ray Evans.  I’m sad about that.  I’ve been a member of some of the organisations he was instrumental in establishing, and a beneficiary of his commitment to this country and the ideas needed to drive it. 

But more than once, I’ve heard people I respect say that Ray changed their life, helped them to find their purpose, and showed them how to use ideas to generate change. 

His work – all done from outside the parliament and in the capacity of a private citizen – has made more of an impact on Australian politics than most elected representatives.  That’s a significant thing to observe.  At a time when public cynicism about the value of democracy is high, and trust in politicians is low, his life’s work shows that one person can make an awfully big difference, and responsibility for making our nation great lies with all of us, every day – not just on the one day every few years we need to show up and vote. 

Ray was truly an active citizen.  The HR Nicholls society, Samuel Griffith Society, Bennelong Society and Lavoisier Group, all bore his fingerprints.  Ray had a talent for bringing the right people together to effect policy development and information-sharing that meaningfully shifted the national debate.

And based on what I have read about him, I reckon we would have got along.  His belief in liberty rose from his Christian faith, and from the deep morality of the free market.  The truth of that morality is one that we must not neglect.

After all – it has lifted more people from poverty than anything else known to man, and facilitated living standards for all that could not have been dreamt of even 200 years ago. 

Ray encouraged, inspired, pushed and mentored so many young people to make the world a better place.  It can be hard to find a mentor in politics, someone who you can trust, whose beliefs you share and whose life experience and advice can be called on as you develop the good judgment needed to make it work.  But Ray was that for many.  Even more than that – he was a friend.

We honour him tonight.  May we all learn from his example, and demonstrate our love of this country and our fellow man with the kind of service he gave and the kind of impact he made. 

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In a room full of people passionate about industrial relations, the free market, and the value of individual exchange, it is tempting to be ideologically pure.  What Milton Friedman wrote in capitalism and freedom is right.  It works.

And yet, when in 2007 the coalition last attempted to go some way towards that vision, we were resoundingly flogged.

It has bred a timidity when it comes to IR over the last 12 years that I am sure has frustrated many people in this room – myself included.

But it speaks to reality.  We need to find ways to improve the efficiency of Australian businesses – not because it is a philosophical obsession but because it is the right thing to do.  It creates more jobs, it raises wage levels, it provides social mobility on the fairest possible basis:  reward for effort, intellect and ingenuity.    

The theme for this talk then is industrial relations reform in a post-workchoices environment.  How do we go about delivering those benefits to Australians when the last time they were offered they were rejected?

The answer, I suggest, lies in something that should be familiar to most of us:  the conservative way of operating.  That is:  Incremental change, based on clearly articulated problems and evidence that a solution will work, rather than attempting overnight revolution.  It won’t scare the horses, it allows Australians to adapt gradually, build their trust in the government to get this right, and ultimately, avoid a repeat of the political outcome of 2007. 

That takes commitment and courage – but our moral duty to Australians demands no less.  And we will succeed if we ground it always in the needs of Australians – not simply in the dislike of unions or faith in businesses.  Both of those are mere caricatures.  But if it is about fairness for Australians, their chance to get ahead, their right to choose always – well, if that is our goal, our narrative, we will succeed and every Australian who depends on our economy will enjoy the fruit. 

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It’s probably hard for people who weren’t raised under the spectre of union militancy to understand just how difficult business conditions were in Victoria when the HR Nicholls Society was formed.

It was the Dollar Sweets dispute which motivated Ray to form the HR Nicholls Society – but not for the purpose of reform or to force the unions back to common law jurisdictions. But rather to ensure the truth about the then industrial relations system was known and recorded. Because, just like today, there was a tendency to revisionism, portraying the unions as being for the downtrodden working man, and big bad business being in it for themselves.

On the contrary, Dollar Sweets demonstrated the extent to which unions believed they were a law unto themselves, and industry groups and the Hawke Government let them be. That attitude remains today, and it doesn’t benefit the employer, the employee or the economy.

In writing a summary of the case for the Society, Peter Costello said

The Dollar Sweets action shattered conventional thinking on this issue and, of course, it ended the long period of practical immunity from the common law which unions had enjoyed. One of the reasons common law actions were not taken was a fear of the possible reaction to the ending of the unions' privileged exemption from the law.

What Ray and the other founders of the Society noticed was the facts of the matter were forgotten fairly quickly, and the significance of the Dollar Sweets case would be forgotten if some one or few didn’t preserve the facts and make them known.

Since then the HR Nicholls Society has become the thorn in the side of the unions, and they were called ‘economic lunatics and political troglodytes’ by then Prime Minister Bob Hawke.

Ah, the irony of calling Costello an economic lunatic.

It’s 30 years since Dollar Sweets, and despite the attempts by the Howard Government and the current coalition government, we are still operating in a climate where the unions dominate the industrial relations debate at the expense of their own members and better productivity, and the complexity of awards is making it difficult for businesses to manage payroll systems efficiently, leaving them open to mistakes which can take years to manifest.

As late as last week, Queensland Federal Circuit Judge Michael Jarrett handed down a $40,000 fine to the CFMMEU in an attempt to deter what he called their ‘unending recidivism’.

There is a definite ‘thumbing of the nose’ by the CFMMEU. Organisers like Victorian Theo Theodorou – a repeat law-breaker who has incurred some $30,000 worth of personal fines since 2014 – just don’t regard their actions as wrong.  

Theodorou received a $9000 personal fine in 2014, and in applying the fine Federal Court Justice Wheelahan said:

"The main consideration is to give the penalties that will be imposed upon Mr Theodorou their intended deterrent effect by ensuring that the burden of the penalty is recognised.”

Theodorou hasn’t paid that fine as of last Thursday, so he faces the likely prospect of prison. Rather than paying it, Theodorou is using crowdfunding site Raisely to raise the money.

Oh the irony of a world where if you are Israel Folau you can’t use a crowdfunding site to raise funds to run a legal case alleging unfair dismissal for religious discrimination, but if you are a unionist you can use them avoid the deterrent effect of court imposed consequences for illegal action. 

I digress. 

He has the support of the Trades and Labor Council of Victoria and the tacit approval of the head of the ACTU, who is on the record as saying ‘if we don’t think the law is fair, then we won’t obey it’.

But given how long union lawlessness has persisted, given the way that high fines have not improved attitude, perhaps we need to revisit the idea. 

For the CFMMEU, fines are just another cost of doing business. This attitude creates constant stoppages on worksites over even petty grievances, and it is adding massively to the cost of construction in a manner largely unseen.

These costs are passed onto us. Higher prices for apartments or office space. Or in the case of the government projects, the cost is passed onto the taxpayer.  

If I were a builder, I would quantify that extra cost, and provide details of it to the end user – whether government, commercial, or individuals.  You can’t generate an imperative for change until people can see the magnitude of the problem. 

But fines alone are not working.

Aspects of the Ensuring Integrity Bill are designed to scaffold fines in encouraging a more lawful standard of conduct among recidivist unions. 

But I can’t help but think the market can play an important role in solving this problem. 

The ‘conveniently belong rule’ in the Fair Work Act, is what some of us might called the closed shop or monopoly a union is given on sites.

The fines being issued are not even in the league of the value that attaches to being the only union on site. What if we committed to ending union monopolies, and allowing the cleansing effect of competition to raise standards of union conduct and the value for money delivered to members?

There is a little known ‘Easter egg’ in the Fair Work Act 2009.

Australia is a signatory to a number of ILO Conventions which preserve the right of a person to join an organisation or to form one, for the purposes of bargaining with an employer.

In Gillard’s Fair Work Act 2009, this right is articulated in the Object of the Act and section 179,

‘an employer… must not refuse to recognise or bargain with another bargaining representative for the agreement’.

What this means is there is a provision which allows for people to form their own unregistered organisation to represent their rights in the workplace. These unregistered organisations have the same rights and responsibilities as a registered union. Contributions to them are also tax deductible.

There is no legal impediment to a group of disgruntled workers – annoyed both with their boss and their union – from forming an unregistered organisation to represent their rights in the workplace.

In 2014, the Nurse Professionals Association of Queensland was established provide the 85,000 nurses in Queensland with a choice between belonging to the Queensland Nurses and Midwives Union, with its close ties to the ALP, and the newly-formed, apolitical NPAQ.

And it is very clear in the constitution of the NPAQ that no funds will be donated to a political organisation, that all their funds will be used for the benefit of the members: for professional indemnity cover, for representation if they need it.

In the five years since formation, 5000 nurses have chosen to join the NPAQ and pay $440 a year – saving $270 on the Queensland Nurses and Midwives Union’s rates. At its current membership numbers, that’s $1.35million each year is not going into the QNWU to be filtered onto the ALP.  If the rate of membership growth continues, it won’t be long before the QNWU has to start trimming expenses, including the resources it applies to issues campaigns that back up Labor’s efforts. 

To my mind, ending the conveniently belong rule and facilitating competition in the union sector is vital to ensuring workers’ rights are paramount. If the work of the NPAQ can be replicated across other sectors, it will provide workers in those industries with choice for working people - with choice comes competition - with competition comes better value.  It provides a reason for the current players to stop being so wasteful, and lift their standards of conduct to align with the values of the good people whose membership subscriptions they would need to earn.

I can’t see any downside to increased competition in the union sector. I can see huge benefits of associations competing with unions and all that unions come with – politics, elections, affiliations with other unions, reputational issues and a close association with the ALP.  I can see the benefits to the member who receives a streamlined service – professional indemnity insurance, workplace support, representation when they need it.  So many people who join a union want those services, but not the political baggage.  Let the market offer them a product that suits their needs. 

Closed shops have been the norm in industrial relations for generations and aside from the lack of value a monopoly creates, the other danger is of the relationship between the union and the employer becoming too cosy at the expense of employees.

In 2015 it was revealed that Coles had entered into an agreement with the Shop, Distributive and Allied Employees union which stripped away a number of complex penalty rates, and left many young and vulnerable workers worse off.

The agreement was made on behalf of around 77,000 workers by the SDA, co-signed by the AWU which represented a small portion of the employees, and was endorsed by Bill Shorten.

In turn, the SDA benefited from a preferred union status, and collected higher commissions from union fees, totalling about $5million a year.

And that $5million went into a war chest to influence public policy and to fund Labor election campaigns.

It was a terrible agreement for workers and it was overturned by a full bench of the Fair Work Commission in 2016. But not before those 77,000 staff worked under it over the course of a year. The SDA put their commissions before the interests of their members. They did similar deals with Woolworths, KFC and McDonalds.

Conflicts of interest don’t seem to concern the union sector. 

In any event, enterprise bargaining is in decline.  That’s for a number of reasons:  the complexity of making and approving agreements and the limited benefit that can be got in the context of the Better Off Overall Test.  Requiring every employee in every hypothetical situation to be better off strips the process of most of its potential for delivering the flexibility that leads to productivity gains. 

Plus, it’s an expensive process, and can be distracting from the business’ real work when it encourages adversarial behaviour and unnecessary conflict. 

And so awards are being relied upon more and more.

The decisions that arose from the 2014 award review – which I might add is still ongoing – have made awards more complex, added red tape and delivered the worst of all possible worlds.  One example is that the decision to regulate annual salary arrangements under awards completely undermines the concept of salaries being performance focussed rather than based on the time spent at work.  From 1 March 2020 the FWC has decided that the mining, hydrocarbons, hospitality, horticulture and clerks awards will all be affected.  Now, those employers need to document the working hours and notional penalty rates and entitlements that person would have got, so they can show the person wouldn’t have been better off on the award.  How’s that for administratively cumbersome? 

There are strong arguments for Coles, which has to constantly monitor changes in the retail award (of which there have been 48 versions over the past ten years) and to implement them in a timely manner, to look for a more simple way to pay their staff.

They operate 807 sites across Australia, employ 77,000 employees, covering a range of ages and trades, and operating under the vagaries of each state or territory’s authority.

For example, New South Wales, Victoria and the ACT sell alcohol in their supermarkets, and therefore there is a 70 cent liquor licence allowance that has to be paid those staff authorised to manage alcohol.

The retail award is nothing compared to hospitality which has 90 pages listing more than 1700 pay rates and 26 allowances. It has become so complicated, even the list of payments isn’t in any specific order, with gardeners mixed up with clerical workers, listed under on a page with wait staff.  The rate for a person who delivers plates of food to a table is different to that of the person who clears them – and if the person whose job is clearing takes a just-made dinner out to a table, the employer faces emotive accusations of wage theft.

It’s a mess and how a pub owner with five minutes up his sleeve can find out how much to pay his third year apprentice chef or his second year wait staff with responsible gaming accreditations, I don’t know.  How that owner is supposed to make sure the day manager appreciates the seriousness of the complexities of making sure the right person takes and clears items from a table is similarly baffling. 

Beyond the mess of the list are the hours that hospitality staff can now work. There was a time 10 or so years ago, a bar worker in Brisbane could do a 16-hour shift on Thursday, Friday and Saturday nights. Effectively working a 48-hour week in three nights – something many wanted to do.

That’s not legal anymore. Now shifts are a minimum of six hours, maximum of eleven, no more than three days in a row. This restriction reduces the employee to a maximum 33 hours Thursday to Saturday night – and for many, that’s all they’ll get for the week.

Award complexity goes across all industries. Many of you would say that technology does much in the way of assisting small business deal with the current penalties.

I worked as counsel assisting in the Qld Health Payroll Commission of Inquiry.  It focussed on the IT contract, and the way that the Qld government had botched the arrangements with IBM. But the real story was that the awards the program was supposed to apply were so complex, billions of dollars and IBM’s best people couldn’t do it.  But rather than fix the awards, they poured billions into IT products that just couldn’t get over the line. 

I was in Bundaberg a few weeks ago, and small town accountants spoke in hushed tones about the fear their small business clients had of making mistakes on their payroll.  Their choices are expensive HR consultants that most of them can’t afford, or running the risk of getting it wrong and being accused of theft. Even if they use the HR consultant, it won’t protect them if the payroll is nevertheless wrong. 

There’s no mechanism, like exists for the ATO, to get a binding ruling up front to say you’ve got it right.  The FWC tells you to get your own legal advice, and you’re on your own, even if that advice is incorrect.

It’s unreasonably hard for small business.  By systematically simplifying awards or offering a ruling mechanism, we can make this work so much better. 

This week Minister Christian Porter suggested that directors who engage in systemic and conscious wage theft, should be treated in the same manner as if they had stolen funds from shareholders.

And where it is systematic and deliberate – fair enough.  But a lot of the time it is not.  The trade-off for toughening this up has to be a simplification of the awards.

I’ll talk about a national human services provider, a brand you would recognise, which has found they need to streamline their payroll. This provider has services around Australia and each of those services has a range of professions with different levels of qualification and experience.

As a result they have 2228 pay rates arising from a combination of legacy practices and the gradual allowance of individuals being given special consideration. Their pay systems are cumbersome and costing them money, but more importantly the number of pay rates significantly increases the risk of inadvertent errors in calculating the pays.

The needs of a service in Darwin are different from a service in Malvern or Moonee Ponds.  Pay rates need to accommodate skills, qualifications and locations, and should reflect variations in supply and demand, but are over 2200 really necessary?

We need to keep it simple if we want small businesses to survive and succeed. We can’t let unions bastardise awards sector by sector with ambit claims like the minimum shift time being set at 6 hours in hospitality. Compare this with the retail sector’s minimum of 3 hours.

We cannot let unions overcomplicate the system making it so confusing for employees they don’t know when they’re having the wool pulled over their eyes. They need to understand their working conditions in order for them to choose between an agreement and an award, and to know when their pay is and isn’t correct. That’s part of making it fairer for Australians, and empowering them with genuine choice. 

To do that, we need to carefully comb through each award and find those components which make no sense, those that lead to poorer productivity and those that set enterprises up to fail.

We also need to arrange them logically and keeping in mind the restaurant owner or manager of the local golf club only has a limited time for paperwork. And if they’re simplified and made more logical, this will allow employees to understand them better as well.

In turn, they can work out for themselves if the award is better for them or an EBA. 

Because it’s about choice. It’s not about ideology – it’s about doing what is right for Australians.  About more jobs, higher wages, more opportunities for individuals to pursue their version of the perfect life for themselves and to reach the goals they set for their families.  That’s a big deal from which every single person – whether they work or not – will benefit, because we all benefit from a stronger economy.

Thank you.