Enterprise bargaining faces extinction and it could lower your wages, warns think tank
A key pillar of Australia’s industrial relations system for the past three decades is facing extinction in the private sector as employers pull out of enterprise agreements, a workplace thinktank has warned.
- Enterprise bargaining was introduced in the early 1990s
- Workers on enterprise agreements tend to have higher pay and stronger wage growth than those on awards
- Report author and economist Alison Pennington said the decline in enterprise bargaining is probably one reason employees have been seeing the lowest wage growth in two decades
The Centre for Future Work, part of the left-leaning Australia Institute thinktank, has published a research report detailing a dramatic decline in the number of enterprise agreements (EAs) and workers covered by them, especially in the private sector.
“The number of private sector employees covered has dropped by 34 per cent since end-2013 (peak year), a decline of 662,461 employees,” observed report author and economist Alison Pennington.
Enterprise bargaining was introduced in the early 1990s with the aim of allowing employers and employees to negotiate above-award pay and conditions in return for workplace-specific productivity-enhancing trade-offs that were supposed to be a win-win for both parties.
Workers on enterprise agreements tend to have higher pay and stronger wage growth than those on awards.
Ms Pennington said the decline in enterprise bargaining is probably one reason why employees have been seeing the lowest wage growth in at least two decades.
There has been a steep drop-off in the number of workplaces covered by enterprise agreements since a peak in 2013. (Supplied: Centre for Future Work)
At the same time, she observed that the wage share of economic output has fallen from 58 per cent just after World War II to 47 per cent last year, with about 90 per cent of this captured by an increased profit share.
“A key reason why growth, productivity and wages have been de-linked is the weakening of the redistributive institutions which Australia built during the long post-war expansion,” the report argued.
“With far fewer private sector workers covered by an EA, their ability to use collective action to press for better wage increases has all but disappeared.
“Industrial action has become extremely rare, especially in private sector workplaces, and a rising share of those disputes which do occur are now employer-led lockouts (rather than strikes).”
Wage increases in the private sector have been consistently declining over the past six years. (Supplied: Centre for Future Work)
Retail, manufacturing and hospitality lead the decline
While enterprise bargaining remains more common in industries with a strong public sector presence — such as health and community services, public administration and safety, and education — it has plummeted across several major private sector employers.
“The most dramatic reductions were experienced in retail trade (-82 per cent) and agriculture, forestry and fishing (-75 per cent),” Ms Pennington wrote.
“The largest declines in employees covered by EAs were experienced in retail trade (-270,000), manufacturing (-150,000) and accommodation and food services (-133,000).”
Ms Pennington argued that a couple of key Fair Work Commission (FWC) decisions appeared to have hastened the demise of enterprise bargaining in the private sector.
“The Fair Work Commission’s 2016 decision to terminate the enterprise agreement at Coles Supermarkets for failing its ‘Better Off Overall Test’ (BOOT) triggered a wave of EA expiries among retail and fast food giants that accounted for around half of the decline in total current private sector EA coverage since 2013,” she wrote.
Coles and its staff recently had a renegotiated agreement approved by Fair Work, resulting in a notable bounce in the number of private sector workers covered by EAs.
However, Ms Pennington argues that even the likely approval of renegotiated agreements at Woolworths, several other major retailers and some large fast food chains will not undo the decline in enterprise bargaining.
“A best-case scenario where all those expired EAs are renegotiated (and pass the BOOT) would reverse less than half of the EA coverage lost since 2013,” she observed.
A second trend that dramatically reduced enterprise agreement coverage, according to the Centre for Future Work, is the tendency of employers to terminate agreements that have expired, with a ten-fold increase between 2009 and 2016.
“The 2015 Aurizon decision by the FWC, to approve the termination of several EAs at the company during negotiations for replacement agreements, set a far-reaching precedent that employers have aggressively imitated in other industries,” Ms Pennington wrote in the report.
“In some cases, threatened EA termination implies dramatic potential wage cuts for workers of as much as 60 per cent, in the event that compensation were to revert to award minimums after termination.”
The percentage of workers covered by enterprise agreements has plunged since a peak in 2013. (Supplied: Centre for Future Work)
That has left just 12 per cent of private sector employees covered by enterprise agreements, as at June 2018, and Ms Pennington fears that could fall much further.
“Without urgent action to reverse the underlying factors driving down EA coverage, and rebuild a more viable and effective collective bargaining system, coverage could fall to below 2 per cent of private sector workers by 2030,” she said.
Employers also concerned with bargaining decline
The Centre for Future Work is not the only organisation concerned with the decline in enterprise agreements.
“Australia’s enterprise bargaining system has been a major contributor to Australia’s strong economic performance and growth in living standards over the past 25 years,” said the Australian Industry Group’s chief executive, Innes Willox.
“It is in the interests of businesses and their employees to reach agreement on the wage rates and conditions of employment that suit the needs of each business and its employees, provided that minimum legislative and award standards are not under-cut.”
Mr Willox blames rigidity in the law for causing many employers to shy away from enterprise bargaining and rely on the award instead.
“A key reason for the recent decline in enterprise agreements has been the lack of discretion that the Fair Work Commission has had to approve enterprise agreements when very minor procedural or technical errors have been made by one or more of the parties,” he argued.
“This issue has led to the bargaining process becoming a ‘minefield’ and many employers deciding that the enterprise bargaining system is just too much trouble to be bothered with.
“Fortunately, this issue has been addressed through changes to the Fair Work Act that come into operation today as a result of the Fair Work Amendment (Repeal of 4 Yearly Reviews and Other Measures) Act which passed through Parliament last week.”
Mr Willox said amendments to the Fair Work Act to prevent a repeat of the Coles decision about the better-off overall test would help, as would a “less pedantic approach” to approving agreements by the Fair Work Commission.
Ms Pennington and the Centre for Future Work suggest a radically different set of changes, with support for the unions’ push for industry-wide bargaining as a centrepiece.
“Widening the scope of bargaining to occur at multi-firm or sector levels would extend the reach of collective bargaining to more workers,” she argued.
“An industry-wide bargaining system would also better respond to changes in the size composition of Australian workplaces (97 per cent of workplaces have fewer than 20 workers), and would help to address further fragmentation in employment patterns resulting from new technologies, digital business models, ‘gig’ jobs, and more.”
However, this push will continue to face stiff opposition from business groups, with Mr Willox warning it would result in a dramatic increase in strike action by workers.
“The unions not only want an industry bargaining system, they want the right to take strike action across entire industries, which would be crippling for the Australian economy,” he said.
“All political parties need to reject the unions’ industry bargaining proposals, and preserve Australia’s enterprise bargaining system.”