Labor pains or gains? Reflecting on recent and upcoming IR reform

The return of the ALP in May’s federal election is likely to be taken by the Albanese Government as an endorsement of the sweeping industrial relations changes made since 2022. Those changes represent some of the most significant re-regulation of workplace relations in decades.

In this update, we reflect on some of the outworkings of the ALP’s contentious IR legislation over its first term and look ahead to further changes likely to be pursued, against a backdrop of Australia’s already complex IR system and the lowest labour productivity growth rate in at least 20 years.

Growth of enterprise bargaining and industrial action

The Government’s workplace reforms have led as intended to a sharp rise in enterprise bargaining activity and industrial action, with unions now able to initiate bargaining in certain circumstances.  This increase in bargaining activity has been driven by various factors, including employers acquiescing to bargaining requests in the face of threatened or potential multi-employer bargaining or not prolonging the inevitable in some cases.

Further, the intractable bargaining regime – which allows the Fair Work Commission to arbitrate the terms of a new enterprise agreement where the parties have failed to agree new ones – has removed much of the incentive for unions to reach agreement quickly.  This is because the laws require that the terms of an arbitrated agreement not be less favourable for employees than any existing enterprise agreement, on a clause-by-clause basis.  This, coupled with the Commission in one case determining it has the power to award retrospective pay increases (including to former employees), means that unions can be forgiven for thinking there is very little downside for employees to allow bargaining to become intractable. There have only been three determinations issued by the Commission to date but so far, we have seen award wage increases awarded well above employer proposals. The late amendments proposed by the Greens to the intractable bargaining regime introducing the ‘no less favourable’ requirement has seriously upended the balance of the parties. This bargaining regime makes change difficult and in a time of profound technological advancement whilst the economy cries out for productivity improvements and innovation, it is a glaring concern.  The Productivity Summit will be hard pressed to ignore the impact of these changes.  

Concerningly, the rising number of enterprise agreements also has been coupled with increased levels of industrial action, with the number of disputes, working days lost and employees involved in industrial action all increasing over the past 3 years.[1]

Multi-employer bargaining and ‘Same Job, Same Pay’

The introduction of multi-employer bargaining is beginning to impact sectors such as education, health, and construction, with unions leveraging these mechanisms to expand their influence.  As uptake of multi-employer bargaining expands, favourable outcomes in one business have the potential to set precedents across an industry, increasing the risk of sector-wide cost increases and operational complexity.

The ‘Same Job, Same Pay’ laws have also been an area of significant activity and orders in this new jurisdiction are being made at a rapid pace.  These laws allow the Commission to make orders requiring labour hire workers to be paid at least the same as directly-engaged employees, regardless of whether the host employs its own staff in those roles.  The Commission has made orders in relation to every application which it has determined to date, largely rejecting arguments from host employers and labour hire providers.  In one case, the orders amounted to pay rises of about $35,000 per year and were made despite the Commission accepting evidence from the labour high provider that the orders would make the contract unprofitable and threaten the viability of its commercial arrangements more broadly.  The scope of the Commission’s jurisdiction beyond traditional labour hire models and into services agreements is the subject of a test case before the Full Bench. 

While most of the ‘Same Job, Same Pay’ orders made by the Commission to date have applied to the energy and resources sector, more recent examples cover a wider cross-section of industries (specifically aviation, warehousing and retail pharmacy).

What’s next?

Industrial relations did not feature prominently in the policy platform for either of the major political parties during the election.  However, close observers would note that the few statements that were made by Ministers indicated a continued push for wage growth and a commitment to protect penalty rates in awards.  This latter point was made in response to a number of applications by employer groups to introduce ‘exemption rates’ into modern awards (which have the effect of buying out penalty rates and other entitlements in return for a higher annual salary).

Other issues likely to arise in the near term include the intersection of IR and artificial intelligence, as well as ongoing tensions between the relatively rigid modern award system and the ongoing push from unions and employees to maximise flexibility, including working from home. Unions are advocating to maximise their involvement in the introduction and update of AI in the workplace, which brings into focus employer consultation obligations in modern awards and enterprise agreements. Unions are also expected to continue to focus on ensuring the gains from AI are shared with workers.

Separately, the Government has already flagged a plan to ban non-compete clauses for workers earning below the high-income threshold (currently $175,000), with the possibility of extending restrictions on non-competes to high-income workers and curbing non-solicitation clauses for clients and co-workers.

Further, although not yet formal policies, we expect the Government to come under pressure from unions and other stakeholders to make further reforms in several areas including:

• introducing a national portable long service leave scheme and a national labour-hire registration system;
• making it easier for unions to force employers to agree to engage in enterprise bargaining;
• banning or restricting the use of ‘lock-outs’ by employers;
• increasing paid parental and reproductive leave; and
• possibly restricting the use of artificial intelligence in the workplace, with unions already seeking protections in bargaining.

It remains to be seen how the Government will manage balancing these claims against its stated objective that the “second term will be primarily [about] productivity without forgetting inflation”.[2]

The Fair Work Commission and workplace regulators

Outside of the legislative agenda, we also expect reform to continue through the expanded powers of the Commission, with a number of major cases to be dealt with in 2025, including:

• an application by the retail union, the SDA, to remove ‘junior rates’ in the retail, fast-food and pharmacy awards (which could then spread to other awards);
• the Commission’s self-initiated major-case on part-time employment provisions, which is expected to develop model part-time clauses for use across all awards;
• a further review of the model consultation clause in modern awards, with unions pushing the Commission to impose an obligation on employers to consult prior to a ‘definite decision’ being made, as well as expanding the areas of consultation to cover the use of artificial intelligence and automation; and
• the ‘regulated worker’ and ‘road transport’ minimum standards order and contractual chain order regime, which has the potential to have a significant impact across a number of sectors.

Boards should also expect that regulators will continue to be actively policing compliance. The Fair Work Ombudsman is focusing on underpayment remediation, and new ‘wage theft’ criminal provisions are now in effect. The Ombudsman is continuing to emphasise the need for employers to have sophisticated governance arrangements to ensure employees are paid correctly and has made clear its expectation that responsibility for wage compliance ultimately sits with the board.

Lastly, the Australian Human Rights Commission is prioritising compliance with positive duties to prevent sexual harassment and discrimination, while state-based WHS regulators continue to apply close scrutiny to the effective management of psychosocial risks.

The road ahead

The Government has announced that Treasurer Jim Chalmers will convene a productivity summit in Canberra in August. Speaking recently at the Press Club, Prime Minister Albanese remarked that “…co-operation between government, business and unions is essential to securing our future growth and prosperity.”[3] Despite this, the Prime Minister has indicated that IR will not be on the agenda at the summit. 

It remains to be seen whether business groups will have a stronger voice in the shaping of the Government’s agenda this term, given the perception among many employer groups and business representatives that the perspective of business largely fell on deaf ears at the 2022 Jobs and Skills Summit.

While the Government is likely to slow the pace of further industrial relations legislative reforms somewhat from what we have seen over its first term, we can reasonably expect to see the impact of the sweeping and significant changes of the past three years continuing to flow through the system whilst accompanied by further incremental reforms in targeted areas. Most agree that the full force of the Government’s IR reforms is yet to be realised. The operation of many provisions remains untested. This will not likely be the case for long.