Employers are waiting with a mixed sense of anticipation and anxiety for the results of the Federal Government’s pursuit of an award rationalisation process.

As one of the primary agents of change under the new WorkChoices reform package, award rationalisation is meant to spearhead the promised new era of flexibility and choice in workplace relations. But there are real concerns that some employers may not be better off if a ‘scorched earth’ approach to awards prevails.

Background

The Federal Government’s WorkChoices reforms (see September 2005 Employers Adviser™) have generally been welcomed by the business community and, if polls are to be believed, accepted as inevitable by the voting public.  There is no doubt that Australia’s complex and over-regulated industrial relations system is in need of reform. The realities of future global trade will force us to be more efficient and competitive or come off second best in world markets.

There are strong arguments to reform an industrial relations system in which:

• the combination of awards and Acts of Parliament are enough to bury employers in red tape
• there are many impediments to negotiating useful workplace agreements
• the coverage of employers by both state and federal awards is an unnecessary complication
• most current agreements are still add-ons to awards rather than stand-alone comprehensive arrangements
• too many agreements are still based on a generic ‘one-size-fits-all’ approach to diverse industries
• unfair dismissal provisions are often exploited to a point where effective management is unreasonably undermined.

An Award Review Taskforce (ART) has been set up to recommend the way forward in relation to awards. The rationalisation process is likely to lead to fewer awards – but it may also ironically put award-free employees under award instruments for the first time.

 Award rationalisation

What does the award rationalisation process entail? Employers have already lived through an ‘award simplification’ process and there is a degree of scepticism about the results. Although simplification has delivered some real benefits (such as more user-friendly awards, more streamlined content etc) the award system is still far from simple. Award content was tackled but award coverage has been left largely intact – and the process took a long time.

Now the focus is on a more simple award structure that will provide some reduction in content – but exclude wages and classifications, which will be set independently by the new Australian Fair Pay Commission (AFPC). They will also exclude annual leave, personal carer’s leave, parental leave etc, which will be governed exclusively by statute. Long service leave will also be excluded and covered by state law, except (for the time being) where federal awards have long service leave provisions.

So will award rationalisation really produce a more rational system? The answer is – it will depend on how it’s done.

The award rationalisation process in fact comprises two separate tasks:

• award rationalisation, with the aim of consolidating existing federal awards to minimise their overall number
• review of wage rates and classifications, with the aim of separating them from awards and rationalising them under the AFPC, which will set minimum wage levels

The first of these, award rationalisation itself, will be undertaken by the revamped Australian Industrial Relations Commission (AIRC). Its job will be to respond to a ministerial request for rationalisation, possibly on an industry-by-industry basis, and to conduct the exercise by bringing specific employers, industries or classes of business into the award’s ambit. It will have to make sure awards are not limited by state or territory divisions.

Although the process will no doubt minimise the overall number of awards, the effect could be akin to expanded industry-based ‘common rule’ awards that may bring award-free employers and employees within the loop for the first time. It could also lead to greater involvement by some unions, with standardised industry-based awards potentially giving them representation and entry rights over employees they have not been able to reach in the past. Because the rationalisation process is focusing first on federal awards, there is also a danger that some useful provisions in state awards might be deleted to the disadvantage of employers.

Just as importantly, a poorly constructed rationalisation process may have the effect of throwing out some of the advantages to business gained through enterprise awards.

Discussion papers released by the ART have already predicted that existing awards may be consolidated into about 20 generic industry awards. While some employers assume this is necessarily a good thing and even look forward to a future system governed by a single nation-wide award providing minimum statutory safety net standards, for most employers in Australia there is no certainty about the consequences or usefulness of such an outcome.
The transition to a rationalised system of awards will inevitably involve some of its own complexity that could impact adversely on some businesses. It is possible they could lose some of their hard-earned industry-specific award provisions in the cause of a simplified system. Unless the process is indeed rational, some employers could be facing a ‘dumbing down’ of the system, with severe cost implications to achieve compliance with a generic model. Other employers may see broad industry sector awards as an opportunity for business expansion and competition gains.

Wage rates and classifications

The aim of the second major task is to consolidate existing classifications and wages into a structure of possibly up to ten generic classifications. This process will be entrusted to the AFPC, which is to be led by the recommendations of the ART, which in turn is already drafting a report to the government on the appropriate strategy.

The first round of rationalisation decisions could be made by as early as mid-2006 and before the first wage adjustment ruling of the new AFPC. The intended result is a set of redefined and broadbanded classifications and wages, including casual loadings and piece rates.

But again, unless the process is indeed rational and takes account of adjustment costs and disturbed relativities across industry sectors, it could actually impact negatively on employers’ wage and salary bills. Separating wages and classifications from awards needs to be handled sensibly to avoid creating artificial pay standards that are not fine-tuned to business and labour market realities.

The road ahead

The award rationalisation process stands to have greater consequences for employers than the award simplification process of recent experience. This will affect not just the content and style of federal awards but also their scope and coverage. It is not just about the awards themselves, but the size and shape of the entire playing field. As such, the process will impact on all employers, whether they are now covered by federal awards or not.

To what extent individual businesses and organisations will be affected is too early to tell. This will depend on the current awards or agreements that are operative in individual workplaces. Some employers will be covered by new award arrangements, with unknown consequences. Others may have their enterprise specific competitive advantages extended by law to their competitors or thrown out altogether in the rush to embrace a new and simpler system.