Is the Fair Work Legislation fair?30/11/2022 Maybe, but one thing is for sure, it is likely to be expensive as well. This week we look at the ‘Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022, a Bill that once passed, will represent one of the most significant overhauls to the country’s Industrial relations landscape in over a decade. Before proceeding further let’s get to the main points, broadly categorised into two categories. The first is the direct impact and the second is the indirect impact. Direct ImpactWe define direct impact as those legislation components that will directly affect wages (and thus the bottomline). Here the major points are as follows:
1. Prohibiting pay secrecy clauses in employment contracts.Pay secrecy is a concept that covers everything from employment contract clauses that explicitly stop you from telling co-workers what you earn — or asking them what they do. This move away from pay secrecy essentially allows employees within businesses to discuss whether there are discrepancies (i.e., increases the bargaining power of employees) 2. Sunsetting zombie agreements within 12 months of commencement. To explain this briefly, for contracts to be valid, they must satisfy some basic requirements – offer, acceptance and consideration. But what happens if a contract has expired? It is still legally speaking preserved – that is, certain contracts remain valid under particular laws if there is no replacement law (i.e. a zombie). For example, let’s take enterprise bargaining agreements that precede the fair work act; the onus now falls on employers to transition to modern awards proactively. 3. Limitation of the use of fixed term contracts In particular, the prohibition of fixed term contracts of more than two years. Some anti-avoidance provisions and exceptions for specific roles/industries. 4. Industrial Action The process has been altered substantially by removing the limitation on protected industrial action concerning multi-enterprise agreements. Other important changes were the ‘simplification’ of BOOT (Better off overall test) which now must involve a global assessment (as opposed to line-by-line). In addition, there is also a limit on the unilateral termination of enterprise agreements. 5. Strengthening Flexible Work Arrangements as well as the enforcement of such requests.
Indirect ImpactWe define indirect impacts as those that aren’t as obvious in their impact on wages but will likely impact a business’s employee expenses (here we include the potential for litigation). These provisions are as follows:
1. The expansion of equal remuneration orders (this was first set out in the Workplace Relations Act of 1996). This essentially means that the FWC (Fair Work Commissions) mandate is increased.2. Introduction of a positive duty on employers to prohibit sexual harassment and expand anti-discrimination measures. To explain further, a positive duty requires organisations to be proactive in addressing an issue, in layman’s terms and to put it simply, it increases the liability upon organisations if things go wrong. 3. A substantial expansion of scope for the FWC – Broader powers for the commission to intervene in and make workplace determinations as well as taking over the functions of the now to be abolished Australian Building and Construction Commission, Registered Organizations Commission. 4. Expansion of access to the small claims process – Small claims proceedings division in the FW Act from $20 000 to $100 000. Source: osano.com
From Bill to Act – Where to next?It is rather interesting that the government of the day miscalculated the contentiousness of the bill, given the significant nature of the changes to be made. Nevertheless, the latest news from the minister (Burke) is the inevitability of passage through the Senate (where it remains in the minority) with support from the Greens and the newly minted Senator for the ACT, David Pocock. The caveats?
Greens have now ascertained an enforceable right for parents to request unpaid parental leave, while it was the Senator from ACT that had the greatest impact. Below are Senator Pococks accomplishments:
Aside from this, as Burke revealed, Pocock also got himself a third plank of the deal that would create “a new statutory advisory committee in the lead-up to every budget, which will provide independent advice on the structural challenges on economic inclusion”. In addition, a review of jobseeker (increase) and cost of living relief (including housing affordability).
Our ViewWe agree with the Australian Chamber of Commerce’s suggestion that the changes will likely increase the chances of industrial action and strikes. It will also undoubtedly increase the costs for businesses, especially in industries where sector-wide provisions and multi-enterprise agreements are most prevalent including but not limited to the construction and mining sectors.
What is unclear but surely to have implications is the potential for an increasingly litigious environment especially given the introduction of positive duties and the expanded powers of the Fair Work Commission. This will be a space to watch. From a broader economic standpoint, the provisions themselves could negatively impact inflation, especially when wages are growing at their fastest pace in a decade. Companies that are able to (unless they are price takers such as miners) will likely also pass down their increased costs to the market. That said, aside from the timing, the provisions are pretty rational given the relatively stagnant wage growth over the past two decades and the need to increase participation rates, especially among females. Implications for the investorThis has added a new level of complexity to the investor; for one thing, assessing additional metrics in a security is required. Company culture and management capability will be essential to avoid and navigate an increasingly litigious environment and increased probability for industrial action. It is also important to assess the pricing power of individual businesses to see whether they have the ability to pass on cost increases down to the end consumer. To conclude – Bad for the bottom line. Bad Timing. Necessary in the Long-Run. |